Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Dec. 31, 2018 | Jan. 29, 2019 | |
Entity Registrant Name | ESTEE LAUDER COMPANIES INC | |
Entity Central Index Key | 1,001,250 | |
Document Type | 10-Q | |
Document Period End Date | Dec. 31, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --06-30 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Small Business | false | |
Entity Emerging Growth Company | false | |
Document Fiscal Year Focus | 2,019 | |
Document Fiscal Period Focus | Q2 | |
Common Class A | ||
Entity Common Stock, Shares Outstanding | 218,255,377 | |
Common Class B | ||
Entity Common Stock, Shares Outstanding | 142,907,134 |
CONSOLIDATED STATEMENTS OF EARN
CONSOLIDATED STATEMENTS OF EARNINGS - USD ($) shares in Millions, $ in Millions | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2018 | Dec. 31, 2017 | |
CONSOLIDATED STATEMENTS OF EARNINGS | ||||
Net sales | $ 4,005 | $ 3,744 | $ 7,529 | $ 7,018 |
Cost of sales | 910 | 753 | 1,733 | 1,464 |
Gross profit | 3,095 | 2,991 | 5,796 | 5,554 |
Operating expenses | ||||
Selling, general and administrative | 2,257 | 2,214 | 4,265 | 4,174 |
Restructuring and other charges | 29 | 67 | 70 | 101 |
Goodwill impairment | 20 | 20 | ||
Impairment of other intangible assets | 18 | 18 | ||
Total operating expenses | 2,324 | 2,281 | 4,373 | 4,275 |
Operating income | 771 | 710 | 1,423 | 1,279 |
Interest expense | 35 | 32 | 69 | 63 |
Interest income and investment income, net | 12 | 12 | 27 | 24 |
Other components of net periodic benefit cost | 1 | |||
Earnings before income taxes | 748 | 690 | 1,381 | 1,239 |
Provision for income taxes | 171 | 565 | 302 | 684 |
Net earnings | 577 | 125 | 1,079 | 555 |
Net earnings attributable to noncontrolling interests | (4) | (2) | (6) | (5) |
Net earnings attributable to The Estee Lauder Companies Inc. | $ 573 | $ 123 | $ 1,073 | $ 550 |
Net earnings attributable to The Estee Lauder Companies Inc. per common share | ||||
Basic (in dollars per share) | $ 1.58 | $ 0.33 | $ 2.94 | $ 1.49 |
Diluted (in dollars per share) | $ 1.55 | $ 0.33 | $ 2.88 | $ 1.46 |
Weighted-average common shares outstanding | ||||
Basic (in shares) | 363.3 | 368.7 | 365.1 | 368.5 |
Diluted (in shares) | 369.9 | 376.1 | 372.1 | 375.7 |
CONSOLIDATED STATEMENTS OF COMP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2018 | Dec. 31, 2017 | |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | ||||
Net earnings | $ 577 | $ 125 | $ 1,079 | $ 555 |
Other comprehensive income (loss): | ||||
Net unrealized investment gain (loss) | 3 | (6) | 5 | (7) |
Net derivative instrument gain (loss) | 9 | 4 | 9 | (5) |
Amounts included in net periodic benefit cost | 4 | 5 | 7 | 10 |
Translation adjustments | (38) | 28 | (15) | 82 |
Provision for deferred income taxes on components of other comprehensive income | (3) | (3) | (2) | |
Total other comprehensive income (loss) | (22) | 28 | 3 | 78 |
Comprehensive income | 555 | 153 | 1,082 | 633 |
Comprehensive income attributable to noncontrolling interests: | ||||
Net earnings | (4) | (2) | (6) | (5) |
Translation adjustments | 1 | 1 | (1) | |
Total comprehensive income attributable to noncontrolling interests | (3) | (2) | (5) | (6) |
Comprehensive income attributable to The Estee Lauder Companies Inc. | $ 552 | $ 151 | $ 1,077 | $ 627 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions | Dec. 31, 2018 | Jun. 30, 2018 |
Current assets | ||
Cash and cash equivalents | $ 1,876 | $ 2,181 |
Short-term investments | 525 | 534 |
Accounts receivable, net | 2,000 | 1,487 |
Inventory and promotional merchandise, net | 1,651 | 1,618 |
Prepaid expenses and other current assets | 388 | 348 |
Total current assets | 6,440 | 6,168 |
Property, plant and equipment, net | 1,859 | 1,823 |
Other assets | ||
Long-term investments | 600 | 843 |
Goodwill | 1,911 | 1,926 |
Other intangible assets, net | 1,233 | 1,276 |
Other assets | 633 | 531 |
Total other assets | 4,377 | 4,576 |
Total assets | 12,676 | 12,567 |
Current liabilities | ||
Current debt | 18 | 183 |
Accounts payable | 995 | 1,182 |
Other accrued liabilities | 2,763 | 1,945 |
Total current liabilities | 3,776 | 3,310 |
Noncurrent liabilities | ||
Long-term debt | 3,373 | 3,361 |
Other noncurrent liabilities | 1,194 | 1,186 |
Total noncurrent liabilities | 4,567 | 4,547 |
Contingencies | ||
Equity | ||
Common stock, $.01 par value; Class A shares authorized: 1,300,000,000 at December 31, 2018 and June 30, 2018; shares issued: 438,325,994 at December 31, 2018 and 435,413,976 at June 30, 2018; Class B shares authorized: 304,000,000 at December 31, 2018 and June 30, 2018; shares issued and outstanding: 142,907,134 at December 31, 2018 and 143,051,679 at June 30, 2018 | 6 | 6 |
Paid-in capital | 4,162 | 3,972 |
Retained earnings | 9,586 | 9,040 |
Accumulated other comprehensive loss | (430) | (434) |
Stockholders' equity before treasury stock | 13,324 | 12,584 |
Less: Treasury stock, at cost; 219,373,382 Class A shares at December 31, 2018 and 211,320,208 Class A shares at June 30, 2018 | (9,018) | (7,896) |
Total stockholders' equity - The Estee Lauder Companies Inc. | 4,306 | 4,688 |
Noncontrolling interests | 27 | 22 |
Total equity | 4,333 | 4,710 |
Total liabilities and equity | $ 12,676 | $ 12,567 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Dec. 31, 2018 | Jun. 30, 2018 |
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 | 438,325,994 | 435,413,976 |
Treasury stock, shares | 219,373,382 | 211,320,208 |
Common Class B | ||
Common stock, shares authorized | 304,000,000 | 304,000,000 |
Common stock, shares issued | 142,907,134 | 143,051,679 |
Common stock, shares outstanding | 142,907,134 | 143,051,679 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Millions | 6 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Cash flows from operating activities | ||
Net earnings | $ 1,079 | $ 555 |
Adjustments to reconcile net earnings to net cash flows from operating activities: | ||
Depreciation and amortization | 269 | 256 |
Deferred income taxes | (46) | 106 |
Non-cash stock-based compensation | 131 | 132 |
Net loss on disposal of property, plant and equipment | 5 | 7 |
Non-cash restructuring and other charges | 1 | |
Pension and post-retirement benefit expense | 35 | 35 |
Pension and post-retirement benefit contributions | (12) | (14) |
Goodwill and other intangible asset impairments | 38 | |
Changes in fair value of contingent consideration | (9) | 3 |
Other non-cash items | (13) | (9) |
Changes in operating assets and liabilities: | ||
Increase in accounts receivable, net | (343) | (281) |
Decrease (increase) in inventory and promotional merchandise, net | (21) | 66 |
Decrease (increase) in other assets, net | (53) | 1 |
Decrease in accounts payable | (174) | (111) |
Increase in other accrued and noncurrent liabilities | 387 | 692 |
Net cash flows provided by operating activities | 1,273 | 1,439 |
Cash flows from investing activities | ||
Capital expenditures | (292) | (263) |
Proceeds from the disposition of investments | 271 | 609 |
Purchases of investments | (14) | (479) |
Net cash flows used for investing activities | (35) | (133) |
Cash flows from financing activities | ||
Proceeds (repayments) of current debt, net | (169) | 222 |
Repayments and redemptions of long-term debt | (1) | |
Net proceeds from stock-based compensation transactions | 59 | 83 |
Payments to acquire treasury stock | (1,126) | (398) |
Dividends paid to stockholders | (297) | (267) |
Payments to noncontrolling interest holders for dividends | (3) | (1) |
Net cash flows used for financing activities | (1,536) | (362) |
Effect of exchange rate changes on Cash and cash equivalents | (7) | 25 |
Net increase (decrease) in Cash and cash equivalents | (305) | 969 |
Cash and cash equivalents at beginning of period | 2,181 | 1,136 |
Cash and cash equivalents at end of period | $ 1,876 | $ 2,105 |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended |
Dec. 31, 2018 | |
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, 2018. Certain amounts in the consolidated financial statements of prior years have been reclassified to conform to current year presentation. Management Estimates The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses reported in those financial statements. Descriptions of the Company’s significant accounting policies are discussed in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018. Management evaluates the related estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions. Significant changes, if any, in those estimates and assumptions resulting from continuing changes in the economic environment 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), net of tax, reported as cumulative translation adjustments through other comprehensive income (loss) (“OCI”) attributable to The Estée Lauder Companies Inc. were $(34) million and $30 million, net of tax, during the three months ended December 31, 2018 and 2017, respectively, and $(13) million and $84 million , net of tax, during the six months ended December 31, 2018 and 2017, respectively. For the Company’s subsidiaries operating in highly inflationary economies, the U.S. dollar is the functional currency. Remeasurement adjustments in financial statements in a highly inflationary economy and other transactional gains and losses are reflected in earnings. These subsidiaries are not material to the Company’s consolidated financial statements or liquidity. 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 losses on foreign currency transactions of $7 million and $17 million during the three months ended December 31, 2018 and 2017, respectively, and $21 million and $35 million during the six months ended December 31, 2018 and 2017, 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. Inventory and Promotional Merchandise Inventory and promotional merchandise, net consists of: December 31 June 30 (In millions) 2018 2018 Raw materials $ 438 $ 432 Work in process 191 222 Finished goods 840 798 Promotional merchandise 182 166 $ 1,651 $ 1,618 Property, Plant and Equipment December 31 June 30 (In millions) 2018 2018 Assets (Useful Life) Land $ 29 $ 30 Buildings and improvements (10 to 40 years) 269 237 Machinery and equipment (3 to 10 years) 748 719 Computer hardware and software (4 to 10 years) 1,245 1,193 Furniture and fixtures (5 to 10 years) 121 104 Leasehold improvements 2,217 2,152 4,629 4,435 Less accumulated depreciation and amortization (2,770) (2,612) $ 1,859 $ 1,823 The cost of assets related to projects in progress of $346 million and $300 million as of December 31, 2018 and June 30, 2018, respectively, is included in their respective asset categories above. Depreciation and amortization of property, plant and equipment was $121 million and $114 million during the three months ended December 31, 2018 and 2017, respectively , and $237 million and $226 million during the six months ended December 31, 2018 and 2017, 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. Income Taxes On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”). The TCJA includes broad and complex changes to the U.S. tax code that impacted the Company’s accounting and reporting for income taxes. The impacts under the TCJA in the prior fiscal year primarily consisted of the following: · A reduction in the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018, which resulted in a fiscal 2018 U.S. blended statutory income tax rate for the Company of 28.1%. · A one-time mandatory deemed repatriation tax on unremitted foreign earnings (the “Transition Tax”), which the Company elected to pay over an eight-year period. · A remeasurement of U.S. net deferred tax assets. · The recognition of foreign withholding taxes in connection with the reversal of the Company’s indefinite reinvestment assertion related to certain foreign earnings. Staff Accounting Bulletin No. 118 (“SAB 118”) established a one-year measurement period (effective December 22, 2017), whereby provisional amounts recorded for effects of the changes from the TCJA could be subject to adjustment. The one-year measurement period expired on December 22, 2018 and, therefore, the accounting to record the effects of the changes from the TCJA was required to be completed during the three months ended December 31, 2018. For the year ended June 30, 2018, the Company recorded the following provisional charges related to the TCJA: · $351 million associated with the Transition Tax. · $53 million in connection with the remeasurement of U.S. net deferred tax assets resulting from the statutory tax rate reduction. · $46 million related to foreign withholding taxes associated with the reversal of its indefinite reinvestment assertion related to certain foreign earnings. During the three and six months ended December 31, 2018, the Company recorded a credit of $2 million and $12 million, respectively, to adjust its fiscal 2018 provisional charge associated with the Transition Tax. These credits reflect certain technical interpretations related to the Transition Tax computation. The final cumulative charge related to this matter is $339 million. The charges related to the Transition Tax are primarily included in Other noncurrent liabilities in the accompanying consolidated balance sheet as of December 31, 2018. During the three months ended December 31, 2018, the Company recorded an increase of $8 million to its provisional charge recorded in fiscal 2018 associated with the remeasurement of its net deferred tax assets resulting from the reduction in the U.S. corporate income tax rate. This adjustment was due to the revision of certain temporary differences. The final cumulative charge related to this matter is $61 million. In addition, the Company recorded a charge of $9 million for the three months ended September 30, 2018 related to foreign withholding taxes recorded in fiscal 2018 in connection with the reversal of its indefinite reinvestment assertion related to certain foreign earnings. This charge reflected the Company’s interpretation of recently issued guidance from the U.S. government, and the accounting for this item pursuant to SAB 118 was considered complete as of September 30, 2018. The final cumulative charge related to this matter is $55 million. Although the accounting related to the income tax effects of the TCJA is complete pursuant to SAB 118, certain technical aspects of the TCJA remain subject to varying degrees of uncertainty as additional technical guidance and clarification from the U.S. government is expected to be issued over an extended period. Receipt of additional guidance and clarification from the U.S. government may result in material changes to the provision for income taxes. To the extent applicable, the Company would recognize such adjustments in the provision for income taxes in the period that additional guidance and clarification is received. Provisions under the TCJA that became effective for the Company in the current fiscal year include a further reduction in the U.S. statutory rate to 21%, a new minimum tax on global intangible low-taxed income (“GILTI”), a base erosion anti-abuse tax, a foreign derived intangible income deduction and changes to IRC Section 162(m) related to the deductibility of executive compensation. For more information about the TCJA and the related impact on the Company, see Note 8 – Income Taxes in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018. The effective rate for income taxes was 22.9% and 81.9% for the three months ended December 31, 2018 and 2017, respectively, and 21.9% and 55.2% for the six months ended December 31, 2018 and 2017, respectively. The decrease in the effective tax rate in both periods was primarily attributable to the provisional charges related to the TCJA that were recorded in the three months ended December 31, 2017. Also contributing to the lower effective tax rate was a higher benefit related to share-based compensation awards, the impact of the lower U.S. statutory tax rate and a lower effective tax rate on our foreign operations due to a favorable geographic mix of earnings, partially offset by the impact of GILTI. As of December 31, 2018 and June 30, 2018, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $68 million and $60 million, respectively. The total amount of unrecognized tax benefits at December 31, 2018 that, if recognized, would affect the effective tax rate was $47 million. The total gross interest and penalties accrued related to unrecognized tax benefits during the three and six months ended December 31, 2018 in the accompanying consolidated statements of earnings was $1 million and $3 million, respectively. The total gross accrued interest and penalties in the accompanying consolidated balance sheets at December 31, 2018 and June 30, 2018 was $12 million and $9 million, respectively. On the basis of the information available as of December 31, 2018, the Company does not expect significant changes to the total amount of unrecognized tax benefits within the next twelve months. Other Accrued Liabilities Other accrued liabilities consist of the following: December 31 June 30 (In millions) 2018 2018 Advertising, merchandising and sampling $ 417 $ 348 Employee compensation 416 579 Deferred revenue 425 33 Sales return accrual 197 — Payroll and other taxes 293 190 Accrued income taxes 245 90 Other 770 705 $ 2,763 $ 1,945 Debt In October 2018, the Company replaced its undrawn $1.5 billion senior unsecured revolving credit facility that was set to expire in October 2021 with a new $1.5 billion senior unsecured revolving credit facility (the “New Facility”). The New Facility expires on October 26, 2023 unless extended for up to two additional years in accordance with the terms set forth in the agreement. 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 costs incurred to establish the New Facility were not material. 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. Recently Adopted Accounting Standards Hedge Accounting In August 2017, the FASB issued authoritative guidance to simplify hedge accounting. The guidance includes provisions that: · enable entities to better portray their risk management activities within the financial statements; · expand an entity’s ability to hedge nonfinancial and financial risk components; · reduce complexity in fair value hedges of interest rate risk; · eliminate the requirement to separately measure and disclose hedge ineffectiveness; · require the entire change in fair value of a hedging instrument to be presented in the same income statement line as the hedged item; · ease certain documentation and assessment requirements; · modify the accounting for components excluded from the assessment of hedge effectiveness; and · require revised tabular footnote disclosure. The guidance also provides transition relief to make it easier for entities to apply certain amendments to existing hedges (including fair value hedges) where the hedge documentation is required to be modified. Effective for the Company — Fiscal 2020 first quarter, with early adoption permitted in any interim period. The guidance must be applied: · using the modified retrospective approach for cash flow and net investment hedge relationships that exist on the date of adoption; and · prospectively for the presentation and disclosure requirements. Impact on consolidated financial statements – The Company has early adopted this guidance effective as of its fiscal 2019 first quarter, and no cumulative adjustment to retained earnings was required. Upon adoption, all derivative gains and losses will be recognized in the same income statement line as the hedged items which, for all foreign currency cash flow hedges, is in Net sales. There is no change to the interest expense classification of gains and losses from interest rate swap fair value hedges. The amended presentation and disclosure requirements are being applied prospectively. See Note 5 – Derivative Financial Instruments for further information. Pension-related Costs In March 2017, the 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. 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. The guidance must be applied: · retrospectively as it pertains to the income statement classification of the components of net periodic benefit cost; and · prospectively as it pertains to future capitalization of service costs. Impact on consolidated financial statements – The Company adopted this guidance when it became effective, and although certain components of pension expense are being reclassified out of operating income, this did not have a material impact on reported operating income. The Company elected the practical expedient which permits the use of amounts previously disclosed in its pension and post-retirement plan footnote as the basis for estimating the amounts necessary to retrospectively restate the prior-year period consolidated statements of earnings. Revenue from Contracts with Customers In May 2014, the FASB issued authoritative guidance, Accounting Standards Codification Topic 606 – Revenue from Contracts with Customers (“ASC 606”), 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 prior 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 its 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 first quarter. 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 – On July 1, 2018, the Company adopted ASC 606, see Note 7 – Revenue Recognition for further discussion. Goodwill In January 2017, the FASB issued authoritative guidance that 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 Company has early adopted this guidance effective as of its fiscal 2019 second quarter and applied the new guidance in its quantitative goodwill impairment test related to the Smashbox reporting unit. See Note 3 – Goodwill and Other Intangible Assets for further information. Recently Issued Accounting Standards 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 guidance changes the recognition method for credit losses on available-for-sale debt securities, which can occur as a result of market and credit risk, and requires additional disclosures. In general, modified retrospective adoption will be required for all outstanding instruments that fall under this guidance. 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. 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 initial direct costs, prepaid lease payments and lease incentives received. Lease expense will be recognized similar to current accounting guidance with operating leases resulting in a straight-line expense, and finance leases resulting in a front-loaded expense similar to the current accounting for capital leases. In July 2018, the FASB amended this guidance to clarify certain narrow aspects of the new lease accounting standard that may have been incorrectly or inconsistently applied, and does not add new guidance. Also in July 2018, the FASB issued authoritative guidance that allows companies to elect to adopt the new standard using a modified retrospective transition approach with a cumulative-effect adjustment to retained earnings in the period of adoption. Companies that elect the new adoption method will not be required to restate the prior comparative periods in the financial statements. Effective for the Company — Fiscal 2020 first quarter, with early adoption permitted using either of the modified retrospective transition approaches described in the standard, with certain practical expedients. 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, which includes assessing the Company’s lease portfolio, implementing a new system to meet reporting requirements, and assessing the impact to business processes and internal controls over financial reporting and the related disclosure requirements. While the Company’s evaluation is ongoing, it believes the adoption of this standard will have a significant impact on its consolidated balance sheets. As disclosed in Note 14 – Commitments and Contingencies in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018, the Company had $3,320 million in future minimum lease commitments as of June 30, 2018. Upon adoption, the Company’s lease liability will generally be based on the present value of such payments and the related right-of-use asset will generally be based on the lease liability, adjusted for initial direct costs, prepaid lease payments and lease incentives received. The Company plans to adopt the new standard when it becomes effective in the fiscal 2020 first quarter using the modified retrospective transition approach for leases that exist in the period of adoption and will not restate the prior comparative periods. Goodwill and Other – Internal-Use Software In August 2018, the FASB issued authoritative guidance that permits companies to capitalize the costs incurred for setting up business systems that operate on cloud technology. The new guidance aligns the requirement for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance does not affect the accounting for the service element of a hosting arrangement that is a service contract. Capitalized costs associated with a hosting arrangement that is a service contract must be amortized over the term of the hosting arrangement to the same line item in the income statement as the expense for fees for the hosting arrangement. Effective for the Company – Fiscal 2021 first quarter, with early adoption permitted in any interim period. This guidance can be adopted either: · retrospectively; or · prospectively to all implementation costs incurred after the date of adoption. Impact on consolidated financial statements – The Company is currently evaluating the impact of applying this guidance to its business systems that operate on cloud technology. No other recently issued accounting pronouncements are expected to have a material impact on the Company’s consolidated financial statements. |
INVESTMENTS
INVESTMENTS | 6 Months Ended |
Dec. 31, 2018 | |
INVESTMENTS | |
INVESTMENTS | NOTE 2 — INVESTMENTS Beginning in the first quarter of fiscal 2019, the Company accounts for its cost method investments at cost, less impairment, plus/minus subsequent observable price changes, and will be required to perform an assessment each quarter to determine whether or not a triggering event has occurred that results in changes in fair value. These investments were not material to the Company’s consolidated financial statements as of December 31, 2018. Gains and losses recorded in accumulated OCI (“AOCI”) related to the Company’s available-for-sale investments as of December 31, 2018 were as follows: Gross Unrealized Gross Unrealized (In millions) Cost Gains Losses Fair Value U.S. government and agency securities $ 403 $ — $ (3) $ 400 Foreign government and agency securities 99 — (1) 98 Corporate notes and bonds 447 — (5) 442 Time deposits — — — — Other securities 15 — — 15 Total $ 964 $ — $ (9) $ 955 Gains and losses recorded in AOCI related to the Company’s available-for-sale investments as of June 30, 2018 were as follows: Gross Unrealized Gross Unrealized (In millions) Cost Gains Losses Fair Value U.S. government and agency securities $ 427 $ — $ (5) $ 422 Foreign government and agency securities 114 — (2) 112 Corporate notes and bonds 479 — (7) 472 Time deposits 200 — — 200 Other securities 16 — — 16 Total $ 1,236 $ — $ (14) $ 1,222 The following table presents the Company’s available-for-sale securities by contractual maturity as of December 31, 2018: (In millions) Cost Fair Value Due within one year $ 528 $ 525 Due after one through five years 436 430 $ 964 $ 955 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 December 31, 2018: In a Loss Position for Less Than 12 In a Loss Position for More Than 12 Gross Unrealized Gross Unrealized (In millions) Fair Value Losses Fair Value Losses Available-for-sale securities $ 37 $ — $ 890 $ (9) Gross gains and losses on sales of investments included in the consolidated statements of earnings were not material for all periods presented. 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 $11 million and $166 million for the three months ended December 31, 2018 and 2017, respectively, and were $23 million and $296 million for the six months ended December 31, 2018 and 2017, respectively. |
GOODWILL AND OTHER INTANGIBLE A
GOODWILL AND OTHER INTANGIBLE ASSETS | 6 Months Ended |
Dec. 31, 2018 | |
GOODWILL AND OTHER INTANGIBLE ASSETS | |
GOODWILL AND OTHER INTANGIBLE ASSETS | NOTE 3 — GOODWILL AND OTHER INTANGIBLE ASSETS Impairment Testing During the Six Months Ended December 31, 2018 During December 2018, the Smashbox reporting unit made revisions to its internal forecasts reflecting a slowdown of its makeup business driven by increased competitive activity and lower than expected growth in key retail channels for the brand. The Company concluded that these changes in circumstances in the Smashbox reporting unit triggered the need for an interim impairment review of its trademark and goodwill. Accordingly, the Company performed an interim impairment test as of December 31, 2018. The Company concluded that the carrying value of the Smashbox trademark exceeded its estimated fair value, which was determined utilizing a royalty rate to determine discounted projected future cash flows. As a result, the Company recognized an impairment charge of $18 million for the trademark. After adjusting the carrying value of the trademark, the Company completed an interim quantitative impairment test for goodwill and recorded a goodwill impairment charge related to the Smashbox reporting unit of $20 million. The Company early adopted the FASB’s authoritative guidance that eliminated the second step from the quantitative goodwill impairment test. In accordance with this guidance, the Company compared the fair value of the Smashbox reporting unit with its carrying amount to calculate the impairment charge. The fair value of the reporting unit was based upon an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit. These impairment charges were reflected in the makeup product category and in the Americas region. As of December 31, 2018, the remaining carrying values of the goodwill and trademark related to the Smashbox reporting unit were $120 million and $59 million, respectively. 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, 2018 Goodwill $ 185 $ 1,186 $ 256 $ 391 $ 2,018 Accumulated impairments (36) — (22) (34) (92) 149 1,186 234 357 1,926 Goodwill acquired during the period — 7 — — 7 Impairment charge — (20) — — (20) Translation adjustments, goodwill — — (1) (2) (3) Translation adjustments, accumulated impairments — — — 1 1 — (13) (1) (1) (15) Balance as of December 31, 2018 Goodwill 185 1,193 255 389 2,022 Accumulated impairments (36) (20) (22) (33) (111) $ 149 $ 1,173 $ 233 $ 356 $ 1,911 Other intangible assets consist of the following: December 31, 2018 June 30, 2018 Gross Total Net Gross Total Net Carrying Accumulated Book Carrying Accumulated Book (In millions) Value Amortization Value Value Amortization Value Amortizable intangible assets: Customer lists and other $ 696 $ 356 $ 340 $ 697 $ 332 $ 365 License agreements 43 43 — 43 43 — $ 739 $ 399 340 $ 740 $ 375 365 Non-amortizable intangible assets: Trademarks and other 893 911 Total intangible assets $ 1,233 $ 1,276 The aggregate amortization expense related to amortizable intangible assets was $12 million for the three months ended December 31, 2018 and 2017 and was $25 million for the six months ended December 31, 2018 and 2017 . The estimated aggregate amortization expense for the remainder of fiscal 2019 and for each of the next four fiscal years is as follows: Fiscal (In millions) 2019 2020 2021 2022 2023 Estimated aggregate amortization expense $ 26 $ 44 $ 43 $ 42 $ 42 |
CHARGES ASSOCIATED WITH RESTRUC
CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES | 6 Months Ended |
Dec. 31, 2018 | |
CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES | |
CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES | NOTE 4 — CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES In May 2016, the Company announced a multi-year initiative (“Leading Beauty Forward,” “LBF” or the “Program”) 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 approvals from inception through December 31, 2018, the Company estimates that LBF may result in related restructuring and other charges totaling between $900 million and $950 million, before taxes. In connection with LBF, at this time, the Company estimates a net reduction over the duration of LBF in the range of 1,800 to 2,000 positions globally. This reduction takes into account the elimination of certain positions, inclusive of positions that are unfilled, as well as retraining and redeployment of certain employees and investment in new positions in key areas. Program-to-Date Approvals Of the $900 million to $950 million restructuring and other charges expected to be incurred, total cumulative charges approved by the Company through December 31, 2018, some of which were recorded from Program inception through December 31, 2018, were: Sales Returns Operating Expenses (included in Restructuring Other (In millions) Net Sales) Cost of Sales Charges Charges Total Approval Period Fiscal 2016 $ 4 $ 28 $ 87 $ 71 $ 190 Fiscal 2017 11 10 132 118 271 Fiscal 2018 — 24 166 68 258 Six months ended December 31, 2018 — 9 19 29 57 Adjustments through December 31, 2018 (1) (1) (46) (1) (49) Cumulative through December 31, 2018 $ 14 $ 70 $ 358 $ 285 $ 727 Included in the above table, cumulative restructuring initiatives approved by the Company through December 31, 2018 by major cost type were: Employee- Asset- Related Related Contract Other Exit (In millions) Costs Costs Terminations Costs Total Approval Period Fiscal 2016 $ 75 $ 3 $ 5 $ 4 $ 87 Fiscal 2017 126 1 — 5 132 Fiscal 2018 161 — 1 4 166 Six months ended December 31, 2018 17 1 — 1 19 Adjustments through December 31, 2018 (45) — (1) — (46) Cumulative through December 31, 2018 $ 334 $ 5 $ 5 $ 14 $ 358 During the six months ended December 31, 2018, the Company continued to approve initiatives to enhance its go-to-market support structures and optimize select corporate functions. 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 primarily related to the implementation and integration of new processes and technologies, temporary labor backfill and recruitment related to the new capabilities. The Company continued to approve implementation costs, temporary labor backfill and consulting fees for an initiative related to supply chain planning activities. In addition, the Company approved other charges to support the LBF Project Management Office, consisting of internal and external resources that are intended to further drive project integration, organizational design capabilities and change management throughout the organization. As initiatives under LBF progress through implementation, the Company has identified certain costs that were approved but will not be incurred. These costs, reflected as adjustments to the cumulative approved restructuring and other charges presented above, were primarily related to estimated employee-related costs for certain employees who either resigned or transferred to other existing positions within the Company. 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 (included in Restructuring Other (In millions) Net Sales) Cost of Sales Charges Charges Total Fiscal 2016 $ 1 $ — $ 75 $ 5 $ 81 Fiscal 2017 2 15 122 73 212 Fiscal 2018 8 18 127 104 257 Six months ended December 31, 2018 — 12 19 51 82 Cumulative through December 31, 2018 $ 11 $ 45 $ 343 $ 233 $ 632 The major cost types related to the cumulative restructuring charges set forth above were: Employee- Asset- Related Related Contract Other Exit (In millions) Costs Costs Terminations Costs Total Fiscal 2016 $ 74 $ 1 $ — $ — $ 75 Fiscal 2017 116 2 2 2 122 Fiscal 2018 124 1 1 1 127 Six months ended December 31, 2018 18 — — 1 19 Cumulative through December 31, 2018 $ 332 $ 4 $ 3 $ 4 $ 343 Accrued restructuring charges from Program inception through December 31, 2018 were: Employee- Asset- Related Related Contract Other Exit (In millions) Costs Costs Terminations Costs Total Charges $ 74 $ 1 $ — $ — $ 75 Noncash asset write-offs — (1) — — (1) Translation adjustments (1) — — — (1) Balance at June 30, 2016 73 — — — 73 Charges 116 2 2 2 122 Cash payments (39) — (2) (2) (43) Noncash asset write-offs — (2) — — (2) Balance at June 30, 2017 150 — — — 150 Charges 124 1 1 1 127 Cash payments (92) — — (1) (93) Noncash asset write-offs — (1) — — (1) Translation adjustments (2) — — — (2) Balance at June 30, 2018 180 — 1 — 181 Charges 18 — — 1 19 Cash payments (55) — (1) (1) (57) Noncash asset write-offs — — — — — Translation and other adjustments (2) — — — (2) Balance at December 31, 2018 $ 141 $ — $ — $ — $ 141 Restructuring charges for employee-related costs 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 December 31, 2018 are expected to result in cash expenditures funded from cash provided by operations of approximately $86 million, $44 million, $10 million and $1 million for the remainder of fiscal 2019 and for fiscal 2020, 2021 and 2022, respectively. |
DERIVATIVE FINANCIAL INSTRUMENT
DERIVATIVE FINANCIAL INSTRUMENTS | 6 Months Ended |
Dec. 31, 2018 | |
DERIVATIVE FINANCIAL INSTRUMENTS | |
DERIVATIVE FINANCIAL INSTRUMENTS | NOTE 5 — 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, and how the hedging instruments’ effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively. This process includes linking all derivatives to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. At inception, the Company evaluates the effectiveness of hedge relationships quantitatively, and has elected to perform, after initial evaluation, qualitative effectiveness assessments of certain hedge relationships to support an ongoing expectation of high effectiveness, if effectiveness testing is required. If, based on the qualitative assessment, it is determined that a derivative has ceased to be a highly effective hedge, the Company will perform a quantitative assessment to determine whether or not 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) Balance Sheet December 31 June 30 Balance Sheet December 31 June 30 (In millions) Location 2018 2018 Location 2018 2018 Derivatives Designated as Hedging Instruments: Foreign currency forward contracts Prepaid expenses and other current assets $ 32 $ 30 Other accrued liabilities $ 3 $ 5 Interest rate swap contracts Prepaid expenses and other current assets — — Other accrued liabilities 17 26 Total Derivatives Designated as Hedging Instruments 32 30 20 31 Derivatives Not Designated as Hedging Instruments: Foreign currency forward contracts Prepaid expenses and other current assets 4 3 Other accrued liabilities 2 8 Total derivatives $ 36 $ 33 $ 22 $ 39 (1) See Note 6 — 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 that are included in the assessment of effectiveness are presented as follows: Amount of Gain or (Loss) Amount of Gain or (Loss) Recognized in OCI on Reclassified from AOCI into Derivatives Location of Gain or Earnings (1) Three Months Ended (Loss) Reclassified Three Months Ended December 31 from AOCI into December 31 (In millions) 2018 2017 Earnings 2018 2017 (2) Derivatives in Cash Flow Hedging Relationships: Foreign currency forward contracts $ 13 $ (9) Net sales $ 4 $ — Cost of sales — (7) Selling, general and administrative — (7) Interest rate-related derivatives — — Interest expense — 1 Total derivatives $ 13 $ (9) $ 4 $ (13) (1) The amount reclassified into earnings as a result of the discontinuance of cash flow hedges because probable forecasted transactions will no longer occur by the end of the original time period was not material. (2) The gain (loss) recognized in earnings related to the amount excluded from effectiveness testing was not material . Amount of Gain or (Loss) Amount of Gain or (Loss) Recognized in OCI on Reclassified from AOCI into Derivatives Location of Gain or Earnings (1) Six Months Ended (Loss) Reclassified Six Months Ended December 31 from AOCI into December 31 (In millions) 2018 2017 Earnings 2018 2017 (2) Derivatives in Cash Flow Hedging Relationships: Foreign currency forward contracts $ 16 $ (27) Net sales $ 7 $ — Cost of sales — (12) Selling, general and administrative — (11) Interest rate-related derivatives — — Interest expense — 1 Total derivatives $ 16 $ (27) $ 7 $ (22) (1) The amount reclassified into earnings as a result of the discontinuance of cash flow hedges because probable forecasted transactions will no longer occur by the end of the original time period was not material. (2) The gain (loss) recognized in earnings related to the amount excluded from effectiveness testing was not material. Amount of Gain or (Loss) Recognized in Earnings on Derivatives (1) Location of Gain or (Loss) Three Months Ended Six Months Ended Recognized in Earnings on December 31 December 31 (In millions) Derivatives 2018 2017 2018 2017 Derivatives in Fair Value Hedging Relationships: Interest rate swap contracts Interest expense $ 11 $ (9) $ 9 $ (11) (1) Changes in the fair value of the interest rate swap agreements are exactly offset by the change in the fair value of the underlying long-term debt. Additional information regarding the cumulative amount of fair value hedging adjustments for items designated and qualifying as hedged items in fair value hedges is as follows: Amount of Gain or (Loss) Recognized in Earnings on Derivatives Cumulative Amount of Fair Value Hedging Adjustments (In millions) Carrying Amount of the Included in the Carrying Amount Line Item in the Consolidated Balance Sheets in Hedged Assets (Liabilities) of the Hedged Assets (Liabilities) Which the Hedged Item is Included December 31, 2018 December 31, 2018 Long-term debt $ (930) $ (17) Additional information regarding the effects of fair value and cash flow hedging relationships for derivatives designated and qualifying as hedging instruments is as follows: Three Months Ended Six Months Ended December 31, 2018 December 31, 2018 Interest Interest (In millions) Net Sales expense Net Sales expense Total amounts of income and expense line items presented in the consolidated statements of earnings in which the effects of fair value and cash flow hedges are recorded $ 4,005 $ 35 $ 7,529 $ 69 The effects of fair value and cash flow hedging relationships: Gain (loss) on fair value hedge relationships – interest rate contracts: Hedged item Not applicable 11 Not applicable 9 Derivatives designated as hedging instruments Not applicable (11) Not applicable (9) Gain (loss) on cash flow hedge relationships – foreign currency forward contracts: Amount of gain reclassified from AOCI into earnings 4 Not applicable 7 Not applicable 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) Recognized in Earnings on Derivatives Location of Gain or (Loss) Three Months Ended Six Months Ended Recognized in Earnings on December 31 December 31 (In millions) Derivatives 2018 2017 2018 2017 Derivatives Not Designated as Hedging Instruments: Foreign currency forward contracts Selling, general and administrative $ (12) $ (1) $ 10 $ (5) Cash Flow Hedges The Company enters into foreign currency forward contracts, and may enter into foreign currency option contracts, to hedge anticipated transactions and receivables and payables denominated in foreign currencies, for periods consistent with the Company’s identified exposures. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on the cash flows that the Company receives from foreign subsidiaries. The foreign currency forward contracts entered into to hedge anticipated transactions have been designated as cash flow hedges and have varying maturities through the end of September 2020. Hedge effectiveness of the foreign currency forward contracts is based on the forward method, which includes time value in the effectiveness assessment. At December 31, 2018, the Company had foreign currency forward contracts with a notional amount totaling $3,434 million. The Company may enter into interest rate forward contracts to hedge anticipated issuance of debt for periods consistent with the Company’s identified exposures. The purpose of the hedging activities is to minimize the effect of interest rate movements on the cost of debt issuance. For hedge contracts that are no longer deemed highly effective, hedge accounting is discontinued, and gains and losses in AOCI are reclassified to net sales when the underlying forecasted transaction occurs. If it is probable that the forecasted transaction will no longer occur, then any gains or losses in AOCI are reclassified to current-period net sales. As of December 31, 2018, the Company’s foreign currency cash flow hedges were highly effective. The estimated net gain on the Company’s derivative instruments designated as cash flow hedges as of December 31, 2018 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $22 million. The accumulated net gain on derivative instruments in AOCI was $62 million and $53 million as of December 31, 2018 and June 30, 2018, 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, 2021 Senior Notes and 2022 Senior Notes, respectively, to variable interest rates based on three-month LIBOR plus a margin. These interest rate swap agreements are designated as fair value hedges of the related long-term debt, and the changes in the fair value of the interest rate swap agreements are exactly offset by the change in the fair value of the underlying long-term debt. 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 $36 million at December 31, 2018. 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 | 6 Months Ended |
Dec. 31, 2018 | |
FAIR VALUE MEASUREMENTS | |
FAIR VALUE MEASUREMENTS | NOTE 6 — FAIR VALUE MEASUREMENTS The Company records certain of its financial assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. The accounting for fair value measurements must be applied to nonfinancial assets and nonfinancial liabilities that require initial measurement or remeasurement at fair value, which principally consist of assets and liabilities acquired through business combinations and goodwill, indefinite-lived intangible assets and long-lived assets for the purposes of calculating potential impairment. The Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are as follows: Level 1: Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date. Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3: Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation. The following table presents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2018: (In millions) Level 1 Level 2 Level 3 Total Assets: Foreign currency forward contracts $ — $ 36 $ — $ 36 Available-for-sale securities: U.S. government and agency securities — 400 — 400 Foreign government and agency securities — 98 — 98 Corporate notes and bonds — 442 — 442 Time deposits — — — — Other securities — 15 — 15 Total $ — $ 991 $ — $ 991 Liabilities: Foreign currency forward contracts $ — $ 5 $ — $ 5 Interest rate swap contracts — 17 — 17 Contingent consideration — — 87 87 Total $ — $ 22 $ 87 $ 109 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, 2018: (In millions) Level 1 Level 2 Level 3 Total Assets: Foreign currency forward contracts $ — $ 33 $ — $ 33 Available-for-sale securities: U.S. government and agency securities — 422 — 422 Foreign government and agency securities — 112 — 112 Corporate notes and bonds — 472 — 472 Time deposits — 200 — 200 Other securities — 16 — 16 Total $ — $ 1,255 $ — $ 1,255 Liabilities: Foreign currency forward contracts $ — $ 13 $ — $ 13 Interest rate swap contracts — 26 — 26 Contingent consideration — — 96 96 Total $ — $ 39 $ 96 $ 135 The estimated fair values of the Company’s financial instruments are as follows: December 31 June 30 2018 2018 Carrying Fair Carrying Fair (In millions) Amount Value Amount Value Nonderivatives Cash and cash equivalents $ 1,876 $ 1,876 $ 2,181 $ 2,181 Available-for-sale securities 955 955 1,222 1,222 Current and long-term debt 3,391 3,477 3,544 3,667 Additional purchase price payable 3 3 3 3 Contingent consideration 87 87 96 96 Derivatives Foreign currency forward contracts – asset (liability), net 31 31 20 20 Interest rate swap contracts – asset (liability), net (17) (17) (26) (26) The following table presents the Company’s impairment charges for the three and six months ended December 31, 2018 for certain of its nonfinancial assets measured at fair value on a nonrecurring basis, classified as Level 3, due to a change in circumstances that triggered an interim impairment test: Date of Fair Value (In millions) Impairment charges Measurement Fair Value (1) Goodwill $ 20 December 31, 2018 $ 120 Other intangible assets, net (trademark) 18 December 31, 2018 59 Total $ 38 $ 179 (1) See Note 3 – Goodwill and Other Intangible Assets for discussion of the valuation techniques used to measure fair value, the description of the inputs and information used to develop those inputs. The following methods and assumptions were used to estimate the fair value of the Company’s financial instruments for which it is practicable to estimate that value: Cash and cash equivalents — Cash and all highly-liquid securities with original maturities of three months or less are classified as cash and cash equivalents, primarily consisting of cash deposits in interest bearing accounts, 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 December 31, 2018: Risk-adjusted discount rates 3.1% to 3.3% Revenue volatility Asset volatility Revenue and earnings before income tax, depreciation and amortization correlation coefficient factor Revenue discount rates 4.7% to 4.9% Earnings before income tax, depreciation and amortization discount rates 11.9% to 12.8% 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 six months ended December 31, 2018 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, 2018 $ 96 Changes in fair value (9) Contingent consideration at December 31, 2018 $ 87 |
REVENUE RECOGNITION
REVENUE RECOGNITION | 6 Months Ended |
Dec. 31, 2018 | |
REVENUE RECOGNITION | |
REVENUE RECOGNITION | NOTE 7 — REVENUE RECOGNITION During the first quarter of fiscal 2019, the Company adopted the new revenue accounting standard, ASC 606, under the modified retrospective method to all contracts as of the date of adoption. Under this method, the consolidated financial statements for the period beginning July 1, 2018 are presented under the new revenue accounting standard, while the prior-year periods reflect the revenue accounting standards in effect during those periods. The following discussion is based on the Company’s accounting policies under the new standard; for a discussion of the Company’s prior accounting for revenue and a reconciliation of the impact of the change in accounting standard on the Company’s consolidated financial statements, see below Changes in Accounting Policies . The Company also adopted the policy election to exclude from the transaction price all amounts collected from customers for sales and other taxes. For revenue disaggregated by product category and geographic region, see Note 14 – Segment Data and Related Information . Performance Obligations The Company recognizes revenue at a point in time when it satisfies a performance obligation by transferring control over a product and other promised goods and services to a customer. The Company sells wholesale to customers in distribution channels that include department stores, travel retail, specialty multi-brand retailers, perfumeries, salons/spas and through various online sites operated by authorized retailers. The primary performance obligation related to these channels of distribution is product sales where revenue is recognized as control of the product transfers to the customer. In the Americas region, revenue is generally recognized at the time the product is made available and provided to the customer’s carrier at the Company’s location and in the Europe, the Middle East & Africa and Asia/Pacific regions, revenue is generally recognized based upon the customer’s receipt. The Company also sells direct to consumers at Company-operated freestanding stores and online through Company-owned and operated e-commerce and m-commerce sites and through third-party online platforms. At Company-operated freestanding stores, revenue is recognized when control of the product is transferred at the point of sale. Revenue from online sales is recognized when control of the product is transferred, generally based upon the consumer’s receipt. In connection with the sale of product, the Company may provide other promised goods and services that are deemed to be performance obligations. These are comprised of customer loyalty program obligations, gift with purchase and purchase with purchase promotions, gift cards and other promotional goods including samples and testers. The Company offers a number of different loyalty programs to its customers across regions, brands and distribution channels including points-based programs, tier-based programs and recycling programs. Revenue is allocated between the saleable product revenue and the material right loyalty obligations based on relative standalone selling prices when the consumer purchases the products that are earning them the right to the future benefits. Deferred revenue related to the Company’s loyalty programs is estimated based on the standalone selling price and is adjusted for an estimated breakage factor. Standalone selling price is determined primarily using the observable market price of the good or service benefit if it is sold by the Company or a cost plus margin approach for goods/services not directly sold by the Company. Breakage rates consider historical patterns of redemption and/or expiration. Revenue is recognized when the benefits are redeemed or expire. The Company provides gift with purchase promotional products to certain customers generally without additional charge and also provides purchase with purchase promotional products to certain customers at a discount in relation to prices charged for saleable product. Revenue is allocated between saleable product, gift with purchase product and purchase with purchase product based on the estimated relative standalone selling prices. Revenue is deferred and ultimately recognized based on the timing differences, if any, between when control of promotional goods and control of the related saleable products transfer to the Company’s customer (e.g., a third-party retailer), which is calculated based on the weighted-average number of days between promotional periods. The estimated standalone selling price allocated to promotional goods is based on a cost plus margin approach. In situations where promotional products are provided by the Company to its customers at the same time as the related saleable product, such as shipments of samples and testers, the cost of these promotional products are recognized as a cost of sales at the same time as the related revenue is recognized and no deferral of revenue is required. The Company also offers gift cards through Company-operated freestanding stores and Company-owned websites. The related deferred revenue is estimated based on expected breakage that considers historical patterns of redemption taking into consideration escheatment laws as applicable. Product Returns, Sales Incentives and Other Forms of Variable Consideration In measuring revenue and determining the consideration the Company is entitled to as part of a contract with a customer, the Company takes into account the related elements of variable consideration. Such elements of variable consideration include product returns and sales incentives, such as volume rebates and discounts, markdowns, margin adjustments and early-payment discounts. We also enter into arrangements containing other forms of variable consideration, including certain demonstration arrangements, for which the Company does not receive a distinct good or service or for which the Company cannot reasonably estimate the fair value of the good or service. For these types of arrangements, the adjustments to revenue are recorded at the later of when (i) the Company recognizes revenue for the transfer of the related goods or services to the customer, or (ii) the Company pays, or promises to pay, the consideration. For the sale of goods with a right of return, the Company only recognizes revenue for the consideration it expects to be entitled to (considering the products to be returned) and records a sales return accrual within Other accrued liabilities for the amount it expects to credit back its customers. In addition, the Company recognizes an asset included in Inventory and promotional merchandise, net and a corresponding adjustment to Cost of sales for the right to recover goods from customers associated with the estimated returns. The sales return accrual and corresponding asset include estimates that directly impact reported net sales. These estimates are calculated based on a history of actual returns, estimated future returns and information provided by retailers regarding their inventory levels. Consideration of these factors results in an estimate for anticipated sales returns that reflects increases or decreases related to seasonal fluctuations. In addition, as necessary, sales return accruals and the related assets may be established for significant future known or anticipated events. The types of known or anticipated events that are considered, and will continue to be considered, include the financial condition of the Company’s customers, store closings by retailers, changes in the retail environment and the Company’s decision to continue to support new and existing products. The Company estimates sales incentives and other variable consideration using the most likely amount method and records reserves within Other accrued liabilities when control of the related product is transferred to the customer. Under this method, certain forms of variable consideration are based on expected sell-through results, which requires subjective estimates. These estimates are supported by historical results as well as specific facts and circumstances related to the current period. The Company also enters into transactions and makes payments to certain of its customers related to demonstration, advertising and counter construction, some of which involve cooperative relationships with customers. These activities may be arranged either with unrelated third parties or in conjunction with the customer. To the extent the Company receives a distinct good or service in exchange for consideration and the fair value of the benefit can be reasonably estimated, the Company’s share of the counter depreciation and the other costs of these transactions (regardless of to whom they were paid) are reflected in Selling, general and administrative expenses in the accompanying consolidated statements of earnings. Accounts Receivable Accounts receivable, net is stated net of the allowance for doubtful accounts and customer deductions totaling $31 million and $29 million as of December 31, 2018 and June 30, 2018, respectively. The allowance for doubtful accounts is based upon the evaluation of accounts receivable aging, specific exposures and historical trends. Payment terms are short-term in nature and are generally less than one year. As a result of the adoption of ASC 606, amounts relating to the Company’s sales return accrual are recorded within Other accrued liabilities and the corresponding return asset is recorded in Inventory and promotional merchandise, net, and are no longer included as a reduction to Accounts receivable, net. The Company applied the practical expedient available under ASC 606 to disregard determining significant financing components if the good/service is transferred and payment is received within one year. Deferred Revenue Significant changes in deferred revenue during the period are as follows: (In millions) December 31, 2018 Balance at July 1, 2018 $ 380 Revenue recognized that was included in the deferred revenue balance at the beginning of the period (268) Revenue deferred during the period 371 Other (3) Balance at December 31, 2018 $ 480 Transaction Price Allocated to the Remaining Performance Obligations At December 31, 2018, the combined estimated revenue expected to be recognized in the next twelve months related to performance obligations for customer loyalty programs, gift with purchase promotions, purchase with purchase promotions and gift card liabilities that are unsatisfied (or partially unsatisfied) is $425 million. Changes in Accounting Policies As a result of the adoption of ASC 606, the Company has changed its accounting policies for revenue recognition as follows: · For products sold that qualify for customer loyalty program awards, the Company defers a portion of revenue related to the product sales. Previously, the Company recognized revenue in full for product sales and accrued for the expected amounts of loyalty awards to be provided under the incremental cost approach. · A portion of revenue is deferred for shipments of saleable products with separate performance obligations to provide gift with purchase and purchase with purchase promotional products, and is recognized as control is transferred to a customer. Previously, the Company recognized revenue for saleable products and purchase with purchase products based upon invoice prices charged to customers and included the cost of gift with purchase products and/or purchase with purchase products in Cost of sales when risks and rewards of ownership transferred to the Company’s customer (i.e. a third-party retailer). · The cost of certain promotional products, including samples and testers, are classified within Cost of sales. Such costs were previously accounted for as a component of Selling, general and administrative expenses. · In conjunction with the adoption of ASC 606, the Company reassessed its contracts under the variable consideration guidance, including the payments to customer guidance, and as a result certain reclassifications were made related to timing and classification of certain net demonstration payments to and from customers. · For product returns, the Company established a sales return accrual and a corresponding asset for the right to recover goods in Other accrued liabilities and Inventory and promotional merchandise, net, respectively, while previously the net liability for product returns was recorded as a reduction of Accounts receivable, net. As a result of the change in accounting policies noted above, the Company recorded a cumulative adjustment of $229 million, net of tax, as a reduction to its fiscal 2019 opening balance of retained earnings. The following tables summarize the impacts of the adoption of ASC 606 on the Company’s consolidated financial statements as of and for the three and six months ended December 31, 2018: Consolidated Statements of Earnings Three Months Ended December 31, 2018 Six Months Ended December 31, 2018 Prior to the Prior to the adoption of adoption of (In millions, except per share data) As Reported Impact ASC 606 As Reported Impact ASC 606 Net sales $ 4,005 $ 67 $ 4,072 $ 7,529 $ 134 $ 7,663 Cost of sales 910 (86) 824 1,733 (152) 1,581 Gross profit 3,095 153 3,248 5,796 286 6,082 Selling, general and administrative 2,257 99 2,356 4,265 201 4,466 Operating income 771 54 825 1,423 85 1,508 Provision for income taxes 171 13 184 302 19 321 Net earnings attributable to The Estée Lauder Companies Inc. 573 41 614 1,073 66 1,139 Net earnings attributable to The Estée Lauder Companies Inc. per common share: Basic $ 1.58 $ .11 $ 1.69 $ 2.94 $ .18 $ 3.12 Diluted $ 1.55 $ .11 $ 1.66 $ 2.88 $ .18 $ 3.06 Consolidated Balance Sheet December 31, 2018 Prior to the adoption of (In millions) As Reported Impact ASC 606 Accounts receivable, net $ 2,000 $ (199) $ 1,801 Inventory and promotional merchandise, net 1,651 (25) 1,626 Other assets 633 (88) 545 Total assets 12,676 (312) 12,364 Other accrued liabilities 2,763 (551) 2,212 Other noncurrent liabilities 1,194 (55) 1,139 Total liabilities 8,343 (606) 7,737 Retained earnings 9,586 295 9,881 Accumulated other comprehensive loss (430) (2) (432) Total stockholders’ equity – The Estée Lauder Companies Inc. 4,306 293 4,599 Consolidated Statement of Cash Flows Six Months Ended December 31, 2018 Prior to the adoption of (In millions) As Reported Impact ASC 606 Net earnings $ 1,079 $ 66 $ 1,145 Changes in operating assets and liabilities Decrease (increase) in accounts receivable, net (343) 2 (341) Increase in inventory and promotional merchandise, net (21) (2) (23) Increase (decrease) in other accrued and noncurrent liabilities 387 (66) 321 Net cash flows provided by operating activities 1,273 — 1,273 |
PENSION AND POST-RETIREMENT BEN
PENSION AND POST-RETIREMENT BENEFIT PLANS | 6 Months Ended |
Dec. 31, 2018 | |
PENSION AND POST-RETIREMENT BENEFIT PLANS | |
PENSION AND POST-RETIREMENT BENEFIT PLANS | NOTE 8 — PENSION AND POST-RETIREMENT BENEFIT PLANS The Company maintains pension plans covering substantially all of its full-time employees for its U.S. operations and a majority of its international operations. The Company also maintains post-retirement benefit plans that provide certain medical and dental benefits to eligible employees. Descriptions of these plans are included in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018. The components of net periodic benefit cost for the three months ended December 31, 2018 and 2017 consisted of the following: Other than Pension Plans Pension Plans U.S. International Post-retirement (In millions) 2018 2017 2018 2017 2018 2017 Service cost $ 9 $ 9 $ 7 $ 8 $ — $ — Interest cost 9 8 3 3 2 1 Expected return on plan assets (13) (13) (4) (4) — — Amortization of: Prior service cost — — — — — 1 Actuarial loss 2 3 2 1 — — Net periodic benefit cost $ 7 $ 7 $ 8 $ 8 $ 2 $ 2 The components of net periodic benefit cost for the six months ended December 31, 2018 and 2017 consisted of the following: Other than Pension Plans Pension Plans U.S. International Post-retirement (In millions) 2018 2017 2018 2017 2018 2017 Service cost $ 18 $ 18 $ 15 $ 15 $ 1 $ 1 Interest cost 18 16 6 6 4 3 Expected return on plan assets (26) (26) (7) (7) (1) (1) Amortization of: Prior service cost — — — — — 1 Actuarial loss 5 7 2 2 — — Net periodic benefit cost $ 15 $ 15 $ 16 $ 16 $ 4 $ 4 During the six months ended December 31, 2018, the Company made contributions to its international pension plans totaling $6 million. The amounts recognized in the consolidated balance sheets related to the Company’s pension and post-retirement benefit plans consist of the following: December 31 June 30 (In millions) 2018 2018 Other assets $ 173 $ 181 Other accrued liabilities (27) (27) Other noncurrent liabilities (384) (375) Funded status (238) (221) Accumulated other comprehensive loss 227 234 Net amount recognized $ (11) $ 13 |
CONTINGENCIES
CONTINGENCIES | 6 Months Ended |
Dec. 31, 2018 | |
CONTINGENCIES | |
CONTINGENCIES | NOTE 9 — 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 business, results of operations, financial condition or cash flows. However, management’s assessment of the Company’s current litigation and other legal proceedings could change in light of the discovery of facts with respect to legal actions or other proceedings pending against the Company not presently known to the Company or determinations by judges, juries or other finders of fact which are not in accord with management's evaluation of the possible liability or outcome of such litigation or proceedings. Reasonably possible losses in addition to the amounts accrued for such litigation and legal proceedings are not material to the Company’s consolidated financial statements. Contingencies During the fiscal 2018 third quarter, the Company learned that some of its testing related to certain product advertising claims did not meet the Company’s standards, necessitating further validation. This review is ongoing, resulting in modifications to certain advertising claims. This is not a product safety issue and does not relate to the quality of the ingredients or the manufacturing of the Company’s products. Based on the Company’s review to date, it does not believe that this matter will be material to the Company, and no accrual has been recorded. |
STOCK PROGRAMS
STOCK PROGRAMS | 6 Months Ended |
Dec. 31, 2018 | |
STOCK PROGRAMS | |
STOCK PROGRAMS | NOTE 10 — STOCK PROGRAMS Total net stock-based compensation expense is attributable to the granting of, and the remaining requisite service periods of, stock options, restricted stock units (“RSUs”), performance share units (“PSUs”), long-term PSUs and share units. Compensation expense attributable to net stock-based compensation is as follows: Three Months Ended Six Months Ended December 31 December 31 (In millions) 2018 2017 2018 2017 Compensation expense $ 73 $ 75 $ 131 $ 132 Income tax benefit $ 13 $ 9 $ 25 $ 28 Stock Options During the six months ended December 31, 2018, the Company granted stock options in respect of approximately 1.7 million shares of Class A Common Stock with an exercise price per share of $138.23 and a weighted-average grant date fair value per share of $38.62. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model. The aggregate intrinsic value of stock options exercised during the six months ended December 31, 2018 was $103 million. Restricted Stock Units The Company granted RSUs in respect of approximately 1.1 million shares of Class A Common Stock during the six months ended December 31, 2018 with a weighted-average grant date fair value per share of $138.15 that, at the time of grant, were scheduled to vest as follows: 0.4 million in fiscal 2020, 0.4 million in fiscal 2021 and 0.3 million in fiscal 2022. Vesting of RSUs granted is generally subject to the continued employment or the retirement of the grantees. The RSUs are accompanied by dividend equivalent rights, payable upon settlement of the RSUs either in cash or shares (based on the terms of the particular award) and, as such, were valued at the closing market price of the Company’s Class A Common Stock on the date of grant. Performance Share Units During the six months ended December 31, 2018, the Company granted PSUs with a target payout of approximately 0.2 million shares of Class A Common Stock with a grant date fair value per share of $138.15, 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, 2021, all subject to continued employment or the retirement of the grantees. For PSUs granted, no settlement will occur for results below the applicable minimum threshold. PSUs are accompanied by dividend equivalent rights that will be payable in cash upon settlement of the PSUs and, as such, were valued at the closing market value of the Company’s Class A Common Stock on the date of grant. In September 2018, approximately 0.4 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, 2018. |
NET EARNINGS ATTRIBUTABLE TO TH
NET EARNINGS ATTRIBUTABLE TO THE ESTEE LAUDER COMPANIES INC. PER COMMON SHARE | 6 Months Ended |
Dec. 31, 2018 | |
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 11 — 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 Six Months Ended December 31 December 31 (In millions, except per share data) 2018 2017 2018 2017 Numerator: Net earnings attributable to The Estée Lauder Companies Inc. $ 573 $ 123 $ 1,073 $ 550 Denominator: Weighted-average common shares outstanding – Basic 363.3 368.7 365.1 368.5 Effect of dilutive stock options 4.6 5.1 4.8 4.8 Effect of PSUs 0.3 0.3 0.3 0.2 Effect of RSUs 1.7 2.0 1.9 2.2 Weighted-average common shares outstanding – Diluted 369.9 376.1 372.1 375.7 Net earnings attributable to The Estée Lauder Companies Inc. per common share: Basic $ 1.58 $ .33 $ 2.94 $ 1.49 Diluted $ 1.55 $ .33 $ 2.88 $ 1.46 As of December 31, 2018 and 2017, the number of shares of Class A Common Stock underlying options that were excluded in the computation of diluted EPS because their inclusion would be anti-dilutive was 1.6 million shares and 2.0 million shares, respectively. As of December 31, 2018 and 2017, 1.1 million shares and 1.2 million shares, respectively, of Class A Common Stock underlying PSUs have been excluded from the calculation of diluted EPS because the number of shares ultimately issued is contingent on the achievement of certain performance targets of the Company, as discussed in Note 10 — Stock Programs . |
EQUITY
EQUITY | 6 Months Ended |
Dec. 31, 2018 | |
EQUITY | |
EQUITY | NOTE 12 — EQUITY Total Stockholders’ Equity – The Estée Lauder Companies Inc. Three Months Ended Six Months Ended December 31 December 31 (In millions) 2018 2017 2018 2017 Common stock, beginning of the period $ 6 $ 6 $ 6 $ 6 Stock-based compensation — — — — Common stock, end of the period 6 6 6 6 Paid-in capital, beginning of the period 4,065 3,665 3,972 3,559 Stock-based compensation 97 108 190 214 Paid-in capital, end of the period 4,162 3,773 4,162 3,773 Retained earnings, beginning of the period 9,170 8,752 9,040 8,452 Common stock dividends (157) (142) (298) (269) Net earnings attributable to The Estée Lauder Companies Inc. 573 123 1,073 550 Cumulative effect of adoption of ASC 606 — — (229) — Retained earnings, end of the period 9,586 8,733 9,586 8,733 Accumulated other comprehensive loss, beginning of the period (409) (435) (434) (484) Other comprehensive income (loss) (21) 28 4 77 Accumulated other comprehensive loss, end of the period (430) (407) (430) (407) Treasury stock, beginning of the period (8,426) (7,257) (7,896) (7,149) Acquisition of treasury stock (531) (232) (1,033) (330) Stock-based compensation (61) (51) (89) (61) Treasury stock, end of the period (9,018) (7,540) (9,018) (7,540) Total stockholders’ equity – The Estée Lauder Companies Inc. 4,306 4,565 4,306 4,565 Noncontrolling interests, beginning of the period 24 22 22 18 Net earnings attributable to noncontrolling interests 4 2 6 5 Other comprehensive income (1) — (1) 1 Noncontrolling interests, end of the period 27 24 27 24 Total equity $ 4,333 $ 4,589 $ 4,333 $ 4,589 Cash dividends declared per common share $ .43 $ .38 $ .81 $ .72 The following is a summary of quarterly cash dividends declared per share on the Company’s Class A and Class B Common Stock during the six months ended December 31, 2018: Date Declared Record Date Payable Date Amount per Share August 17, 2018 August 31, 2018 September 17, 2018 $ .38 October 30, 2018 November 30, 2018 December 17, 2018 $ .43 On February 4, 2019, a dividend was declared in the amount of $.43 per share on the Company’s Class A and Class B Common Stock. The dividend is payable in cash on March 15, 2019 to stockholders of record at the close of business on February 28, 2019. Common Stock During the six months ended December 31, 2018, the Company purchased approximately 8.2 million shares of its Class A Common Stock for $1,126 million. On October 31, 2018, the Company’s Board of Directors authorized the repurchase of up to another 40.0 million shares of the Company’s Class A Common Stock. During the six months ended December 31, 2018, approximately 0.1 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 six months ended December 31, 2018: Net Net Amounts Unrealized Derivative Included in Net Investment Instrument Periodic Benefit Translation (In millions) Gain (Loss) Gain (Loss) Cost Adjustments Total Balance at June 30, 2018 $ (14) $ 39 $ (175) $ (284) $ (434) OCI before reclassifications 5 12 — (13) 4 Amounts reclassified to Net earnings — (5) 5 — — Net current-period OCI 5 7 5 (13) 4 Balance at December 31, 2018 $ (9) $ 46 $ (170) $ (297) $ (430) The following table represents the effects of reclassification adjustments from AOCI into net earnings for the three and six months ended December 31, 2018 and 2017: Amount Reclassified from AOCI Three Months Ended Six Months Ended Affected Line Item in December 31 December 31 Consolidated (In millions) 2018 2017 2018 2017 Statements of Earnings Gain (Loss) on Cash Flow Hedges Foreign currency forward contracts $ 4 $ — $ 7 $ — Net sales Foreign currency forward contracts — (7) — (12) Cost of sales Foreign currency forward contracts — (7) — (11) Selling, general and administrative Interest rate-related derivatives — 1 — 1 Interest expense 4 (13) 7 (22) Earnings before income taxes Benefit (provision) for deferred taxes (1) 4 (2) 7 Provision for income taxes $ 3 $ (9) $ 5 $ (15) Net earnings Amounts Included in Net Periodic Benefit Cost Amortization of prior service cost $ — $ (1) $ — $ (1) (1) Amortization of actuarial loss (4) (4) (7) (9) (1) (4) (5) (7) (10) Earnings before income taxes Benefit for deferred taxes 1 1 2 3 Provision for income taxes $ (3) $ (4) $ (5) $ (7) Net earnings Total reclassification adjustments, net $ — $ (13) $ — $ (22) Net earnings (1) See Note 8 — Pension and Post-Retirement Benefit Plans for additional information. |
STATEMENT OF CASH FLOWS
STATEMENT OF CASH FLOWS | 6 Months Ended |
Dec. 31, 2018 | |
STATEMENT OF CASH FLOWS | |
STATEMENT OF CASH FLOWS | NOTE 13 — STATEMENT OF CASH FLOWS Supplemental cash flow information for the six months ended December 31, 2018 and 2017 is as follows: (In millions) 2018 2017 Cash: Cash paid during the period for interest $ 66 $ 65 Cash paid during the period for income taxes $ 217 $ 129 Non-cash investing and financing activities: Capital lease and asset retirement obligations incurred $ 8 $ 4 Property, plant and equipment accrued but unpaid $ 35 $ 34 |
SEGMENT DATA AND RELATED INFORM
SEGMENT DATA AND RELATED INFORMATION | 6 Months Ended |
Dec. 31, 2018 | |
SEGMENT DATA AND RELATED INFORMATION | |
SEGMENT DATA AND RELATED INFORMATION | NOTE 14 — 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 before returns associated with restructuring and other activities, and earnings before income taxes, other components of net periodic benefit cost, interest expense, interest income and investment income, net, and charges associated with restructuring and other activities. Returns and charges associated with restructuring and other activities are not allocated to the product categories 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. 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, 2018. The assets and liabilities of the Company are managed centrally and are reported internally in the same manner as the consolidated financial statements; thus, no additional information is produced for the Chief Executive or included herein. There has been no significant variance in the total or long-lived asset values associated with the Company’s segment data since June 30, 2018. Three Months Ended Six Months Ended December 31 December 31 (In millions) 2018 2017 2018 2017 PRODUCT CATEGORY DATA Net sales: Skin Care $ 1,732 $ 1,494 $ 3,218 $ 2,769 Makeup 1,560 1,515 2,966 2,887 Fragrance 537 565 1,009 1,041 Hair Care 154 144 297 280 Other 22 26 39 41 Net sales $ 4,005 $ 3,744 $ 7,529 $ 7,018 Operating income (loss) before charges associated with restructuring and other activities: Skin Care $ 565 $ 453 $ 1,031 $ 780 Makeup 138 219 299 395 Fragrance 84 85 139 172 Hair Care 15 17 29 32 Other 4 5 7 7 806 779 1,505 1,386 Reconciliation: Charges associated with restructuring and other activities (35) (69) (82) (107) Interest expense (35) (32) (69) (63) Interest income and investment income, net 12 12 27 24 Other components of net periodic benefit cost — — — (1) Earnings before income taxes $ 748 $ 690 $ 1,381 $ 1,239 GEOGRAPHIC DATA (1) Net sales: The Americas $ 1,218 $ 1,308 $ 2,454 $ 2,637 Europe, the Middle East & Africa 1,767 1,562 3,200 2,820 Asia/Pacific 1,020 874 1,875 1,561 Net sales $ 4,005 $ 3,744 $ 7,529 $ 7,018 Operating income (loss): The Americas $ (61) $ 98 $ (28) $ 198 Europe, the Middle East & Africa 628 463 1,086 810 Asia/Pacific 239 218 447 378 806 779 1,505 1,386 Charges associated with restructuring and other activities (35) (69) (82) (107) Operating income $ 771 $ 710 $ 1,423 $ 1,279 (1) The net sales from the Company’s travel retail business are included in the Europe, the Middle East & Africa region. |
SUMMARY OF SIGNIFICANT ACCOUN_2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 6 Months Ended |
Dec. 31, 2018 | |
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, 2018. Certain amounts in the consolidated financial statements of prior years have been reclassified to conform to current year presentation. |
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. Descriptions of the Company’s significant accounting policies are discussed in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018. Management evaluates the related estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions. Significant changes, if any, in those estimates and assumptions resulting from continuing changes in the economic environment 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), net of tax, reported as cumulative translation adjustments through other comprehensive income (loss) (“OCI”) attributable to The Estée Lauder Companies Inc. were $(34) million and $30 million, net of tax, during the three months ended December 31, 2018 and 2017, respectively, and $(13) million and $84 million , net of tax, during the six months ended December 31, 2018 and 2017, respectively. For the Company’s subsidiaries operating in highly inflationary economies, the U.S. dollar is the functional currency. Remeasurement adjustments in financial statements in a highly inflationary economy and other transactional gains and losses are reflected in earnings. These subsidiaries are not material to the Company’s consolidated financial statements or liquidity. 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 losses on foreign currency transactions of $7 million and $17 million during the three months ended December 31, 2018 and 2017, respectively, and $21 million and $35 million during the six months ended December 31, 2018 and 2017, 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. |
Inventory and Promotional Merchandise | Inventory and Promotional Merchandise Inventory and promotional merchandise, net consists of: December 31 June 30 (In millions) 2018 2018 Raw materials $ 438 $ 432 Work in process 191 222 Finished goods 840 798 Promotional merchandise 182 166 $ 1,651 $ 1,618 |
Property, Plant and Equipment | Property, Plant and Equipment December 31 June 30 (In millions) 2018 2018 Assets (Useful Life) Land $ 29 $ 30 Buildings and improvements (10 to 40 years) 269 237 Machinery and equipment (3 to 10 years) 748 719 Computer hardware and software (4 to 10 years) 1,245 1,193 Furniture and fixtures (5 to 10 years) 121 104 Leasehold improvements 2,217 2,152 4,629 4,435 Less accumulated depreciation and amortization (2,770) (2,612) $ 1,859 $ 1,823 The cost of assets related to projects in progress of $346 million and $300 million as of December 31, 2018 and June 30, 2018, respectively, is included in their respective asset categories above. Depreciation and amortization of property, plant and equipment was $121 million and $114 million during the three months ended December 31, 2018 and 2017, respectively , and $237 million and $226 million during the six months ended December 31, 2018 and 2017, 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. |
Income Taxes | Income Taxes On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”). The TCJA includes broad and complex changes to the U.S. tax code that impacted the Company’s accounting and reporting for income taxes. The impacts under the TCJA in the prior fiscal year primarily consisted of the following: · A reduction in the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018, which resulted in a fiscal 2018 U.S. blended statutory income tax rate for the Company of 28.1%. · A one-time mandatory deemed repatriation tax on unremitted foreign earnings (the “Transition Tax”), which the Company elected to pay over an eight-year period. · A remeasurement of U.S. net deferred tax assets. · The recognition of foreign withholding taxes in connection with the reversal of the Company’s indefinite reinvestment assertion related to certain foreign earnings. Staff Accounting Bulletin No. 118 (“SAB 118”) established a one-year measurement period (effective December 22, 2017), whereby provisional amounts recorded for effects of the changes from the TCJA could be subject to adjustment. The one-year measurement period expired on December 22, 2018 and, therefore, the accounting to record the effects of the changes from the TCJA was required to be completed during the three months ended December 31, 2018. For the year ended June 30, 2018, the Company recorded the following provisional charges related to the TCJA: · $351 million associated with the Transition Tax. · $53 million in connection with the remeasurement of U.S. net deferred tax assets resulting from the statutory tax rate reduction. · $46 million related to foreign withholding taxes associated with the reversal of its indefinite reinvestment assertion related to certain foreign earnings. During the three and six months ended December 31, 2018, the Company recorded a credit of $2 million and $12 million, respectively, to adjust its fiscal 2018 provisional charge associated with the Transition Tax. These credits reflect certain technical interpretations related to the Transition Tax computation. The final cumulative charge related to this matter is $339 million. The charges related to the Transition Tax are primarily included in Other noncurrent liabilities in the accompanying consolidated balance sheet as of December 31, 2018. During the three months ended December 31, 2018, the Company recorded an increase of $8 million to its provisional charge recorded in fiscal 2018 associated with the remeasurement of its net deferred tax assets resulting from the reduction in the U.S. corporate income tax rate. This adjustment was due to the revision of certain temporary differences. The final cumulative charge related to this matter is $61 million. In addition, the Company recorded a charge of $9 million for the three months ended September 30, 2018 related to foreign withholding taxes recorded in fiscal 2018 in connection with the reversal of its indefinite reinvestment assertion related to certain foreign earnings. This charge reflected the Company’s interpretation of recently issued guidance from the U.S. government, and the accounting for this item pursuant to SAB 118 was considered complete as of September 30, 2018. The final cumulative charge related to this matter is $55 million. Although the accounting related to the income tax effects of the TCJA is complete pursuant to SAB 118, certain technical aspects of the TCJA remain subject to varying degrees of uncertainty as additional technical guidance and clarification from the U.S. government is expected to be issued over an extended period. Receipt of additional guidance and clarification from the U.S. government may result in material changes to the provision for income taxes. To the extent applicable, the Company would recognize such adjustments in the provision for income taxes in the period that additional guidance and clarification is received. Provisions under the TCJA that became effective for the Company in the current fiscal year include a further reduction in the U.S. statutory rate to 21%, a new minimum tax on global intangible low-taxed income (“GILTI”), a base erosion anti-abuse tax, a foreign derived intangible income deduction and changes to IRC Section 162(m) related to the deductibility of executive compensation. For more information about the TCJA and the related impact on the Company, see Note 8 – Income Taxes in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018. The effective rate for income taxes was 22.9% and 81.9% for the three months ended December 31, 2018 and 2017, respectively, and 21.9% and 55.2% for the six months ended December 31, 2018 and 2017, respectively. The decrease in the effective tax rate in both periods was primarily attributable to the provisional charges related to the TCJA that were recorded in the three months ended December 31, 2017. Also contributing to the lower effective tax rate was a higher benefit related to share-based compensation awards, the impact of the lower U.S. statutory tax rate and a lower effective tax rate on our foreign operations due to a favorable geographic mix of earnings, partially offset by the impact of GILTI. As of December 31, 2018 and June 30, 2018, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $68 million and $60 million, respectively. The total amount of unrecognized tax benefits at December 31, 2018 that, if recognized, would affect the effective tax rate was $47 million. The total gross interest and penalties accrued related to unrecognized tax benefits during the three and six months ended December 31, 2018 in the accompanying consolidated statements of earnings was $1 million and $3 million, respectively. The total gross accrued interest and penalties in the accompanying consolidated balance sheets at December 31, 2018 and June 30, 2018 was $12 million and $9 million, respectively. On the basis of the information available as of December 31, 2018, the Company does not expect significant changes to the total amount of unrecognized tax benefits within the next twelve months. |
Other Accrued Liabilities | Other Accrued Liabilities Other accrued liabilities consist of the following: December 31 June 30 (In millions) 2018 2018 Advertising, merchandising and sampling $ 417 $ 348 Employee compensation 416 579 Deferred revenue 425 33 Sales return accrual 197 — Payroll and other taxes 293 190 Accrued income taxes 245 90 Other 770 705 $ 2,763 $ 1,945 |
Debt | Debt In October 2018, the Company replaced its undrawn $1.5 billion senior unsecured revolving credit facility that was set to expire in October 2021 with a new $1.5 billion senior unsecured revolving credit facility (the “New Facility”). The New Facility expires on October 26, 2023 unless extended for up to two additional years in accordance with the terms set forth in the agreement. 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 costs incurred to establish the New Facility were not material. 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. |
Recently Adopted and Issued Accounting Standards | Recently Adopted Accounting Standards Hedge Accounting In August 2017, the FASB issued authoritative guidance to simplify hedge accounting. The guidance includes provisions that: · enable entities to better portray their risk management activities within the financial statements; · expand an entity’s ability to hedge nonfinancial and financial risk components; · reduce complexity in fair value hedges of interest rate risk; · eliminate the requirement to separately measure and disclose hedge ineffectiveness; · require the entire change in fair value of a hedging instrument to be presented in the same income statement line as the hedged item; · ease certain documentation and assessment requirements; · modify the accounting for components excluded from the assessment of hedge effectiveness; and · require revised tabular footnote disclosure. The guidance also provides transition relief to make it easier for entities to apply certain amendments to existing hedges (including fair value hedges) where the hedge documentation is required to be modified. Effective for the Company — Fiscal 2020 first quarter, with early adoption permitted in any interim period. The guidance must be applied: · using the modified retrospective approach for cash flow and net investment hedge relationships that exist on the date of adoption; and · prospectively for the presentation and disclosure requirements. Impact on consolidated financial statements – The Company has early adopted this guidance effective as of its fiscal 2019 first quarter, and no cumulative adjustment to retained earnings was required. Upon adoption, all derivative gains and losses will be recognized in the same income statement line as the hedged items which, for all foreign currency cash flow hedges, is in Net sales. There is no change to the interest expense classification of gains and losses from interest rate swap fair value hedges. The amended presentation and disclosure requirements are being applied prospectively. See Note 5 – Derivative Financial Instruments for further information. Pension-related Costs In March 2017, the 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. 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. The guidance must be applied: · retrospectively as it pertains to the income statement classification of the components of net periodic benefit cost; and · prospectively as it pertains to future capitalization of service costs. Impact on consolidated financial statements – The Company adopted this guidance when it became effective, and although certain components of pension expense are being reclassified out of operating income, this did not have a material impact on reported operating income. The Company elected the practical expedient which permits the use of amounts previously disclosed in its pension and post-retirement plan footnote as the basis for estimating the amounts necessary to retrospectively restate the prior-year period consolidated statements of earnings. Revenue from Contracts with Customers In May 2014, the FASB issued authoritative guidance, Accounting Standards Codification Topic 606 – Revenue from Contracts with Customers (“ASC 606”), 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 prior 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 its 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 first quarter. 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 – On July 1, 2018, the Company adopted ASC 606, see Note 7 – Revenue Recognition for further discussion. Goodwill In January 2017, the FASB issued authoritative guidance that 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 Company has early adopted this guidance effective as of its fiscal 2019 second quarter and applied the new guidance in its quantitative goodwill impairment test related to the Smashbox reporting unit. See Note 3 – Goodwill and Other Intangible Assets for further information. Recently Issued Accounting Standards 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 guidance changes the recognition method for credit losses on available-for-sale debt securities, which can occur as a result of market and credit risk, and requires additional disclosures. In general, modified retrospective adoption will be required for all outstanding instruments that fall under this guidance. 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. 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 initial direct costs, prepaid lease payments and lease incentives received. Lease expense will be recognized similar to current accounting guidance with operating leases resulting in a straight-line expense, and finance leases resulting in a front-loaded expense similar to the current accounting for capital leases. In July 2018, the FASB amended this guidance to clarify certain narrow aspects of the new lease accounting standard that may have been incorrectly or inconsistently applied, and does not add new guidance. Also in July 2018, the FASB issued authoritative guidance that allows companies to elect to adopt the new standard using a modified retrospective transition approach with a cumulative-effect adjustment to retained earnings in the period of adoption. Companies that elect the new adoption method will not be required to restate the prior comparative periods in the financial statements. Effective for the Company — Fiscal 2020 first quarter, with early adoption permitted using either of the modified retrospective transition approaches described in the standard, with certain practical expedients. 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, which includes assessing the Company’s lease portfolio, implementing a new system to meet reporting requirements, and assessing the impact to business processes and internal controls over financial reporting and the related disclosure requirements. While the Company’s evaluation is ongoing, it believes the adoption of this standard will have a significant impact on its consolidated balance sheets. As disclosed in Note 14 – Commitments and Contingencies in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018, the Company had $3,320 million in future minimum lease commitments as of June 30, 2018. Upon adoption, the Company’s lease liability will generally be based on the present value of such payments and the related right-of-use asset will generally be based on the lease liability, adjusted for initial direct costs, prepaid lease payments and lease incentives received. The Company plans to adopt the new standard when it becomes effective in the fiscal 2020 first quarter using the modified retrospective transition approach for leases that exist in the period of adoption and will not restate the prior comparative periods. Goodwill and Other – Internal-Use Software In August 2018, the FASB issued authoritative guidance that permits companies to capitalize the costs incurred for setting up business systems that operate on cloud technology. The new guidance aligns the requirement for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance does not affect the accounting for the service element of a hosting arrangement that is a service contract. Capitalized costs associated with a hosting arrangement that is a service contract must be amortized over the term of the hosting arrangement to the same line item in the income statement as the expense for fees for the hosting arrangement. Effective for the Company – Fiscal 2021 first quarter, with early adoption permitted in any interim period. This guidance can be adopted either: · retrospectively; or · prospectively to all implementation costs incurred after the date of adoption. Impact on consolidated financial statements – The Company is currently evaluating the impact of applying this guidance to its business systems that operate on cloud technology. No other recently issued accounting pronouncements are expected to have a material impact on the Company’s consolidated financial statements. |
SUMMARY OF SIGNIFICANT ACCOUN_3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 6 Months Ended |
Dec. 31, 2018 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Schedule of inventory and promotional merchandise | December 31 June 30 (In millions) 2018 2018 Raw materials $ 438 $ 432 Work in process 191 222 Finished goods 840 798 Promotional merchandise 182 166 $ 1,651 $ 1,618 |
Schedule of property, plant and equipment | December 31 June 30 (In millions) 2018 2018 Assets (Useful Life) Land $ 29 $ 30 Buildings and improvements (10 to 40 years) 269 237 Machinery and equipment (3 to 10 years) 748 719 Computer hardware and software (4 to 10 years) 1,245 1,193 Furniture and fixtures (5 to 10 years) 121 104 Leasehold improvements 2,217 2,152 4,629 4,435 Less accumulated depreciation and amortization (2,770) (2,612) $ 1,859 $ 1,823 |
Schedule of other accrued liabilities | December 31 June 30 (In millions) 2018 2018 Advertising, merchandising and sampling $ 417 $ 348 Employee compensation 416 579 Deferred revenue 425 33 Sales return accrual 197 — Payroll and other taxes 293 190 Accrued income taxes 245 90 Other 770 705 $ 2,763 $ 1,945 |
INVESTMENTS (Tables)
INVESTMENTS (Tables) | 6 Months Ended |
Dec. 31, 2018 | |
INVESTMENTS | |
Schedule of gains and losses recorded in 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 December 31, 2018 were as follows: Gross Unrealized Gross Unrealized (In millions) Cost Gains Losses Fair Value U.S. government and agency securities $ 403 $ — $ (3) $ 400 Foreign government and agency securities 99 — (1) 98 Corporate notes and bonds 447 — (5) 442 Time deposits — — — — Other securities 15 — — 15 Total $ 964 $ — $ (9) $ 955 Gains and losses recorded in AOCI related to the Company’s available-for-sale investments as of June 30, 2018 were as follows: Gross Unrealized Gross Unrealized (In millions) Cost Gains Losses Fair Value U.S. government and agency securities $ 427 $ — $ (5) $ 422 Foreign government and agency securities 114 — (2) 112 Corporate notes and bonds 479 — (7) 472 Time deposits 200 — — 200 Other securities 16 — — 16 Total $ 1,236 $ — $ (14) $ 1,222 |
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 December 31, 2018: (In millions) Cost Fair Value Due within one year $ 528 $ 525 Due after one through five years 436 430 $ 964 $ 955 |
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 December 31, 2018: In a Loss Position for Less Than 12 In a Loss Position for More Than 12 Gross Unrealized Gross Unrealized (In millions) Fair Value Losses Fair Value Losses Available-for-sale securities $ 37 $ — $ 890 $ (9) |
GOODWILL AND OTHER INTANGIBLE_2
GOODWILL AND OTHER INTANGIBLE ASSETS (Tables) | 6 Months Ended |
Dec. 31, 2018 | |
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, 2018 Goodwill $ 185 $ 1,186 $ 256 $ 391 $ 2,018 Accumulated impairments (36) — (22) (34) (92) 149 1,186 234 357 1,926 Goodwill acquired during the period — 7 — — 7 Impairment charge — (20) — — (20) Translation adjustments, goodwill — — (1) (2) (3) Translation adjustments, accumulated impairments — — — 1 1 — (13) (1) (1) (15) Balance as of December 31, 2018 Goodwill 185 1,193 255 389 2,022 Accumulated impairments (36) (20) (22) (33) (111) $ 149 $ 1,173 $ 233 $ 356 $ 1,911 |
Schedule of other intangible assets, by type | December 31, 2018 June 30, 2018 Gross Total Net Gross Total Net Carrying Accumulated Book Carrying Accumulated Book (In millions) Value Amortization Value Value Amortization Value Amortizable intangible assets: Customer lists and other $ 696 $ 356 $ 340 $ 697 $ 332 $ 365 License agreements 43 43 — 43 43 — $ 739 $ 399 340 $ 740 $ 375 365 Non-amortizable intangible assets: Trademarks and other 893 911 Total intangible assets $ 1,233 $ 1,276 |
Estimated aggregate amortization expense for the remainder of the current fiscal year and the next four years | Fiscal (In millions) 2019 2020 2021 2022 2023 Estimated aggregate amortization expense $ 26 $ 44 $ 43 $ 42 $ 42 |
CHARGES ASSOCIATED WITH RESTR_2
CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES (Tables) - Leading Beauty Forward | 6 Months Ended |
Dec. 31, 2018 | |
CHARGES ASSOCIATED WITH RESTRUCTURING ACTIVITIES | |
Schedule of total cumulative charges expected to be incurred associated with restructuring and other activities | Sales Returns Operating Expenses (included in Restructuring Other (In millions) Net Sales) Cost of Sales Charges Charges Total Approval Period Fiscal 2016 $ 4 $ 28 $ 87 $ 71 $ 190 Fiscal 2017 11 10 132 118 271 Fiscal 2018 — 24 166 68 258 Six months ended December 31, 2018 — 9 19 29 57 Adjustments through December 31, 2018 (1) (1) (46) (1) (49) Cumulative through December 31, 2018 $ 14 $ 70 $ 358 $ 285 $ 727 |
Schedule of total cumulative charges by type approved associated with restructuring initiatives | Employee- Asset- Related Related Contract Other Exit (In millions) Costs Costs Terminations Costs Total Approval Period Fiscal 2016 $ 75 $ 3 $ 5 $ 4 $ 87 Fiscal 2017 126 1 — 5 132 Fiscal 2018 161 — 1 4 166 Six months ended December 31, 2018 17 1 — 1 19 Adjustments through December 31, 2018 (45) — (1) — (46) Cumulative through December 31, 2018 $ 334 $ 5 $ 5 $ 14 $ 358 |
Schedule of total cumulative charges recorded associated with restructuring and other activities | Sales Returns Operating Expenses (included in Restructuring Other (In millions) Net Sales) Cost of Sales Charges Charges Total Fiscal 2016 $ 1 $ — $ 75 $ 5 $ 81 Fiscal 2017 2 15 122 73 212 Fiscal 2018 8 18 127 104 257 Six months ended December 31, 2018 — 12 19 51 82 Cumulative through December 31, 2018 $ 11 $ 45 $ 343 $ 233 $ 632 |
Schedule of total cumulative charges by type recorded associated with restructuring and other activities | Employee- Asset- Related Related Contract Other Exit (In millions) Costs Costs Terminations Costs Total Fiscal 2016 $ 74 $ 1 $ — $ — $ 75 Fiscal 2017 116 2 2 2 122 Fiscal 2018 124 1 1 1 127 Six months ended December 31, 2018 18 — — 1 19 Cumulative through December 31, 2018 $ 332 $ 4 $ 3 $ 4 $ 343 |
Schedule of accrued restructuring charges from program inception | Employee- Asset- Related Related Contract Other Exit (In millions) Costs Costs Terminations Costs Total Charges $ 74 $ 1 $ — $ — $ 75 Noncash asset write-offs — (1) — — (1) Translation adjustments (1) — — — (1) Balance at June 30, 2016 73 — — — 73 Charges 116 2 2 2 122 Cash payments (39) — (2) (2) (43) Noncash asset write-offs — (2) — — (2) Balance at June 30, 2017 150 — — — 150 Charges 124 1 1 1 127 Cash payments (92) — — (1) (93) Noncash asset write-offs — (1) — — (1) Translation adjustments (2) — — — (2) Balance at June 30, 2018 180 — 1 — 181 Charges 18 — — 1 19 Cash payments (55) — (1) (1) (57) Noncash asset write-offs — — — — — Translation and other adjustments (2) — — — (2) Balance at December 31, 2018 $ 141 $ — $ — $ — $ 141 |
DERIVATIVE FINANCIAL INSTRUME_2
DERIVATIVE FINANCIAL INSTRUMENTS (Tables) | 6 Months Ended |
Dec. 31, 2018 | |
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) Balance Sheet December 31 June 30 Balance Sheet December 31 June 30 (In millions) Location 2018 2018 Location 2018 2018 Derivatives Designated as Hedging Instruments: Foreign currency forward contracts Prepaid expenses and other current assets $ 32 $ 30 Other accrued liabilities $ 3 $ 5 Interest rate swap contracts Prepaid expenses and other current assets — — Other accrued liabilities 17 26 Total Derivatives Designated as Hedging Instruments 32 30 20 31 Derivatives Not Designated as Hedging Instruments: Foreign currency forward contracts Prepaid expenses and other current assets 4 3 Other accrued liabilities 2 8 Total derivatives $ 36 $ 33 $ 22 $ 39 (1) See Note 6 — 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) Amount of Gain or (Loss) Recognized in OCI on Reclassified from AOCI into Derivatives Location of Gain or Earnings (1) Three Months Ended (Loss) Reclassified Three Months Ended December 31 from AOCI into December 31 (In millions) 2018 2017 Earnings 2018 2017 (2) Derivatives in Cash Flow Hedging Relationships: Foreign currency forward contracts $ 13 $ (9) Net sales $ 4 $ — Cost of sales — (7) Selling, general and administrative — (7) Interest rate-related derivatives — — Interest expense — 1 Total derivatives $ 13 $ (9) $ 4 $ (13) (1) The amount reclassified into earnings as a result of the discontinuance of cash flow hedges because probable forecasted transactions will no longer occur by the end of the original time period was not material. (2) The gain (loss) recognized in earnings related to the amount excluded from effectiveness testing was not material . Amount of Gain or (Loss) Amount of Gain or (Loss) Recognized in OCI on Reclassified from AOCI into Derivatives Location of Gain or Earnings (1) Six Months Ended (Loss) Reclassified Six Months Ended December 31 from AOCI into December 31 (In millions) 2018 2017 Earnings 2018 2017 (2) Derivatives in Cash Flow Hedging Relationships: Foreign currency forward contracts $ 16 $ (27) Net sales $ 7 $ — Cost of sales — (12) Selling, general and administrative — (11) Interest rate-related derivatives — — Interest expense — 1 Total derivatives $ 16 $ (27) $ 7 $ (22) (1) The amount reclassified into earnings as a result of the discontinuance of cash flow hedges because probable forecasted transactions will no longer occur by the end of the original time period was not material. (2) The gain (loss) recognized in earnings related to the amount excluded from effectiveness testing was not material. Amount of Gain or (Loss) Recognized in Earnings on Derivatives (1) Location of Gain or (Loss) Three Months Ended Six Months Ended Recognized in Earnings on December 31 December 31 (In millions) Derivatives 2018 2017 2018 2017 Derivatives in Fair Value Hedging Relationships: Interest rate swap contracts Interest expense $ 11 $ (9) $ 9 $ (11) (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 cumulative amount of fair value hedging adjustments for designated and qualifying hedged items | Amount of Gain or (Loss) Recognized in Earnings on Derivatives Cumulative Amount of Fair Value Hedging Adjustments (In millions) Carrying Amount of the Included in the Carrying Amount Line Item in the Consolidated Balance Sheets in Hedged Assets (Liabilities) of the Hedged Assets (Liabilities) Which the Hedged Item is Included December 31, 2018 December 31, 2018 Long-term debt $ (930) $ (17) |
Schedule of effects of fair value and cash flow hedging relationships for designated and qualified hedging instruments | Three Months Ended Six Months Ended December 31, 2018 December 31, 2018 Interest Interest (In millions) Net Sales expense Net Sales expense Total amounts of income and expense line items presented in the consolidated statements of earnings in which the effects of fair value and cash flow hedges are recorded $ 4,005 $ 35 $ 7,529 $ 69 The effects of fair value and cash flow hedging relationships: Gain (loss) on fair value hedge relationships – interest rate contracts: Hedged item Not applicable 11 Not applicable 9 Derivatives designated as hedging instruments Not applicable (11) Not applicable (9) Gain (loss) on cash flow hedge relationships – foreign currency forward contracts: Amount of gain reclassified from AOCI into earnings 4 Not applicable 7 Not applicable |
Schedule of gains and losses related to derivative financial instruments not designated as hedging instruments | Amount of Gain or (Loss) Recognized in Earnings on Derivatives Location of Gain or (Loss) Three Months Ended Six Months Ended Recognized in Earnings on December 31 December 31 (In millions) Derivatives 2018 2017 2018 2017 Derivatives Not Designated as Hedging Instruments: Foreign currency forward contracts Selling, general and administrative $ (12) $ (1) $ 10 $ (5) |
FAIR VALUE MEASUREMENTS (Tables
FAIR VALUE MEASUREMENTS (Tables) | 6 Months Ended |
Dec. 31, 2018 | |
FAIR VALUE MEASUREMENTS | |
Schedule of 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 December 31, 2018: (In millions) Level 1 Level 2 Level 3 Total Assets: Foreign currency forward contracts $ — $ 36 $ — $ 36 Available-for-sale securities: U.S. government and agency securities — 400 — 400 Foreign government and agency securities — 98 — 98 Corporate notes and bonds — 442 — 442 Time deposits — — — — Other securities — 15 — 15 Total $ — $ 991 $ — $ 991 Liabilities: Foreign currency forward contracts $ — $ 5 $ — $ 5 Interest rate swap contracts — 17 — 17 Contingent consideration — — 87 87 Total $ — $ 22 $ 87 $ 109 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, 2018: (In millions) Level 1 Level 2 Level 3 Total Assets: Foreign currency forward contracts $ — $ 33 $ — $ 33 Available-for-sale securities: U.S. government and agency securities — 422 — 422 Foreign government and agency securities — 112 — 112 Corporate notes and bonds — 472 — 472 Time deposits — 200 — 200 Other securities — 16 — 16 Total $ — $ 1,255 $ — $ 1,255 Liabilities: Foreign currency forward contracts $ — $ 13 $ — $ 13 Interest rate swap contracts — 26 — 26 Contingent consideration — — 96 96 Total $ — $ 39 $ 96 $ 135 |
Schedule of estimated fair values of financial instruments | December 31 June 30 2018 2018 Carrying Fair Carrying Fair (In millions) Amount Value Amount Value Nonderivatives Cash and cash equivalents $ 1,876 $ 1,876 $ 2,181 $ 2,181 Available-for-sale securities 955 955 1,222 1,222 Current and long-term debt 3,391 3,477 3,544 3,667 Additional purchase price payable 3 3 3 3 Contingent consideration 87 87 96 96 Derivatives Foreign currency forward contracts – asset (liability), net 31 31 20 20 Interest rate swap contracts – asset (liability), net (17) (17) (26) (26) |
Impairment charges measured at fair value on a nonrecurring basis, classified as Level 3 | Date of Fair Value (In millions) Impairment charges Measurement Fair Value (1) Goodwill $ 20 December 31, 2018 $ 120 Other intangible assets, net (trademark) 18 December 31, 2018 59 Total $ 38 $ 179 (1) See Note 3 – Goodwill and Other Intangible Assets for discussion of the valuation techniques used to measure fair value, the description of the inputs and information used to develop those inputs. |
Schedule of fair value assumptions of contingent consideration | 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 December 31, 2018: Risk-adjusted discount rates 3.1% to 3.3% Revenue volatility Asset volatility Revenue and earnings before income tax, depreciation and amortization correlation coefficient factor Revenue discount rates 4.7% to 4.9% Earnings before income tax, depreciation and amortization discount rates 11.9% to 12.8% |
Changes in the fair value of the contingent consideration obligations | (In millions) Fair Value Contingent consideration at June 30, 2018 $ 96 Changes in fair value (9) Contingent consideration at December 31, 2018 $ 87 |
REVENUE RECOGNITION (Tables)
REVENUE RECOGNITION (Tables) | 6 Months Ended |
Dec. 31, 2018 | |
REVENUE RECOGNITION | |
Schedule of significant changes in Deferred Revenue | (In millions) December 31, 2018 Balance at July 1, 2018 $ 380 Revenue recognized that was included in the deferred revenue balance at the beginning of the period (268) Revenue deferred during the period 371 Other (3) Balance at December 31, 2018 $ 480 |
ASU 2014-09 | |
REVENUE RECOGNITION | |
Schedule of Consolidated Statements of Earnings | Three Months Ended December 31, 2018 Six Months Ended December 31, 2018 Prior to the Prior to the adoption of adoption of (In millions, except per share data) As Reported Impact ASC 606 As Reported Impact ASC 606 Net sales $ 4,005 $ 67 $ 4,072 $ 7,529 $ 134 $ 7,663 Cost of sales 910 (86) 824 1,733 (152) 1,581 Gross profit 3,095 153 3,248 5,796 286 6,082 Selling, general and administrative 2,257 99 2,356 4,265 201 4,466 Operating income 771 54 825 1,423 85 1,508 Provision for income taxes 171 13 184 302 19 321 Net earnings attributable to The Estée Lauder Companies Inc. 573 41 614 1,073 66 1,139 Net earnings attributable to The Estée Lauder Companies Inc. per common share: Basic $ 1.58 $ .11 $ 1.69 $ 2.94 $ .18 $ 3.12 Diluted $ 1.55 $ .11 $ 1.66 $ 2.88 $ .18 $ 3.06 |
Schedule of Consolidated Balance Sheet | December 31, 2018 Prior to the adoption of (In millions) As Reported Impact ASC 606 Accounts receivable, net $ 2,000 $ (199) $ 1,801 Inventory and promotional merchandise, net 1,651 (25) 1,626 Other assets 633 (88) 545 Total assets 12,676 (312) 12,364 Other accrued liabilities 2,763 (551) 2,212 Other noncurrent liabilities 1,194 (55) 1,139 Total liabilities 8,343 (606) 7,737 Retained earnings 9,586 295 9,881 Accumulated other comprehensive loss (430) (2) (432) Total stockholders’ equity – The Estée Lauder Companies Inc. 4,306 293 4,599 |
Schedule of Consolidated Statement of Cash Flows | Six Months Ended December 31, 2018 Prior to the adoption of (In millions) As Reported Impact ASC 606 Net earnings $ 1,079 $ 66 $ 1,145 Changes in operating assets and liabilities Decrease (increase) in accounts receivable, net (343) 2 (341) Increase in inventory and promotional merchandise, net (21) (2) (23) Increase (decrease) in other accrued and noncurrent liabilities 387 (66) 321 Net cash flows provided by operating activities 1,273 — 1,273 |
PENSION AND POST-RETIREMENT B_2
PENSION AND POST-RETIREMENT BENEFIT PLANS (Tables) | 6 Months Ended |
Dec. 31, 2018 | |
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 December 31, 2018 and 2017 consisted of the following: Other than Pension Plans Pension Plans U.S. International Post-retirement (In millions) 2018 2017 2018 2017 2018 2017 Service cost $ 9 $ 9 $ 7 $ 8 $ — $ — Interest cost 9 8 3 3 2 1 Expected return on plan assets (13) (13) (4) (4) — — Amortization of: Prior service cost — — — — — 1 Actuarial loss 2 3 2 1 — — Net periodic benefit cost $ 7 $ 7 $ 8 $ 8 $ 2 $ 2 The components of net periodic benefit cost for the six months ended December 31, 2018 and 2017 consisted of the following: Other than Pension Plans Pension Plans U.S. International Post-retirement (In millions) 2018 2017 2018 2017 2018 2017 Service cost $ 18 $ 18 $ 15 $ 15 $ 1 $ 1 Interest cost 18 16 6 6 4 3 Expected return on plan assets (26) (26) (7) (7) (1) (1) Amortization of: Prior service cost — — — — — 1 Actuarial loss 5 7 2 2 — — Net periodic benefit cost $ 15 $ 15 $ 16 $ 16 $ 4 $ 4 |
Schedule of amounts recognized in the consolidated balance sheets related to the Company's pension and post-retirement benefit plans | December 31 June 30 (In millions) 2018 2018 Other assets $ 173 $ 181 Other accrued liabilities (27) (27) Other noncurrent liabilities (384) (375) Funded status (238) (221) Accumulated other comprehensive loss 227 234 Net amount recognized $ (11) $ 13 |
STOCK PROGRAMS (Tables)
STOCK PROGRAMS (Tables) | 6 Months Ended |
Dec. 31, 2018 | |
STOCK PROGRAMS | |
Schedule of stock-based compensation expense and related income tax benefits | Three Months Ended Six Months Ended December 31 December 31 (In millions) 2018 2017 2018 2017 Compensation expense $ 73 $ 75 $ 131 $ 132 Income tax benefit $ 13 $ 9 $ 25 $ 28 |
NET EARNINGS ATTRIBUTABLE TO _2
NET EARNINGS ATTRIBUTABLE TO THE ESTEE LAUDER COMPANIES INC. PER COMMON SHARE (Tables) | 6 Months Ended |
Dec. 31, 2018 | |
NET EARNINGS ATTRIBUTABLE TO THE ESTEE LAUDER COMPANIES INC. PER COMMON SHARE | |
Schedule of reconciliation between the numerators and denominators of the basic and diluted EPS computations | Three Months Ended Six Months Ended December 31 December 31 (In millions, except per share data) 2018 2017 2018 2017 Numerator: Net earnings attributable to The Estée Lauder Companies Inc. $ 573 $ 123 $ 1,073 $ 550 Denominator: Weighted-average common shares outstanding – Basic 363.3 368.7 365.1 368.5 Effect of dilutive stock options 4.6 5.1 4.8 4.8 Effect of PSUs 0.3 0.3 0.3 0.2 Effect of RSUs 1.7 2.0 1.9 2.2 Weighted-average common shares outstanding – Diluted 369.9 376.1 372.1 375.7 Net earnings attributable to The Estée Lauder Companies Inc. per common share: Basic $ 1.58 $ .33 $ 2.94 $ 1.49 Diluted $ 1.55 $ .33 $ 2.88 $ 1.46 |
EQUITY (Tables)
EQUITY (Tables) | 6 Months Ended |
Dec. 31, 2018 | |
EQUITY | |
Schedule of equity | Total Stockholders’ Equity – The Estée Lauder Companies Inc. Three Months Ended Six Months Ended December 31 December 31 (In millions) 2018 2017 2018 2017 Common stock, beginning of the period $ 6 $ 6 $ 6 $ 6 Stock-based compensation — — — — Common stock, end of the period 6 6 6 6 Paid-in capital, beginning of the period 4,065 3,665 3,972 3,559 Stock-based compensation 97 108 190 214 Paid-in capital, end of the period 4,162 3,773 4,162 3,773 Retained earnings, beginning of the period 9,170 8,752 9,040 8,452 Common stock dividends (157) (142) (298) (269) Net earnings attributable to The Estée Lauder Companies Inc. 573 123 1,073 550 Cumulative effect of adoption of ASC 606 — — (229) — Retained earnings, end of the period 9,586 8,733 9,586 8,733 Accumulated other comprehensive loss, beginning of the period (409) (435) (434) (484) Other comprehensive income (loss) (21) 28 4 77 Accumulated other comprehensive loss, end of the period (430) (407) (430) (407) Treasury stock, beginning of the period (8,426) (7,257) (7,896) (7,149) Acquisition of treasury stock (531) (232) (1,033) (330) Stock-based compensation (61) (51) (89) (61) Treasury stock, end of the period (9,018) (7,540) (9,018) (7,540) Total stockholders’ equity – The Estée Lauder Companies Inc. 4,306 4,565 4,306 4,565 Noncontrolling interests, beginning of the period 24 22 22 18 Net earnings attributable to noncontrolling interests 4 2 6 5 Other comprehensive income (1) — (1) 1 Noncontrolling interests, end of the period 27 24 27 24 Total equity $ 4,333 $ 4,589 $ 4,333 $ 4,589 Cash dividends declared per common share $ .43 $ .38 $ .81 $ .72 |
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 six months ended December 31, 2018: Date Declared Record Date Payable Date Amount per Share August 17, 2018 August 31, 2018 September 17, 2018 $ .38 October 30, 2018 November 30, 2018 December 17, 2018 $ .43 |
Schedule of components of AOCI, net of tax | Net Net Amounts Unrealized Derivative Included in Net Investment Instrument Periodic Benefit Translation (In millions) Gain (Loss) Gain (Loss) Cost Adjustments Total Balance at June 30, 2018 $ (14) $ 39 $ (175) $ (284) $ (434) OCI before reclassifications 5 12 — (13) 4 Amounts reclassified to Net earnings — (5) 5 — — Net current-period OCI 5 7 5 (13) 4 Balance at December 31, 2018 $ (9) $ 46 $ (170) $ (297) $ (430) |
Schedule of effects of reclassification adjustments from AOCI into net earnings | Amount Reclassified from AOCI Three Months Ended Six Months Ended Affected Line Item in December 31 December 31 Consolidated (In millions) 2018 2017 2018 2017 Statements of Earnings Gain (Loss) on Cash Flow Hedges Foreign currency forward contracts $ 4 $ — $ 7 $ — Net sales Foreign currency forward contracts — (7) — (12) Cost of sales Foreign currency forward contracts — (7) — (11) Selling, general and administrative Interest rate-related derivatives — 1 — 1 Interest expense 4 (13) 7 (22) Earnings before income taxes Benefit (provision) for deferred taxes (1) 4 (2) 7 Provision for income taxes $ 3 $ (9) $ 5 $ (15) Net earnings Amounts Included in Net Periodic Benefit Cost Amortization of prior service cost $ — $ (1) $ — $ (1) (1) Amortization of actuarial loss (4) (4) (7) (9) (1) (4) (5) (7) (10) Earnings before income taxes Benefit for deferred taxes 1 1 2 3 Provision for income taxes $ (3) $ (4) $ (5) $ (7) Net earnings Total reclassification adjustments, net $ — $ (13) $ — $ (22) Net earnings (1) See Note 8 — Pension and Post-Retirement Benefit Plans for additional information. |
STATEMENT OF CASH FLOWS (Tables
STATEMENT OF CASH FLOWS (Tables) | 6 Months Ended |
Dec. 31, 2018 | |
STATEMENT OF CASH FLOWS | |
Supplemental cash flow information | Supplemental cash flow information for the six months ended December 31, 2018 and 2017 is as follows: (In millions) 2018 2017 Cash: Cash paid during the period for interest $ 66 $ 65 Cash paid during the period for income taxes $ 217 $ 129 Non-cash investing and financing activities: Capital lease and asset retirement obligations incurred $ 8 $ 4 Property, plant and equipment accrued but unpaid $ 35 $ 34 |
SEGMENT DATA AND RELATED INFO_2
SEGMENT DATA AND RELATED INFORMATION (Tables) | 6 Months Ended |
Dec. 31, 2018 | |
SEGMENT DATA AND RELATED INFORMATION | |
Schedule of segment data and related information | Three Months Ended Six Months Ended December 31 December 31 (In millions) 2018 2017 2018 2017 PRODUCT CATEGORY DATA Net sales: Skin Care $ 1,732 $ 1,494 $ 3,218 $ 2,769 Makeup 1,560 1,515 2,966 2,887 Fragrance 537 565 1,009 1,041 Hair Care 154 144 297 280 Other 22 26 39 41 Net sales $ 4,005 $ 3,744 $ 7,529 $ 7,018 Operating income (loss) before charges associated with restructuring and other activities: Skin Care $ 565 $ 453 $ 1,031 $ 780 Makeup 138 219 299 395 Fragrance 84 85 139 172 Hair Care 15 17 29 32 Other 4 5 7 7 806 779 1,505 1,386 Reconciliation: Charges associated with restructuring and other activities (35) (69) (82) (107) Interest expense (35) (32) (69) (63) Interest income and investment income, net 12 12 27 24 Other components of net periodic benefit cost — — — (1) Earnings before income taxes $ 748 $ 690 $ 1,381 $ 1,239 GEOGRAPHIC DATA (1) Net sales: The Americas $ 1,218 $ 1,308 $ 2,454 $ 2,637 Europe, the Middle East & Africa 1,767 1,562 3,200 2,820 Asia/Pacific 1,020 874 1,875 1,561 Net sales $ 4,005 $ 3,744 $ 7,529 $ 7,018 Operating income (loss): The Americas $ (61) $ 98 $ (28) $ 198 Europe, the Middle East & Africa 628 463 1,086 810 Asia/Pacific 239 218 447 378 806 779 1,505 1,386 Charges associated with restructuring and other activities (35) (69) (82) (107) Operating income $ 771 $ 710 $ 1,423 $ 1,279 (1) The net sales from the Company’s travel retail business are included in the Europe, the Middle East & Africa region. |
SUMMARY OF SIGNIFICANT ACCOUN_4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Currency Translation and Transactions (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2018 | Dec. 31, 2017 | |
Currency Translation and Transactions | ||||
Unrealized translation gains (losses), net of tax | $ (34) | $ 30 | $ (13) | $ 84 |
Net exchange losses on foreign currency transactions | $ 7 | $ 17 | $ 21 | $ 35 |
SUMMARY OF SIGNIFICANT ACCOUN_5
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Inventory and Promotional Merchandise (Details) - USD ($) $ in Millions | Dec. 31, 2018 | Jun. 30, 2018 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||
Raw materials | $ 438 | $ 432 |
Work in process | 191 | 222 |
Finished goods | 840 | 798 |
Promotional merchandise | 182 | 166 |
Inventory and promotional merchandise, net | $ 1,651 | $ 1,618 |
SUMMARY OF SIGNIFICANT ACCOUN_6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Property, Plant and Equipment (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | |||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2018 | Dec. 31, 2017 | Jun. 30, 2018 | |
Property, Plant and Equipment | |||||
Property, plant and equipment, Gross | $ 4,629 | $ 4,629 | $ 4,435 | ||
Less accumulated depreciation and amortization | (2,770) | (2,770) | (2,612) | ||
Property, plant and equipment, net | 1,859 | 1,859 | 1,823 | ||
Cost of assets related to projects in progress | 346 | 346 | 300 | ||
Depreciation and amortization of property, plant and equipment | 121 | $ 114 | 237 | $ 226 | |
Land | |||||
Property, Plant and Equipment | |||||
Property, plant and equipment, Gross | 29 | 29 | 30 | ||
Buildings and improvements | |||||
Property, Plant and Equipment | |||||
Property, plant and equipment, Gross | 269 | 269 | 237 | ||
Machinery and equipment | |||||
Property, Plant and Equipment | |||||
Property, plant and equipment, Gross | 748 | 748 | 719 | ||
Computer hardware and software | |||||
Property, Plant and Equipment | |||||
Property, plant and equipment, Gross | 1,245 | 1,245 | 1,193 | ||
Furniture and fixtures | |||||
Property, Plant and Equipment | |||||
Property, plant and equipment, Gross | 121 | 121 | 104 | ||
Leasehold improvements | |||||
Property, Plant and Equipment | |||||
Property, plant and equipment, Gross | $ 2,217 | $ 2,217 | $ 2,152 | ||
Minimum | Buildings and improvements | |||||
Property, Plant and Equipment | |||||
Property, plant and equipment, Useful life (in years) | 10 years | ||||
Minimum | Machinery and equipment | |||||
Property, Plant and Equipment | |||||
Property, plant and equipment, Useful life (in years) | 3 years | ||||
Minimum | Computer hardware and software | |||||
Property, Plant and Equipment | |||||
Property, plant and equipment, Useful life (in years) | 4 years | ||||
Minimum | Furniture and fixtures | |||||
Property, Plant and Equipment | |||||
Property, plant and equipment, Useful life (in years) | 5 years | ||||
Maximum | Buildings and improvements | |||||
Property, Plant and Equipment | |||||
Property, plant and equipment, Useful life (in years) | 40 years | ||||
Maximum | Machinery and equipment | |||||
Property, Plant and Equipment | |||||
Property, plant and equipment, Useful life (in years) | 10 years | ||||
Maximum | Computer hardware and software | |||||
Property, Plant and Equipment | |||||
Property, plant and equipment, Useful life (in years) | 10 years | ||||
Maximum | Furniture and fixtures | |||||
Property, Plant and Equipment | |||||
Property, plant and equipment, Useful life (in years) | 10 years |
SUMMARY OF SIGNIFICANT ACCOUN_7
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Income Taxes and Other Accrued Liabilities (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||||
Dec. 31, 2018 | Sep. 30, 2018 | Dec. 31, 2017 | Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2018 | Jun. 30, 2018 | |
Income Taxes | |||||||
U.S. federal corporate income tax rate(as a percent) | 35.00% | 21.00% | |||||
U.S. blended statutory income tax rate for the Company(as a percent) | 28.10% | ||||||
Transition tax payable period | 8 years | ||||||
Provisional charge for Transition Tax resulting from the TCJA | $ 351 | ||||||
Provisional charge related to remeasurement of U.S. net deferred tax assets resulting from the TCJA | $ 8 | 53 | |||||
Provisional charge for net deferred tax liability related to foreign withholding taxes on certain foreign earnings resulting from the TCJA | $ 9 | 46 | |||||
Adjustment to provisional Transition Tax charge | $ (2) | $ (12) | |||||
Cumulative charge related to Transition Tax resulting from the TCJA | $ 339 | ||||||
Cumulative charge related to remeasurement of U.S. net deferred tax assets resulting from the TCJA | 61 | ||||||
Cumulative charge related to net deferred tax liability related to foreign withholding taxes on certain foreign earnings resulting from the TCJA | 55 | ||||||
Effective tax rate (as a percent) | 22.90% | 81.90% | 21.90% | 55.20% | |||
Unrecognized tax benefits exclusive of interest and penalties | $ 68 | $ 68 | 68 | 60 | |||
Total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate | 47 | 47 | 47 | ||||
Gross interest and penalty accrued | 1 | 3 | |||||
Total gross accrued interest and penalties related to unrecognized tax benefits | 12 | 12 | 12 | 9 | |||
Other Accrued Liabilities | |||||||
Advertising, merchandising and sampling | 417 | 417 | 417 | 348 | |||
Employee compensation | 416 | 416 | 416 | 579 | |||
Deferred revenue | 425 | 425 | 425 | 33 | |||
Sales return accrual | 197 | 197 | 197 | ||||
Payroll and other taxes | 293 | 293 | 293 | 190 | |||
Accrued income taxes | 245 | 245 | 245 | 90 | |||
Other | 770 | 770 | 770 | 705 | |||
Total Other Accrued Liabilities | $ 2,763 | $ 2,763 | $ 2,763 | $ 1,945 |
SUMMARY OF SIGNIFICANT ACCOUN_8
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Debt (Details) - USD ($) $ in Millions | 1 Months Ended | |
Oct. 31, 2018 | Sep. 30, 2018 | |
Revolving Credit Facility Expiring October 2021 | ||
Debt | ||
Maximum borrowing capacity | $ 1,500 | |
Revolving Credit Facility Expiring October 2023 | ||
Debt | ||
Maximum borrowing capacity | $ 1,500 | |
Possible additional extended term (in years) | 2 years | |
Maximum borrowing capacity for multi-currency loans | $ 500 | |
Annual fee | 1 | |
Amount of cross-default provision | $ 175 |
SUMMARY OF SIGNIFICANT ACCOUN_9
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Recently Adopted Accounting Standards (Details) $ in Millions | 6 Months Ended |
Dec. 31, 2018USD ($) | |
Recently adopted accounting standards | |
Pension-related costs, practical expedient comparative period disclosure [true, false] | true |
Accounting Standards Update 2017-12 | |
Recently adopted accounting standards | |
Cumulative adjustment to retained earnings | $ 0 |
SUMMARY OF SIGNIFICANT ACCOU_10
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Recently Issued Accounting Standards (Details) $ in Millions | Jun. 30, 2018USD ($) |
Recently Issued Accounting Standards | |
Future minimum lease commitments | $ 3,320 |
INVESTMENTS - Gains and Losses
INVESTMENTS - Gains and Losses Recorded in AOCI (Details) - USD ($) $ in Millions | Dec. 31, 2018 | Jun. 30, 2018 |
Gains and losses recorded in AOCI | ||
Cost | $ 964 | $ 1,236 |
Gross Unrealized Losses | (9) | (14) |
Fair Value | 955 | 1,222 |
U.S. government and agency securities | ||
Gains and losses recorded in AOCI | ||
Cost | 403 | 427 |
Gross Unrealized Losses | (3) | (5) |
Fair Value | 400 | 422 |
Foreign government and agency securities | ||
Gains and losses recorded in AOCI | ||
Cost | 99 | 114 |
Gross Unrealized Losses | (1) | (2) |
Fair Value | 98 | 112 |
Corporate notes and bonds | ||
Gains and losses recorded in AOCI | ||
Cost | 447 | 479 |
Gross Unrealized Losses | (5) | (7) |
Fair Value | 442 | 472 |
Time deposits | ||
Gains and losses recorded in AOCI | ||
Cost | 200 | |
Fair Value | 200 | |
Other securities | ||
Gains and losses recorded in AOCI | ||
Cost | 15 | 16 |
Fair Value | $ 15 | $ 16 |
INVESTMENTS - Available-For-Sal
INVESTMENTS - Available-For-Sale Securities by Contractual Maturity (Details) $ in Millions | Dec. 31, 2018USD ($) |
Available-for-sale securities by contractual maturity | |
Due within one year, Cost | $ 528 |
Due after one through five years, Cost | 436 |
Cost, Total | 964 |
Due within one year, Fair Value | 525 |
Due after one through five years, Fair Value | 430 |
Fair Value, Total | $ 955 |
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 | Dec. 31, 2018USD ($) |
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 | $ 37 |
In a Loss Position for More Than 12 Months, Fair Value | 890 |
In a Loss Position for More Than 12 Months, Gross Unrealized Losses | $ (9) |
INVESTMENTS - Sales Proceeds fr
INVESTMENTS - Sales Proceeds from Investments Classified as Available-for-Sale (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2018 | Dec. 31, 2017 | |
Proceeds from sale of available-for-sale securities | ||||
Sales proceeds from investments classified as available-for-sale | $ 11 | $ 166 | $ 23 | $ 296 |
GOODWILL AND OTHER INTANGIBLE_3
GOODWILL AND OTHER INTANGIBLE ASSETS - Goodwill (Details) - USD ($) $ in Millions | 1 Months Ended | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2018 | Dec. 31, 2018 | Dec. 31, 2018 | Jun. 30, 2018 | |
Goodwill and Other Intangible Assets | |||||
Goodwill | $ 1,911 | $ 1,911 | $ 1,926 | $ 1,911 | $ 1,926 |
Goodwill | 2,022 | 2,018 | |||
Accumulated impairments | (111) | (92) | |||
Changes in goodwill | |||||
Goodwill, Beginning Balance | 1,926 | ||||
Goodwill acquired during the period | 7 | ||||
Impairment charges | (20) | (20) | |||
Translation adjustments, goodwill | (3) | ||||
Translation adjustments, accumulated impairments | 1 | ||||
Goodwill, period increase (decrease) | (15) | ||||
Goodwill, Ending Balance | 1,911 | 1,911 | 1,911 | ||
Skin Care | |||||
Goodwill and Other Intangible Assets | |||||
Goodwill | 149 | 149 | 149 | 149 | 149 |
Goodwill | 185 | 185 | |||
Accumulated impairments | (36) | (36) | |||
Changes in goodwill | |||||
Goodwill, Beginning Balance | 149 | ||||
Goodwill, Ending Balance | 149 | 149 | 149 | ||
Makeup | |||||
Goodwill and Other Intangible Assets | |||||
Goodwill | 1,173 | 1,173 | 1,186 | 1,173 | 1,186 |
Goodwill | 1,193 | 1,186 | |||
Accumulated impairments | (20) | ||||
Changes in goodwill | |||||
Goodwill, Beginning Balance | 1,186 | ||||
Goodwill acquired during the period | 7 | ||||
Impairment charges | (20) | ||||
Goodwill, period increase (decrease) | (13) | ||||
Goodwill, Ending Balance | 1,173 | 1,173 | 1,173 | ||
Fragrance | |||||
Goodwill and Other Intangible Assets | |||||
Goodwill | 233 | 233 | 234 | 233 | 234 |
Goodwill | 255 | 256 | |||
Accumulated impairments | (22) | (22) | |||
Changes in goodwill | |||||
Goodwill, Beginning Balance | 234 | ||||
Translation adjustments, goodwill | (1) | ||||
Goodwill, period increase (decrease) | (1) | ||||
Goodwill, Ending Balance | 233 | 233 | 233 | ||
Hair Care | |||||
Goodwill and Other Intangible Assets | |||||
Goodwill | 356 | 356 | 357 | 356 | 357 |
Goodwill | 389 | 391 | |||
Accumulated impairments | (33) | $ (34) | |||
Changes in goodwill | |||||
Goodwill, Beginning Balance | 357 | ||||
Translation adjustments, goodwill | (2) | ||||
Translation adjustments, accumulated impairments | 1 | ||||
Goodwill, period increase (decrease) | (1) | ||||
Goodwill, Ending Balance | 356 | 356 | 356 | ||
Smashbox | |||||
Goodwill and Other Intangible Assets | |||||
Goodwill | 120 | 120 | 120 | 120 | |
Changes in goodwill | |||||
Impairment charges | (20) | ||||
Goodwill, Ending Balance | 120 | $ 120 | $ 120 | ||
Smashbox | Trademark | |||||
Goodwill and Other Intangible Assets | |||||
Impairment of other intangible assets | $ 18 | ||||
Carrying value of trademark | $ 59 |
GOODWILL AND OTHER INTANGIBLE_4
GOODWILL AND OTHER INTANGIBLE ASSETS - Other Intangible Assets (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | |||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2018 | Dec. 31, 2017 | Jun. 30, 2018 | |
Amortizable intangible assets: | |||||
Gross Carrying Value | $ 739 | $ 739 | $ 740 | ||
Accumulated Amortization | 399 | 399 | 375 | ||
Total Net Book Value | 340 | 340 | 365 | ||
Non-amortizable intangible assets: | |||||
Total intangible assets | 1,233 | 1,233 | 1,276 | ||
Aggregate amortization expense for amortizable intangible assets | 12 | $ 12 | 25 | $ 25 | |
Estimated aggregate amortization expense | |||||
Estimated aggregate amortization expense for remainder of fiscal year 2019 | 26 | 26 | |||
Estimated aggregate amortization expense for fiscal year 2020 | 44 | 44 | |||
Estimated aggregate amortization expense for fiscal year 2021 | 43 | 43 | |||
Estimated aggregate amortization expense for fiscal year 2022 | 42 | 42 | |||
Estimated aggregate amortization expense for fiscal year 2023 | 42 | 42 | |||
Goodwill impairment | 20 | 20 | |||
Impairment of other intangible assets | 18 | 18 | |||
Combined goodwill and other intangible asset impairment charges | 38 | ||||
Trademarks and other | |||||
Non-amortizable intangible assets: | |||||
Trademarks and other | 893 | 893 | 911 | ||
Customer lists and other | |||||
Amortizable intangible assets: | |||||
Gross Carrying Value | 696 | 696 | 697 | ||
Accumulated Amortization | 356 | 356 | 332 | ||
Total Net Book Value | 340 | 340 | 365 | ||
License agreements | |||||
Amortizable intangible assets: | |||||
Gross Carrying Value | 43 | 43 | 43 | ||
Accumulated Amortization | $ 43 | $ 43 | $ 43 |
CHARGES ASSOCIATED WITH RESTR_3
CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES - Leading Beauty Forward (Details) - Leading Beauty Forward $ in Millions | Dec. 31, 2018USD ($)employee |
Charges associated with restructuring and other activities | |
Restructuring and other charges expected to be incurred | $ 727 |
Minimum | |
Charges associated with restructuring and other activities | |
Restructuring and other charges expected to be incurred | $ 900 |
Estimated net reduction in global positions | employee | 1,800 |
Maximum | |
Charges associated with restructuring and other activities | |
Restructuring and other charges expected to be incurred | $ 950 |
Estimated net reduction in global positions | employee | 2,000 |
CHARGES ASSOCIATED WITH RESTR_4
CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES - Approved Restructuring Activities by Major Cost Type (Details) - Leading Beauty Forward $ in Millions | Dec. 31, 2018USD ($) |
Restructuring and related costs | |
Restructuring and related costs, approved costs, 2016 fiscal year | $ 190 |
Restructuring and related costs, approved costs, 2017 fiscal year | 271 |
Restructuring and related costs, approved costs, 2018 fiscal year | 258 |
Restructuring and related costs, approved costs, current period | 57 |
Adjustments through current period | (49) |
Restructuring and related costs, expected costs | 727 |
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, 2017 fiscal year | 11 |
Adjustments through current period | (1) |
Restructuring and related costs, expected costs | 14 |
Cost of Sales | |
Restructuring and related costs | |
Restructuring and related costs, approved costs, 2016 fiscal year | 28 |
Restructuring and related costs, approved costs, 2017 fiscal year | 10 |
Restructuring and related costs, approved costs, 2018 fiscal year | 24 |
Restructuring and related costs, approved costs, current period | 9 |
Adjustments through current period | (1) |
Restructuring and related costs, expected costs | 70 |
Restructuring Charges | |
Restructuring and related costs | |
Restructuring and related costs, approved costs, 2016 fiscal year | 87 |
Restructuring and related costs, approved costs, 2017 fiscal year | 132 |
Restructuring and related costs, approved costs, 2018 fiscal year | 166 |
Restructuring and related costs, approved costs, current period | 19 |
Adjustments through current period | (46) |
Restructuring and related costs, expected costs | 358 |
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, 2017 fiscal year | 126 |
Restructuring and related costs, approved costs, 2018 fiscal year | 161 |
Restructuring and related costs, approved costs, current period | 17 |
Adjustments through current period | (45) |
Restructuring and related costs, expected costs | 334 |
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, 2017 fiscal year | 1 |
Restructuring and related costs, approved costs, current period | 1 |
Restructuring and related costs, expected costs | 5 |
Restructuring Charges | Contract Terminations | |
Restructuring and related costs | |
Restructuring and related costs, approved costs, 2016 fiscal year | 5 |
Restructuring and related costs, approved costs, 2018 fiscal year | 1 |
Adjustments through current period | (1) |
Restructuring and related costs, expected 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, 2017 fiscal year | 5 |
Restructuring and related costs, approved costs, 2018 fiscal year | 4 |
Restructuring and related costs, approved costs, current period | 1 |
Restructuring and related costs, expected costs | 14 |
Other Charges | |
Restructuring and related costs | |
Restructuring and related costs, approved costs, 2016 fiscal year | 71 |
Restructuring and related costs, approved costs, 2017 fiscal year | 118 |
Restructuring and related costs, approved costs, 2018 fiscal year | 68 |
Restructuring and related costs, approved costs, current period | 29 |
Adjustments through current period | (1) |
Restructuring and related costs, expected costs | $ 285 |
CHARGES ASSOCIATED WITH RESTR_5
CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES - Cumulative Restructuring Charges by Major Cost Type (Details) - Leading Beauty Forward $ in Millions | Dec. 31, 2018USD ($) |
Restructuring and related costs | |
Restructuring and related costs, 2016 fiscal year | $ 81 |
Restructuring and related costs, 2017 fiscal year | 212 |
Restructuring and related costs, 2018 fiscal year | 257 |
Restructuring and related costs, current period | 82 |
Restructuring and related costs | 632 |
Sales Returns (included in Net Sales) | |
Restructuring and related costs | |
Restructuring and related costs, 2016 fiscal year | 1 |
Restructuring and related costs, 2017 fiscal year | 2 |
Restructuring and related costs, 2018 fiscal year | 8 |
Restructuring and related costs | 11 |
Cost of Sales | |
Restructuring and related costs | |
Restructuring and related costs, 2017 fiscal year | 15 |
Restructuring and related costs, 2018 fiscal year | 18 |
Restructuring and related costs, current period | 12 |
Restructuring and related costs | 45 |
Restructuring Charges | |
Restructuring and related costs | |
Restructuring and related costs, 2016 fiscal year | 75 |
Restructuring and related costs, 2017 fiscal year | 122 |
Restructuring and related costs, 2018 fiscal year | 127 |
Restructuring and related costs, current period | 19 |
Restructuring and related costs | 343 |
Restructuring Charges | Employee-Related Costs | |
Restructuring and related costs | |
Restructuring and related costs, 2016 fiscal year | 74 |
Restructuring and related costs, 2017 fiscal year | 116 |
Restructuring and related costs, 2018 fiscal year | 124 |
Restructuring and related costs, current period | 18 |
Restructuring and related costs | 332 |
Restructuring Charges | Asset-Related Costs | |
Restructuring and related costs | |
Restructuring and related costs, 2016 fiscal year | 1 |
Restructuring and related costs, 2017 fiscal year | 2 |
Restructuring and related costs, 2018 fiscal year | 1 |
Restructuring and related costs | 4 |
Restructuring Charges | Contract Terminations | |
Restructuring and related costs | |
Restructuring and related costs, 2017 fiscal year | 2 |
Restructuring and related costs, 2018 fiscal year | 1 |
Restructuring and related costs | 3 |
Restructuring Charges | Other Exit Costs | |
Restructuring and related costs | |
Restructuring and related costs, 2017 fiscal year | 2 |
Restructuring and related costs, 2018 fiscal year | 1 |
Restructuring and related costs, current period | 1 |
Restructuring and related costs | 4 |
Other Charges | |
Restructuring and related costs | |
Restructuring and related costs, 2016 fiscal year | 5 |
Restructuring and related costs, 2017 fiscal year | 73 |
Restructuring and related costs, 2018 fiscal year | 104 |
Restructuring and related costs, current period | 51 |
Restructuring and related costs | $ 233 |
CHARGES ASSOCIATED WITH RESTR_6
CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES - Accrued Restructuring Charges (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||||||||
Dec. 31, 2018 | Dec. 31, 2017 | Jun. 30, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | Jun. 30, 2022 | Jun. 30, 2021 | Jun. 30, 2020 | Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2016 | |
Restructuring and Other Costs | |||||||||||
Charges | $ 35 | $ 69 | $ 82 | $ 107 | |||||||
Leading Beauty Forward | |||||||||||
Restructuring and Other Costs | |||||||||||
Beginning balance | $ 141 | 181 | 150 | $ 150 | $ 73 | ||||||
Charges | 19 | 127 | 122 | $ 75 | |||||||
Cash payments | (57) | (93) | (43) | ||||||||
Noncash asset write-offs | (1) | (2) | (1) | ||||||||
Translation adjustments | (2) | (1) | |||||||||
Translation and other adjustments | (2) | ||||||||||
Ending balance | 141 | 141 | 181 | 150 | 73 | ||||||
Employee-Related Costs | Leading Beauty Forward | |||||||||||
Restructuring and Other Costs | |||||||||||
Beginning balance | 141 | 180 | $ 150 | 150 | 73 | ||||||
Charges | 18 | 124 | 116 | 74 | |||||||
Cash payments | (55) | (92) | (39) | ||||||||
Translation adjustments | (2) | (1) | |||||||||
Translation and other adjustments | (2) | ||||||||||
Ending balance | $ 141 | 141 | 180 | 150 | 73 | ||||||
Asset-Related Costs | Leading Beauty Forward | |||||||||||
Restructuring and Other Costs | |||||||||||
Charges | 1 | 2 | 1 | ||||||||
Noncash asset write-offs | (1) | (2) | $ (1) | ||||||||
Contract Terminations | Leading Beauty Forward | |||||||||||
Restructuring and Other Costs | |||||||||||
Beginning balance | 1 | ||||||||||
Charges | 1 | 2 | |||||||||
Cash payments | (1) | (2) | |||||||||
Ending balance | 1 | ||||||||||
Other Exit Costs | Leading Beauty Forward | |||||||||||
Restructuring and Other Costs | |||||||||||
Charges | 1 | 1 | 2 | ||||||||
Cash payments | $ (1) | $ (1) | $ (2) | ||||||||
Forecast | Leading Beauty Forward | |||||||||||
Restructuring and Other Costs | |||||||||||
Accrued restructuring charges expected to result in cash expenditures funded from cash provided by operations | $ 86 | $ 1 | $ 10 | $ 44 |
DERIVATIVE FINANCIAL INSTRUME_3
DERIVATIVE FINANCIAL INSTRUMENTS - Derivative Instruments Included in the Consolidated Balance Sheets (Details) - USD ($) $ in Millions | Dec. 31, 2018 | Jun. 30, 2018 |
Derivatives, Fair Value | ||
Derivative Asset, Total | $ 36 | $ 33 |
Derivative Liability, Total | 22 | 39 |
Derivatives Designated as Hedging Instruments | ||
Derivatives, Fair Value | ||
Derivative Asset, Total | 32 | 30 |
Derivative Liability, Total | 20 | 31 |
Derivatives Designated as Hedging Instruments | Foreign currency forward contracts | Prepaid expenses and other current assets | ||
Derivatives, Fair Value | ||
Derivative asset, fair value | 32 | 30 |
Derivatives Designated as Hedging Instruments | Foreign currency forward contracts | Other accrued liabilities | ||
Derivatives, Fair Value | ||
Derivative liability, fair value | 3 | 5 |
Derivatives Designated as Hedging Instruments | Interest rate swap contracts | Other accrued liabilities | ||
Derivatives, Fair Value | ||
Derivative liability, fair value | 17 | 26 |
Derivatives Not Designated as Hedging Instruments | Foreign currency forward contracts | Prepaid expenses and other current assets | ||
Derivatives, Fair Value | ||
Derivative asset, fair value | 4 | 3 |
Derivatives Not Designated as Hedging Instruments | Foreign currency forward contracts | Other accrued liabilities | ||
Derivatives, Fair Value | ||
Derivative liability, fair value | $ 2 | $ 8 |
DERIVATIVE FINANCIAL INSTRUME_4
DERIVATIVE FINANCIAL INSTRUMENTS - Gain (Loss) on Derivative Financial Instruments (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2018 | Dec. 31, 2017 | |
Long-term debt | ||||
Gain (loss) on derivative financial instruments | ||||
Gain (loss) in cumulative amount of fair value hedging adjustments included in carrying amount of hedged assets (liabilities) | $ (17) | |||
Net Sales | ||||
Gain (loss) on derivative financial instruments | ||||
Total amounts of income and expense line items presented in the consolidated statements of earnings in which the effects of fair value and cash flow hedges are recorded | $ 4,005 | 7,529 | ||
Interest expense | ||||
Gain (loss) on derivative financial instruments | ||||
Total amounts of income and expense line items presented in the consolidated statements of earnings in which the effects of fair value and cash flow hedges are recorded | 35 | 69 | ||
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 | (12) | $ (1) | 10 | $ (5) |
Derivatives in Cash Flow Hedging Relationships | ||||
Gain (loss) on derivative financial instruments | ||||
Amount of Gain or (Loss) Recognized in OCI on Derivatives | 13 | (9) | 16 | (27) |
Amount of Gain or (Loss) Reclassified from AOCI into Earnings | 4 | (13) | 7 | (22) |
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 | 13 | (9) | 16 | (27) |
Derivatives in Cash Flow Hedging Relationships | Foreign currency forward contracts | Net Sales | ||||
Gain (loss) on derivative financial instruments | ||||
Amount of Gain or (Loss) Reclassified from AOCI into Earnings | 4 | 7 | ||
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 | (7) | (12) | ||
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 | (7) | (11) | ||
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 | 1 | 1 | ||
Derivatives in Fair Value Hedging Relationships | Long-term debt | ||||
Gain (loss) on derivative financial instruments | ||||
Gain (Loss) recognized in carrying amount of the hedged assets (liabilities) | (930) | |||
Derivatives in Fair Value Hedging Relationships | Interest rate-related derivatives | Interest expense | ||||
Gain (loss) on derivative financial instruments | ||||
Amount of Gain or (Loss) Recognized in Earnings on Derivatives | 11 | 9 | ||
Derivatives in Fair Value Hedging Relationships | Interest rate-related derivatives | Interest expense | Derivatives Designated as Hedging Instruments | ||||
Gain (loss) on derivative financial instruments | ||||
Amount of Gain or (Loss) Recognized in Earnings on Derivatives | (11) | (9) | ||
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 | $ 11 | $ (9) | $ 9 | $ (11) |
DERIVATIVE FINANCIAL INSTRUME_5
DERIVATIVE FINANCIAL INSTRUMENTS - Cash Flow Hedges, Fair Value Hedges, Credit Risk (Details) $ in Millions | 6 Months Ended | |
Dec. 31, 2018USD ($)item | Jun. 30, 2018USD ($) | |
Derivative | ||
Credit Risk | ||
Minimum number of nationally recognized rating agencies | item | 2 | |
Maximum exposure to credit risk in the event of non performance by counterparties, gross fair value of contracts in asset positions | $ 36 | |
Derivatives in Cash Flow Hedging Relationships | ||
Foreign Currency Cash-Flow Hedges | ||
Amount expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months | 22 | |
Accumulated net gain on derivative instruments in AOCI, before tax | 62 | $ 53 |
Derivatives in Cash Flow Hedging Relationships | Foreign currency forward contracts | ||
Foreign Currency Cash-Flow Hedges | ||
Notional amount | 3,434 | |
Derivatives in Fair Value Hedging Relationships | Interest rate swap contracts | 2020 Senior Notes | ||
Fair Value Hedges | ||
Notional amount | $ 250 | |
Derivatives in Fair Value Hedging Relationships | Interest rate swap contracts | 2020 Senior Notes | LIBOR | ||
Fair Value Hedges | ||
Number of months for LIBOR calculation | 3 months | |
Derivatives in Fair Value Hedging Relationships | Interest rate swap contracts | 1.70% Senior Notes, due May 10, 2021 ("2021 Senior Notes") | ||
Fair Value Hedges | ||
Notional amount | $ 450 | |
Derivatives in Fair Value Hedging Relationships | Interest rate swap contracts | 1.70% Senior Notes, due May 10, 2021 ("2021 Senior Notes") | LIBOR | ||
Fair Value Hedges | ||
Number of months for LIBOR calculation | 3 months | |
Derivatives in Fair Value Hedging Relationships | Interest rate swap contracts | 2.35% Senior Notes due August 15, 2022 ("2022 Senior Notes") | ||
Fair Value Hedges | ||
Notional amount | $ 250 | |
Derivatives in Fair Value Hedging Relationships | Interest rate swap contracts | 2.35% Senior Notes due August 15, 2022 ("2022 Senior Notes") | LIBOR | ||
Fair Value Hedges | ||
Number of months for LIBOR calculation | 3 months |
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 | Dec. 31, 2018 | Jun. 30, 2018 |
Assets: | ||
Available-for-sale securities | $ 955 | |
Recurring basis | ||
Assets: | ||
Foreign currency forward contracts | 36 | $ 33 |
Total | 991 | 1,255 |
Liabilities: | ||
Foreign currency forward contracts | 5 | 13 |
Interest rate swap contracts | 17 | 26 |
Contingent consideration | 87 | 96 |
Total | 109 | 135 |
Recurring basis | Level 2 | ||
Assets: | ||
Foreign currency forward contracts | 36 | 33 |
Total | 991 | 1,255 |
Liabilities: | ||
Foreign currency forward contracts | 5 | 13 |
Interest rate swap contracts | 17 | 26 |
Total | 22 | 39 |
Recurring basis | Level 3 | ||
Liabilities: | ||
Contingent consideration | 87 | 96 |
Total | 87 | 96 |
Recurring basis | U.S. government and agency securities | ||
Assets: | ||
Available-for-sale securities | 400 | 422 |
Recurring basis | U.S. government and agency securities | Level 2 | ||
Assets: | ||
Available-for-sale securities | 400 | 422 |
Recurring basis | Foreign government and agency securities | ||
Assets: | ||
Available-for-sale securities | 98 | 112 |
Recurring basis | Foreign government and agency securities | Level 2 | ||
Assets: | ||
Available-for-sale securities | 98 | 112 |
Recurring basis | Corporate notes and bonds | ||
Assets: | ||
Available-for-sale securities | 442 | 472 |
Recurring basis | Corporate notes and bonds | Level 2 | ||
Assets: | ||
Available-for-sale securities | 442 | 472 |
Recurring basis | Time deposits | ||
Assets: | ||
Available-for-sale securities | 200 | |
Recurring basis | Time deposits | Level 2 | ||
Assets: | ||
Available-for-sale securities | 200 | |
Recurring basis | Other securities | ||
Assets: | ||
Available-for-sale securities | 15 | 16 |
Recurring basis | Other securities | Level 2 | ||
Assets: | ||
Available-for-sale securities | $ 15 | $ 16 |
FAIR VALUE MEASUREMENTS - Estim
FAIR VALUE MEASUREMENTS - Estimated Fair Values of Financial Instruments (Details) $ in Millions | 3 Months Ended | 6 Months Ended | |||
Dec. 31, 2018USD ($) | Dec. 31, 2018USD ($) | Dec. 31, 2017USD ($) | Dec. 31, 2018USD ($)item | Jun. 30, 2018USD ($) | |
Non derivatives | |||||
Available-for-sale securities | $ 955 | ||||
Derivatives | |||||
Derivative Asset | 36 | $ 33 | |||
Derivative liability | (22) | (39) | |||
Impairment charges of certain non financial assets measured at fair value on a nonrecurring basis | |||||
Goodwill impairment | $ 20 | $ 20 | |||
Goodwill | $ 1,911 | 1,926 | |||
Fair value inputs | |||||
Monte Carlo Method | us-gaap:IncomeApproachValuationTechniqueMember | ||||
Changes in the fair value of the contingent consideration obligations | |||||
Changes in fair value | (9) | $ 3 | |||
Selling, general and administrative expenses | |||||
Non derivatives | |||||
Contingent consideration | 87 | 96 | $ 87 | 96 | |
Changes in the fair value of the contingent consideration obligations | |||||
Contingent consideration at the beginning of the period | 96 | ||||
Changes in fair value | (9) | ||||
Contingent consideration at the end of the period | 87 | 87 | |||
Level 2 | Additional Purchase Price Payable | Incremental borrowing rate | |||||
Fair value inputs | |||||
Additional purchase price payable measurement input (as a percent) | item | 0.01 | ||||
Level 3 | Contingent Consideration | Revenue volatility | |||||
Fair value inputs | |||||
Contingent consideration measurement input (as a percent) | item | 0.058 | ||||
Level 3 | Contingent Consideration | Asset volatility | |||||
Fair value inputs | |||||
Contingent consideration measurement input (as a percent) | item | 0.252 | ||||
Level 3 | Contingent Consideration | Revenue and earnings before income tax, depreciation and amortization correlation coefficient factor | |||||
Fair value inputs | |||||
Contingent consideration measurement input (as a percent) | item | 0.750 | ||||
Level 3 | Non recurring basis | |||||
Impairment charges of certain non financial assets measured at fair value on a nonrecurring basis | |||||
Goodwill impairment | 20 | ||||
Total | 38 | ||||
Level 3 | Non recurring basis | Trademark | |||||
Impairment charges of certain non financial assets measured at fair value on a nonrecurring basis | |||||
Other intangible assets, net | $ 18 | ||||
Minimum | Level 3 | Contingent Consideration | Risk-adjusted discount rates | |||||
Fair value inputs | |||||
Contingent consideration measurement input (as a percent) | item | 0.031 | ||||
Minimum | Level 3 | Contingent Consideration | Revenue discount rates | |||||
Fair value inputs | |||||
Contingent consideration measurement input (as a percent) | item | 0.047 | ||||
Minimum | Level 3 | Contingent Consideration | Earnings before income tax, depreciation and amortization discount rates | |||||
Fair value inputs | |||||
Contingent consideration measurement input (as a percent) | item | 0.119 | ||||
Minimum | Swap yield curve | Foreign currency forward contracts | |||||
Foreign currency forward contracts | |||||
Contract maturities | 12 months | ||||
Maximum | Level 3 | Contingent Consideration | Risk-adjusted discount rates | |||||
Fair value inputs | |||||
Contingent consideration measurement input (as a percent) | item | 0.033 | ||||
Maximum | Level 3 | Contingent Consideration | Revenue discount rates | |||||
Fair value inputs | |||||
Contingent consideration measurement input (as a percent) | item | 0.049 | ||||
Maximum | Level 3 | Contingent Consideration | Earnings before income tax, depreciation and amortization discount rates | |||||
Fair value inputs | |||||
Contingent consideration measurement input (as a percent) | item | 0.128 | ||||
Maximum | LIBOR | Foreign currency forward contracts | |||||
Foreign currency forward contracts | |||||
Contract maturities | 12 months | ||||
Carrying Amount | |||||
Non derivatives | |||||
Cash and cash equivalents | $ 1,876 | 2,181 | |||
Available-for-sale securities | 955 | 1,222 | |||
Current and long-term debt | 3,391 | 3,544 | |||
Additional purchase price payable | 3 | 3 | |||
Contingent consideration | 87 | $ 96 | 87 | 96 | |
Changes in the fair value of the contingent consideration obligations | |||||
Contingent consideration at the beginning of the period | 96 | ||||
Contingent consideration at the end of the period | 87 | 87 | |||
Carrying Amount | Foreign currency forward contracts | |||||
Derivatives | |||||
Derivative Asset | 31 | 20 | |||
Carrying Amount | Interest rate swap contracts | |||||
Derivatives | |||||
Derivative liability | (17) | (26) | |||
Fair Value | |||||
Non derivatives | |||||
Cash and cash equivalents | 1,876 | 2,181 | |||
Available-for-sale securities | 955 | 1,222 | |||
Current and long-term debt | 3,477 | 3,667 | |||
Additional purchase price payable | 3 | 3 | |||
Contingent consideration | 87 | 96 | 87 | 96 | |
Changes in the fair value of the contingent consideration obligations | |||||
Contingent consideration at the beginning of the period | 96 | ||||
Contingent consideration at the end of the period | $ 87 | $ 87 | |||
Fair Value | Level 3 | Non recurring basis | |||||
Impairment charges of certain non financial assets measured at fair value on a nonrecurring basis | |||||
Goodwill | 120 | ||||
Total | 179 | ||||
Fair Value | Level 3 | Non recurring basis | Trademark | |||||
Impairment charges of certain non financial assets measured at fair value on a nonrecurring basis | |||||
Other intangible assets, net | 59 | ||||
Fair Value | Foreign currency forward contracts | |||||
Derivatives | |||||
Derivative Asset | 31 | 20 | |||
Fair Value | Interest rate swap contracts | |||||
Derivatives | |||||
Derivative liability | $ (17) | $ (26) |
REVENUE RECOGNITION (Details)
REVENUE RECOGNITION (Details) - USD ($) $ in Millions | 6 Months Ended | |
Dec. 31, 2018 | Jun. 30, 2018 | |
REVENUE RECOGNITION | ||
Revenue recognition, practical expedient, financing component [true false] | true | |
Significant changes in deferred revenue | ||
Balance at the beginning of the period | $ 380 | |
Revenue recognized that was included in the deferred revenue balance at the beginning of the period | (268) | |
Revenue deferred during the period | (371) | |
Other | (3) | |
Balance at the end of the period | 480 | |
ASU 2014-09 | ||
REVENUE RECOGNITION | ||
Allowance for doubtful accounts and customer deductions | $ 31 | $ 29 |
REVENUE RECOGNITION - Transacti
REVENUE RECOGNITION - Transaction price allocated to the remaining performance obligations (Details) - Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2018-12-31 $ in Millions | Dec. 31, 2018USD ($) |
REVENUE RECOGNITION | |
Expected timing of revenue recognition | 12 months |
Estimated recognition of deferred revenue | $ 425 |
REVENUE RECOGNITION - Impact of
REVENUE RECOGNITION - Impact of adoption of ASC 606 in consolidated financial statements (Details) - USD ($) $ / shares in Units, $ in Millions | 3 Months Ended | 6 Months Ended | ||||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2018 | Dec. 31, 2017 | Jul. 01, 2018 | Jun. 30, 2018 | |
Consolidated Statements of Earnings | ||||||
Net sales | $ 4,005 | $ 3,744 | $ 7,529 | $ 7,018 | ||
Cost of sales | 910 | 753 | 1,733 | 1,464 | ||
Gross profit | 3,095 | 2,991 | 5,796 | 5,554 | ||
Selling, general and administrative | 2,257 | 2,214 | 4,265 | 4,174 | ||
Operating income | 771 | 710 | 1,423 | 1,279 | ||
Provision for income taxes | 171 | 565 | 302 | 684 | ||
Net earnings attributable to The Estee Lauder Companies Inc. | $ 573 | $ 123 | $ 1,073 | $ 550 | ||
Net earnings attributable to The Estee Lauder Companies Inc. per common share: | ||||||
Basic (in dollars per share) | $ 1.58 | $ 0.33 | $ 2.94 | $ 1.49 | ||
Diluted (in dollars per share) | $ 1.55 | $ 0.33 | $ 2.88 | $ 1.46 | ||
Consolidated Balance Sheet | ||||||
Accounts receivable, net | $ 2,000 | $ 2,000 | $ 1,487 | |||
Inventory and promotional merchandise, net | 1,651 | 1,651 | 1,618 | |||
Other assets | 633 | 633 | 531 | |||
Total assets | 12,676 | 12,676 | 12,567 | |||
Other accrued liabilities | 2,763 | 2,763 | 1,945 | |||
Other noncurrent liabilities | 1,194 | 1,194 | 1,186 | |||
Total liabilities | 8,343 | 8,343 | ||||
Retained earnings | 9,586 | 9,586 | 9,040 | |||
Accumulated other comprehensive loss | (430) | (430) | (434) | |||
Total stockholders' equity - The Estee Lauder Companies Inc. | 4,306 | 4,306 | $ 4,688 | |||
Consolidated Statement of Cash Flows | ||||||
Net earnings | 577 | $ 125 | 1,079 | $ 555 | ||
Changes in operating assets and liabilities | ||||||
Decrease (increase) in accounts receivable, net | (343) | (281) | ||||
Decrease (increase) in inventory and promotional merchandise, net | (21) | 66 | ||||
Increase (decrease) in other accrued and noncurrent liabilities | 387 | 692 | ||||
Net cash flows provided by operating activities | 1,273 | $ 1,439 | ||||
Adjustments | ||||||
Consolidated Statements of Earnings | ||||||
Net sales | 67 | 134 | ||||
Cost of sales | (86) | (152) | ||||
Gross profit | 153 | 286 | ||||
Selling, general and administrative | 99 | 201 | ||||
Operating income | 54 | 85 | ||||
Provision for income taxes | 13 | 19 | ||||
Net earnings attributable to The Estee Lauder Companies Inc. | $ 41 | $ 66 | ||||
Net earnings attributable to The Estee Lauder Companies Inc. per common share: | ||||||
Basic (in dollars per share) | $ 0.11 | $ 0.18 | ||||
Diluted (in dollars per share) | $ 0.11 | $ 0.18 | ||||
Consolidated Balance Sheet | ||||||
Accounts receivable, net | $ (199) | $ (199) | ||||
Inventory and promotional merchandise, net | (25) | (25) | ||||
Other assets | (88) | (88) | ||||
Total assets | (312) | (312) | ||||
Other accrued liabilities | (551) | (551) | ||||
Other noncurrent liabilities | (55) | (55) | ||||
Total liabilities | (606) | (606) | ||||
Retained earnings | 295 | 295 | ||||
Accumulated other comprehensive loss | (2) | (2) | ||||
Total stockholders' equity - The Estee Lauder Companies Inc. | 293 | 293 | ||||
Consolidated Statement of Cash Flows | ||||||
Net earnings | 66 | |||||
Changes in operating assets and liabilities | ||||||
Decrease (increase) in accounts receivable, net | 2 | |||||
Decrease (increase) in inventory and promotional merchandise, net | (2) | |||||
Increase (decrease) in other accrued and noncurrent liabilities | (66) | |||||
Prior to the adoption of ASC 606 | ||||||
Consolidated Statements of Earnings | ||||||
Net sales | 4,072 | 7,663 | ||||
Cost of sales | 824 | 1,581 | ||||
Gross profit | 3,248 | 6,082 | ||||
Selling, general and administrative | 2,356 | 4,466 | ||||
Operating income | 825 | 1,508 | ||||
Provision for income taxes | 184 | 321 | ||||
Net earnings attributable to The Estee Lauder Companies Inc. | $ 614 | $ 1,139 | ||||
Net earnings attributable to The Estee Lauder Companies Inc. per common share: | ||||||
Basic (in dollars per share) | $ 1.69 | $ 3.12 | ||||
Diluted (in dollars per share) | $ 1.66 | $ 3.06 | ||||
Consolidated Balance Sheet | ||||||
Accounts receivable, net | $ 1,801 | $ 1,801 | ||||
Inventory and promotional merchandise, net | 1,626 | 1,626 | ||||
Other assets | 545 | 545 | ||||
Total assets | 12,364 | 12,364 | ||||
Other accrued liabilities | 2,212 | 2,212 | ||||
Other noncurrent liabilities | 1,139 | 1,139 | ||||
Total liabilities | 7,737 | 7,737 | ||||
Retained earnings | 9,881 | 9,881 | ||||
Accumulated other comprehensive loss | (432) | (432) | ||||
Total stockholders' equity - The Estee Lauder Companies Inc. | $ 4,599 | 4,599 | ||||
Consolidated Statement of Cash Flows | ||||||
Net earnings | 1,145 | |||||
Changes in operating assets and liabilities | ||||||
Decrease (increase) in accounts receivable, net | (341) | |||||
Decrease (increase) in inventory and promotional merchandise, net | (23) | |||||
Increase (decrease) in other accrued and noncurrent liabilities | 321 | |||||
Net cash flows provided by operating activities | $ 1,273 | |||||
ASU 2014-09 | ||||||
REVENUE RECOGNITION | ||||||
Cumulative adjustment net of tax, as a reduction to retained earnings | $ 229 |
PENSION AND POST-RETIREMENT B_3
PENSION AND POST-RETIREMENT BENEFIT PLANS - Components of Net Periodic Benefit Cost (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2018 | Dec. 31, 2017 | |
Pension Plans | U.S. | ||||
Components of net periodic benefit cost: | ||||
Service cost | $ 9 | $ 9 | $ 18 | $ 18 |
Interest cost | 9 | 8 | 18 | 16 |
Expected return on plan assets | (13) | (13) | (26) | (26) |
Amortization of: | ||||
Actuarial loss | 2 | 3 | 5 | 7 |
Net periodic benefit cost | 7 | 7 | 15 | 15 |
Pension Plans | International | ||||
Components of net periodic benefit cost: | ||||
Service cost | 7 | 8 | 15 | 15 |
Interest cost | 3 | 3 | 6 | 6 |
Expected return on plan assets | (4) | (4) | (7) | (7) |
Amortization of: | ||||
Actuarial loss | 2 | 1 | 2 | 2 |
Net periodic benefit cost | 8 | 8 | 16 | 16 |
Employer contributions | 6 | |||
Other than Pension Plans Post-retirement | ||||
Components of net periodic benefit cost: | ||||
Service cost | 1 | 1 | ||
Interest cost | 2 | 1 | 4 | 3 |
Expected return on plan assets | (1) | (1) | ||
Amortization of: | ||||
Prior service cost | 1 | 1 | ||
Net periodic benefit cost | $ 2 | $ 2 | $ 4 | $ 4 |
PENSION AND POST-RETIREMENT B_4
PENSION AND POST-RETIREMENT BENEFIT PLANS - Amounts Recognized in the Consolidated Balance Sheets (Details) - USD ($) $ in Millions | Dec. 31, 2018 | Jun. 30, 2018 |
Amounts recognized in the consolidated balance sheets consist of: | ||
Other assets | $ 173 | $ 181 |
Other accrued liabilities | (27) | (27) |
Other noncurrent liabilities | (384) | (375) |
Funded status | (238) | (221) |
Accumulated other comprehensive loss | 227 | 234 |
Net amount recognized | $ (11) | $ 13 |
CONTINGENCIES (Details)
CONTINGENCIES (Details) $ in Millions | Dec. 31, 2018USD ($) |
CONTINGENCIES | |
Loss contingency accrual related to product advertising claims | $ 0 |
STOCK PROGRAMS - Compensation E
STOCK PROGRAMS - Compensation Expense and Stock Options (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2018 | Dec. 31, 2017 | |
Share-based Compensation Arrangement by Share-based Payment Award | ||||
Compensation expense | $ 73 | $ 75 | $ 131 | $ 132 |
Income tax benefit | $ 13 | $ 9 | $ 25 | $ 28 |
Stock Options | Common Class A | ||||
Share-based Compensation Arrangement by Share-based Payment Award | ||||
Grant at fair value (in shares) | 1.7 | |||
Exercise price (in dollars per share) | $ 138.23 | |||
Weighted-average grant date fair value (in dollars per share) | $ 38.62 | |||
Additional General Disclosures | ||||
Intrinsic value of stock options exercised (in dollars) | $ 103 |
STOCK PROGRAMS - Restricted Sto
STOCK PROGRAMS - Restricted Stock Units (Details) - Restricted Stock Units - Common Class A shares in Millions | 6 Months Ended |
Dec. 31, 2018$ / sharesshares | |
Share-based Compensation Arrangement by Share-based Payment Award | |
Granted (in shares) | 1.1 |
Grant date fair value (in dollars per share) | $ / shares | $ 138.15 |
RSU grants scheduled to vest in fiscal 2020 | |
Share-based Compensation Arrangement by Share-based Payment Award | |
RSU grants scheduled to vest (in shares) | 0.4 |
RSU grants scheduled to vest in fiscal 2021 | |
Share-based Compensation Arrangement by Share-based Payment Award | |
RSU grants scheduled to vest (in shares) | 0.4 |
RSU grants scheduled to vest in fiscal 2022 | |
Share-based Compensation Arrangement by Share-based Payment Award | |
RSU grants scheduled to vest (in shares) | 0.3 |
STOCK PROGRAMS - Performance Sh
STOCK PROGRAMS - Performance Share Units (Details) - Performance Share Units - $ / shares shares in Millions | 1 Months Ended | 6 Months Ended | 12 Months Ended |
Sep. 30, 2018 | Dec. 31, 2018 | Jun. 30, 2018 | |
Share-based Compensation Arrangement by Share-based Payment Award | |||
Vested (in shares) | 0.3 | ||
Common Class A | |||
Share-based Compensation Arrangement by Share-based Payment Award | |||
Common Stock issued (in shares) | 0.4 | ||
Granted (in shares) | 0.2 | ||
Grant date fair value (in dollars per share) | $ 138.15 |
NET EARNINGS ATTRIBUTABLE TO _3
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 | 6 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2018 | Dec. 31, 2017 | |
Numerator: | ||||
Net earnings attributable to The Estee Lauder Companies Inc. | $ 573 | $ 123 | $ 1,073 | $ 550 |
Denominator: | ||||
Weighted-average common shares outstanding - Basic | 363.3 | 368.7 | 365.1 | 368.5 |
Weighted-average common shares outstanding - Diluted | 369.9 | 376.1 | 372.1 | 375.7 |
Net earnings attributable to The Estee Lauder Companies Inc. per common share: | ||||
Basic (in dollars per share) | $ 1.58 | $ 0.33 | $ 2.94 | $ 1.49 |
Diluted (in dollars per share) | $ 1.55 | $ 0.33 | $ 2.88 | $ 1.46 |
Stock Options | ||||
Denominator: | ||||
Incremental common shares attributable to share-based payment arrangements | 4.6 | 5.1 | 4.8 | 4.8 |
Performance Share Units | ||||
Denominator: | ||||
Incremental common shares attributable to share-based payment arrangements | 0.3 | 0.3 | 0.3 | 0.2 |
Restricted Stock Units | ||||
Denominator: | ||||
Incremental common shares attributable to share-based payment arrangements | 1.7 | 2 | 1.9 | 2.2 |
NET EARNINGS ATTRIBUTABLE TO _4
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 | 6 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Stock Options | ||
Antidilutive Securities Excluded from Computation of Earnings, Per Share | ||
Antidilutive shares excluded from the calculation of diluted earnings per share | 1.6 | 2 |
Contingently Issuable Shares | ||
Antidilutive Securities Excluded from Computation of Earnings, Per Share | ||
Antidilutive shares excluded from the calculation of diluted earnings per share | 1.1 | 1.2 |
EQUITY - Equity Rollforward (De
EQUITY - Equity Rollforward (Details) - USD ($) $ / shares in Units, $ in Millions | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2018 | Dec. 31, 2017 | |
Increase (Decrease) in Stockholders' Equity | ||||
Beginning of the period | $ 4,710 | |||
Net earnings attributable to The Estee Lauder Companies Inc. | $ 573 | $ 123 | 1,073 | $ 550 |
Net earnings attributable to noncontrolling interests | (4) | (2) | (6) | (5) |
Other comprehensive income (loss) | $ (22) | $ 28 | $ 3 | $ 78 |
Cash dividends declared per common share | $ 0.43 | $ 0.38 | $ 0.81 | $ 0.72 |
End of the period | $ 4,333 | $ 4,589 | $ 4,333 | $ 4,589 |
Total Stockholders' equity - The Estee Lauder Companies Inc. | ||||
Increase (Decrease) in Stockholders' Equity | ||||
End of the period | 4,306 | 4,565 | 4,306 | 4,565 |
Common Stock | ||||
Increase (Decrease) in Stockholders' Equity | ||||
Beginning of the period | 6 | 6 | 6 | 6 |
End of the period | 6 | 6 | 6 | 6 |
Paid-in Capital | ||||
Increase (Decrease) in Stockholders' Equity | ||||
Beginning of the period | 4,065 | 3,665 | 3,972 | 3,559 |
Stock-based compensation | 97 | 108 | 190 | 214 |
End of the period | 4,162 | 3,773 | 4,162 | 3,773 |
Retained Earnings | ||||
Increase (Decrease) in Stockholders' Equity | ||||
Beginning of the period | 9,170 | 8,752 | 9,040 | 8,452 |
Common stock dividends | (157) | (142) | (298) | (269) |
Net earnings attributable to The Estee Lauder Companies Inc. | 573 | 123 | 1,073 | 550 |
Cumulative effect of the adoption of ASC 606 | (229) | |||
End of the period | 9,586 | 8,733 | 9,586 | 8,733 |
AOCI | ||||
Increase (Decrease) in Stockholders' Equity | ||||
Beginning of the period | (409) | (435) | (434) | (484) |
Other comprehensive income (loss) | (21) | 28 | 4 | 77 |
End of the period | (430) | (407) | (430) | (407) |
Treasury Stock | ||||
Increase (Decrease) in Stockholders' Equity | ||||
Beginning of the period | (8,426) | (7,257) | (7,896) | (7,149) |
Acquisition of treasury stock | (531) | (232) | (1,033) | (330) |
Stock-based compensation | (61) | (51) | (89) | (61) |
End of the period | (9,018) | (7,540) | (9,018) | (7,540) |
Non-controlling Interests | ||||
Increase (Decrease) in Stockholders' Equity | ||||
Beginning of the period | 24 | 22 | 22 | 18 |
Net earnings attributable to noncontrolling interests | 4 | 2 | 6 | 5 |
Other comprehensive income (loss) | (1) | (1) | 1 | |
End of the period | $ 27 | $ 24 | $ 27 | $ 24 |
EQUITY - Class of Stock and Div
EQUITY - Class of Stock and Dividend Information (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions | Mar. 15, 2019 | Feb. 04, 2019 | Dec. 17, 2018 | Oct. 30, 2018 | Sep. 17, 2018 | Aug. 17, 2018 | Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2018 | Dec. 31, 2017 | Oct. 31, 2018 |
Class of Stock | |||||||||||
Cash dividends declared per common share (in dollars per share) | $ 0.43 | $ 0.38 | $ 0.81 | $ 0.72 | |||||||
Conversion of Class B to Class A (in shares) | 0.1 | ||||||||||
Common Class A and Common Class B | |||||||||||
Class of Stock | |||||||||||
Cash dividends declared per common share (in dollars per share) | $ 0.43 | $ 0.43 | $ 0.38 | ||||||||
Dividends paid (in dollars per share) | $ 0.43 | $ 0.38 | |||||||||
Common Class A and Common Class B | Forecast | |||||||||||
Class of Stock | |||||||||||
Dividends paid (in dollars per share) | $ 0.43 | ||||||||||
Common Class A | |||||||||||
Class of Stock | |||||||||||
Purchase of Class A Common Stock (in shares) | 8.2 | ||||||||||
Purchase of Class A Common Stock (in dollars) | $ 1,126 | ||||||||||
Shares authorized by the Company's Board of Directors to be repurchased (in shares) | 40 |
EQUITY - Changes in Accumulated
EQUITY - Changes in Accumulated Other Comprehensive Income (Loss) (Details) $ in Millions | 6 Months Ended |
Dec. 31, 2018USD ($) | |
Changes in AOCI, net of tax by component | |
Balance, beginning of the period | $ 4,688 |
Balance, end of the period | 4,306 |
AOCI | |
Changes in AOCI, net of tax by component | |
Balance, beginning of the period | (434) |
OCI before reclassifications | 4 |
Net current-period OCI | 4 |
Balance, end of the period | (430) |
Net Unrealized Investment Gains (Loss) | |
Changes in AOCI, net of tax by component | |
Balance, beginning of the period | (14) |
OCI before reclassifications | 5 |
Net current-period OCI | 5 |
Balance, end of the period | (9) |
Gain (Loss) on Cash Flow Hedges | |
Changes in AOCI, net of tax by component | |
Balance, beginning of the period | 39 |
OCI before reclassifications | 12 |
Amounts reclassified to Net earnings | (5) |
Net current-period OCI | 7 |
Balance, end of the period | 46 |
Amounts Included in Net Periodic Benefit Cost | |
Changes in AOCI, net of tax by component | |
Balance, beginning of the period | (175) |
Amounts reclassified to Net earnings | 5 |
Net current-period OCI | 5 |
Balance, end of the period | (170) |
Translation Adjustments | |
Changes in AOCI, net of tax by component | |
Balance, beginning of the period | (284) |
OCI before reclassifications | (13) |
Net current-period OCI | (13) |
Balance, end of the period | $ (297) |
EQUITY - Reclassification Adjus
EQUITY - Reclassification Adjustments From Accumulated Other Comprehensive Income (Loss) (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2018 | Dec. 31, 2017 | |
Reclassification adjustments from accumulated other comprehensive income (loss) | ||||
Net sales | $ 4,005 | $ 3,744 | $ 7,529 | $ 7,018 |
Cost of sales | (910) | (753) | (1,733) | (1,464) |
Selling, general and administrative | (2,257) | (2,214) | (4,265) | (4,174) |
Interest expense | 35 | 32 | 69 | 63 |
Earnings before income taxes | 748 | 690 | 1,381 | 1,239 |
Benefit (provision) for deferred taxes | (171) | (565) | (302) | (684) |
Net earnings | 577 | 125 | 1,079 | 555 |
Amount Reclassified from AOCI | ||||
Reclassification adjustments from accumulated other comprehensive income (loss) | ||||
Net earnings | (13) | (22) | ||
Amount Reclassified from AOCI | Interest rate-related derivatives | ||||
Reclassification adjustments from accumulated other comprehensive income (loss) | ||||
Interest expense | 1 | 1 | ||
Gain (Loss) on Cash Flow Hedges | Amount Reclassified from AOCI | ||||
Reclassification adjustments from accumulated other comprehensive income (loss) | ||||
Earnings before income taxes | 4 | (13) | 7 | (22) |
Benefit (provision) for deferred taxes | (1) | 4 | (2) | 7 |
Net earnings | 3 | (9) | 5 | (15) |
Gain (Loss) on Cash Flow Hedges | Amount Reclassified from AOCI | Foreign currency forward contracts | ||||
Reclassification adjustments from accumulated other comprehensive income (loss) | ||||
Net sales | 4 | 7 | ||
Cost of sales | (7) | (12) | ||
Selling, general and administrative | (7) | (11) | ||
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) | (1) | ||
Amortization of actuarial loss | (4) | (4) | (7) | (9) |
Earnings before income taxes | (4) | (5) | (7) | (10) |
Benefit (provision) for deferred taxes | 1 | 1 | 2 | 3 |
Net earnings | $ (3) | $ (4) | $ (5) | $ (7) |
STATEMENT OF CASH FLOWS (Detail
STATEMENT OF CASH FLOWS (Details) - USD ($) $ in Millions | 6 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Cash: | ||
Cash paid during the period for interest | $ 66 | $ 65 |
Cash paid during the period for income taxes | 217 | 129 |
Non-cash investing and financing activities: | ||
Capital lease and asset retirement obligations incurred | 8 | 4 |
Property, plant and equipment accrued but unpaid | $ 35 | $ 34 |
SEGMENT DATA AND RELATED INFO_3
SEGMENT DATA AND RELATED INFORMATION (Details) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2018USD ($) | Dec. 31, 2017USD ($) | Dec. 31, 2018USD ($)segment | Dec. 31, 2017USD ($) | |
SEGMENT DATA AND RELATED INFORMATION | ||||
Number of operating segments | segment | 1 | |||
Net Sales: | ||||
Net sales | $ 4,005 | $ 3,744 | $ 7,529 | $ 7,018 |
Operating income (loss) before charges associated with restructuring and other activities: | ||||
Operating income (loss) before charges associated with restructuring activities | 806 | 779 | 1,505 | 1,386 |
Operating income | 771 | 710 | 1,423 | 1,279 |
Reconciliation: | ||||
Charges associated with restructuring and other activities | (35) | (69) | (82) | (107) |
Interest expense | (35) | (32) | (69) | (63) |
Interest income and investment income, net | 12 | 12 | 27 | 24 |
Other components of net periodic benefit cost | (1) | |||
Earnings before income taxes | 748 | 690 | 1,381 | 1,239 |
The Americas | ||||
Net Sales: | ||||
Net sales | 1,218 | 1,308 | 2,454 | 2,637 |
Operating income (loss) before charges associated with restructuring and other activities: | ||||
Operating income (loss) before charges associated with restructuring activities | (61) | 98 | (28) | 198 |
Europe, the Middle East and Africa | ||||
Net Sales: | ||||
Net sales | 1,767 | 1,562 | 3,200 | 2,820 |
Operating income (loss) before charges associated with restructuring and other activities: | ||||
Operating income (loss) before charges associated with restructuring activities | 628 | 463 | 1,086 | 810 |
Asia/Pacific | ||||
Net Sales: | ||||
Net sales | 1,020 | 874 | 1,875 | 1,561 |
Operating income (loss) before charges associated with restructuring and other activities: | ||||
Operating income (loss) before charges associated with restructuring activities | 239 | 218 | 447 | 378 |
Skin Care | ||||
Net Sales: | ||||
Net sales | 1,732 | 1,494 | 3,218 | 2,769 |
Operating income (loss) before charges associated with restructuring and other activities: | ||||
Operating income (loss) before charges associated with restructuring activities | 565 | 453 | 1,031 | 780 |
Makeup | ||||
Net Sales: | ||||
Net sales | 1,560 | 1,515 | 2,966 | 2,887 |
Operating income (loss) before charges associated with restructuring and other activities: | ||||
Operating income (loss) before charges associated with restructuring activities | 138 | 219 | 299 | 395 |
Fragrance | ||||
Net Sales: | ||||
Net sales | 537 | 565 | 1,009 | 1,041 |
Operating income (loss) before charges associated with restructuring and other activities: | ||||
Operating income (loss) before charges associated with restructuring activities | 84 | 85 | 139 | 172 |
Hair Care | ||||
Net Sales: | ||||
Net sales | 154 | 144 | 297 | 280 |
Operating income (loss) before charges associated with restructuring and other activities: | ||||
Operating income (loss) before charges associated with restructuring activities | 15 | 17 | 29 | 32 |
Other | ||||
Net Sales: | ||||
Net sales | 22 | 26 | 39 | 41 |
Operating income (loss) before charges associated with restructuring and other activities: | ||||
Operating income (loss) before charges associated with restructuring activities | $ 4 | $ 5 | $ 7 | $ 7 |