Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Mar. 31, 2017 | Apr. 26, 2017 | |
Entity Registrant Name | ESTEE LAUDER COMPANIES INC | |
Entity Central Index Key | 1,001,250 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --06-30 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | Q3 | |
Common Class A | ||
Entity Common Stock, Shares Outstanding | 223,870,597 | |
Common Class B | ||
Entity Common Stock, Shares Outstanding | 143,961,737 |
CONSOLIDATED STATEMENTS OF EARN
CONSOLIDATED STATEMENTS OF EARNINGS - USD ($) shares in Millions, $ in Millions | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | |
CONSOLIDATED STATEMENTS OF EARNINGS | ||||
Net Sales | $ 2,857 | $ 2,657 | $ 8,930 | $ 8,616 |
Cost of Sales | 591 | 504 | 1,824 | 1,670 |
Gross Profit | 2,266 | 2,153 | 7,106 | 6,946 |
Operating Expenses | ||||
Selling, general and administrative | 1,780 | 1,754 | 5,522 | 5,445 |
Restructuring and other charges | 59 | 15 | 122 | 34 |
Total operating expenses | 1,839 | 1,769 | 5,644 | 5,479 |
Operating Income | 427 | 384 | 1,462 | 1,467 |
Interest expense | 28 | 18 | 71 | 52 |
Interest income and investment income, net | 8 | 4 | 19 | 10 |
Earnings before Income Taxes | 407 | 370 | 1,410 | 1,425 |
Provision for income taxes | 107 | 104 | 384 | 399 |
Net Earnings | 300 | 266 | 1,026 | 1,026 |
Net earnings attributable to noncontrolling interests | (2) | (1) | (6) | (5) |
Net Earnings Attributable to The Estee Lauder Companies Inc. | $ 298 | $ 265 | $ 1,020 | $ 1,021 |
Net earnings attributable to The Estee Lauder Companies Inc. per common share | ||||
Basic (in dollars per share) | $ 0.81 | $ 0.72 | $ 2.78 | $ 2.76 |
Diluted (in dollars per share) | $ 0.80 | $ 0.71 | $ 2.74 | $ 2.71 |
Weighted-average common shares outstanding | ||||
Basic (in shares) | 367 | 369.1 | 366.8 | 370.4 |
Diluted (in shares) | 372.3 | 375.6 | 372.7 | 376.9 |
Cash dividends declared per common share (in dollars per share) | $ 0.34 | $ 0.30 | $ 0.98 | $ 0.84 |
CONSOLIDATED STATEMENTS OF COMP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | ||||
Net earnings | $ 300 | $ 266 | $ 1,026 | $ 1,026 |
Other comprehensive income (loss): | ||||
Net unrealized investment gain (loss) | 2 | 7 | (9) | 3 |
Net derivative instrument gain (loss) | (51) | (36) | (17) | (32) |
Amounts included in net periodic benefit cost | 7 | 6 | 23 | 19 |
Translation adjustments | 64 | 71 | (49) | (52) |
Benefit (provision) for deferred income taxes on components of other comprehensive income | 17 | 11 | (2) | 4 |
Total other comprehensive income (loss) | 39 | 59 | (54) | (58) |
Comprehensive income (loss) | 339 | 325 | 972 | 968 |
Comprehensive (income) loss attributable to noncontrolling interests: | ||||
Net earnings | (2) | (1) | (6) | (5) |
Translation adjustments | 1 | (1) | ||
Total comprehensive (income) loss attributable to noncontrolling interests | (1) | (2) | (6) | (5) |
Comprehensive income (loss) attributable to The Estee Lauder Companies Inc. | $ 338 | $ 323 | $ 966 | $ 963 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions | Mar. 31, 2017 | Jun. 30, 2016 |
Current Assets | ||
Cash and cash equivalents | $ 1,139 | $ 914 |
Short-term investments | 701 | 469 |
Accounts receivable, net | 1,528 | 1,258 |
Inventory and promotional merchandise, net | 1,310 | 1,264 |
Prepaid expenses and other current assets | 294 | 320 |
Total current assets | 4,972 | 4,225 |
Property, Plant and Equipment, net | 1,576 | 1,583 |
Other Assets | ||
Long-term investments | 993 | 1,108 |
Goodwill | 1,942 | 1,228 |
Other intangible assets, net | 1,337 | 344 |
Other assets | 625 | 735 |
Total other assets | 4,897 | 3,415 |
Total assets | 11,445 | 9,223 |
Current Liabilities | ||
Current debt | 519 | 332 |
Accounts payable | 597 | 717 |
Other accrued liabilities | 1,744 | 1,632 |
Total current liabilities | 2,860 | 2,681 |
Noncurrent Liabilities | ||
Long-term debt | 3,377 | 1,910 |
Other noncurrent liabilities | 1,073 | 1,045 |
Total noncurrent liabilities | 4,450 | 2,955 |
Contingencies (Note 10) | ||
Equity | ||
Common stock, $.01 par value; Class A shares authorized: 1,300,000,000 at March 31, 2017 and June 30, 2016; shares issued: 428,868,500 at March 31, 2017 and 424,109,008 at June 30, 2016; Class B shares authorized: 304,000,000 at March 31, 2017 and June 30, 2016; shares issued and outstanding: 143,961,737 at March 31, 2017 and 144,770,237 at June 30, 2016 | 6 | 6 |
Paid-in capital | 3,462 | 3,161 |
Retained earnings | 8,350 | 7,693 |
Accumulated other comprehensive loss | (599) | (545) |
Stockholders' equity before treasury stock | 11,219 | 10,315 |
Less: Treasury stock, at cost; 205,125,233 Class A shares at March 31, 2017 and 201,119,435 Class A shares at June 30, 2016 | (7,100) | (6,743) |
Total stockholders' equity - The Estee Lauder Companies Inc. | 4,119 | 3,572 |
Noncontrolling interests | 16 | 15 |
Total equity | 4,135 | 3,587 |
Total liabilities and equity | $ 11,445 | $ 9,223 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Mar. 31, 2017 | Jun. 30, 2016 |
Common Class A | ||
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 1,300,000,000 | 1,300,000,000 |
Common stock, shares issued | 428,868,500 | 424,109,008 |
Treasury stock, shares | 205,125,233 | 201,119,435 |
Common Class B | ||
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 304,000,000 | 304,000,000 |
Common stock, shares issued | 143,961,737 | 144,770,237 |
Common stock, shares outstanding | 143,961,737 | 144,770,237 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Millions | 9 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Cash Flows from Operating Activities | ||
Net earnings | $ 1,026 | $ 1,026 |
Adjustments to reconcile net earnings to net cash flows from operating activities: | ||
Depreciation and amortization | 337 | 305 |
Deferred income taxes | (84) | (51) |
Noncash stock-based compensation | 175 | 147 |
Excess tax benefits from stock-based compensation arrangements | (37) | (18) |
Net (gain) loss on disposal of property, plant and equipment | (4) | 10 |
Noncash restructuring and other charges | 3 | 15 |
Pension and post-retirement benefit expense | 59 | 53 |
Pension and post-retirement benefit contributions | (19) | (19) |
Change in fair value of contingent consideration | 1 | 16 |
Equity investment income | (17) | (2) |
Changes in operating assets and liabilities: | ||
Increase in accounts receivable, net | (242) | (251) |
Decrease in inventory and promotional merchandise, net | 59 | 53 |
Increase in other assets, net | (30) | (82) |
Decrease in accounts payable | (168) | (46) |
Increase in other accrued and noncurrent liabilities | 193 | 160 |
Net cash flows provided by operating activities | 1,252 | 1,316 |
Cash Flows from Investing Activities | ||
Capital expenditures | (316) | (334) |
Payments for acquired businesses, net of cash acquired | (1,690) | (101) |
Proceeds from disposition of investments | 955 | 925 |
Purchases of investments | (1,067) | (1,587) |
Proceeds from sale of property, plant and equipment | 12 | |
Net cash flows used for investing activities | (2,106) | (1,097) |
Cash Flows from Financing Activities | ||
Proceeds of current debt, net | 194 | 286 |
Proceeds from issuance of long-term debt, net | 1,498 | |
Debt issuance costs | (10) | |
Repayments and redemptions of long-term debt | (4) | (6) |
Net proceeds from stock-based compensation transactions | 94 | 55 |
Excess tax benefits from stock-based compensation arrangements | 37 | 18 |
Payments to acquire treasury stock | (363) | (703) |
Dividends paid to stockholders | (361) | (312) |
Payments to noncontrolling interest holders for dividends | (2) | (3) |
Net cash flows provided by (used for) financing activities | 1,083 | (665) |
Effect of Exchange Rate Changes on Cash and Cash Equivalents | (4) | (19) |
Net Increase (Decrease) in Cash and Cash Equivalents | 225 | (465) |
Cash and Cash Equivalents at Beginning of Period | 914 | 1,021 |
Cash and Cash Equivalents at End of Period | $ 1,139 | $ 556 |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended |
Mar. 31, 2017 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. 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, 2016. 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. Certain significant accounting policies that contain subjective management estimates and assumptions include those related to revenue recognition, inventory, pension and other post-retirement benefit costs, goodwill, other intangible assets and long-lived assets, and income taxes. Descriptions of these 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, 2016. Management evaluates its 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 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 weighted-average rates of exchange for the period. Unrealized translation gains (losses) reported as cumulative translation adjustments through other comprehensive income (loss) (“OCI”) attributable to The Estée Lauder Companies Inc. amounted to $67 million and $72 million, net of tax, during the three months ended March 31, 2017 and 2016, respectively, and $(53) million and $(57) million, net of tax, during the nine months ended March 31, 2017 and 2016, respectively. 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. Accordingly, the Company categorizes these instruments as entered into for purposes other than trading. The accompanying consolidated statements of earnings include net exchange gains on foreign currency transactions of $8 million and $11 million during the three months ended March 31, 2017 and 2016, respectively, and $14 million and $16 million during the nine months ended March 31, 2017 and 2016, respectively. Accounts Receivable Accounts receivable is stated net of the allowance for doubtful accounts and customer deductions totaling $23 million and $24 million as of March 31, 2017 and June 30, 2016, respectively. 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 and does not believe it is exposed significantly to any undue concentration of credit risk. The Company’s largest customer sells products primarily within the United States and accounted for $230 million, or 8%, and $248 million, or 9%, of the Company’s consolidated net sales for the three months ended March 31, 2017 and 2016, respectively, and $763 million, or 9%, and $840 million, or 10%, of the Company’s consolidated net sales for the nine months ended March 31, 2017 and 2016, respectively. This customer accounted for $205 million, or 13%, and $164 million, or 13%, of the Company’s accounts receivable at March 31, 2017 and June 30, 2016, respectively. Inventory and Promotional Merchandise Inventory and promotional merchandise, net consists of: March 31 June 30 (In millions) 2017 2016 Raw materials $ $ Work in process Finished goods Promotional merchandise $ $ Property, Plant and Equipment March 31 June 30 (In millions) 2017 2016 Assets (Useful Life) Land $ $ Buildings and improvements (10 to 40 years) Machinery and equipment (3 to 10 years) Computer hardware and software (4 to 15 years) Furniture and fixtures (5 to 10 years) Leasehold improvements Less accumulated depreciation and amortization ) ) $ $ The cost of assets related to projects in progress of $202 million and $186 million as of March 31, 2017 and June 30, 2016, respectively, is included in their respective asset categories above. Depreciation and amortization of property, plant and equipment was $106 million and $100 million during the three months ended March 31, 2017 and 2016, respectively, and $316 million and $295 million during the nine months ended March 31, 2017 and 2016, 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. Other Accrued Liabilities Other accrued liabilities consist of the following: March 31 June 30 (In millions) 2017 2016 Advertising, merchandising and sampling $ $ Employee compensation Payroll and other taxes Other $ $ Income Taxes The effective rate for income taxes was 26.3% and 28.0% for the three months ended March 31, 2017 and 2016, respectively, and 27.2% and 28.0% for the nine months ended March 31, 2017 and 2016, respectively. The decrease in the effective tax rate for each of the three-month and nine-month periods ended March 31, 2017 was primarily attributable to income tax reserve adjustments. As of March 31, 2017 and June 30, 2016, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $76 million and $82 million, respectively. The total amount of unrecognized tax benefits at March 31, 2017 that, if recognized, would affect the effective tax rate was $49 million. During the three months ended March 31, 2017, the Company recognized a gross interest and penalty benefit of $1 million in the accompanying consolidated statement of earnings. There was a total gross accrued interest and penalty expense during the nine months ended March 31, 2017 that was de minimis. The total gross accrued interest and penalties in the accompanying consolidated balance sheets at March 31, 2017 and June 30, 2016 totaled $18 million at the end of each respective period. On the basis of the information available as of March 31, 2017, it is reasonably possible that the total amount of unrecognized tax benefits could decrease in a range of $5 million to $10 million within the next twelve months as a result of projected resolutions of global tax examinations and controversies and a potential lapse of the applicable statutes of limitations. Recently Issued Accounting Standards Pension-related Costs In March 2017, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that amends how companies present net periodic benefit cost in the income statement and balance sheet relating to defined benefit pension and/or other postretirement benefit plans. Within the income statement, the new guidance requires companies to report the service cost component within operating expenses and report the other components of net periodic benefit cost below operating income (if one is reported). In addition, within the balance sheet, the guidance changes the components of the pension cost eligible for capitalization to the service cost component only (e.g., as a cost of internally manufactured inventory or a self-constructed asset). Effective for the Company — Fiscal 2019 first quarter, with early adoption permitted as of the first interim period in fiscal 2018. The guidance must be applied (a) retrospectively as it pertains to the income statement classification of the components of net periodic benefit cost and (b) prospectively as it pertains to future capitalization of service costs. Impact on consolidated financial statements — The Company is currently evaluating the timing of adoption and impact of applying this guidance on its consolidated financial statements. Goodwill In January 2017, FASB issued authoritative guidance which simplifies the subsequent measurement of goodwill by eliminating the second step from the quantitative goodwill impairment test. The single quantitative step test requires companies to compare the fair value of a reporting unit with its carrying amount and record an impairment charge for the amount that the carrying amount exceeds the fair value, up to the total amount of goodwill allocated to that reporting unit. The Company will continue to have the option of first performing a qualitative assessment to determine whether it is necessary to perform the quantitative goodwill impairment test. Effective for the Company — Fiscal 2021 first quarter, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Impact on consolidated financial statements — The impact of applying this guidance will be evaluated by the Company for future interim and annual impairment tests. Income Taxes In October 2016, the FASB issued authoritative guidance that changes the way companies account for income taxes relating to intra-entity transfers of assets other than inventory. This new guidance requires that an entity recognize the income tax consequences of an intra-entity transfer of an asset other than inventory in the period in which the transfer takes place. Under current guidance, recognition of current and deferred income taxes of an intra-entity asset transfer is prohibited until the asset has been sold to an outside party. This new guidance may affect consolidated earnings where the intra-entity transfer of an asset other than inventory occurs between entities in jurisdictions with different tax rates. This guidance must be adopted using a modified retrospective approach with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Effective for the Company — Fiscal 2019 first quarter, with early adoption permitted. Impact on consolidated financial statements — The Company is currently evaluating the impact of applying this guidance. Measurement of Credit Losses on Financial Instruments In June 2016, the 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 new 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, as well as additional disclosures. In general, this guidance will require modified retrospective adoption for all outstanding instruments that fall under this guidance. Effective for the Company — Fiscal 2021 first quarter. Impact on consolidated financial statements — The Company is currently evaluating the impact of applying this guidance on its financial instruments, such as accounts receivable and short- and long-term investments. Compensation - Stock Compensation In March 2016, the FASB issued authoritative guidance that changes the way companies account for certain aspects of share-based payments to employees. This new guidance requires that all excess tax benefits and tax deficiencies related to share-based compensation awards be recorded as income tax expense or benefit in the income statement. In addition, companies are required to treat the tax effects of exercised or vested awards as discrete items in the period that they occur. This guidance also permits an employer to withhold up to the maximum statutory withholding rates in a jurisdiction without triggering liability classification, allows companies to elect to account for forfeitures as they occur, and provides requirements for the cash flow classification of cash paid by an employer when directly withholding shares for tax-withholding purposes and for the classification of excess tax benefits. The new guidance prescribes different transition methods for the various provisions. Effective for the Company — Fiscal 2018 first quarter, with early adoption permitted. Impact on consolidated financial statements — The Company will adopt this guidance in its fiscal 2018 first quarter. For the fiscal years ended June 30, 2016 and 2015, the Company recognized $22 million and $47 million of excess tax benefits, respectively, directly in its consolidated statements of equity. These amounts may or may not be representative of future amounts to be recognized in the income statement upon the adoption of this new standard, as the impact of the adoption will be primarily dependent on the timing and intrinsic value of stock-based compensation awards, employee exercise behavior and applicable tax rates. Leases In February 2016, the FASB issued authoritative guidance that requires lessees to account for most leases on their balance sheets with the liability being equal to the present value of the lease payments. The right-of-use asset will be based on the lease liability adjusted for certain costs such as direct costs. Lease expense will be recognized similar to current accounting guidance with operating leases resulting in a straight-line expense, and financing leases resulting in a front-loaded expense similar to the current accounting for capital leases. This guidance must be adopted using a modified retrospective transition approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, and provides for certain practical expedients. Effective for the Company — Fiscal 2020 first quarter, with early adoption permitted. Impact on consolidated financial statements — The Company currently has an implementation team in place that is performing a comprehensive evaluation of the impact of the adoption of this guidance. While the Company has not completed its evaluation, it believes the adoption of this standard will have a significant impact on its Consolidated Balance Sheets. Revenue from Contracts with Customers In May 2014, the FASB issued authoritative guidance that defines how companies should report revenues from contracts with customers. The standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It provides companies with a single comprehensive five-step principles-based model to use in accounting for revenue and supersedes current revenue recognition requirements, including most industry-specific and transaction-specific revenue guidance. In March 2016, the FASB issued authoritative guidance that amended the principal versus agent guidance in its new revenue recognition standard. These amendments do not change the key aspects of the principal versus agent guidance, including the definition that an entity is a principal if it controls the good or service prior to it being transferred to a customer, but the amendments clarify the implementation guidance related to the considerations that must be made during the contract evaluation process. In April 2016, the FASB issued authoritative guidance that amended the new standard to clarify the guidance on identifying performance obligations and accounting for licenses of intellectual property. In May 2016, the FASB issued authoritative guidance that clarified certain terms, guidance and disclosure requirements during the transition period related to completed contracts and contract modifications. In addition, the FASB provided clarification on the concept of collectability, the calculation of the fair value of noncash consideration and the presentation of sales and other similar taxes. In May 2016, the FASB issued authoritative guidance to reflect the Securities and Exchange Commission Staff’s rescission of their prior comments that covered, among other things, accounting for shipping and handling costs and accounting for consideration given by a vendor to a customer. In December 2016, the FASB issued authoritative guidance that amends various aspects of the new standard to clarify certain terms, guidance and disclosure requirements. In particular, the guidance addresses disclosure requirements for remaining performance obligations, impairment testing for contract costs and accrual of advertising costs, as well as clarifies several examples. Effective for the Company — Fiscal 2019, with early adoption permitted. An entity is permitted to apply the foregoing guidance retrospectively to all prior periods presented, with certain practical expedients, or apply the requirements in the year of adoption, through a cumulative adjustment. Impact on consolidated financial statements — The Company will apply all of this new guidance when they become effective in fiscal 2019 and has not yet selected a transition method. The Company currently has an implementation team in place that is performing a comprehensive evaluation of the impact of adoption and assessing the impact on third-party customer arrangements and the Company’s customer loyalty programs. No other recently issued accounting pronouncements are expected to have a material impact on the Company’s consolidated financial statements. |
INVESTMENTS
INVESTMENTS | 9 Months Ended |
Mar. 31, 2017 | |
INVESTMENTS | |
INVESTMENTS | NOTE 2 — INVESTMENTS Gains and losses recorded in accumulated OCI (“AOCI”) related to the Company’s available-for-sale investments as of March 31, 2017 were as follows: (In millions) Cost Gross Gross Fair Value U.S. government and agency securities $ $ $ ) $ Foreign government and agency securities — ) Corporate notes and bonds — ) Time deposits — — Other securities — Total $ $ $ ) $ Gains and losses recorded in AOCI related to the Company’s available-for-sale investments as of June 30, 2016 were as follows: (In millions) Cost Gross Gross Fair Value U.S. government and agency securities $ $ $ — $ Foreign government and agency securities — — Corporate notes and bonds — Time deposits — — Other securities — Total $ $ $ — $ The following table presents the Company’s available-for-sale securities by contractual maturity as of March 31, 2017: (In millions) Cost Fair Value Due within one year $ $ Due after one through five years $ $ The following table presents the fair market value of the Company’s investments with gross unrealized losses that are not deemed to be other-than temporarily impaired as of March 31, 2017: In a Loss Position for Less Than 12 In a Loss Position for More Than 12 (In millions) Fair Value Gross Fair Value Gross Available-for-sale securities $ $ ) $ $ — There were no gross gains or losses realized on sales of investments included in the consolidated statements of earnings for the three and nine months ended March 31, 2017 and 2016. The Company utilizes the first-in, first-out method to determine the cost of the security sold. Sales proceeds from investments classified as available-for-sale were $200 million and $120 million for the three months ended March 31, 2017 and 2016, respectively, and $532 million and $502 million for the nine months ended March 31, 2017 and 2016, respectively. |
ACQUISITION OF BUSINESSES
ACQUISITION OF BUSINESSES | 9 Months Ended |
Mar. 31, 2017 | |
ACQUISITION OF BUSINESSES | |
ACQUISITION OF BUSINESSES | NOTE 3 — ACQUISITION OF BUSINESSES On December 19, 2016, the Company acquired 100% of Too Faced, a makeup brand, for approximately $1.5 billion. This acquisition is expected to complement the Company’s distribution in the specialty-multi channel. The amount paid at closing was funded by cash on hand including the proceeds from the issuance of commercial paper. In February 2017, the Company issued long-term debt to refinance a portion of the outstanding commercial paper. See Note 6 — Debt. The purchase price recorded is provisional pending final working capital adjustments and completion of the final valuation. The results of operations of Too Faced are included in the Company’s consolidated financial statements commencing on the acquisition date. The Company has recorded an allocation of the purchase price to the Company’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair value at the acquisition date. The excess of the purchase price over the fair value of the net tangible and intangible assets was recorded as goodwill, which includes value associated with assembled workforce. The calculation of purchase price and purchase price allocation is as follows: (In millions, unaudited) Cash $ Accounts receivable (1) Inventory Other current assets Property, plant and equipment Intangible assets Goodwill Total assets acquired Accounts payable Other accrued liabilities Deferred income taxes Total liabilities assumed Total purchase price $ (1) Represents the gross amount of trade receivables of $44 million, net of estimated customer deductions of $4 million. For the three and nine months ended March 31, 2017, the Company’s statements of earnings included approximately $87 million and $100 million, respectively, of net sales and $(5) million and $(10) million, net of tax, respectively, of net earnings (loss), inclusive of acquisition-related costs, related to Too Faced. Acquisition-related costs, which primarily include financial advisory, accounting and legal fees, in the amount of $9 million for the nine months ended March 31, 2017 are included in Selling, general and administrative expenses in the accompanying consolidated statements of earnings. On November 14, 2016, the Company also acquired 100% of BECCA, a makeup brand. Pro forma results of operations reflecting the Too Faced and BECCA acquisitions have not been presented, as the impact on the Company’s consolidated financial results would not have been material. |
GOODWILL AND OTHER INTANGIBLE A
GOODWILL AND OTHER INTANGIBLE ASSETS | 9 Months Ended |
Mar. 31, 2017 | |
GOODWILL AND OTHER INTANGIBLE ASSETS | |
GOODWILL AND OTHER INTANGIBLE ASSETS | NOTE 4 — GOODWILL AND OTHER INTANGIBLE ASSETS As previously discussed in Note 3 — Acquisition of Businesses, during the nine months ended March 31, 2017, the Company acquired Too Faced and BECCA, which included the addition of goodwill of $712 million, amortizable intangible assets of $394 million (with a weighted-average amortization period of approximately 10 years) and non-amortizable intangible assets of $623 million. Goodwill associated with the acquisitions is primarily attributable to the future revenue growth opportunities associated with additional share in the makeup category. As such, the goodwill has been allocated to the Company’s makeup product category. Approximately $265 million of goodwill recorded in connection with certain of these acquisitions is expected to be deductible for tax purposes. These amounts are provisional pending final working capital adjustments and completion of the final valuations. During the nine months ended March 31, 2017, the Company recognized $8 million of goodwill associated with the continuing earn-out obligations related to the acquisition of the Bobbi Brown brand. The intangible assets acquired in connection with the acquisitions of Too Faced and BECCA are classified as Level 3 in the fair value hierarchy. The estimate of the fair values of acquired amortizable intangible assets was determined using a multi-period excess earnings income approach. Fair value was determined under this approach by estimating future cash flows over multiple periods, as well as a terminal value, and discounting such cash flows at a rate of return that reflects the relative risk of the cash flows. The estimate of the fair values of acquired intangible assets not subject to amortization was determined using an income approach, specifically the relief-from-royalty method. This method assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to obtain the rights to use the comparable asset. The following table presents goodwill by product category and the related change in the carrying amount: (In millions) Skin Care Makeup Fragrance Hair Care Total Balance as of June 30, 2016 Goodwill $ $ $ $ $ Accumulated impairments ) — — ) ) Goodwill acquired during the period — — — Translation adjustments — — ) — ) — ) — Balance as of March 31, 2017 Goodwill Accumulated impairments ) — — ) ) $ $ $ $ $ Other intangible assets consist of the following: March 31, 2017 June 30, 2016 (In millions) Gross Accumulated Total Net Gross Accumulated Total Net Amortizable intangible assets: Customer lists and other $ $ $ $ $ $ License agreements — — $ $ $ $ Non-amortizable intangible assets: Trademarks and other Total intangible assets $ $ The aggregate amortization expense related to amortizable intangible assets was $13 million and $4 million for the three months ended March 31, 2017 and 2016, respectively, and was $22 million and $12 million for the nine months ended March 31, 2017 and 2016, respectively. The estimated aggregate amortization expense for the remainder of fiscal 2017 and for each of fiscal 2018 to 2021 is $13 million, $51 million, $51 million, $44 million and $43 million, respectively. |
CHARGES ASSOCIATED WITH RESTRUC
CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES | 9 Months Ended |
Mar. 31, 2017 | |
CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES | |
CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES | NOTE 5 — CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES Leading Beauty Forward Background In May 2016, the Company announced a multi-year initiative (“Leading Beauty Forward” or “LBF”) to build on its strengths and better leverage its cost structure to free resources for investment to continue its growth momentum. LBF is designed to enhance the Company’s go-to-market capabilities, reinforce its leadership in global prestige beauty and continue creating sustainable value. The Company plans to approve specific initiatives under LBF through fiscal 2019 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 complete those initiatives through fiscal 2021. Inclusive of charges recorded from inception through March 31, 2017, the Company expects that LBF will result in related restructuring and other charges totaling between $600 million and $700 million before taxes. Restructuring actions to be taken over the duration of LBF involve the redesigning, resizing and reorganization of select corporate functions and go-to-market structures to improve effectiveness and create cost efficiencies in support of increased investment in growth drivers. As the Company continues to grow, it is important to more efficiently support its diverse portfolio of brands, channels and geographies in the rapidly evolving prestige beauty environment. The initiatives being evaluated include the creation of a shared-services structure in existing or lower-cost locations, either using Company resources or through external service providers. The Company also believes that decision-making in key areas of innovation, marketing and digital communications should be moved closer to the consumer to increase speed and local relevance. In connection with LBF, at this time, the Company estimates a net reduction over the duration of LBF in the range of approximately 900 to 1,200 positions globally, which is about 2.5% of its current workforce. This reduction takes into account the elimination of some positions, retraining and redeployment of certain employees and investment in new positions in key areas. Program-to-Date Approvals Of the $600 million to $700 million restructuring and other charges expected to be incurred, total cumulative charges approved by the Company through March 31, 2017 were: Sales Returns Operating Expenses (In millions) (included in Cost of Sales Restructuring Other Total Approval Period Fiscal 2016 $ $ (1) $ $ (1) $ Nine months ended March 31, 2017 Cumulative through March 31, 2017 $ $ $ $ $ (1) Reflects approximately $25 million of supply chain consulting and professional services expected to be recognized in Cost of Sales, which were previously classified under Operating Expenses. Included in the above table, cumulative restructuring initiatives approved by the Company through March 31, 2017 by major cost type were: (In millions) Employee- Asset- Contract Other Exit Total Approval Period Fiscal 2016 $ $ $ $ $ Nine months ended March 31, 2017 — Cumulative through March 31, 2017 $ $ $ $ $ Specific actions taken during the nine months ended March 31, 2017 included: · Optimize Select Corporate Functions - The Company continued to approve initiatives to realign and optimize its organization to better leverage scale, improve productivity, reduce complexity and achieve cost savings across various functions, including research and development, global information systems and legal. 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. The Company also approved consulting and other professional services related to the design of future structures, processes and technologies of certain corporate functions and, to a lesser extent, costs for training and recruitment related to new capabilities. The Company also approved other charges to support the LBF Project Management Office (“PMO”). The approved charges primarily consist of internal costs for employees dedicated solely to project management activities, with a focus on project integration, program communications and change management. The future design of certain corporate functions includes the creation of a shared-services structure, either using Company resources or through external service providers. As part of the future service delivery model in the finance organization, the Company approved the initial phase to transition select transactional activities to an external service provider, which is expected to result in other charges for implementation, project and consulting costs. · Optimize Corporate and Region Market Support Structures - The Company continued to approve initiatives to enhance its go-to-market support structures and achieve synergies across certain geographic regions, brands and channels. These initiatives are primarily intended to shift certain areas of focus from traditional to social and digital marketing strategies to provide enhanced consumer experience, as well as to support expanded omnichannel opportunities. 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. The Company also approved consulting and other professional services related to the design of future structures, processes and technologies and, to a lesser extent, other costs for recruitment and training related to new capabilities. In addition, the Company approved initiatives to enhance consumer engagement strategies across certain channels in Europe, which is expected to result in product returns. · Optimize Supply Chain - The Company approved certain activities related to an initiative to generate distribution capabilities and efficiencies through an external service provider. The Company also approved certain activities related to initiatives to enhance strategic sourcing capabilities for direct procurement activities. Collectively, 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. To enable the implementation of these initiatives, other charges were approved for LBF PMO costs, professional fees and asset write-offs. The Company also continued to approve certain activities related to initiatives to redesign transportation management activities, to enhance its Quality Assurance organization, and to improve the organizational design of manufacturing and engineering activities related to certain product lines. To enable the implementation of these initiatives, other charges were approved for consulting fees and, to a lesser extent, project management costs. Program-to-Date Restructuring and Other Charges 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 LBF were: Sales Returns Operating Expenses (In millions) (included in Cost of Sales Restructuring Other Total Fiscal 2016 $ $ — $ $ $ Nine months ended March 31, 2017 Cumulative through March 31, 2017 $ $ $ $ $ Charges recorded during the nine months ended March 31, 2017 included returns (and the related cost of sales) and inventory write-offs related to the exit of certain businesses in select markets and channels of distribution. Cost of sales also included consulting and professional services incurred, primarily related to the design of supply chain planning activities. Other charges associated with LBF initiatives primarily reflected consulting and other professional services related to the design of future structures, processes and technologies of certain corporate functions and go-to-market activities and, to a lesser extent, costs to establish and maintain the LBF PMO. Other charges are included in Restructuring and other charges in the accompanying consolidated statements of earnings. Included in the above table, aggregate restructuring charges by major cost type were: (In millions) Employee- Asset- Contract Other Exit Total Fiscal 2016 $ $ $ — $ — $ Nine months ended March 31, 2017 — Charges recorded through March 31, 2017 $ $ $ $ — $ Accrued restructuring charges from program inception through March 31, 2017 were: (In millions) Employee- Asset- Contract Other Exit Total Charges $ $ $ — $ — $ Noncash asset write-offs — ) — — ) Translation adjustments ) — — — ) Balance at June 30, 2016 — — — Charges — Cash payments ) — ) — ) Noncash asset write-offs — ) — — ) Translation and other adjustments ) — — — ) Balance at March 31, 2017 $ $ — $ $ — $ Restructuring charges for employee-related costs in fiscal 2017 are net of adjustments to the accrual estimate for certain employees who either resigned or transferred to other existing positions within the Company. Accrued restructuring charges at March 31, 2017 are expected to result in cash expenditures funded from cash provided by operations of approximately $23 million, $57 million, $32 million and $2 million in fiscal 2017, 2018, 2019 and 2020, respectively. Global Technology Infrastructure In October 2015, the Company approved plans to transform and modernize its global technology infrastructure (“GTI”) to fundamentally change the way the Company delivers information technology services internally (such initiative, the “GTI Restructuring”). As part of the GTI Restructuring, the Company transitioned its GTI from Company-owned assets to a primarily vendor-owned, cloud-based model where the Company pays for services as they are used. The Company incurred restructuring charges of $12 million and $29 million for the three and nine months ended March 31, 2016, respectively, reflecting contract terminations, asset write-offs and employee-related costs. Other charges in connection with the implementation of this initiative were $3 million and $5 million for the three and nine months ended March 31, 2016, respectively, primarily related to consulting services. These charges are included in Restructuring and other charges in the accompanying consolidated statements of earnings. The implementation of the GTI Restructuring was substantially completed during fiscal 2016. |
DEBT
DEBT | 9 Months Ended |
Mar. 31, 2017 | |
DEBT | |
DEBT | NOTE 6 — DEBT In February 2017, the Company completed a public offering of $500 million aggregate principal amount of its 1.80% Senior Notes due February 7, 2020 (the “2020 Senior Notes”), $500 million aggregate principal amount of its 3.15% Senior Notes due March 15, 2027 (the “2027 Senior Notes”) and $500 million aggregate principal amount of its 4.15% Senior Notes due March 15, 2047 (the “2047 Senior Notes”). The Company used proceeds from this offering for general corporate purposes, including to repay outstanding commercial paper as it matured and to refinance its $300 million aggregate principal amount of 5.55% Senior Notes due May 15, 2017 when it becomes due. These recently issued notes are summarized as follows: Notes Issue Date Price Yield Unamortized Interest rate Debt Issuance Semi-annual interest ($ in millions) 2020 Senior Notes February 2017 % % $ — $ ) $ February 7/August 7 2027 Senior Notes (1) February 2017 — N/A March 15/September 15 2047 Senior Notes (2) February 2017 ) N/A March 15/September 15 (1) In November 2016, in anticipation of the issuance of the 2027 Senior Notes, the Company entered into a series of treasury lock agreements on a notional amount totaling $450 million at a weighted-average all-in rate of 2.37%. The treasury lock agreements were settled upon the issuance of the new debt, and the Company recognized a gain in OCI of $2 million that is being amortized to interest expense over the life of the 2027 Senior Notes. As a result of the treasury lock agreements, the debt discount and debt issuance costs, the effective interest rate on the 2027 Senior Notes will be 3.18% over the life of the debt. (2) In November 2016, in anticipation of the issuance of the 2047 Senior Notes, the Company entered into a series of treasury lock agreements on a notional amount totaling $350 million at a weighted-average all-in rate of 3.01%. The treasury lock agreements were settled upon the issuance of the new debt, and the Company recognized a gain in OCI of $3 million that is being amortized to interest expense over the life of the 2047 Senior Notes. As a result of the treasury lock agreements, the debt discount and debt issuance costs, the effective interest rate on the 2047 Senior Notes will be 4.17% over the life of the debt. In February 2017, the Company decreased the size of its commercial paper program, under which it may issue commercial paper in the United States, to $1.5 billion. The commercial paper program had previously been increased to $3 billion in November 2016 to finance the Company’s second quarter acquisitions. As of March 31, 2017, the Company had $195 million of commercial paper outstanding that matured through April 2017, which the Company refinanced as it matured. In February 2017, the Company terminated its undrawn $1.5 billion senior unsecured credit agreement, which was entered into November 2016 and provided a 364 day revolving credit facility for the Company’s general corporate purposes. In October 2016, the Company replaced its undrawn $1.0 billion unsecured revolving credit facility that was set to expire on July 15, 2020 (the “Prior Facility”) with a new $1.5 billion senior unsecured revolving credit facility that expires on October 3, 2021, unless extended for up to two additional years in accordance with the terms set forth in the agreement (the “New Facility”). The New Facility may be used for general corporate purposes. Up to the equivalent of $500 million of the New Facility is available for multi-currency loans. Interest rates on borrowings under the New Facility will be based on prevailing market interest rates in accordance with the agreement. The Company incurred costs of approximately $1 million to establish the New Facility, which will be amortized over the term of the facility. The New Facility has an annual fee of approximately $1 million, payable quarterly, based on the Company’s current credit ratings. The New Facility contains a cross-default provision whereby a failure to pay other material financial obligations in excess of $175 million (after grace periods and absent a waiver from the lenders) would result in an event of default and the acceleration of the maturity of any outstanding debt under this facility. At March 31, 2017, no borrowings were outstanding under the New Facility. |
DERIVATIVE FINANCIAL INSTRUMENT
DERIVATIVE FINANCIAL INSTRUMENTS | 9 Months Ended |
Mar. 31, 2017 | |
DERIVATIVE FINANCIAL INSTRUMENTS | |
DERIVATIVE FINANCIAL INSTRUMENTS | NOTE 7 — 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 also enters into foreign currency forward contracts and may use option contracts, not designated as hedging instruments, to mitigate the change in fair value of specific assets and liabilities on the balance sheet. 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, how the hedging instruments’ effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method of measuring ineffectiveness. This process includes linking all derivatives to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the inception of the hedges and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. If it is determined that a derivative is not highly effective, or that it has ceased to be a highly effective hedge, the Company will be required to discontinue hedge accounting with respect to that derivative prospectively. The fair values of the Company’s derivative financial instruments included in the consolidated balance sheets are presented as follows: Asset Derivatives Liability Derivatives Fair Value (1) Fair Value (1) (In millions) Balance Sheet March 31 June 30 Balance Sheet March 31 June 30 Derivatives Designated as Hedging Instruments Foreign currency forward contracts Prepaid expenses and other current assets $ $ Other accrued liabilities $ $ Interest rate swap contracts Prepaid expenses and other current assets — Other accrued liabilities — Total Derivatives Designated as Hedging Instruments Derivatives Not Designated as Hedging Instruments Foreign currency forward contracts Prepaid expenses and other current assets Other accrued liabilities Total Derivatives $ $ $ $ (1) See Note 8 — Fair Value Measurements for further information about how the fair value of derivative assets and liabilities are determined. The amounts of the gains and losses related to the Company’s derivative financial instruments designated as hedging instruments are presented as follows: Amount of Gain or (Loss) Location of Gain or Amount of Gain or (Loss) (1) Three Months Ended from AOCI into Three Months Ended (In millions) 2017 2016 (Effective Portion) 2017 2016 Derivatives in Cash Flow Hedging Relationships Foreign currency forward contracts $ ) $ ) Cost of sales $ $ Selling, general and administrative Interest rate-related derivatives ) — Interest expense — Total Derivatives $ ) $ ) $ $ (1) The amount of gain (loss) recognized in earnings related to the amount excluded from effectiveness testing was $2 million and $(3) million for the three months ended March 31, 2017 and 2016, respectively. There was no gain (loss) recognized in earnings related to the ineffective portion of the hedging relationships for the three months ended March 31, 2017 and March 31, 2016. Amount of Gain or (Loss) Location of Gain or Amount of Gain or (Loss) (1) Nine Months Ended from AOCI into Nine Months Ended (In millions) 2017 2016 (Effective Portion) 2017 2016 Derivatives in Cash Flow Hedging Relationships Foreign currency forward contracts $ $ Cost of sales $ $ Selling, general and administrative Interest rate-related derivatives — Interest Expense Total Derivatives $ $ $ $ (1) The amount of gain (loss) recognized in earnings related to the amount excluded from effectiveness testing was de minimis and $(2) million for the nine months ended March 31, 2017 and 2016, respectively. The amount of gain recognized in earnings related to the ineffective portion of the hedging relationships was de minimis for the nine months ended March 31, 2017 and 2016. Amount of Gain or (Loss) (1) Location of Gain or (Loss) Three Months Ended Nine Months Ended (In millions) Derivatives 2017 2016 2017 2016 Derivatives in Fair Value Hedging Relationships Interest rate swap contracts Interest expense $ ) $ $ ) $ (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. The amounts of the gains and losses related to the Company’s derivative financial instruments not designated as hedging instruments are presented as follows: Amount of Gain or (Loss) Location of Gain or (Loss) Three Months Ended Nine Months Ended (In millions) Derivatives 2017 2016 2017 2016 Derivatives Not Designated as Hedging Instruments Foreign currency forward contracts Selling, general and administrative $ ) $ $ ) $ Cash-Flow Hedges The Company enters into foreign currency forward contracts to hedge anticipated transactions, as well as 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 costs and on the cash flows that the Company receives from foreign subsidiaries. The majority of foreign currency forward contracts are denominated in currencies of major industrial countries. The Company may also enter into foreign currency option contracts to hedge anticipated transactions where there is a high probability that anticipated exposures will materialize. The foreign currency forward contracts entered into to hedge anticipated transactions have been designated as cash-flow hedges and have varying maturities through the end of March 2019. Hedge effectiveness of foreign currency forward contracts is based on a hypothetical derivative methodology and excludes the portion of fair value attributable to the spot-forward difference which is recorded in current-period earnings. Hedge effectiveness of foreign currency option contracts is based on a dollar offset methodology. 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. The ineffective portion of both foreign currency forward and interest rate derivatives is recorded in current-period earnings. For hedge contracts that are no longer deemed highly effective, hedge accounting is discontinued and gains and losses in AOCI are reclassified to earnings 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 earnings. As of March 31, 2017, the Company’s foreign currency cash-flow hedges were highly effective. At March 31, 2017, the Company had foreign currency forward contracts in the amount of $3,175 million. The foreign currencies included in foreign currency forward contracts (notional value stated in U.S. dollars) are principally the British pound ($565 million), Swiss franc ($397 million), Hong Kong dollar ($364 million), Chinese yuan ($328 million), Euro ($305 million), Australian dollar ($196 million) and Taiwan dollar ($138 million). The estimated net gain on the Company’s derivative instruments designated as cash-flow hedges as of March 31, 2017 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $4 million. The accumulated gain on derivative instruments in AOCI was $33 million and $50 million as of March 31, 2017 and June 30, 2016, 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 $250 million, $450 million and $250 million to effectively convert the fixed rate interest on its 2020 Senior Notes, 1.70% Senior Notes due May 10, 2021 and 2.35% Senior Notes due August 15, 2022, 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. 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 two nationally recognized rating agencies. The counterparties to these contracts are major financial institutions. Exposure to credit risk in the event of nonperformance by any of the counterparties is limited to the gross fair value of contracts in asset positions, which totaled $31 million at March 31, 2017. 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. |
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS | 9 Months Ended |
Mar. 31, 2017 | |
FAIR VALUE MEASUREMENTS | |
FAIR VALUE MEASUREMENTS | NOTE 8 — 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, 2017: (In millions) Level 1 Level 2 Level 3 Total Assets: Foreign currency forward contracts $ — $ $ — $ Available-for-sale securities: U.S. government and agency securities — — Foreign government and agency securities — — Corporate notes and bonds — — Time deposits — — Other securities — — Total $ — $ $ — $ Liabilities: Foreign currency forward contracts $ — $ $ — $ Interest rate swap contracts — — Contingent consideration — — Total $ — $ $ $ 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, 2016: (In millions) Level 1 Level 2 Level 3 Total Assets: Foreign currency forward contracts $ — $ $ — $ Interest rate swap contracts — — Available-for-sale securities: U.S. government and agency securities — — Foreign government and agency securities — — Corporate notes and bonds — — Time deposits — — Other securities — — Total $ — $ $ — $ Liabilities: Foreign currency forward contracts $ — $ $ — $ Contingent consideration — — Total $ — $ $ $ The estimated fair values of the Company’s financial instruments are as follows: March 31 June 30 2017 2016 (In millions) Carrying Fair Carrying Fair Nonderivatives Cash and cash equivalents $ $ $ $ Available-for-sale securities Current and long-term debt Additional purchase price payable Contingent consideration Derivatives Foreign currency forward contracts — asset (liability), net ) ) Interest rate swap contracts — asset (liability), net ) ) 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, money market funds and time deposits. The carrying amount approximates fair value primarily due to the short maturity of cash equivalent instruments. Available-for-sale securities — Available-for-sale securities are classified within Level 2 of the valuation hierarchy and are valued using third-party pricing services, and for time deposits, the carrying amount approximates fair value. To determine fair value, the pricing services use market prices or prices derived from other observable market inputs such as benchmark curves, credit spreads, broker/dealer quotes, and other industry and economic factors. 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 swap contracts — The fair values of the Company’s interest rate swap 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 capital lease obligations for which the carrying amount approximates the fair value. The Company’s debt is classified within Level 2 of the valuation hierarchy. Additional purchase price payable — The Company’s additional purchase price payable represents fixed minimum additional purchase price that was discounted using the Company’s incremental borrowing rate, which was approximately 1%. The additional purchase price payable 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. The fair values of the contingent consideration related to certain acquisition earn-outs were estimated using a probability-weighted discount model that considers the achievement of the conditions upon which the respective contingent obligation is dependent (“Monte Carlo Method”). The Monte Carlo Method has various inputs into the valuation model, in addition to the risk-adjusted projected future operating results of the acquired entities, which include the following ranges at March 31, 2017: Risk-adjusted discount rate 1.5% to 2.4% Revenue volatility 3.5% to 8.3% Asset volatility 21.7% to 26.5% Revenue/earnings before income tax, depreciation and amortization (“EBITDA”) correlation factor Revenue discount rates 2.9% to 4.9% EBITDA discount rates 11.1% to 11.9% Significant changes in the projected future operating results would result in a significantly higher or lower fair value measurement. Changes to the discount rates, volatilities or correlation factors would have a lesser effect. The implied rates are deemed to be unobservable inputs and, as such, 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 the nine months ended March 31, 2017 are included in Selling, general and administrative expenses in the accompanying consolidated statements of earnings and were as follows: (In millions) Fair Value Contingent consideration at June 30, 2016 $ Change in fair value Contingent consideration at March 31, 2017 $ |
PENSION AND POST-RETIREMENT BEN
PENSION AND POST-RETIREMENT BENEFIT PLANS | 9 Months Ended |
Mar. 31, 2017 | |
PENSION AND POST-RETIREMENT BENEFIT PLANS | |
PENSION AND POST-RETIREMENT BENEFIT PLANS | 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 which provide certain medical and dental benefits to eligible employees. Descriptions of these plans 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, 2016. The components of net periodic benefit cost for the three months ended March 31, 2017 and 2016 consisted of the following: Other than Pension Plans Pension Plans U.S. International Post-retirement (In millions) 2017 2016 2017 2016 2017 2016 Service cost $ $ $ $ $ — $ Interest cost Expected return on plan assets ) ) ) ) — ) Amortization of: Prior service cost — — — — — Actuarial loss — — Special termination benefits — — — — — Net periodic benefit cost $ $ $ $ $ $ The components of net periodic benefit cost for the nine months ended March 31, 2017 and 2016 consisted of the following: Other than Pension Plans Pension Plans U.S. International Post-retirement (In millions) 2017 2016 2017 2016 2017 2016 Service cost $ $ $ $ $ $ Interest cost Expected return on plan assets ) ) ) ) ) ) Amortization of: Prior service cost — — Actuarial loss — Special termination benefits — — — — — Net periodic benefit cost $ $ $ $ $ $ During the nine months ended March 31, 2017, the Company made contributions to its international pension plans totaling approximately $9 million. The amounts recognized in the consolidated balance sheets related to the Company’s pension and post-retirement benefit plans consist of the following: March 31 June 30 (In millions) 2017 2016 Other assets $ $ Other accrued liabilities ) ) Other noncurrent liabilities ) ) Funded status ) ) Accumulated other comprehensive loss Net amount recognized $ $ |
CONTINGENCIES
CONTINGENCIES | 9 Months Ended |
Mar. 31, 2017 | |
CONTINGENCIES | |
CONTINGENCIES | NOTE 10 — CONTINGENCIES Legal Proceedings The Company is involved, from time to time, in litigation and other legal proceedings incidental to its business. Management believes that the outcome of current litigation and legal proceedings will not have a material adverse effect upon the Company’s 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 litigation and other legal proceedings are not material to the Company’s consolidated financial statements. |
STOCK PROGRAMS
STOCK PROGRAMS | 9 Months Ended |
Mar. 31, 2017 | |
STOCK PROGRAMS | |
STOCK PROGRAMS | 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”), PSUs based on total stockholder return (“TSR”), long-term PSUs, and share units. Compensation expense attributable to net stock-based compensation is as follows: Three Months Ended Nine Months Ended (In millions) 2017 2016 2017 2016 Compensation expense $ $ $ $ Income tax benefit Stock Options During the nine months ended March 31, 2017, the Company granted approximately 2.5 million stock options with a weighted-average exercise price per share of $89.24 and a weighted-average grant date fair value per share of $22.79. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model. The aggregate intrinsic value of stock options exercised during the three and nine months ended March 31, 2017 was $45 million and $116 million, respectively. Restricted Stock Units The Company granted approximately 1.6 million RSUs during the nine months ended March 31, 2017 with a weighted-average grant date fair value per share of $88.54 which, at the time of grant, were scheduled to vest as follows: 0.5 million in fiscal 2018, 0.5 million in fiscal 2019, 0.5 million in fiscal 2020 and 0.1 million in fiscal 2022. Vesting of RSUs granted is generally subject to the continued employment of the grantees. RSUs are accompanied by dividend equivalent rights, payable upon settlement 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 In September 2016, the Company granted PSUs with a target payout of approximately 0.3 million shares with a weighted-average grant date fair value per share of $89.47, which will be settled in stock subject to the achievement of the Company’s net sales, diluted net earnings per common share and return on invested capital goals for the three fiscal years ending June 30, 2019. In January 2017, the Company granted PSUs with a target payout of approximately 0.3 million shares with a weighted-average grant date fair value per share of $80.79, which will be settled in stock subject to the achievement of certain net sales and net operating profit goals of a subsidiary of the Company for the fiscal year ending June 30, 2020. In January 2017, the Company granted PSUs with a target payout of approximately 0.2 million shares with a weighted-average grant date fair value per share of $80.79, which will be settled in stock subject to the achievement of certain net sales and net operating profit goals of a subsidiary of the Company for the fiscal year ending June 30, 2022. For PSU grants, no settlement will occur for results below the applicable minimum threshold. Vesting of PSUs is generally subject to continued employment of the grantees. PSUs are accompanied by dividend equivalent rights that will be payable in cash upon settlement. In September 2016, approximately 0.3 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 0.3 million PSUs which vested as of June 30, 2016. Performance Share Units Based on Total Stockholder Return In September 2016, 49,882 shares of the Company’s Class A Common Stock were issued, and related dividends paid, in accordance with the terms of the grant, related to the performance period ended June 30, 2016. |
NET EARNINGS ATTRIBUTABLE TO TH
NET EARNINGS ATTRIBUTABLE TO THE ESTEE LAUDER COMPANIES INC. PER COMMON SHARE | 9 Months Ended |
Mar. 31, 2017 | |
NET EARNINGS ATTRIBUTABLE TO THE ESTEE LAUDER COMPANIES INC. PER COMMON SHARE | |
NET EARNINGS ATTRIBUTABLE TO THE ESTEE LAUDER COMPANIES INC. PER COMMON SHARE | NOTE 12 — NET EARNINGS ATTRIBUTABLE TO THE ESTÉE LAUDER COMPANIES INC. PER COMMON SHARE Net earnings attributable to The Estée Lauder Companies Inc. per common share (“basic EPS”) is computed by dividing net earnings attributable to The Estée Lauder Companies Inc. by the weighted-average number of common shares outstanding and contingently issuable shares (which satisfy certain conditions). Net earnings attributable to The Estée Lauder Companies Inc. per common share assuming dilution (“diluted EPS”) is computed by reflecting potential dilution from stock-based awards. A reconciliation between the numerator and denominator of the basic and diluted EPS computations is as follows: Three Months Ended Nine Months Ended (In millions, except per share data) 2017 2016 2017 2016 Numerator: Net earnings attributable to The Estée Lauder Companies Inc. $ $ $ $ Denominator: Weighted-average common shares outstanding — Basic Effect of dilutive stock options Effect of PSUs — — Effect of RSUs Effect of PSUs based on TSR — — Weighted-average common shares outstanding — Diluted Net earnings attributable to The Estée Lauder Companies Inc. per common share: Basic $ $ $ $ Diluted As of March 31, 2017 and 2016, outstanding options to purchase 2.5 million and 0.2 million shares, respectively, of Class A Common Stock were not included in the computation of diluted EPS because their inclusion would be anti-dilutive. As of March 31, 2017 and 2016, 1.3 million and 0.8 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. |
EQUITY
EQUITY | 9 Months Ended |
Mar. 31, 2017 | |
EQUITY | |
EQUITY | NOTE 13 — EQUITY Total Stockholders’ Equity — The Estée Lauder Companies Inc. Non- (In millions) Common Paid-in Retained AOCI Treasury Total controlling Total Balance at June 30, 2016 $ $ $ $ ) $ ) $ $ $ Net earnings — — — — Common stock dividends — ) — — ) ) ) Other comprehensive income (loss) — — — ) — ) — ) Acquisition of treasury stock — — — — ) ) — ) Stock-based compensation — — — ) — Balance at March 31, 2017 $ $ $ $ ) $ ) $ $ $ 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, 2017: Date Declared Record Date Payable Date Amount per Share August 18, 2016 August 31, 2016 September 15, 2016 $ .30 November 1, 2016 November 30, 2016 December 15, 2016 $ .34 February 1, 2017 February 28, 2017 March 15, 2017 $ .34 On May 2, 2017, a dividend was declared in the amount of $.34 per share on the Company’s Class A and Class B Common Stock. The dividend is payable in cash on June 15, 2017 to stockholders of record at the close of business on May 31, 2017. Common Stock During the nine months ended March 31, 2017, the Company purchased approximately 4.2 million shares of its Class A Common Stock for $363 million. During the nine months ended March 31, 2017, approximately 0.8 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 (Loss) The following table represents changes in AOCI, net of tax, by component for the nine months ended March 31, 2017: (In millions) Net Net Amounts Translation Total Balance at June 30, 2016 $ $ $ ) $ ) $ ) OCI before reclassifications ) (1) ) ) Amounts reclassified from AOCI — ) — ) Net current-period OCI ) ) ) ) Balance at March 31, 2017 $ ) $ $ ) $ ) $ ) (1) Includes foreign currency translation gains of $4 million. The following table represents the effects of reclassification adjustments from AOCI into net earnings for the three and nine months ended March 31, 2017 and 2016: Amount Reclassified from AOCI Three Months Ended Nine Months Ended Affected Line Item in (In millions) 2017 2016 2017 2016 Statement of Earnings Gain (Loss) on Investments Gain (loss) on investments $ ) $ — $ — $ — Interest income and investment income, net Benefit (provision) for deferred taxes — — — — Provision for income taxes $ ) $ — $ — $ — Net earnings Gain (Loss) on Cash-Flow Hedges Foreign currency forward contracts $ $ $ $ Cost of sales Foreign currency forward contracts Selling, general and administrative Interest rate-related derivatives — Interest expense Earnings before income taxes Benefit (provision) for deferred taxes ) ) ) ) Provision for income taxes $ $ $ $ Net earnings Amounts Included in Net Periodic Benefit Cost Amortization of prior service cost $ — $ ) $ ) $ ) (1) Amortization of actuarial loss ) ) ) ) (1) ) ) ) ) Earnings before income taxes Benefit (provision) for deferred taxes Provision for income taxes $ ) $ ) $ ) $ ) Net earnings Total reclassification adjustments, net $ $ $ $ Net earnings (1) See Note 9 — Pension and Post-Retirement Benefit Plans for additional information. |
STATEMENT OF CASH FLOWS
STATEMENT OF CASH FLOWS | 9 Months Ended |
Mar. 31, 2017 | |
STATEMENT OF CASH FLOWS | |
STATEMENT OF CASH FLOWS | NOTE 14 — STATEMENT OF CASH FLOWS Supplemental cash flow information for the nine months ended March 31, 2017 and 2016 is as follows: (In millions) 2017 2016 Cash: Cash paid during the period for interest $ $ Cash paid during the period for income taxes $ $ Noncash investing and financing activities: Capital lease and asset retirement obligations incurred $ $ Noncash purchases (sales) of short- and long-term investments, net $ $ Property, plant and equipment accrued but unpaid $ $ |
SEGMENT DATA AND RELATED INFORM
SEGMENT DATA AND RELATED INFORMATION | 9 Months Ended |
Mar. 31, 2017 | |
SEGMENT DATA AND RELATED INFORMATION | |
SEGMENT DATA AND RELATED INFORMATION | 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 one business segment, beauty products, management also evaluates performance on a product category basis. Product category performance is measured based upon net sales and earnings before income taxes, interest expense and interest income and investment income, net. Returns and charges associated with restructuring and other activities are not allocated to 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, and to transform and modernize the Company’s global technology infrastructure. 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, 2016. 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. Other than the increase in total assets as a result of the acquisitions discussed in Note 3 - Acquisition of Businesses, which primarily impacted the Americas region, there has been no significant variance in the total or long-lived asset values associated with the Company’s segment data since June 30, 2016. Three Months Ended Nine Months Ended (In millions) 2017 2016 2017 2016 PRODUCT CATEGORY DATA Net Sales: Skin Care $ $ $ $ Makeup Fragrance Hair Care Other Returns associated with restructuring and other activities — — ) — Net Sales $ $ $ $ Operating Income (Loss) before charges associated with restructuring and other activities: Skin Care $ $ $ $ Makeup Fragrance ) Hair Care Other Reconciliation: Charges associated with restructuring and other activities ) ) ) ) Interest expense ) ) ) ) Interest income and investment income, net Earnings before income taxes $ $ $ $ GEOGRAPHIC DATA Net Sales: The Americas $ $ $ $ Europe, the Middle East & Africa Asia/Pacific Returns associated with restructuring and other activities — — ) — Net Sales $ $ $ $ Operating Income (Loss): The Americas $ $ $ $ Europe, the Middle East & Africa Asia/Pacific Charges associated with restructuring and other activities ) ) ) ) Operating Income $ $ $ $ |
SUMMARY OF SIGNIFICANT ACCOUN22
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended |
Mar. 31, 2017 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Basis of Presentation | 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. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. 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, 2016. |
Management Estimates | 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. Certain significant accounting policies that contain subjective management estimates and assumptions include those related to revenue recognition, inventory, pension and other post-retirement benefit costs, goodwill, other intangible assets and long-lived assets, and income taxes. Descriptions of these 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, 2016. Management evaluates its 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 will be reflected in the consolidated financial statements in future periods. |
Currency Translation and Transactions | 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 weighted-average rates of exchange for the period. Unrealized translation gains (losses) reported as cumulative translation adjustments through other comprehensive income (loss) (“OCI”) attributable to The Estée Lauder Companies Inc. amounted to $67 million and $72 million, net of tax, during the three months ended March 31, 2017 and 2016, respectively, and $(53) million and $(57) million, net of tax, during the nine months ended March 31, 2017 and 2016, respectively. 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. Accordingly, the Company categorizes these instruments as entered into for purposes other than trading. The accompanying consolidated statements of earnings include net exchange gains on foreign currency transactions of $8 million and $11 million during the three months ended March 31, 2017 and 2016, respectively, and $14 million and $16 million during the nine months ended March 31, 2017 and 2016, respectively. |
Accounts Receivable | Accounts Receivable Accounts receivable is stated net of the allowance for doubtful accounts and customer deductions totaling $23 million and $24 million as of March 31, 2017 and June 30, 2016, respectively. |
Concentration of Credit Risk | 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 and does not believe it is exposed significantly to any undue concentration of credit risk. The Company’s largest customer sells products primarily within the United States and accounted for $230 million, or 8%, and $248 million, or 9%, of the Company’s consolidated net sales for the three months ended March 31, 2017 and 2016, respectively, and $763 million, or 9%, and $840 million, or 10%, of the Company’s consolidated net sales for the nine months ended March 31, 2017 and 2016, respectively. This customer accounted for $205 million, or 13%, and $164 million, or 13%, of the Company’s accounts receivable at March 31, 2017 and June 30, 2016, respectively. |
Inventory and Promotional Merchandise | Inventory and Promotional Merchandise Inventory and promotional merchandise, net consists of: March 31 June 30 (In millions) 2017 2016 Raw materials $ $ Work in process Finished goods Promotional merchandise $ $ |
Property, Plant and Equipment | Property, Plant and Equipment March 31 June 30 (In millions) 2017 2016 Assets (Useful Life) Land $ $ Buildings and improvements (10 to 40 years) Machinery and equipment (3 to 10 years) Computer hardware and software (4 to 15 years) Furniture and fixtures (5 to 10 years) Leasehold improvements Less accumulated depreciation and amortization ) ) $ $ The cost of assets related to projects in progress of $202 million and $186 million as of March 31, 2017 and June 30, 2016, respectively, is included in their respective asset categories above. Depreciation and amortization of property, plant and equipment was $106 million and $100 million during the three months ended March 31, 2017 and 2016, respectively, and $316 million and $295 million during the nine months ended March 31, 2017 and 2016, 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. |
Other Accrued Liabilities | Other Accrued Liabilities Other accrued liabilities consist of the following: March 31 June 30 (In millions) 2017 2016 Advertising, merchandising and sampling $ $ Employee compensation Payroll and other taxes Other $ $ |
Income Taxes | Income Taxes The effective rate for income taxes was 26.3% and 28.0% for the three months ended March 31, 2017 and 2016, respectively, and 27.2% and 28.0% for the nine months ended March 31, 2017 and 2016, respectively. The decrease in the effective tax rate for each of the three-month and nine-month periods ended March 31, 2017 was primarily attributable to income tax reserve adjustments. As of March 31, 2017 and June 30, 2016, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $76 million and $82 million, respectively. The total amount of unrecognized tax benefits at March 31, 2017 that, if recognized, would affect the effective tax rate was $49 million. During the three months ended March 31, 2017, the Company recognized a gross interest and penalty benefit of $1 million in the accompanying consolidated statement of earnings. There was a total gross accrued interest and penalty expense during the nine months ended March 31, 2017 that was de minimis. The total gross accrued interest and penalties in the accompanying consolidated balance sheets at March 31, 2017 and June 30, 2016 totaled $18 million at the end of each respective period. On the basis of the information available as of March 31, 2017, it is reasonably possible that the total amount of unrecognized tax benefits could decrease in a range of $5 million to $10 million within the next twelve months as a result of projected resolutions of global tax examinations and controversies and a potential lapse of the applicable statutes of limitations. |
Recently Issued Accounting Standards | Recently Issued Accounting Standards Pension-related Costs In March 2017, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that amends how companies present net periodic benefit cost in the income statement and balance sheet relating to defined benefit pension and/or other postretirement benefit plans. Within the income statement, the new guidance requires companies to report the service cost component within operating expenses and report the other components of net periodic benefit cost below operating income (if one is reported). In addition, within the balance sheet, the guidance changes the components of the pension cost eligible for capitalization to the service cost component only (e.g., as a cost of internally manufactured inventory or a self-constructed asset). Effective for the Company — Fiscal 2019 first quarter, with early adoption permitted as of the first interim period in fiscal 2018. The guidance must be applied (a) retrospectively as it pertains to the income statement classification of the components of net periodic benefit cost and (b) prospectively as it pertains to future capitalization of service costs. Impact on consolidated financial statements — The Company is currently evaluating the timing of adoption and impact of applying this guidance on its consolidated financial statements. Goodwill In January 2017, FASB issued authoritative guidance which simplifies the subsequent measurement of goodwill by eliminating the second step from the quantitative goodwill impairment test. The single quantitative step test requires companies to compare the fair value of a reporting unit with its carrying amount and record an impairment charge for the amount that the carrying amount exceeds the fair value, up to the total amount of goodwill allocated to that reporting unit. The Company will continue to have the option of first performing a qualitative assessment to determine whether it is necessary to perform the quantitative goodwill impairment test. Effective for the Company — Fiscal 2021 first quarter, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Impact on consolidated financial statements — The impact of applying this guidance will be evaluated by the Company for future interim and annual impairment tests. Income Taxes In October 2016, the FASB issued authoritative guidance that changes the way companies account for income taxes relating to intra-entity transfers of assets other than inventory. This new guidance requires that an entity recognize the income tax consequences of an intra-entity transfer of an asset other than inventory in the period in which the transfer takes place. Under current guidance, recognition of current and deferred income taxes of an intra-entity asset transfer is prohibited until the asset has been sold to an outside party. This new guidance may affect consolidated earnings where the intra-entity transfer of an asset other than inventory occurs between entities in jurisdictions with different tax rates. This guidance must be adopted using a modified retrospective approach with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Effective for the Company — Fiscal 2019 first quarter, with early adoption permitted. Impact on consolidated financial statements — The Company is currently evaluating the impact of applying this guidance. Measurement of Credit Losses on Financial Instruments In June 2016, the 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 new 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, as well as additional disclosures. In general, this guidance will require modified retrospective adoption for all outstanding instruments that fall under this guidance. Effective for the Company — Fiscal 2021 first quarter. Impact on consolidated financial statements — The Company is currently evaluating the impact of applying this guidance on its financial instruments, such as accounts receivable and short- and long-term investments. Compensation - Stock Compensation In March 2016, the FASB issued authoritative guidance that changes the way companies account for certain aspects of share-based payments to employees. This new guidance requires that all excess tax benefits and tax deficiencies related to share-based compensation awards be recorded as income tax expense or benefit in the income statement. In addition, companies are required to treat the tax effects of exercised or vested awards as discrete items in the period that they occur. This guidance also permits an employer to withhold up to the maximum statutory withholding rates in a jurisdiction without triggering liability classification, allows companies to elect to account for forfeitures as they occur, and provides requirements for the cash flow classification of cash paid by an employer when directly withholding shares for tax-withholding purposes and for the classification of excess tax benefits. The new guidance prescribes different transition methods for the various provisions. Effective for the Company — Fiscal 2018 first quarter, with early adoption permitted. Impact on consolidated financial statements — The Company will adopt this guidance in its fiscal 2018 first quarter. For the fiscal years ended June 30, 2016 and 2015, the Company recognized $22 million and $47 million of excess tax benefits, respectively, directly in its consolidated statements of equity. These amounts may or may not be representative of future amounts to be recognized in the income statement upon the adoption of this new standard, as the impact of the adoption will be primarily dependent on the timing and intrinsic value of stock-based compensation awards, employee exercise behavior and applicable tax rates. Leases In February 2016, the FASB issued authoritative guidance that requires lessees to account for most leases on their balance sheets with the liability being equal to the present value of the lease payments. The right-of-use asset will be based on the lease liability adjusted for certain costs such as direct costs. Lease expense will be recognized similar to current accounting guidance with operating leases resulting in a straight-line expense, and financing leases resulting in a front-loaded expense similar to the current accounting for capital leases. This guidance must be adopted using a modified retrospective transition approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, and provides for certain practical expedients. Effective for the Company — Fiscal 2020 first quarter, with early adoption permitted. Impact on consolidated financial statements — The Company currently has an implementation team in place that is performing a comprehensive evaluation of the impact of the adoption of this guidance. While the Company has not completed its evaluation, it believes the adoption of this standard will have a significant impact on its Consolidated Balance Sheets. Revenue from Contracts with Customers In May 2014, the FASB issued authoritative guidance that defines how companies should report revenues from contracts with customers. The standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It provides companies with a single comprehensive five-step principles-based model to use in accounting for revenue and supersedes current revenue recognition requirements, including most industry-specific and transaction-specific revenue guidance. In March 2016, the FASB issued authoritative guidance that amended the principal versus agent guidance in its new revenue recognition standard. These amendments do not change the key aspects of the principal versus agent guidance, including the definition that an entity is a principal if it controls the good or service prior to it being transferred to a customer, but the amendments clarify the implementation guidance related to the considerations that must be made during the contract evaluation process. In April 2016, the FASB issued authoritative guidance that amended the new standard to clarify the guidance on identifying performance obligations and accounting for licenses of intellectual property. In May 2016, the FASB issued authoritative guidance that clarified certain terms, guidance and disclosure requirements during the transition period related to completed contracts and contract modifications. In addition, the FASB provided clarification on the concept of collectability, the calculation of the fair value of noncash consideration and the presentation of sales and other similar taxes. In May 2016, the FASB issued authoritative guidance to reflect the Securities and Exchange Commission Staff’s rescission of their prior comments that covered, among other things, accounting for shipping and handling costs and accounting for consideration given by a vendor to a customer. In December 2016, the FASB issued authoritative guidance that amends various aspects of the new standard to clarify certain terms, guidance and disclosure requirements. In particular, the guidance addresses disclosure requirements for remaining performance obligations, impairment testing for contract costs and accrual of advertising costs, as well as clarifies several examples. Effective for the Company — Fiscal 2019, with early adoption permitted. An entity is permitted to apply the foregoing guidance retrospectively to all prior periods presented, with certain practical expedients, or apply the requirements in the year of adoption, through a cumulative adjustment. Impact on consolidated financial statements — The Company will apply all of this new guidance when they become effective in fiscal 2019 and has not yet selected a transition method. The Company currently has an implementation team in place that is performing a comprehensive evaluation of the impact of adoption and assessing the impact on third-party customer arrangements and the Company’s customer loyalty programs. No other recently issued accounting pronouncements are expected to have a material impact on the Company’s consolidated financial statements. |
SUMMARY OF SIGNIFICANT ACCOUN23
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 9 Months Ended |
Mar. 31, 2017 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Inventory and Promotional Merchandise | March 31 June 30 (In millions) 2017 2016 Raw materials $ $ Work in process Finished goods Promotional merchandise $ $ |
Property, Plant and Equipment | March 31 June 30 (In millions) 2017 2016 Assets (Useful Life) Land $ $ Buildings and improvements (10 to 40 years) Machinery and equipment (3 to 10 years) Computer hardware and software (4 to 15 years) Furniture and fixtures (5 to 10 years) Leasehold improvements Less accumulated depreciation and amortization ) ) $ $ |
Other Accrued Liabilities | March 31 June 30 (In millions) 2017 2016 Advertising, merchandising and sampling $ $ Employee compensation Payroll and other taxes Other $ $ |
INVESTMENTS (Tables)
INVESTMENTS (Tables) | 9 Months Ended |
Mar. 31, 2017 | |
INVESTMENTS | |
Schedule of gains and losses recorded in OCI ("AOCI") related to the Company's available-for-sale investments | Gains and losses recorded in accumulated OCI (“AOCI”) related to the Company’s available-for-sale investments as of March 31, 2017 were as follows: (In millions) Cost Gross Gross Fair Value U.S. government and agency securities $ $ $ ) $ Foreign government and agency securities — ) Corporate notes and bonds — ) Time deposits — — Other securities — Total $ $ $ ) $ Gains and losses recorded in AOCI related to the Company’s available-for-sale investments as of June 30, 2016 were as follows: (In millions) Cost Gross Gross Fair Value U.S. government and agency securities $ $ $ — $ Foreign government and agency securities — — Corporate notes and bonds — Time deposits — — Other securities — Total $ $ $ — $ |
Schedule of available-for-sale securities by contractual maturity | The following table presents the Company’s available-for-sale securities by contractual maturity as of March 31, 2017: (In millions) Cost Fair Value Due within one year $ $ Due after one through five years $ $ |
Schedule of gross unrealized losses that are not deemed to be other-than-temporarily impaired | The following table presents the fair market value of the Company’s investments with gross unrealized losses that are not deemed to be other-than temporarily impaired as of March 31, 2017: In a Loss Position for Less Than 12 In a Loss Position for More Than 12 (In millions) Fair Value Gross Fair Value Gross Available-for-sale securities $ $ ) $ $ — |
ACQUISITION OF BUSINESSES (Tabl
ACQUISITION OF BUSINESSES (Tables) | 9 Months Ended |
Mar. 31, 2017 | |
ACQUISITION OF BUSINESSES | |
Summary of calculation and allocation of purchase price | (In millions, unaudited) Cash $ Accounts receivable (1) Inventory Other current assets Property, plant and equipment Intangible assets Goodwill Total assets acquired Accounts payable Other accrued liabilities Deferred income taxes Total liabilities assumed Total purchase price $ (1) Represents the gross amount of trade receivables of $44 million, net of estimated customer deductions of $4 million. |
GOODWILL AND OTHER INTANGIBLE26
GOODWILL AND OTHER INTANGIBLE ASSETS (Tables) | 9 Months Ended |
Mar. 31, 2017 | |
GOODWILL AND OTHER INTANGIBLE ASSETS | |
Schedule of goodwill by product category and related change in the carrying amount | (In millions) Skin Care Makeup Fragrance Hair Care Total Balance as of June 30, 2016 Goodwill $ $ $ $ $ Accumulated impairments ) — — ) ) Goodwill acquired during the period — — — Translation adjustments — — ) — ) — ) — Balance as of March 31, 2017 Goodwill Accumulated impairments ) — — ) ) $ $ $ $ $ |
Other intangible assets, by type | March 31, 2017 June 30, 2016 (In millions) Gross Accumulated Total Net Gross Accumulated Total Net Amortizable intangible assets: Customer lists and other $ $ $ $ $ $ License agreements — — $ $ $ $ Non-amortizable intangible assets: Trademarks and other Total intangible assets $ $ |
CHARGES ASSOCIATED WITH RESTR27
CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES (Tables) | 9 Months Ended |
Mar. 31, 2017 | |
CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES | |
Schedule of restructuring and other charges expected to be incurred | Sales Returns Operating Expenses (In millions) (included in Cost of Sales Restructuring Other Total Approval Period Fiscal 2016 $ $ (1) $ $ (1) $ Nine months ended March 31, 2017 Cumulative through March 31, 2017 $ $ $ $ $ (1) Reflects approximately $25 million of supply chain consulting and professional services expected to be recognized in Cost of Sales, which were previously classified under Operating Expenses. |
Schedule of total cumulative charges approved associated with restructuring initiatives | (In millions) Employee- Asset- Contract Other Exit Total Approval Period Fiscal 2016 $ $ $ $ $ Nine months ended March 31, 2017 — Cumulative through March 31, 2017 $ $ $ $ $ |
Leading Beauty Forward | |
CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES | |
Schedule of total cumulative charges recorded associated with restructuring and other activities | Sales Returns Operating Expenses (In millions) (included in Cost of Sales Restructuring Other Total Fiscal 2016 $ $ — $ $ $ Nine months ended March 31, 2017 Cumulative through March 31, 2017 $ $ $ $ $ |
Schedule of aggregate restructuring charges by major cost type | (In millions) Employee- Asset- Contract Other Exit Total Fiscal 2016 $ $ $ — $ — $ Nine months ended March 31, 2017 — Charges recorded through March 31, 2017 $ $ $ $ — $ |
Schedule of accrued restructuring charges from program inception | (In millions) Employee- Asset- Contract Other Exit Total Charges $ $ $ — $ — $ Noncash asset write-offs — ) — — ) Translation adjustments ) — — — ) Balance at June 30, 2016 — — — Charges — Cash payments ) — ) — ) Noncash asset write-offs — ) — — ) Translation and other adjustments ) — — — ) Balance at March 31, 2017 $ $ — $ $ — $ |
DEBT (Tables)
DEBT (Tables) | 9 Months Ended |
Mar. 31, 2017 | |
DEBT | |
Schedule of long-term debt | Notes Issue Date Price Yield Unamortized Interest rate Debt Issuance Semi-annual interest ($ in millions) 2020 Senior Notes February 2017 % % $ — $ ) $ February 7/August 7 2027 Senior Notes (1) February 2017 — N/A March 15/September 15 2047 Senior Notes (2) February 2017 ) N/A March 15/September 15 (1) In November 2016, in anticipation of the issuance of the 2027 Senior Notes, the Company entered into a series of treasury lock agreements on a notional amount totaling $450 million at a weighted-average all-in rate of 2.37%. The treasury lock agreements were settled upon the issuance of the new debt, and the Company recognized a gain in OCI of $2 million that is being amortized to interest expense over the life of the 2027 Senior Notes. As a result of the treasury lock agreements, the debt discount and debt issuance costs, the effective interest rate on the 2027 Senior Notes will be 3.18% over the life of the debt. (2) In November 2016, in anticipation of the issuance of the 2047 Senior Notes, the Company entered into a series of treasury lock agreements on a notional amount totaling $350 million at a weighted-average all-in rate of 3.01%. The treasury lock agreements were settled upon the issuance of the new debt, and the Company recognized a gain in OCI of $3 million that is being amortized to interest expense over the life of the 2047 Senior Notes. As a result of the treasury lock agreements, the debt discount and debt issuance costs, the effective interest rate on the 2047 Senior Notes will be 4.17% over the life of the debt. |
DERIVATIVE FINANCIAL INSTRUME29
DERIVATIVE FINANCIAL INSTRUMENTS (Tables) | 9 Months Ended |
Mar. 31, 2017 | |
DERIVATIVE FINANCIAL INSTRUMENTS | |
Schedule of fair values of the derivative financial instruments included in the consolidated balance sheets | Asset Derivatives Liability Derivatives Fair Value (1) Fair Value (1) (In millions) Balance Sheet March 31 June 30 Balance Sheet March 31 June 30 Derivatives Designated as Hedging Instruments Foreign currency forward contracts Prepaid expenses and other current assets $ $ Other accrued liabilities $ $ Interest rate swap contracts Prepaid expenses and other current assets — Other accrued liabilities — Total Derivatives Designated as Hedging Instruments Derivatives Not Designated as Hedging Instruments Foreign currency forward contracts Prepaid expenses and other current assets Other accrued liabilities Total Derivatives $ $ $ $ (1) See Note 8 — Fair Value Measurements for further information about how the fair value of derivative assets and liabilities are determined. |
Schedule of gains and losses related to derivative financial instruments designated as hedging instruments | Amount of Gain or (Loss) Location of Gain or Amount of Gain or (Loss) (1) Three Months Ended from AOCI into Three Months Ended (In millions) 2017 2016 (Effective Portion) 2017 2016 Derivatives in Cash Flow Hedging Relationships Foreign currency forward contracts $ ) $ ) Cost of sales $ $ Selling, general and administrative Interest rate-related derivatives ) — Interest expense — Total Derivatives $ ) $ ) $ $ (1) The amount of gain (loss) recognized in earnings related to the amount excluded from effectiveness testing was $2 million and $(3) million for the three months ended March 31, 2017 and 2016, respectively. There was no gain (loss) recognized in earnings related to the ineffective portion of the hedging relationships for the three months ended March 31, 2017 and March 31, 2016. Amount of Gain or (Loss) Location of Gain or Amount of Gain or (Loss) (1) Nine Months Ended from AOCI into Nine Months Ended (In millions) 2017 2016 (Effective Portion) 2017 2016 Derivatives in Cash Flow Hedging Relationships Foreign currency forward contracts $ $ Cost of sales $ $ Selling, general and administrative Interest rate-related derivatives — Interest Expense Total Derivatives $ $ $ $ (1) The amount of gain (loss) recognized in earnings related to the amount excluded from effectiveness testing was de minimis and $(2) million for the nine months ended March 31, 2017 and 2016, respectively. The amount of gain recognized in earnings related to the ineffective portion of the hedging relationships was de minimis for the nine months ended March 31, 2017 and 2016. Amount of Gain or (Loss) (1) Location of Gain or (Loss) Three Months Ended Nine Months Ended (In millions) Derivatives 2017 2016 2017 2016 Derivatives in Fair Value Hedging Relationships Interest rate swap contracts Interest expense $ ) $ $ ) $ (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. |
Schedule of gains and losses related to derivative financial instruments not designated as hedging instruments | Amount of Gain or (Loss) Location of Gain or (Loss) Three Months Ended Nine Months Ended (In millions) Derivatives 2017 2016 2017 2016 Derivatives Not Designated as Hedging Instruments Foreign currency forward contracts Selling, general and administrative $ ) $ $ ) $ |
FAIR VALUE MEASUREMENTS (Tables
FAIR VALUE MEASUREMENTS (Tables) | 9 Months Ended |
Mar. 31, 2017 | |
FAIR VALUE MEASUREMENTS | |
Financial assets and liabilities measured at fair value on a recurring basis | 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, 2017: (In millions) Level 1 Level 2 Level 3 Total Assets: Foreign currency forward contracts $ — $ $ — $ Available-for-sale securities: U.S. government and agency securities — — Foreign government and agency securities — — Corporate notes and bonds — — Time deposits — — Other securities — — Total $ — $ $ — $ Liabilities: Foreign currency forward contracts $ — $ $ — $ Interest rate swap contracts — — Contingent consideration — — Total $ — $ $ $ 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, 2016: (In millions) Level 1 Level 2 Level 3 Total Assets: Foreign currency forward contracts $ — $ $ — $ Interest rate swap contracts — — Available-for-sale securities: U.S. government and agency securities — — Foreign government and agency securities — — Corporate notes and bonds — — Time deposits — — Other securities — — Total $ — $ $ — $ Liabilities: Foreign currency forward contracts $ — $ $ — $ Contingent consideration — — Total $ — $ $ $ |
Estimated fair values of financial instruments | March 31 June 30 2017 2016 (In millions) Carrying Fair Carrying Fair Nonderivatives Cash and cash equivalents $ $ $ $ Available-for-sale securities Current and long-term debt Additional purchase price payable Contingent consideration Derivatives Foreign currency forward contracts — asset (liability), net ) ) Interest rate swap contracts — asset (liability), net ) ) |
Schedule of fair value assumptions | Risk-adjusted discount rate 1.5% to 2.4% Revenue volatility 3.5% to 8.3% Asset volatility 21.7% to 26.5% Revenue/earnings before income tax, depreciation and amortization (“EBITDA”) correlation factor Revenue discount rates 2.9% to 4.9% EBITDA discount rates 11.1% to 11.9% |
Changes in the fair value of the contingent consideration obligations | (In millions) Fair Value Contingent consideration at June 30, 2016 $ Change in fair value Contingent consideration at March 31, 2017 $ |
PENSION AND POST-RETIREMENT B31
PENSION AND POST-RETIREMENT BENEFIT PLANS (Tables) | 9 Months Ended |
Mar. 31, 2017 | |
PENSION AND POST-RETIREMENT BENEFIT PLANS | |
Schedule of components of net periodic benefit cost for pension and other post-retirement benefit plans | The components of net periodic benefit cost for the three months ended March 31, 2017 and 2016 consisted of the following: Other than Pension Plans Pension Plans U.S. International Post-retirement (In millions) 2017 2016 2017 2016 2017 2016 Service cost $ $ $ $ $ — $ Interest cost Expected return on plan assets ) ) ) ) — ) Amortization of: Prior service cost — — — — — Actuarial loss — — Special termination benefits — — — — — Net periodic benefit cost $ $ $ $ $ $ The components of net periodic benefit cost for the nine months ended March 31, 2017 and 2016 consisted of the following: Other than Pension Plans Pension Plans U.S. International Post-retirement (In millions) 2017 2016 2017 2016 2017 2016 Service cost $ $ $ $ $ $ Interest cost Expected return on plan assets ) ) ) ) ) ) Amortization of: Prior service cost — — Actuarial loss — Special termination benefits — — — — — Net periodic benefit cost $ $ $ $ $ $ |
Schedule of amounts recognized in the consolidated balance sheets related to the entity's pension and post-retirement benefit plans | March 31 June 30 (In millions) 2017 2016 Other assets $ $ Other accrued liabilities ) ) Other noncurrent liabilities ) ) Funded status ) ) Accumulated other comprehensive loss Net amount recognized $ $ |
STOCK PROGRAMS (Tables)
STOCK PROGRAMS (Tables) | 9 Months Ended |
Mar. 31, 2017 | |
STOCK PROGRAMS | |
Schedule of stock-based compensation expense and related income tax benefits | Three Months Ended Nine Months Ended (In millions) 2017 2016 2017 2016 Compensation expense $ $ $ $ Income tax benefit |
NET EARNINGS ATTRIBUTABLE TO 33
NET EARNINGS ATTRIBUTABLE TO THE ESTEE LAUDER COMPANIES INC. PER COMMON SHARE (Tables) | 9 Months Ended |
Mar. 31, 2017 | |
NET EARNINGS ATTRIBUTABLE TO THE ESTEE LAUDER COMPANIES INC. PER COMMON SHARE | |
Schedule of reconciliation between the numerator and denominator of the basic and diluted EPS computations | Three Months Ended Nine Months Ended (In millions, except per share data) 2017 2016 2017 2016 Numerator: Net earnings attributable to The Estée Lauder Companies Inc. $ $ $ $ Denominator: Weighted-average common shares outstanding — Basic Effect of dilutive stock options Effect of PSUs — — Effect of RSUs Effect of PSUs based on TSR — — Weighted-average common shares outstanding — Diluted Net earnings attributable to The Estée Lauder Companies Inc. per common share: Basic $ $ $ $ Diluted |
EQUITY (Tables)
EQUITY (Tables) | 9 Months Ended |
Mar. 31, 2017 | |
EQUITY | |
Schedule of equity | Total Stockholders’ Equity — The Estée Lauder Companies Inc. Non- (In millions) Common Paid-in Retained AOCI Treasury Total controlling Total Balance at June 30, 2016 $ $ $ $ ) $ ) $ $ $ Net earnings — — — — Common stock dividends — ) — — ) ) ) Other comprehensive income (loss) — — — ) — ) — ) Acquisition of treasury stock — — — — ) ) — ) Stock-based compensation — — — ) — Balance at March 31, 2017 $ $ $ $ ) $ ) $ $ $ |
Summary of cash dividends declared per share on the Company's Class A and Class B Common Stock | 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, 2017: Date Declared Record Date Payable Date Amount per Share August 18, 2016 August 31, 2016 September 15, 2016 $ .30 November 1, 2016 November 30, 2016 December 15, 2016 $ .34 February 1, 2017 February 28, 2017 March 15, 2017 $ .34 |
Schedule of components of AOCI | (In millions) Net Net Amounts Translation Total Balance at June 30, 2016 $ $ $ ) $ ) $ ) OCI before reclassifications ) (1) ) ) Amounts reclassified from AOCI — ) — ) Net current-period OCI ) ) ) ) Balance at March 31, 2017 $ ) $ $ ) $ ) $ ) (1) Includes foreign currency translation gains of $4 million. |
Schedule of effects of reclassification adjustments from AOCI into net earnings | Amount Reclassified from AOCI Three Months Ended Nine Months Ended Affected Line Item in (In millions) 2017 2016 2017 2016 Statement of Earnings Gain (Loss) on Investments Gain (loss) on investments $ ) $ — $ — $ — Interest income and investment income, net Benefit (provision) for deferred taxes — — — — Provision for income taxes $ ) $ — $ — $ — Net earnings Gain (Loss) on Cash-Flow Hedges Foreign currency forward contracts $ $ $ $ Cost of sales Foreign currency forward contracts Selling, general and administrative Interest rate-related derivatives — Interest expense Earnings before income taxes Benefit (provision) for deferred taxes ) ) ) ) Provision for income taxes $ $ $ $ Net earnings Amounts Included in Net Periodic Benefit Cost Amortization of prior service cost $ — $ ) $ ) $ ) (1) Amortization of actuarial loss ) ) ) ) (1) ) ) ) ) Earnings before income taxes Benefit (provision) for deferred taxes Provision for income taxes $ ) $ ) $ ) $ ) Net earnings Total reclassification adjustments, net $ $ $ $ Net earnings (1) See Note 9 — Pension and Post-Retirement Benefit Plans for additional information. |
STATEMENT OF CASH FLOWS (Tables
STATEMENT OF CASH FLOWS (Tables) | 9 Months Ended |
Mar. 31, 2017 | |
STATEMENT OF CASH FLOWS | |
Supplemental cash flow information | (In millions) 2017 2016 Cash: Cash paid during the period for interest $ $ Cash paid during the period for income taxes $ $ Noncash investing and financing activities: Capital lease and asset retirement obligations incurred $ $ Noncash purchases (sales) of short- and long-term investments, net $ $ Property, plant and equipment accrued but unpaid $ $ |
SEGMENT DATA AND RELATED INFO36
SEGMENT DATA AND RELATED INFORMATION (Tables) | 9 Months Ended |
Mar. 31, 2017 | |
SEGMENT DATA AND RELATED INFORMATION | |
Schedule of segment data and related information | Three Months Ended Nine Months Ended (In millions) 2017 2016 2017 2016 PRODUCT CATEGORY DATA Net Sales: Skin Care $ $ $ $ Makeup Fragrance Hair Care Other Returns associated with restructuring and other activities — — ) — Net Sales $ $ $ $ Operating Income (Loss) before charges associated with restructuring and other activities: Skin Care $ $ $ $ Makeup Fragrance ) Hair Care Other Reconciliation: Charges associated with restructuring and other activities ) ) ) ) Interest expense ) ) ) ) Interest income and investment income, net Earnings before income taxes $ $ $ $ GEOGRAPHIC DATA Net Sales: The Americas $ $ $ $ Europe, the Middle East & Africa Asia/Pacific Returns associated with restructuring and other activities — — ) — Net Sales $ $ $ $ Operating Income (Loss): The Americas $ $ $ $ Europe, the Middle East & Africa Asia/Pacific Charges associated with restructuring and other activities ) ) ) ) Operating Income $ $ $ $ |
SUMMARY OF SIGNIFICANT ACCOUN37
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Currency Translation and Transactions (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | |
Currency Translation and Transactions | ||||
Unrealized translation gains (losses), net of tax | $ 67 | $ 72 | $ (53) | $ (57) |
Net exchange gains on foreign currency transactions | $ 8 | $ 11 | $ 14 | $ 16 |
SUMMARY OF SIGNIFICANT ACCOUN38
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Accounts Receivable (Details) - USD ($) $ in Millions | Mar. 31, 2017 | Jun. 30, 2016 |
Accounts Receivable | ||
Allowance for doubtful accounts and customer deductions | $ 23 | $ 24 |
SUMMARY OF SIGNIFICANT ACCOUN39
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Concentration of Credit Risk (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||
Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | Jun. 30, 2016 | |
Concentration of Credit Risk | |||||
Net Sales | $ 2,857 | $ 2,657 | $ 8,930 | $ 8,616 | |
Accounts receivable, net | 1,528 | 1,528 | $ 1,258 | ||
Net Sales | Largest Customer | |||||
Concentration of Credit Risk | |||||
Net Sales | $ 230 | $ 248 | $ 763 | $ 840 | |
Concentration of credit risk (as a percent) | 8.00% | 9.00% | 9.00% | 10.00% | |
Accounts Receivable | Largest Customer | |||||
Concentration of Credit Risk | |||||
Accounts receivable, net | $ 205 | $ 205 | $ 164 | ||
Concentration of credit risk (as a percent) | 13.00% | 13.00% |
SUMMARY OF SIGNIFICANT ACCOUN40
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Inventory and Promotional Merchandise (Details) - USD ($) $ in Millions | Mar. 31, 2017 | Jun. 30, 2016 |
Inventory And Promotional Merchandise | ||
Raw materials | $ 278 | $ 306 |
Work in process | 157 | 177 |
Finished goods | 727 | 622 |
Promotional merchandise | 148 | 159 |
Inventory and promotional merchandise, net | $ 1,310 | $ 1,264 |
SUMMARY OF SIGNIFICANT ACCOUN41
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Property, Plant and Equipment (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | |||
Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | Jun. 30, 2016 | |
Property, Plant and Equipment | |||||
Property, Plant and Equipment | $ 3,888 | $ 3,888 | $ 3,796 | ||
Less accumulated depreciation and amortization | (2,312) | (2,312) | (2,213) | ||
Property, Plant and Equipment, net | 1,576 | 1,576 | 1,583 | ||
Cost of assets related to projects in progress | 202 | 202 | 186 | ||
Depreciation and amortization of property, plant and equipment | 106 | $ 100 | 316 | $ 295 | |
Land | |||||
Property, Plant and Equipment | |||||
Property, Plant and Equipment | 29 | 29 | 15 | ||
Buildings and improvements | |||||
Property, Plant and Equipment | |||||
Property, Plant and Equipment | 183 | $ 183 | 187 | ||
Buildings and improvements | Minimum | |||||
Property, Plant and Equipment | |||||
Property, Plant and Equipment, Useful Life | 10 years | ||||
Buildings and improvements | Maximum | |||||
Property, Plant and Equipment | |||||
Property, Plant and Equipment, Useful Life | 40 years | ||||
Machinery and equipment | |||||
Property, Plant and Equipment | |||||
Property, Plant and Equipment | 636 | $ 636 | 680 | ||
Machinery and equipment | Minimum | |||||
Property, Plant and Equipment | |||||
Property, Plant and Equipment, Useful Life | 3 years | ||||
Machinery and equipment | Maximum | |||||
Property, Plant and Equipment | |||||
Property, Plant and Equipment, Useful Life | 10 years | ||||
Computer hardware and software | |||||
Property, Plant and Equipment | |||||
Property, Plant and Equipment | 1,094 | $ 1,094 | 1,041 | ||
Computer hardware and software | Minimum | |||||
Property, Plant and Equipment | |||||
Property, Plant and Equipment, Useful Life | 4 years | ||||
Computer hardware and software | Maximum | |||||
Property, Plant and Equipment | |||||
Property, Plant and Equipment, Useful Life | 15 years | ||||
Furniture and fixtures | |||||
Property, Plant and Equipment | |||||
Property, Plant and Equipment | 92 | $ 92 | 84 | ||
Furniture and fixtures | Minimum | |||||
Property, Plant and Equipment | |||||
Property, Plant and Equipment, Useful Life | 5 years | ||||
Furniture and fixtures | Maximum | |||||
Property, Plant and Equipment | |||||
Property, Plant and Equipment, Useful Life | 10 years | ||||
Leasehold improvements | |||||
Property, Plant and Equipment | |||||
Property, Plant and Equipment | $ 1,854 | $ 1,854 | $ 1,789 |
SUMMARY OF SIGNIFICANT ACCOUN42
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Other Accrued Liabilities and Income Taxes (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | Jun. 30, 2016 | Jun. 30, 2015 | |
Other Accrued Liabilities | ||||||
Advertising, merchandising and sampling | $ 315 | $ 315 | $ 283 | |||
Employee compensation | 437 | 437 | 504 | |||
Payroll and other taxes | 206 | 206 | 163 | |||
Other | 786 | 786 | 682 | |||
Total | $ 1,744 | $ 1,744 | 1,632 | |||
Income Taxes | ||||||
Effective tax rate (as a percent) | 26.30% | 28.00% | 27.20% | 28.00% | ||
Unrecognized tax benefits | $ 76 | $ 76 | 82 | |||
Total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate | 49 | 49 | ||||
Gross interest and penalty benefit related to unrecognized tax benefits | 1 | |||||
Total gross accrued interest and penalties related to unrecognized tax benefits | 18 | 18 | 18 | |||
Recently Issued Accounting Standards | ||||||
Recognized excess tax benefits | $ 22 | $ 47 | ||||
Minimum | ||||||
Income Taxes | ||||||
Reasonably possible amount in which unrecognized tax benefits could decrease | 5 | 5 | ||||
Maximum | ||||||
Income Taxes | ||||||
Reasonably possible amount in which unrecognized tax benefits could decrease | $ 10 | $ 10 |
INVESTMENTS - Gains and Losses
INVESTMENTS - Gains and Losses Recorded in AOCI (Details) - USD ($) $ in Millions | Mar. 31, 2017 | Jun. 30, 2016 |
Gains and losses recorded in AOCI | ||
Cost | $ 1,607 | $ 1,497 |
Gross Unrealized Gains | 3 | 7 |
Gross Unrealized Losses | (5) | |
Fair Value | 1,605 | 1,504 |
U.S. government and agency securities | ||
Gains and losses recorded in AOCI | ||
Cost | 452 | 560 |
Gross Unrealized Gains | 2 | 3 |
Gross Unrealized Losses | (2) | |
Fair Value | 452 | 563 |
Foreign government and agency securities | ||
Gains and losses recorded in AOCI | ||
Cost | 103 | 61 |
Gross Unrealized Losses | (1) | |
Fair Value | 102 | 61 |
Corporate notes and bonds | ||
Gains and losses recorded in AOCI | ||
Cost | 506 | 454 |
Gross Unrealized Gains | 3 | |
Gross Unrealized Losses | (2) | |
Fair Value | 504 | 457 |
Time deposits | ||
Gains and losses recorded in AOCI | ||
Cost | 520 | 390 |
Fair Value | 520 | 390 |
Other securities | ||
Gains and losses recorded in AOCI | ||
Cost | 26 | 32 |
Gross Unrealized Gains | 1 | 1 |
Fair Value | $ 27 | $ 33 |
INVESTMENTS - Available-For-Sal
INVESTMENTS - Available-For-Sale Securities by Contractual Maturity (Details) $ in Millions | Mar. 31, 2017USD ($) |
Available-for-sale securities by contractual maturity | |
Due within one year, Cost | $ 701 |
Due after one through five years, Cost | 906 |
Cost, Total | 1,607 |
Due within one year, Fair Value | 701 |
Due after one through five years, Fair Value | 904 |
Fair Value, Total | $ 1,605 |
INVESTMENTS - Fair Market Value
INVESTMENTS - Fair Market Value of Investments With Unrealized Losses Not Deemed to be Other-Than Temporarily Impaired (Details) - Available-for-sale securities $ in Millions | 9 Months Ended |
Mar. 31, 2017USD ($) | |
Fair market value of investments with gross unrealized losses that are not deemed to be other-than temporarily impaired | |
In a Loss Position for Less Than 12 Months, Fair Value | $ 702 |
In a Loss Position for Less Than 12 Months, Gross Unrealized Losses | (5) |
In a Loss Position for More Than 12 Months, Fair Value | $ 5 |
INVESTMENTS - Gross Gains and L
INVESTMENTS - Gross Gains and Losses Realized on Sales of Investments (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | |
Gross gains and losses realized on sales of investments | ||||
Gross gains or losses realized on sales of investments | $ 0 | $ 0 | $ 0 | $ 0 |
INVESTMENTS - Sales proceeds fr
INVESTMENTS - Sales proceeds from investments classified as available-for-sale (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | |
Proceeds from sale of available-for-sale securities | ||||
Sales proceeds from investments classified as available-for-sale | $ 200 | $ 120 | $ 532 | $ 502 |
ACQUISITION OF BUSINESSES (Deta
ACQUISITION OF BUSINESSES (Details) - USD ($) $ in Millions | Dec. 19, 2016 | Mar. 31, 2017 | Mar. 31, 2017 | Nov. 14, 2016 | Jun. 30, 2016 |
Assets acquired and liabilities assumed at the acquisition date | |||||
Goodwill | $ 1,942 | $ 1,942 | $ 1,228 | ||
Too Faced | |||||
Acquisition of Businesses | |||||
Interest acquired (as a percent) | 100.00% | ||||
Consideration | $ 1,500 | ||||
Net sales | 87 | 100 | |||
Net earnings (loss) | $ (5) | (10) | |||
Acquisition-related costs | $ 9 | ||||
Assets acquired and liabilities assumed at the acquisition date | |||||
Cash | 28 | ||||
Accounts receivable | 40 | ||||
Inventory | 105 | ||||
Other current assets | 3 | ||||
Property, plant and equipment | 8 | ||||
Intangible assets | 858 | ||||
Goodwill | 613 | ||||
Total assets acquired | 1,655 | ||||
Accounts payable | 56 | ||||
Other accrued liabilities | 15 | ||||
Deferred income taxes | 100 | ||||
Total liabilities assumed | 171 | ||||
Total purchase price | 1,484 | ||||
Acquired trade receivables | |||||
Gross amount of accounts receivable | 44 | ||||
Customer deductions | $ 4 | ||||
BECCA | |||||
Acquisition of Businesses | |||||
Interest acquired (as a percent) | 100.00% |
GOODWILL AND OTHER INTANGIBLE49
GOODWILL AND OTHER INTANGIBLE ASSETS - Goodwill and Other Intangible Assets (Details) - USD ($) $ in Millions | 9 Months Ended | |
Mar. 31, 2017 | Jun. 30, 2016 | |
Goodwill and Other Intangible Assets | ||
Addition of goodwill due to acquisitions | $ 720 | |
Goodwill | 2,004 | $ 1,292 |
Accumulated impairments | (62) | (64) |
Changes in goodwill | ||
Goodwill | 1,942 | 1,228 |
Translation adjustments | (6) | |
Goodwill, Period Increase (Decrease) | 714 | |
Too Faced And BECCA | ||
Goodwill and Other Intangible Assets | ||
Addition of goodwill due to acquisitions | 712 | |
Addition of amortizable intangible assets | $ 394 | |
Weighted average amortization period (in years) | 10 years | |
Addition of non-amortizable intangible assets | $ 623 | |
Goodwill expected to be deductible for tax purposes arising from acquisitions | 265 | |
Bobbi Brown brand | ||
Changes in goodwill | ||
Goodwill, Period Increase (Decrease) | 8 | |
Skin Care | ||
Goodwill and Other Intangible Assets | ||
Goodwill | 183 | 184 |
Accumulated impairments | (28) | (29) |
Changes in goodwill | ||
Goodwill | 155 | 155 |
Makeup | ||
Goodwill and Other Intangible Assets | ||
Addition of goodwill due to acquisitions | 720 | |
Goodwill | 1,180 | 460 |
Changes in goodwill | ||
Goodwill | 1,180 | 460 |
Goodwill, Period Increase (Decrease) | 720 | |
Fragrance | ||
Goodwill and Other Intangible Assets | ||
Goodwill | 249 | 255 |
Changes in goodwill | ||
Goodwill | 249 | 255 |
Translation adjustments | (6) | |
Goodwill, Period Increase (Decrease) | (6) | |
Hair Care | ||
Goodwill and Other Intangible Assets | ||
Goodwill | 392 | 393 |
Accumulated impairments | (34) | (35) |
Changes in goodwill | ||
Goodwill | $ 358 | $ 358 |
GOODWILL AND OTHER INTANGIBLE50
GOODWILL AND OTHER INTANGIBLE ASSETS - Other Intangible Assets (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | |||
Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | Jun. 30, 2016 | |
Amortizable intangible assets: | |||||
Gross Carrying Value | $ 736 | $ 736 | $ 342 | ||
Accumulated Amortization | 309 | 309 | 288 | ||
Total Net Book Value | 427 | 427 | 54 | ||
Non-amortizable intangible assets: | |||||
Total intangible assets | 1,337 | 1,337 | 344 | ||
Aggregate amortization expense for amortizable intangible assets | 13 | $ 4 | 22 | $ 12 | |
Estimated aggregate amortization expense | |||||
Estimated aggregate amortization expense for remainder of fiscal year 2017 | 13 | 13 | |||
Estimated aggregate amortization expense for fiscal year 2018 | 51 | 51 | |||
Estimated aggregate amortization expense for fiscal year 2019 | 51 | 51 | |||
Estimated aggregate amortization expense for fiscal year 2020 | 44 | 44 | |||
Estimated aggregate amortization expense for fiscal year 2021 | 43 | 43 | |||
Trademarks and other | |||||
Non-amortizable intangible assets: | |||||
Trademarks and other | 910 | 910 | 290 | ||
Customer lists and other | |||||
Amortizable intangible assets: | |||||
Gross Carrying Value | 693 | 693 | 299 | ||
Accumulated Amortization | 266 | 266 | 245 | ||
Total Net Book Value | 427 | 427 | 54 | ||
License agreements | |||||
Amortizable intangible assets: | |||||
Gross Carrying Value | 43 | 43 | 43 | ||
Accumulated Amortization | $ 43 | $ 43 | $ 43 |
CHARGES ASSOCIATED WITH RESTR51
CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES - Leading Beauty Forward (Details) - Leading Beauty Forward $ in Millions | 9 Months Ended |
Mar. 31, 2017USD ($)employee | |
Charges associated with restructuring and other activities | |
Restructuring and other charges expected to be incurred | $ 362 |
Estimated net reduction in global positions (as a percentage) | 2.50% |
Minimum | |
Charges associated with restructuring and other activities | |
Restructuring and other charges expected to be incurred | $ 600 |
Estimated net reduction in global positions | employee | 900 |
Maximum | |
Charges associated with restructuring and other activities | |
Restructuring and other charges expected to be incurred | $ 700 |
Estimated net reduction in global positions | employee | 1,200 |
CHARGES ASSOCIATED WITH RESTR52
CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES - Approved Restructuring Activities by Major Cost Type (Details) - Leading Beauty Forward - USD ($) $ in Millions | 12 Months Ended | |
Jun. 30, 2016 | Mar. 31, 2017 | |
Restructuring and related costs | ||
Restructuring and related costs, approved costs, 2016 fiscal year | $ 190 | |
Restructuring and related costs, approved costs, current period | 172 | |
Restructuring and related costs, cumulative approved costs | 362 | |
Sales Returns (included in Net Sales) | ||
Restructuring and related costs | ||
Restructuring and related costs, approved costs, 2016 fiscal year | 4 | |
Restructuring and related costs, approved costs, current period | 11 | |
Restructuring and related costs, cumulative approved costs | 15 | |
Cost of sales | ||
Restructuring and related costs | ||
Restructuring and related costs, approved costs, 2016 fiscal year | 28 | |
Restructuring and related costs, approved costs, current period | 6 | |
Restructuring and related costs, cumulative approved costs | 34 | |
Consulting and professional expenses reclassified | $ 25 | |
Restructuring Charges. | ||
Restructuring and related costs | ||
Restructuring and related costs, approved costs, 2016 fiscal year | 87 | |
Restructuring and related costs, approved costs, current period | 78 | |
Restructuring and related costs, cumulative approved costs | 165 | |
Restructuring Charges. | Employee-Related Costs | ||
Restructuring and related costs | ||
Restructuring and related costs, approved costs, 2016 fiscal year | 75 | |
Restructuring and related costs, approved costs, current period | 75 | |
Restructuring and related costs, cumulative approved costs | 150 | |
Restructuring Charges. | Asset-Related Costs | ||
Restructuring and related costs | ||
Restructuring and related costs, approved costs, 2016 fiscal year | 3 | |
Restructuring and related costs, approved costs, current period | 1 | |
Restructuring and related costs, cumulative approved costs | 4 | |
Restructuring Charges. | Contract Terminations | ||
Restructuring and related costs | ||
Restructuring and related costs, approved costs, 2016 fiscal year | 5 | |
Restructuring and related costs, cumulative approved costs | 5 | |
Restructuring Charges. | Other Exit Costs | ||
Restructuring and related costs | ||
Restructuring and related costs, approved costs, 2016 fiscal year | 4 | |
Restructuring and related costs, approved costs, current period | 2 | |
Restructuring and related costs, cumulative approved costs | 6 | |
Other Charges. | ||
Restructuring and related costs | ||
Restructuring and related costs, approved costs, 2016 fiscal year | 71 | |
Restructuring and related costs, approved costs, current period | 77 | |
Restructuring and related costs, cumulative approved costs | $ 148 |
CHARGES ASSOCIATED WITH RESTR53
CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES - Restructuring Charges by Major Cost Type (Details) - Leading Beauty Forward $ in Millions | Mar. 31, 2017USD ($) |
Restructuring and related costs | |
Restructuring and related costs, 2016 fiscal year | $ 81 |
Restructuring and related costs, current period | 134 |
Restructuring and related costs | 215 |
Sales Returns (included in Net Sales) | |
Restructuring and related costs | |
Restructuring and related costs, 2016 fiscal year | 1 |
Restructuring and related costs, current period | 2 |
Restructuring and related costs | 3 |
Cost of sales | |
Restructuring and related costs | |
Restructuring and related costs, current period | 10 |
Restructuring and related costs | 10 |
Restructuring Charges. | |
Restructuring and related costs | |
Restructuring and related costs, 2016 fiscal year | 75 |
Restructuring and related costs, current period | 70 |
Restructuring and related costs | 145 |
Other Charges. | |
Restructuring and related costs | |
Restructuring and related costs, 2016 fiscal year | 5 |
Restructuring and related costs, current period | 52 |
Restructuring and related costs | 57 |
Employee-Related Costs | Restructuring Charges. | |
Restructuring and related costs | |
Restructuring and related costs, 2016 fiscal year | 74 |
Restructuring and related costs, current period | 66 |
Restructuring and related costs | 140 |
Asset-Related Costs | Restructuring Charges. | |
Restructuring and related costs | |
Restructuring and related costs, 2016 fiscal year | 1 |
Restructuring and related costs, current period | 2 |
Restructuring and related costs | 3 |
Contract Terminations | Restructuring Charges. | |
Restructuring and related costs | |
Restructuring and related costs, current period | 2 |
Restructuring and related costs | $ 2 |
CHARGES ASSOCIATED WITH RESTR54
CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES - Leading Beauty Forward, Accrued Restructuring Charges (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||||
Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2016 | |
Restructuring Costs | |||||||||
Charges | $ 62 | $ 15 | $ 134 | $ 34 | |||||
Leading Beauty Forward | |||||||||
Restructuring Costs | |||||||||
Beginning balance | 73 | $ 73 | |||||||
Charges | 70 | $ 75 | |||||||
Cash payments | (25) | ||||||||
Noncash asset write-offs | (2) | (1) | |||||||
Translation adjustments | (1) | ||||||||
Translation and other adjustments | (2) | ||||||||
Ending balance | 114 | 114 | 73 | ||||||
Employee-Related Costs | Leading Beauty Forward | |||||||||
Restructuring Costs | |||||||||
Beginning balance | 73 | 73 | |||||||
Charges | 66 | 74 | |||||||
Cash payments | (24) | ||||||||
Translation adjustments | (1) | ||||||||
Translation and other adjustments | (2) | ||||||||
Ending balance | 113 | 113 | 73 | ||||||
Asset-Related Costs | Leading Beauty Forward | |||||||||
Restructuring Costs | |||||||||
Charges | 2 | 1 | |||||||
Noncash asset write-offs | (2) | $ (1) | |||||||
Contract Terminations | Leading Beauty Forward | |||||||||
Restructuring Costs | |||||||||
Charges | 2 | ||||||||
Cash payments | (1) | ||||||||
Ending balance | $ 1 | $ 1 | |||||||
Forecast | Leading Beauty Forward | |||||||||
Restructuring Costs | |||||||||
Accrued restructuring charges expected to result in cash expenditures funded from cash provided by operations | $ 2 | $ 32 | $ 57 | $ 23 |
CHARGES ASSOCIATED WITH RESTR55
CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES - GTI Restructuring (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | |
Charges associated with restructuring and other activities | ||||
Restructuring and other charges | $ 62 | $ 15 | $ 134 | $ 34 |
Global Technology Infrastructure | Restructuring Charges. | ||||
Charges associated with restructuring and other activities | ||||
Restructuring and other charges | 12 | 29 | ||
Global Technology Infrastructure | Other Charges | ||||
Charges associated with restructuring and other activities | ||||
Restructuring and other charges | $ 3 | $ 5 |
DEBT (Details)
DEBT (Details) - USD ($) $ in Millions | 1 Months Ended | 3 Months Ended | 9 Months Ended | ||||
Feb. 28, 2017 | Nov. 30, 2016 | Oct. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | |
DEBT | |||||||
Net derivative instrument gain | $ (51) | $ (36) | $ (17) | $ (32) | |||
Commercial paper | |||||||
DEBT | |||||||
Aggregate principal amount | $ 1,500 | $ 3,000 | |||||
Commercial paper, outstanding amount | $ 195 | $ 195 | |||||
the "2020 Senior Notes" | |||||||
DEBT | |||||||
Aggregate principal amount | $ 500 | ||||||
Interest rate, stated percentage | 1.80% | ||||||
Price (as a percent) | 99.986% | 99.986% | |||||
Yield (as a percent) | 1.805% | 1.805% | |||||
Interest rate swap adjustments | $ (1) | $ (1) | |||||
Debt Issuance Costs | $ 2 | $ 2 | |||||
the "2027 Senior Notes" | |||||||
DEBT | |||||||
Aggregate principal amount | $ 500 | ||||||
Interest rate, stated percentage | 3.15% | ||||||
Price (as a percent) | 99.963% | 99.963% | |||||
Yield (as a percent) | 3.18% | 3.154% | 3.154% | ||||
Debt Issuance Costs | $ 3 | $ 3 | |||||
Notional amount | $ 450 | ||||||
Weighted-average all-in rate | 2.37% | ||||||
Net derivative instrument gain | $ 2 | ||||||
the "2047 Senior Notes" | |||||||
DEBT | |||||||
Aggregate principal amount | $ 500 | ||||||
Interest rate, stated percentage | 4.15% | ||||||
Price (as a percent) | 99.739% | 99.739% | |||||
Yield (as a percent) | 4.17% | 4.165% | 4.165% | ||||
Unamortized Debt (Discount) Premium | $ (2) | $ (2) | |||||
Debt Issuance Costs | 5 | 5 | |||||
Notional amount | $ 350 | ||||||
Weighted-average all-in rate | 3.01% | ||||||
Net derivative instrument gain | $ 3 | ||||||
Senior Notes due May 15, 2017 | |||||||
DEBT | |||||||
Aggregate principal amount | $ 300 | ||||||
Interest rate, stated percentage | 5.55% | ||||||
Revolving Credit Facility Expiring November 2017 | |||||||
DEBT | |||||||
Termination of undrawn senior unsecured credit agreement | $ 1,500 | ||||||
Debt instrument term | 364 days | ||||||
Revolving Credit Facility Expiring July 2020 | |||||||
DEBT | |||||||
Maximum borrowing capacity | $ 1,000 | ||||||
Revolving Credit Facility Expiring October 2021 | |||||||
DEBT | |||||||
Maximum borrowing capacity | $ 1,500 | ||||||
Debt Instrument Term Extension | 2 years | ||||||
Maximum borrowing capacity for multi-currency loans | $ 500 | ||||||
Incurred costs to establish facility | 1 | ||||||
Annual fee | 1 | ||||||
Amount of financial obligation due, which if exceeded and which there is a failure to pay, would result in an event of default and acceleration of the maturity date | $ 175 | ||||||
Amount of borrowings outstanding | $ 0 | $ 0 |
DERIVATIVE FINANCIAL INSTRUME57
DERIVATIVE FINANCIAL INSTRUMENTS - Derivative Instruments Included in the Consolidated Balance Sheets (Details) - USD ($) $ in Millions | Mar. 31, 2017 | Jun. 30, 2016 |
Derivatives, Fair Value | ||
Derivative Asset, Total | $ 31 | $ 66 |
Derivative Liability, Total | 47 | 26 |
Derivatives designated as hedging instruments | ||
Derivatives, Fair Value | ||
Derivative Asset, Total | 27 | 55 |
Derivative Liability, Total | 37 | 18 |
Derivatives designated as hedging instruments | Foreign currency forward contracts | Prepaid expenses and other current assets | ||
Derivatives, Fair Value | ||
Derivative asset, fair value | 27 | 37 |
Derivatives designated as hedging instruments | Foreign currency forward contracts | Other accrued liabilities | ||
Derivatives, Fair Value | ||
Derivative liability, fair value | 30 | 18 |
Derivatives designated as hedging instruments | Interest rate swap contracts | Prepaid expenses and other current assets | ||
Derivatives, Fair Value | ||
Derivative asset, fair value | 18 | |
Derivatives designated as hedging instruments | Interest rate swap contracts | Other accrued liabilities | ||
Derivatives, Fair Value | ||
Derivative liability, fair value | 7 | |
Derivatives not designated as hedging instruments | Foreign currency forward contracts | Prepaid expenses and other current assets | ||
Derivatives, Fair Value | ||
Derivative asset, fair value | 4 | 11 |
Derivatives not designated as hedging instruments | Foreign currency forward contracts | Other accrued liabilities | ||
Derivatives, Fair Value | ||
Derivative liability, fair value | $ 10 | $ 8 |
DERIVATIVE FINANCIAL INSTRUME58
DERIVATIVE FINANCIAL INSTRUMENTS - Gain (Loss) on Derivative Financial Instruments (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | |
Foreign currency forward contracts | Selling, general and administrative | Derivatives not designated as hedging instruments | ||||
Gain (loss) on derivative financial instruments | ||||
Amount of Gain or (Loss) Recognized in Earnings on Derivatives | $ (11) | $ 20 | $ (10) | $ 21 |
Derivatives in cash flow hedging relationships | ||||
Gain (loss) on derivative financial instruments | ||||
Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion) | (41) | (16) | 18 | 20 |
Amount of Gain or (Loss) Reclassified from AOCI into Earnings (Effective Portion) | 10 | 20 | 35 | 52 |
Gain (loss) recognized in earnings related to the amount excluded from effectiveness testing | 2 | (3) | (2) | |
Gain (loss) recognized in earnings related to the ineffective portion of the hedging relationships | 0 | 0 | ||
Derivatives in cash flow hedging relationships | Foreign currency forward contracts | ||||
Gain (loss) on derivative financial instruments | ||||
Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion) | (35) | (16) | 13 | 20 |
Derivatives in cash flow hedging relationships | Foreign currency forward contracts | Cost of sales | ||||
Gain (loss) on derivative financial instruments | ||||
Amount of Gain or (Loss) Reclassified from AOCI into Earnings (Effective Portion) | 2 | 6 | 8 | 13 |
Derivatives in cash flow hedging relationships | Foreign currency forward contracts | Selling, general and administrative | ||||
Gain (loss) on derivative financial instruments | ||||
Amount of Gain or (Loss) Reclassified from AOCI into Earnings (Effective Portion) | 7 | 14 | 26 | 38 |
Derivatives in cash flow hedging relationships | Interest rate-related derivatives | ||||
Gain (loss) on derivative financial instruments | ||||
Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion) | (6) | 5 | ||
Derivatives in cash flow hedging relationships | Interest rate-related derivatives | Interest expense | ||||
Gain (loss) on derivative financial instruments | ||||
Amount of Gain or (Loss) Reclassified from AOCI into Earnings (Effective Portion) | 1 | 1 | 1 | |
Derivatives in Fair Value Hedging Relationships | Interest rate swap contracts | Interest expense | ||||
Gain (loss) on derivative financial instruments | ||||
Amount of Gain or (Loss) Recognized in Earnings on Derivatives | $ (3) | $ 7 | $ (25) | $ 13 |
DERIVATIVE FINANCIAL INSTRUME59
DERIVATIVE FINANCIAL INSTRUMENTS - Cash-Flow Hedges, Fair Value Hedges, Credit Risk (Details) $ in Millions | Mar. 31, 2017USD ($)item | Feb. 28, 2017 | Jun. 30, 2016USD ($) |
the "2020 Senior Notes" | |||
Fair Value Hedges | |||
Interest rate, stated percentage | 1.80% | ||
1.70% Senior Notes, due May 10, 2021 | |||
Fair Value Hedges | |||
Interest rate, stated percentage | 1.70% | ||
2.35% Senior Notes due August 15, 2022 | |||
Fair Value Hedges | |||
Interest rate, stated percentage | 2.35% | ||
Derivative | |||
Credit Risk | |||
Minimum number of nationally recognized rating agencies | item | 2 | ||
Maximum exposure to credit risk in the event of nonperformance by counterparties, gross fair value of contracts in asset positions | $ 31 | ||
Derivatives in cash flow hedging relationships | |||
Cash Flow Hedges | |||
Accumulated gain on derivative instruments in AOCI, before tax | 33 | $ 50 | |
Derivatives in cash flow hedging relationships | Foreign currency forward contracts | |||
Derivative instruments | |||
Notional amount | 3,175 | ||
Cash Flow Hedges | |||
Amount expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months | 4 | ||
Derivatives in cash flow hedging relationships | Foreign currency forward contracts | British pound | |||
Derivative instruments | |||
Notional amount | 565 | ||
Derivatives in cash flow hedging relationships | Foreign currency forward contracts | Swiss franc | |||
Derivative instruments | |||
Notional amount | 397 | ||
Derivatives in cash flow hedging relationships | Foreign currency forward contracts | Hong Kong dollar | |||
Derivative instruments | |||
Notional amount | 364 | ||
Derivatives in cash flow hedging relationships | Foreign currency forward contracts | Chinese yuan | |||
Derivative instruments | |||
Notional amount | 328 | ||
Derivatives in cash flow hedging relationships | Foreign currency forward contracts | Euro | |||
Derivative instruments | |||
Notional amount | 305 | ||
Derivatives in cash flow hedging relationships | Foreign currency forward contracts | Australian dollar | |||
Derivative instruments | |||
Notional amount | 196 | ||
Derivatives in cash flow hedging relationships | Foreign currency forward contracts | Taiwan dollar | |||
Derivative instruments | |||
Notional amount | 138 | ||
Derivatives in Fair Value Hedging Relationships | Interest rate swap contracts | the "2020 Senior Notes" | |||
Derivative instruments | |||
Notional amount | 250 | ||
Derivatives in Fair Value Hedging Relationships | Interest rate swap contracts | 1.70% Senior Notes, due May 10, 2021 | |||
Derivative instruments | |||
Notional amount | 450 | ||
Derivatives in Fair Value Hedging Relationships | Interest rate swap contracts | 2.35% Senior Notes due August 15, 2022 | |||
Derivative instruments | |||
Notional amount | $ 250 |
FAIR VALUE MEASUREMENTS - Hiera
FAIR VALUE MEASUREMENTS - Hierarchy For Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis (Details) - USD ($) $ in Millions | Mar. 31, 2017 | Jun. 30, 2016 |
Assets: | ||
Available-for-sale securities | $ 1,605 | $ 1,504 |
U.S. government and agency securities | ||
Assets: | ||
Available-for-sale securities | 452 | 563 |
Foreign government and agency securities | ||
Assets: | ||
Available-for-sale securities | 102 | 61 |
Corporate notes and bonds | ||
Assets: | ||
Available-for-sale securities | 504 | 457 |
Time deposits | ||
Assets: | ||
Available-for-sale securities | 520 | 390 |
Other securities | ||
Assets: | ||
Available-for-sale securities | 27 | 33 |
Recurring basis | ||
Assets: | ||
Foreign currency forward contracts | 31 | 48 |
Total | 1,636 | 1,570 |
Liabilities: | ||
Foreign currency forward contracts | 40 | 26 |
Contingent consideration | 197 | 196 |
Total | 244 | 222 |
Recurring basis | Level 2 | ||
Assets: | ||
Foreign currency forward contracts | 31 | 48 |
Total | 1,636 | 1,570 |
Liabilities: | ||
Foreign currency forward contracts | 40 | 26 |
Total | 47 | 26 |
Recurring basis | Level 3 | ||
Liabilities: | ||
Contingent consideration | 197 | 196 |
Total | 197 | 196 |
Recurring basis | U.S. government and agency securities | ||
Assets: | ||
Available-for-sale securities | 452 | 563 |
Recurring basis | U.S. government and agency securities | Level 2 | ||
Assets: | ||
Available-for-sale securities | 452 | 563 |
Recurring basis | Foreign government and agency securities | ||
Assets: | ||
Available-for-sale securities | 102 | 61 |
Recurring basis | Foreign government and agency securities | Level 2 | ||
Assets: | ||
Available-for-sale securities | 102 | 61 |
Recurring basis | Corporate notes and bonds | ||
Assets: | ||
Available-for-sale securities | 504 | 457 |
Recurring basis | Corporate notes and bonds | Level 2 | ||
Assets: | ||
Available-for-sale securities | 504 | 457 |
Recurring basis | Time deposits | ||
Assets: | ||
Available-for-sale securities | 520 | 390 |
Recurring basis | Time deposits | Level 2 | ||
Assets: | ||
Available-for-sale securities | 520 | 390 |
Recurring basis | Other securities | ||
Assets: | ||
Available-for-sale securities | 27 | 33 |
Recurring basis | Other securities | Level 2 | ||
Assets: | ||
Available-for-sale securities | 27 | 33 |
Interest rate swap contracts | Recurring basis | ||
Assets: | ||
Interest rate swap contracts | 18 | |
Liabilities: | ||
Interest rate swap contracts | 7 | |
Interest rate swap contracts | Recurring basis | Level 2 | ||
Assets: | ||
Interest rate swap contracts | $ 18 | |
Liabilities: | ||
Interest rate swap contracts | $ 7 |
FAIR VALUE MEASUREMENTS - Estim
FAIR VALUE MEASUREMENTS - Estimated Fair Values of Financial Instruments (Details) - USD ($) $ in Millions | Mar. 31, 2017 | Jun. 30, 2016 |
Nonderivatives | ||
Available-for-sale securities | $ 1,605 | $ 1,504 |
Derivatives | ||
Derivative asset | 31 | 66 |
Derivative liability | (47) | (26) |
Carrying Amount | ||
Nonderivatives | ||
Cash and cash equivalents | 1,139 | 914 |
Available-for-sale securities | 1,605 | 1,504 |
Current and long-term debt | 3,896 | 2,242 |
Additional purchase price payable | 37 | 37 |
Contingent consideration | 197 | 196 |
Fair Value | ||
Nonderivatives | ||
Cash and cash equivalents | 1,139 | 914 |
Available-for-sale securities | 1,605 | 1,504 |
Current and long-term debt | 4,007 | 2,482 |
Additional purchase price payable | 37 | 37 |
Contingent consideration | 197 | 196 |
Foreign currency forward contracts | Carrying Amount | ||
Derivatives | ||
Derivative asset | 22 | |
Derivative liability | (9) | |
Foreign currency forward contracts | Fair Value | ||
Derivatives | ||
Derivative asset | 22 | |
Derivative liability | (9) | |
Interest rate swap contracts | Carrying Amount | ||
Derivatives | ||
Derivative asset | 18 | |
Derivative liability | (7) | |
Interest rate swap contracts | Fair Value | ||
Derivatives | ||
Derivative asset | $ 18 | |
Derivative liability | $ (7) |
FAIR VALUE MEASUREMENTS - Forei
FAIR VALUE MEASUREMENTS - Foreign Currency Forward Contracts Maturity (Details) - Foreign currency forward contracts | 9 Months Ended |
Mar. 31, 2017 | |
Maximum | LIBOR | |
Foreign currency forward contracts | |
Contract maturities | 12 months |
Minimum | Swap yield curve | |
Foreign currency forward contracts | |
Contract maturities | 12 months |
FAIR VALUE MEASUREMENTS - Est63
FAIR VALUE MEASUREMENTS - Estimated Fair Values of Financial Instruments, Contingent Consideration (Details) - USD ($) $ in Millions | 9 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Changes in the fair value of the contingent consideration obligations | ||
Change in fair value | $ 1 | $ 16 |
Selling, general and administrative expenses | ||
Changes in the fair value of the contingent consideration obligations | ||
Contingent consideration at the beginning of the period | 196 | |
Change in fair value | 1 | |
Contingent consideration at the end of the period | $ 197 | |
Level 2 | Additional Purchase Price Payable | ||
Estimated fair values of financial instruments | ||
Risk-adjusted discount rate (as a percent) | 1.00% | |
Level 3 | Contingent Consideration | Monte Carlo Method | ||
Estimated fair values of financial instruments | ||
Revenue/earnings before income tax, depreciation and amortization ("EBITDA") correlation factor (as a percent) | 80.00% | |
Minimum | Level 3 | Contingent Consideration | Monte Carlo Method | ||
Estimated fair values of financial instruments | ||
Risk-adjusted discount rate (as a percent) | 1.50% | |
Revenue volatility (as a percent) | 3.50% | |
Asset volatility (as a percent) | 21.70% | |
Revenue discount rates (as a percent) | 2.90% | |
EBITDA discount rates (as a percent) | 11.10% | |
Maximum | Level 3 | Contingent Consideration | Monte Carlo Method | ||
Estimated fair values of financial instruments | ||
Risk-adjusted discount rate (as a percent) | 2.40% | |
Revenue volatility (as a percent) | 8.30% | |
Asset volatility (as a percent) | 26.50% | |
Revenue discount rates (as a percent) | 4.90% | |
EBITDA discount rates (as a percent) | 11.90% |
PENSION AND POST-RETIREMENT B64
PENSION AND POST-RETIREMENT BENEFIT PLANS - Components of Net Periodic Benefit Cost (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | |
Pension Plans U.S. | ||||
Components of net periodic benefit cost: | ||||
Service cost | $ 9 | $ 8 | $ 27 | $ 24 |
Interest cost | 8 | 8 | 23 | 24 |
Expected return on plan assets | (13) | (12) | (39) | (36) |
Amortization of: | ||||
Prior service cost | 1 | 1 | 1 | |
Actuarial loss | 4 | 2 | 12 | 8 |
Net periodic benefit cost | 8 | 7 | 24 | 21 |
Pension Plans International | ||||
Components of net periodic benefit cost: | ||||
Service cost | 7 | 6 | 21 | 18 |
Interest cost | 3 | 4 | 9 | 12 |
Expected return on plan assets | (4) | (5) | (12) | (15) |
Amortization of: | ||||
Prior service cost | 1 | 1 | ||
Actuarial loss | 3 | 3 | 8 | 9 |
Special termination benefits | 1 | 1 | ||
Net periodic benefit cost | 10 | 8 | 28 | 25 |
Employer contributions | 9 | |||
Other than Pension Plans Post-Retirement | ||||
Components of net periodic benefit cost: | ||||
Service cost | 1 | 2 | 3 | |
Interest cost | 2 | 2 | 5 | 6 |
Expected return on plan assets | (1) | (1) | (2) | |
Amortization of: | ||||
Actuarial loss | 1 | |||
Net periodic benefit cost | $ 2 | $ 2 | $ 7 | $ 7 |
PENSION AND POST-RETIREMENT B65
PENSION AND POST-RETIREMENT BENEFIT PLANS - Amounts Recognized in the Balance Sheet (Details) - USD ($) $ in Millions | Mar. 31, 2017 | Jun. 30, 2016 |
Amounts recognized in the Balance Sheet consist of: | ||
Other assets | $ 75 | $ 79 |
Other accrued liabilities | (27) | (27) |
Other noncurrent liabilities | (443) | (429) |
Funded status | (395) | (377) |
Accumulated other comprehensive loss | 400 | 427 |
Net amount recognized | $ 5 | $ 50 |
STOCK PROGRAMS - Compensation E
STOCK PROGRAMS - Compensation Expense and Stock Options (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | |
Share-based Compensation Arrangement by Share-based Payment Award | ||||
Compensation expense | $ 41 | $ 36 | $ 175 | $ 147 |
Income tax benefit | 14 | $ 12 | $ 58 | $ 48 |
Stock options | ||||
Share-based Compensation Arrangement by Share-based Payment Award | ||||
Grant at fair value (in shares) | 2.5 | |||
Exercise price (in dollars per share) | $ 89.24 | |||
Grant date fair value (in dollars per share) | $ 22.79 | |||
Additional General Disclosures | ||||
Intrinsic value of stock options exercised (in dollars) | $ 45 | $ 116 |
STOCK PROGRAMS - Restricted Sto
STOCK PROGRAMS - Restricted Stock Units (Details) - Restricted Stock Units shares in Millions | 9 Months Ended |
Mar. 31, 2017$ / sharesshares | |
Share-based Compensation Arrangement by Share-based Payment Award | |
Granted (in shares) | 1.6 |
Grant date fair value (in dollars per share) | $ / shares | $ 88.54 |
RSU grants scheduled to vest in fiscal 2018 | |
Share-based Compensation Arrangement by Share-based Payment Award | |
RSU grants scheduled to vest (in shares) | 0.5 |
RSU grants scheduled to vest in fiscal 2019 | |
Share-based Compensation Arrangement by Share-based Payment Award | |
RSU grants scheduled to vest (in shares) | 0.5 |
RSU grants scheduled to vest in fiscal 2020 | |
Share-based Compensation Arrangement by Share-based Payment Award | |
RSU grants scheduled to vest (in shares) | 0.5 |
RSU grants scheduled to vest in fiscal 2022 | |
Share-based Compensation Arrangement by Share-based Payment Award | |
RSU grants scheduled to vest (in shares) | 0.1 |
STOCK PROGRAMS - Performance Sh
STOCK PROGRAMS - Performance Share Units (Details) - Performance Share Units - $ / shares shares in Millions | Jun. 30, 2016 | Jan. 31, 2017 | Sep. 30, 2016 |
Share-based Compensation Arrangement by Share-based Payment Award | |||
Granted (in shares) | 0.3 | ||
Grant date fair value (in dollars per share) | $ 89.47 | ||
Vested (in shares) | 0.3 | ||
PSU settled June 30, 2020 | |||
Share-based Compensation Arrangement by Share-based Payment Award | |||
Granted (in shares) | 0.3 | ||
Grant date fair value (in dollars per share) | $ 80.79 | ||
PSU settled June 30, 2022 | |||
Share-based Compensation Arrangement by Share-based Payment Award | |||
Granted (in shares) | 0.2 | ||
Grant date fair value (in dollars per share) | $ 80.79 | ||
Common Class A | |||
Share-based Compensation Arrangement by Share-based Payment Award | |||
Common Stock issued (in shares) | 0.3 |
STOCK PROGRAMS - Performance 69
STOCK PROGRAMS - Performance Share Units Based on Total Stockholder Return (Details) | 1 Months Ended |
Sep. 30, 2016shares | |
Performance share units based on total stockholder return | Common Class A | |
Share-based Compensation Arrangement by Share-based Payment Award | |
Common Stock issued (in shares) | 49,882 |
NET EARNINGS ATTRIBUTABLE TO 70
NET EARNINGS ATTRIBUTABLE TO THE ESTEE LAUDER COMPANIES INC. PER COMMON SHARE - Reconciliation Between Numerator and Denominator of Basic and Diluted EPS Computations (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | |
Numerator: | ||||
Net earnings attributable to The Estee Lauder Companies Inc. (in dollars) | $ 298 | $ 265 | $ 1,020 | $ 1,021 |
Denominator: | ||||
Weighted-average common shares outstanding - Basic | 367 | 369.1 | 366.8 | 370.4 |
Weighted-average common shares outstanding - Diluted | 372.3 | 375.6 | 372.7 | 376.9 |
Net earnings attributable to The Estee Lauder Companies Inc. per common share: | ||||
Basic (in dollars per share) | $ 0.81 | $ 0.72 | $ 2.78 | $ 2.76 |
Diluted (in dollars per share) | $ 0.80 | $ 0.71 | $ 2.74 | $ 2.71 |
Stock options | ||||
Denominator: | ||||
Incremental common shares attributable to share-based payment arrangements | 3.5 | 4.5 | 3.8 | 4.4 |
Performance Share Units | ||||
Denominator: | ||||
Incremental common shares attributable to share-based payment arrangements | 0.2 | 0.2 | ||
Restricted Stock Units | ||||
Denominator: | ||||
Incremental common shares attributable to share-based payment arrangements | 1.6 | 1.9 | 1.9 | 2 |
Performance share units based on total stockholder return | ||||
Denominator: | ||||
Incremental common shares attributable to share-based payment arrangements | 0.1 | 0.1 |
NET EARNINGS ATTRIBUTABLE TO 71
NET EARNINGS ATTRIBUTABLE TO THE ESTEE LAUDER COMPANIES INC. PER COMMON SHARE - Antidilutive Securities Excluded from Computation of Earnings, Per Share (Details) - shares shares in Millions | Mar. 31, 2017 | Mar. 31, 2016 |
Stock options | ||
Antidilutive Securities Excluded from Computation of Earnings, Per Share | ||
Antidilutive shares excluded from the calculation of diluted earnings per share | 2.5 | 0.2 |
Contingently Issuable Shares | ||
Antidilutive Securities Excluded from Computation of Earnings, Per Share | ||
Antidilutive shares excluded from the calculation of diluted earnings per share | 1.3 | 0.8 |
EQUITY - Equity Rollforward (De
EQUITY - Equity Rollforward (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | |
Increase (Decrease) in Stockholders' Equity | ||||
Beginning of year | $ 3,587 | |||
Net earnings | $ 300 | $ 266 | 1,026 | $ 1,026 |
Common stock dividends | (366) | |||
Other comprehensive income (loss) | 39 | $ 59 | (54) | $ (58) |
Acquisition of treasury stock | (307) | |||
Stock-based compensation | 249 | |||
End of year | 4,135 | 4,135 | ||
Total stockholders' equity - The Estee Lauder Companies Inc. | ||||
Increase (Decrease) in Stockholders' Equity | ||||
Beginning of year | 3,572 | |||
Net earnings | 1,020 | |||
Common stock dividends | (361) | |||
Other comprehensive income (loss) | (54) | |||
Acquisition of treasury stock | (307) | |||
Stock-based compensation | 249 | |||
End of year | 4,119 | 4,119 | ||
Common Stock | ||||
Increase (Decrease) in Stockholders' Equity | ||||
Beginning of year | 6 | |||
End of year | 6 | 6 | ||
Paid-in Capital | ||||
Increase (Decrease) in Stockholders' Equity | ||||
Beginning of year | 3,161 | |||
Common stock dividends | 2 | |||
Stock-based compensation | 299 | |||
End of year | 3,462 | 3,462 | ||
Retained Earnings | ||||
Increase (Decrease) in Stockholders' Equity | ||||
Beginning of year | 7,693 | |||
Net earnings | 1,020 | |||
Common stock dividends | (363) | |||
End of year | 8,350 | 8,350 | ||
Accumulated other comprehensive income (loss) | ||||
Increase (Decrease) in Stockholders' Equity | ||||
Beginning of year | (545) | |||
Other comprehensive income (loss) | (54) | |||
End of year | (599) | (599) | ||
Treasury Stock | ||||
Increase (Decrease) in Stockholders' Equity | ||||
Beginning of year | (6,743) | |||
Acquisition of treasury stock | (307) | |||
Stock-based compensation | (50) | |||
End of year | (7,100) | (7,100) | ||
Non-controlling Interests | ||||
Increase (Decrease) in Stockholders' Equity | ||||
Beginning of year | 15 | |||
Net earnings | 6 | |||
Common stock dividends | (5) | |||
End of year | $ 16 | $ 16 |
EQUITY - Class of Stock and Div
EQUITY - Class of Stock and Dividend Information (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions | Jun. 15, 2017 | May 02, 2017 | Mar. 15, 2017 | Feb. 01, 2017 | Dec. 15, 2016 | Nov. 01, 2016 | Sep. 15, 2016 | Aug. 18, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 |
Class of Stock | ||||||||||||
Cash dividends declared per common share (in dollars per share) | $ 0.34 | $ 0.30 | $ 0.98 | $ 0.84 | ||||||||
Purchase of Class A Common Stock (in dollars) | $ 307 | |||||||||||
Common Class A and Common Class B | ||||||||||||
Class of Stock | ||||||||||||
Cash dividends declared per common share (in dollars per share) | $ 0.34 | $ 0.34 | $ 0.34 | $ 0.30 | ||||||||
Dividends paid (in dollars per share) | $ 0.34 | $ 0.34 | $ 0.30 | |||||||||
Common Class A and Common Class B | Forecast | ||||||||||||
Class of Stock | ||||||||||||
Dividends paid (in dollars per share) | $ 0.34 | |||||||||||
Common Class A | ||||||||||||
Class of Stock | ||||||||||||
Purchase of Class A Common Stock (in shares) | 4.2 | |||||||||||
Purchase of Class A Common Stock (in dollars) | $ 363 | |||||||||||
Common Class B | ||||||||||||
Class of Stock | ||||||||||||
Conversion of Class B to Class A (in shares) | 0.8 |
EQUITY - Changes in Accumulated
EQUITY - Changes in Accumulated Other Comprehensive Income (Details) $ in Millions | 9 Months Ended |
Mar. 31, 2017USD ($) | |
Changes in AOCI, net of tax by component | |
Balance, beginning of year | $ 3,572 |
Balance, end of year | 4,119 |
Accumulated other comprehensive income (loss) | |
Changes in AOCI, net of tax by component | |
Balance, beginning of year | (545) |
OCI before reclassifications | (47) |
Amounts reclassified from AOCI | (7) |
Net current-period OCI | (54) |
Balance, end of year | (599) |
Gain (Loss) on Investments | |
Changes in AOCI, net of tax by component | |
Balance, beginning of year | 7 |
OCI before reclassifications | (9) |
Net current-period OCI | (9) |
Balance, end of year | (2) |
Gain (Loss) on Cash-Flow Hedges | |
Changes in AOCI, net of tax by component | |
Balance, beginning of year | 32 |
OCI before reclassifications | 12 |
Amounts reclassified from AOCI | (23) |
Net current-period OCI | (11) |
Balance, end of year | 21 |
Amounts Included in Net Periodic Benefit Cost | |
Changes in AOCI, net of tax by component | |
Balance, beginning of year | (285) |
OCI before reclassifications | 3 |
Amounts reclassified from AOCI | 16 |
Net current-period OCI | 19 |
Balance, end of year | (266) |
Foreign currency translation gains | 4 |
Translation Adjustments | |
Changes in AOCI, net of tax by component | |
Balance, beginning of year | (299) |
OCI before reclassifications | (53) |
Net current-period OCI | (53) |
Balance, end of year | $ (352) |
EQUITY - Reclassification Adjus
EQUITY - Reclassification Adjustments From Accumulated Other Comprehensive Income (loss) (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | |
Reclassification adjustments from accumulated other comprehensive income (loss) | ||||
Interest income and investment income, net | $ 8 | $ 4 | $ 19 | $ 10 |
Cost of sales | (591) | (504) | (1,824) | (1,670) |
Selling, general and administrative | (1,780) | (1,754) | (5,522) | (5,445) |
Interest expense | (28) | (18) | (71) | (52) |
Earnings before Income Taxes | 407 | 370 | 1,410 | 1,425 |
Benefit (provision) for deferred taxes | (107) | (104) | (384) | (399) |
Net Earnings | 300 | 266 | 1,026 | 1,026 |
Amount Reclassified from AOCI | ||||
Reclassification adjustments from accumulated other comprehensive income (loss) | ||||
Net Earnings | 1 | 9 | 7 | 20 |
Gain (Loss) on Investments | Amount Reclassified from AOCI | ||||
Reclassification adjustments from accumulated other comprehensive income (loss) | ||||
Interest income and investment income, net | (1) | |||
Net Earnings | (1) | |||
Gain (Loss) on Cash-Flow Hedges | Amount Reclassified from AOCI | ||||
Reclassification adjustments from accumulated other comprehensive income (loss) | ||||
Earnings before Income Taxes | 10 | 20 | 35 | 52 |
Benefit (provision) for deferred taxes | (3) | (7) | (12) | (18) |
Net Earnings | 7 | 13 | 23 | 34 |
Gain (Loss) on Cash-Flow Hedges | Amount Reclassified from AOCI | Foreign currency forward contracts | ||||
Reclassification adjustments from accumulated other comprehensive income (loss) | ||||
Cost of sales | 2 | 6 | 8 | 13 |
Selling, general and administrative | 7 | 14 | 26 | 38 |
Gain (Loss) on Cash-Flow Hedges | Amount Reclassified from AOCI | Interest rate-related derivatives | ||||
Reclassification adjustments from accumulated other comprehensive income (loss) | ||||
Interest expense | 1 | 1 | 1 | |
Amounts Included in Net Periodic Benefit Cost | Amount Reclassified from AOCI | ||||
Reclassification adjustments from accumulated other comprehensive income (loss) | ||||
Amortization of prior service cost | (1) | (2) | (2) | |
Amortization of actuarial loss | (7) | (5) | (21) | (17) |
Earnings before Income Taxes | (7) | (6) | (23) | (19) |
Benefit (provision) for deferred taxes | 2 | 2 | 7 | 5 |
Net Earnings | $ (5) | $ (4) | $ (16) | $ (14) |
STATEMENT OF CASH FLOWS (Detail
STATEMENT OF CASH FLOWS (Details) - USD ($) $ in Millions | 9 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Cash: | ||
Cash paid during the period for interest | $ 58 | $ 47 |
Cash paid during the period for income taxes | 324 | 349 |
Noncash investing and financing activities: | ||
Capital lease and asset retirement obligations incurred | 10 | 23 |
Noncash purchases (sales) of short- and long-term investments, net | 1 | 2 |
Property, plant and equipment accrued but unpaid | $ 26 | $ 22 |
SEGMENT DATA AND RELATED INFO77
SEGMENT DATA AND RELATED INFORMATION (Details) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2017USD ($) | Mar. 31, 2016USD ($) | Mar. 31, 2017USD ($)segment | Mar. 31, 2016USD ($) | |
SEGMENT DATA AND RELATED INFORMATION | ||||
Number of operating segments | segment | 1 | |||
Net Sales: | ||||
Net Sales before returns associated with restructuring activities | $ 2,857 | $ 2,657 | $ 8,932 | $ 8,616 |
Net Sales | 2,857 | 2,657 | 8,930 | 8,616 |
Operating Income (Loss) before charges associated with restructuring and other activities: | ||||
Operating Income (Loss) before charges associated with restructuring and other activities | 489 | 399 | 1,596 | 1,501 |
Operating Income | 427 | 384 | 1,462 | 1,467 |
Reconciliation: | ||||
Charges associated with restructuring and other activities | (62) | (15) | (134) | (34) |
Interest expense | (28) | (18) | (71) | (52) |
Interest income and investment income, net | 8 | 4 | 19 | 10 |
Earnings before Income Taxes | 407 | 370 | 1,410 | 1,425 |
Skin Care | ||||
Net Sales: | ||||
Net Sales before returns associated with restructuring activities | 1,105 | 1,073 | 3,455 | 3,414 |
Operating Income (Loss) before charges associated with restructuring and other activities: | ||||
Operating Income (Loss) before charges associated with restructuring and other activities | 265 | 202 | 828 | 701 |
Makeup | ||||
Net Sales: | ||||
Net Sales before returns associated with restructuring activities | 1,271 | 1,161 | 3,743 | 3,574 |
Operating Income (Loss) before charges associated with restructuring and other activities: | ||||
Operating Income (Loss) before charges associated with restructuring and other activities | 192 | 192 | 562 | 642 |
Fragrance | ||||
Net Sales: | ||||
Net Sales before returns associated with restructuring activities | 336 | 276 | 1,275 | 1,159 |
Operating Income (Loss) before charges associated with restructuring and other activities: | ||||
Operating Income (Loss) before charges associated with restructuring and other activities | 16 | (6) | 157 | 114 |
Hair Care | ||||
Net Sales: | ||||
Net Sales before returns associated with restructuring activities | 126 | 128 | 399 | 411 |
Operating Income (Loss) before charges associated with restructuring and other activities: | ||||
Operating Income (Loss) before charges associated with restructuring and other activities | 12 | 10 | 38 | 36 |
Other | ||||
Net Sales: | ||||
Net Sales before returns associated with restructuring activities | 19 | 19 | 60 | 58 |
Operating Income (Loss) before charges associated with restructuring and other activities: | ||||
Operating Income (Loss) before charges associated with restructuring and other activities | 4 | 1 | 11 | 8 |
Sales Returns (included in Net Sales) | ||||
Reconciliation: | ||||
Charges associated with restructuring and other activities | (2) | |||
The Americas | ||||
Net Sales: | ||||
Net Sales before returns associated with restructuring activities | 1,171 | 1,112 | 3,646 | 3,607 |
Operating Income (Loss) before charges associated with restructuring and other activities: | ||||
Operating Income (Loss) before charges associated with restructuring and other activities | 87 | 112 | 236 | 310 |
Europe, the Middle East and Africa | ||||
Net Sales: | ||||
Net Sales before returns associated with restructuring activities | 1,126 | 1,023 | 3,477 | 3,308 |
Operating Income (Loss) before charges associated with restructuring and other activities: | ||||
Operating Income (Loss) before charges associated with restructuring and other activities | 288 | 212 | 956 | 843 |
Asia/Pacific | ||||
Net Sales: | ||||
Net Sales before returns associated with restructuring activities | 560 | 522 | 1,809 | 1,701 |
Operating Income (Loss) before charges associated with restructuring and other activities: | ||||
Operating Income (Loss) before charges associated with restructuring and other activities | $ 114 | $ 75 | $ 404 | $ 348 |