UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

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


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

For the transition period from to

Commission file number 1-14064

The Estée Lauder Companies Inc.

(Exact name of registrant as specified in its charter)

Delaware

11-2408943

(State or other jurisdiction of

incorporation or organization)

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

767 Fifth Avenue, New York, New York

10153

(Address of principal executive offices)

(Zip Code)

212-572-4200

(Registrant’s telephone number, including area code)

Not Applicable

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

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


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

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

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

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


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

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

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

At ~~April 26, 2021, 231,894,845~~January 27, 2022, 232,424,491 shares of the registrant’s Class A Common Stock, $.01 par value, and ~~130,617,029~~126,242,029 shares of the registrant’s Class B Common Stock, $.01 par value, were outstanding.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

INDEX


			Page

Part I. Financial Information

Item 1. Financial Statements (Unaudited)

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

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

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

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

Notes to Consolidated Financial Statements			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			4336

Item 3. Quantitative and Qualitative Disclosures About Market Risk			7365

Item 4. Controls and Procedures			7365

Part II. Other Information

Item 1. Legal Proceedings			7465

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			7465

Item 6. Exhibits			7566

Signatures			7667

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF EARNINGS ~~(LOSS)~~

(Unaudited)

Three Months Ended
March 31 Nine Months Ended
March 31
(In millions, except per share data) 2021 2020 2021 2020
Net sales $ 3,864 $ 3,345 $ 12,279 $ 11,864
Cost of sales 939 836 2,848 2,785
Gross profit 2,925 2,509 9,431 9,079
Operating expenses
Selling, general and administrative 2,145 2,030 6,761 6,753
Restructuring and other charges 131 24 172 54
Goodwill impairment 0 275 54 786
Impairment of other intangible and long-lived assets 33 71 60 337
Total operating expenses 2,309 2,400 7,047 7,930
Operating income 616 109 2,384 1,149
Interest expense 43 42 131 112
Interest income and investment income, net 9 14 40 41
Other components of net periodic benefit cost 2 1 12 3
Other income 0 0 0 576
Earnings before income taxes 580 80 2,281 1,651
Provision for income taxes 122 84 421 496
Net earnings (loss) 458 (4) 1,860 1,155
Net earnings attributable to noncontrolling interests (2) (2) (8) (9)
Net earnings (loss) attributable to The Estée Lauder Companies Inc. $ 456 $ (6) $ 1,852 $ 1,146
Net earnings (loss) attributable to The Estée Lauder Companies Inc. per common share
Basic $ 1.25 $ (.02) $ 5.10 $ 3.18
Diluted $ 1.24 $ (.02) $ 5.03 $ 3.12
Weighted-average common shares outstanding
Basic 363.6 360.2 362.9 360.6
Diluted 369.0 360.2 368.1 367.1


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

Net sales		$	5,539	$	4,853	$	9,931	$	8,415
Cost of sales		1,223		1,084		2,280		1,909

Gross profit		4,316		3,769		7,651		6,506

Operating expenses
Selling, general and administrative		2,885		2,590		5,279		4,616
Restructuring and other charges		13		35		19		41
Goodwill impairment		—		54		—		54
Impairment of other intangible assets		—		27		—		27
Total operating expenses		2,898		2,706		5,298		4,738

Operating income		1,418		1,063		2,353		1,768

Interest expense		42		43		84		88
Interest income and investment income, net		10		17		14		31
Other components of net periodic benefit cost		(2)		7		(1)		10
Other income		—		—		1		—
Earnings before income taxes		1,388		1,030		2,285		1,701

Provision for income taxes		298		153		500		299
Net earnings		1,090		877		1,785		1,402

Net earnings attributable to noncontrolling interests		(4)		(4)		(5)		(6)
Net loss attributable to redeemable noncontrolling interest		2		—		—		—
Net earnings attributable to The Estée Lauder Companies Inc.		$	1,088	$	873	$	1,780	$	1,396

Net earnings attributable to The Estée Lauder Companies Inc. per common share
Basic		$	3.02	$	2.40	$	4.93	$	3.84
Diluted		$	2.97	$	2.37	$	4.85	$	3.79

Weighted-average common shares outstanding
Basic		360.6		363.0		361.4		363.4
Diluted		366.0		368.0		367.0		368.5

See notes to consolidated financial statements.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

(Unaudited)

Three Months Ended
March 31 Nine Months Ended
March 31
(In millions) 2021 2020 2021 2020
Net earnings (loss) $ 458 $ (4) $ 1,860 $ 1,155
Other comprehensive income (loss):
Net cash flow hedge gain (loss) 41 34 (16) 10
Retirement plan and other retiree benefit adjustments 7 6 19 16
Translation adjustments (121) (185) 170 (191)
Benefit (provision) for income taxes on components of other comprehensive income (32) 2 6 15
Total other comprehensive income (loss), net of tax (105) (143) 179 (150)
Comprehensive income (loss) 353 (147) 2,039 1,005
Comprehensive income attributable to noncontrolling interests:
Net earnings (2) (2) (8) (9)
Translation adjustments 1 0 (1) 1
(1) (2) (9) (8)
Comprehensive income (loss) attributable to The Estée Lauder Companies Inc. $ 352 $ (149) $ 2,030 $ 997


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

Net earnings	$	1,090	$	877	$	1,785	$	1,402

Other comprehensive income (loss):

Net cash flow hedge gain (loss)	(5)		(26)		16		(57)
Retirement plan and other retiree benefit adjustments	4		6		8		12
Translation adjustments	(15)		213		(201)		291
Benefit (provision) for income taxes on components of other comprehensive income	(6)		20		(18)		38
Total other comprehensive income (loss), net of tax	(22)		213		(195)		284
Comprehensive income	1,068		1,090		1,590		1,686

Comprehensive income attributable to noncontrolling interests:
Net earnings	(4)		(4)		(5)		(6)
Translation adjustments	1		(2)		2		(2)
Total comprehensive income attributable to noncontrolling interests	(3)		(6)		(3)		(8)

Comprehensive loss attributable to redeemable noncontrolling interest:
Net loss	2		—		—		—
Translation adjustments	—		—		17		—
Total comprehensive loss attributable to redeemable noncontrolling interest	2		—		17		—
Comprehensive income attributable to The Estée Lauder Companies Inc.	$	1,067	$	1,084	$	1,604	$	1,678

See notes to consolidated financial statements.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except share data) March 31
2021 June 30
2020
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 6,399 $ 5,022
Accounts receivable, net 1,735 1,194
Inventory and promotional merchandise 2,134 2,062
Prepaid expenses and other current assets 729 614
Total current assets 10,997 8,892
Property, plant and equipment, net 2,106 2,055
Other assets
Operating lease right-of-use assets 2,212 2,282
Goodwill 1,369 1,401
Other intangible assets, net 2,294 2,338
Other assets 922 813
Total other assets 6,797 6,834
Total assets $ 19,900 $ 17,781
LIABILITIES AND EQUITY
Current liabilities
Current debt $ 471 $ 1,222
Accounts payable 1,277 1,177
Operating lease liabilities 372 375
Other accrued liabilities 3,077 2,405
Total current liabilities 5,197 5,179
Noncurrent liabilities
Long-term debt 5,487 4,914
Long-term operating lease liabilities 2,198 2,278
Other noncurrent liabilities 1,460 1,448
Total noncurrent liabilities 9,145 8,640
Contingencies

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


(In millions, except share data)	December 31 2021		June 30 2021
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	4,603	$	4,958
Accounts receivable, net	2,079		1,702
Inventory and promotional merchandise	2,612		2,505
Prepaid expenses and other current assets	661		603
Total current assets	9,955		9,768

Property, plant and equipment, net	2,451		2,280

Other assets
Operating lease right-of-use assets	2,102		2,190
Goodwill	2,572		2,616
Other intangible assets, net	3,883		4,095
Other assets	1,115		1,022
Total other assets	9,672		9,923
Total assets	$	22,078	$	21,971

LIABILITIES AND EQUITY
Current liabilities
Current debt	$	272	$	32
Accounts payable	1,639		1,692
Operating lease liabilities	397		379
Other accrued liabilities	3,454		3,195
Total current liabilities	5,762		5,298

Noncurrent liabilities
Long-term debt	5,259		5,537
Long-term operating lease liabilities	2,028		2,151
Other noncurrent liabilities	1,937		2,037
Total noncurrent liabilities	9,224		9,725

Contingencies			0
	0
Redeemable Noncontrolling Interest	840		857

Equity
Common stock, $.01 par value; Class A shares authorized: 1,300,000,000 at December 31, 2021 and June 30, 2021; shares issued: 466,381,223 at December 31, 2021 and 462,633,034 at June 30, 2021; Class B shares authorized: 304,000,000 at December 31, 2021 and June 30, 2021; shares issued and outstanding: 126,242,029 at December 31, 2021 and 128,242,029 at June 30, 2021	6		6
Paid-in capital	5,605		5,335
Retained earnings	13,735		12,244
Accumulated other comprehensive loss	(646)		(470)
	18,700		17,115
Less: Treasury stock, at cost; 233,353,672 Class A shares at December 31, 2021 and 229,115,665 Class A shares at June 30, 2021	(12,482)		(11,058)
Total stockholders’ equity – The Estée Lauder Companies Inc.	6,218		6,057
Noncontrolling interests	34		34
Total equity	6,252		6,091
Total liabilities, redeemable noncontrolling interest and equity	$	22,078	$	21,971

See notes to consolidated financial statements.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Nine Months Ended
March 31
(In millions) 2021 2020
Cash flows from operating activities
Net earnings $ 1,860 $ 1,155
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization 475 447
Deferred income taxes (103) (65)
Non-cash stock-based compensation 255 210
Net loss on disposal of property, plant and equipment 19 6
Non-cash restructuring and other charges 97 19
Pension and post-retirement benefit expense 75 62
Pension and post-retirement benefit contributions (35) (54)
Goodwill, other intangible and long-lived asset impairments 114 1,123
Changes in fair value of contingent consideration (2) (9)
Gain on previously held equity method investment 0 (553)
Other non-cash items (17) (11)
Changes in operating assets and liabilities:
Increase in accounts receivable, net (506) (48)
Decrease (increase) in inventory and promotional merchandise 13 (41)
Increase in other assets, net (122) (63)
Increase (decrease) in accounts payable 55 (317)
Increase in other accrued and noncurrent liabilities 629 62
Increase (decrease) in operating lease assets and liabilities, net (30) 22
Net cash flows provided by operating activities 2,777 1,945
Cash flows from investing activities
Capital expenditures (386) (468)
Proceeds from purchase price refund 32 0
Payments for acquired businesses, net of cash acquired (8) (1,047)
Purchases of investments (40) (5)
Settlement of net investment hedges (175) (37)
Net cash flows used for investing activities (577) (1,557)
Cash flows from financing activities
Proceeds (repayments) of current debt, net (746) 1,514
Proceeds from issuance of long-term debt, net 596 1,783
Debt issuance costs (4) (14)
Repayments and redemptions of long-term debt (6) (511)
Proceeds from stock-based compensation transactions 180 148
Payments to acquire treasury stock (316) (883)
Payments of contingent consideration 0 (3)
Dividends paid to stockholders (561) (502)
Payments to noncontrolling interest holders for dividends (5) (7)
Net cash flows provided by (used for) financing activities (862) 1,525
Effect of exchange rate changes on Cash and cash equivalents 39 (24)
Net increase in Cash and cash equivalents 1,377 1,889
Cash and cash equivalents at beginning of period 5,022 2,987
Cash and cash equivalents at end of period $ 6,399 $ 4,876


	Six Months Ended December 31
(In millions)	2021		2020

Cash flows from operating activities
Net earnings	$	1,785	$	1,402
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization	364		316
Deferred income taxes	(43)		(49)
Non-cash stock-based compensation	192		169
Net loss on disposal of property, plant and equipment	3		13
Non-cash restructuring and other charges	1		1
Pension and post-retirement benefit expense	39		52
Pension and post-retirement benefit contributions	(18)		(25)
Goodwill and other intangible asset impairments	—		81
Changes in fair value of contingent consideration	—		(2)

Gain on previously held equity method investment	(1)		—
Other non-cash items	(4)		(23)
Changes in operating assets and liabilities:
Increase in accounts receivable, net	(407)		(720)
Decrease (increase) in inventory and promotional merchandise	(164)		67
Increase in other assets, net	(57)		(110)
Increase (decrease) in accounts payable	(40)		63
Increase in other accrued and noncurrent liabilities	213		750
Decrease in operating lease assets and liabilities, net	(17)		(7)
Net cash flows provided by operating activities	1,846		1,978

Cash flows from investing activities
Capital expenditures	(459)		(250)
Proceeds from purchase price refund	—		32
Payment for acquired business	(3)		(6)

Purchases of investments	(10)		(40)
Settlement of net investment hedges	58		(133)
Net cash flows used for investing activities	(414)		(397)

Cash flows from financing activities
Repayments of current debt, net	(4)		(747)

Debt issuance costs	(1)		—
Repayments and redemptions of long-term debt	(10)		(4)
Net proceeds from stock-based compensation transactions	77		104
Payments to acquire treasury stock	(1,428)		(102)

Dividends paid to stockholders	(409)		(368)
Payments to noncontrolling interest holders for dividends	—		(2)
Net cash flows used for financing activities	(1,775)		(1,119)

Effect of exchange rate changes on Cash and cash equivalents	(12)		61
Net increase (decrease) in Cash and cash equivalents	(355)		523
Cash and cash equivalents at beginning of period	4,958		5,022
Cash and cash equivalents at end of period	$	4,603	$	5,545

See notes to consolidated financial statements.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

The unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim consolidated financial statements furnished reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, ~~2020.~~2021.

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

Management Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses reported in those financial statements. Descriptions of the Company’s significant accounting policies are discussed in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, ~~2020.~~2021. Management evaluates the related estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions. Significant changes, if any, in those estimates and assumptions resulting from continuing changes in the economic environment, including those related to the impacts of the COVID-19 pandemic, will be reflected in the consolidated financial statements in future periods.

Currency Translation and Transactions

All assets and liabilities of foreign subsidiaries and affiliates are translated at period-end rates of exchange, while revenue and expenses are translated at monthly average rates of exchange for the period. Unrealized translation gains (losses), net of tax, reported as translation adjustments through other comprehensive income (loss) (“OCI”) attributable to The Estée Lauder Companies Inc. were ~~$(143)~~$(20) million and ~~$(173)~~$227 million, net of tax, during the three months ended ~~March~~December 31, 2021 and 2020, respectively, and ~~$175~~$(195) million and ~~$(170)~~$318 million, net of tax, during the ~~nine~~six months ended ~~March~~December 31, 2021 and 2020, respectively. For the Company’s subsidiaries operating in highly inflationary economies, the U.S. dollar is the functional currency. Remeasurement adjustments in financial statements in a highly inflationary economy and other transactional gains and losses are reflected in ~~earnings (loss).~~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. The Company also enters into foreign currency forward contracts to hedge a portion of its net investment in certain foreign operations, which are designated as net investment hedges. See Note 65 – Derivative Financial Instruments for further discussion. The Company categorizes these instruments as entered into for purposes other than trading.

The accompanying consolidated statements of earnings ~~(loss)~~ include net exchange ~~gains (losses)~~losses on foreign currency transactions of ~~$(3) million and $15~~$6 million during the three months ended ~~March~~December 31, 2021 and $18 million and $2 million during the six months ended December 31, 2021 and 2020, ~~respectively, and $(5) million and $40 million~~respectively. The net exchange loss on foreign currency transactions during the ~~nine~~three months ended ~~March~~December 31, ~~2021 and~~ 2020 ~~respectively.~~was not material.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Concentration of Credit Risk

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

The Company’s largest customer during the three and ~~nine~~six months ended ~~March~~December 31, 2021 sells products primarily in China travel retail. This customer accounted for ~~$690~~$596 million or ~~18%~~11%, and ~~$143~~$654 million, or 4%13%, of the Company's consolidated net sales for the three months ended ~~March~~December 31, 2021 and 2020, respectively, and ~~$1,898~~$1,052 million, or ~~15%~~11%, and ~~$608~~$1,208 million, or 5%14%, for the ~~nine~~six months ended ~~March~~December 31, 2021 and 2020, ~~respectively, of the Company's consolidated net sales.~~respectively. This customer accounted for ~~$366~~$442 million, or 21%, and ~~$297~~$179 million, or ~~24%~~10%, of the Company's accounts receivable at ~~March~~December 31, 2021 and June 30, ~~2020,~~2021, respectively.

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

Inventory and Promotional Merchandise

Inventory and promotional merchandise consists of the following:

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


(In millions)	December 31 2021		June 30 2021
Raw materials	$	726	$	674
Work in process	299		330
Finished goods	1,317		1,213
Promotional merchandise	270		288
	$	2,612	$	2,505

Property, Plant and Equipment

Property, plant and equipment consists of the following:

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


(In millions)	December 31 2021		June 30 2021
Assets (Useful Life)
Land	$	57	$	55
Buildings and improvements (10 to 40 years)	497		256
Machinery and equipment (3 to 10 years)	989		920
Computer hardware and software (4 to 10 years)	1,433		1,303
Furniture and fixtures (5 to 10 years)	128		125
Leasehold improvements	2,340		2,312
Construction in progress	500		647
	5,944		5,618
Less accumulated depreciation and amortization	(3,493)		(3,338)
	$	2,451	$	2,280

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~The cost of assets related to projects in progress of $581 million and $501 million as of March 31, 2021 and June 30, 2020, respectively, is included in their respective asset categories above.~~ Depreciation and amortization of property, plant and equipment was ~~$129~~$136 million and ~~$131~~$126 million during the three months ended ~~March~~December 31, 2021 and 2020, respectively, and ~~$380~~$266 million and ~~$383~~$251 million during the ~~nine~~six months ended ~~March~~December 31, 2021 and 2020, respectively. Depreciation and amortization related to the Company’s manufacturing process is included in Cost of sales, and all other depreciation and amortization is included in Selling, general and administrative expenses in the accompanying consolidated statements of ~~earnings (loss).~~earnings.

~~Leases~~

~~The Company recognized $33 million and $13 million~~

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

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes

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


		Three Months Ended March 31				Nine Months Ended March 31					Three Months Ended December 31				Six Months Ended December 31
		2021		2020		2021		2020			2021		2020		2021		2020
Effective rate for income taxes	Effective rate for income taxes	21.0	%	105.0	%	18.5	%	30.0	%	Effective rate for income taxes	21.5	%	14.9	%	21.9	%	17.6	%
Basis-point change from the prior-year period	Basis-point change from the prior-year period	(8,400)				(1,150)				Basis-point change from the prior-year period	660				430

For the three and ~~nine~~six months ended ~~March~~December 31, 2021, the ~~decrease~~increase in the effective tax rate was primarily attributable to ~~the impact of nondeductible goodwill charges recognized in the three and nine months ended March 31, 2020 and~~ a ~~lower~~higher effective tax rate on the Company's foreign operations. ~~The lower amount of earnings before income taxes~~Also contributing to the increase in the effective tax rate for ~~the three and nine months ended March 31, 2020 increased the impact of the nondeductible charges.~~both periods was a decrease in excess tax benefits associated with stock-based compensation arrangements.

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

As of ~~March~~December 31, 2021 and June 30, ~~2020,~~2021, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled ~~$72 million and $70 million, respectively.~~$62 million. The total amount of unrecognized tax benefits at ~~March~~December 31, 2021 that, if recognized, would affect the effective tax rate was ~~$57~~$52 million. The total gross interest and penalties accrued related to unrecognized tax benefits during the three and ~~nine~~six months ended ~~March~~December 31, 2021 in the accompanying consolidated statements of earnings ~~(loss)~~ was $2$1 million and $3$4 million, respectively. The total gross accrued interest and penalties in the accompanying consolidated balance sheets at ~~March~~December 31, 2021 and June 30, ~~2020,~~2021, was ~~$16~~$15 million and ~~$13~~$14 million, respectively. On the basis of the information available as of ~~March~~December 31, 2021, the Company does not expect significant changes to the total amount of unrecognized tax benefits within the next twelve months.

During the fiscal 2022 first quarter, the Company formally concluded the compliance process with respect to its fiscal 2020 income tax return under the U.S. Internal Revenue Service (“IRS”) Compliance Assurance Program (“CAP”), which had no impact on the Company’s consolidated financial statements for the three and six months ended December 31, 2021.

Other Accrued and Noncurrent Liabilities

Other accrued liabilities consist of the following:


(In millions)	December 31 2021		June 30 2021
Advertising, merchandising and sampling	$	375	$	294
Employee compensation	508		670
Deferred revenue	377		322
Payroll and other non-income taxes	373		359
Accrued income taxes	445		237
Sales return accrual	236		369
Other	1,140		944
	$	3,454	$	3,195

At December 31, 2021 and June 30, 2021, total Other noncurrent liabilities of $1,937 million and $2,037 million included $797 million and $849 million of deferred tax liabilities, respectively.

Recently Adopted Accounting Standards

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

In December 2019, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that simplifies the accounting for income taxes by removing certain exceptions and making simplifications in other areas.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Other Accrued Liabilities~~

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

(In millions) March 31
2021 June 30
2020
Advertising, merchandising and sampling $ 299 $ 256
Employee compensation 534 424
Deferred revenue 310 222
Payroll and other taxes 287 250
Accrued income taxes 327 208
Sales return accrual 270 212
Other 1,050 833
$ 3,077 $ 2,405

~~Recently Adopted Accounting Standards~~

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

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

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

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

Effective for the Company – – Fiscal ~~2021~~2022 first quarter.

Impact on consolidated financial statements – On July 1, ~~2020, the Company adopted ASC 326. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. See~~ ~~Note 8 – Revenue Recognition~~ ~~for further discussion.~~

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

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

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

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~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Impact on consolidated financial statements –~~ ~~On July 1, 2020,~~ the Company adopted this ~~guidance prospectively~~standard and recorded a cumulative adjustment of $121 million as an increase to ~~all implementation costs incurred after the date of adoption. The adoption of this standard did not have~~its fiscal 2022 opening retained earnings balance to derecognize a ~~material impact on the Company's consolidated financial statements.~~deferred tax liability related to a previously held equity method investment that became a foreign subsidiary.

Recently Issued Accounting Standards

Reference Rate Reform (ASC Topic 848)

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

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

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

Impact on consolidated financial statements – The Company currently has an implementation team in place that is ~~currently~~performing a comprehensive evaluation and assessing the impact of applying this guidance on its existing derivative contracts, leases and other arrangements, as well as when to adopt this guidance.

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

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

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

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

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

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~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE 2 – ACQUISITION OF BUSINESS

On ~~December~~May 18, ~~2019,~~2021, the Company acquired ~~the remaining 66.66% equity interest~~additional shares in ~~Have&Be Co. Ltd. (“Have & Be”~~Deciem Beauty Group Inc. (“DECIEM”), ~~the global~~a Toronto-based skin care company, ~~behind Dr. Jart+ and men’s grooming brand Do The Right Thing,~~ for ~~$1,268~~$1,092 million in ~~cash. Based on~~cash, including proceeds from the ~~final purchase price~~issuance of debt. DECIEM is a multi-brand beauty company with a brand portfolio that includes The Ordinary and ~~working capital adjustments,~~NIOD. This acquisition is expected to further strengthen the ~~Company estimated a refund receivable of $32 million that was outstanding as of June 30, 2020~~Company’s leadership position in prestige skin care, expand its global consumer reach and ~~was received~~complement its business in the ~~first quarter of fiscal 2021.~~online and specialty-multi channels. The Company originally acquired a minority interest in ~~Have & Be~~DECIEM in ~~December 2015, and that investment structure included a formula-based call option for the remaining equity interest.~~June 2017. The ~~original~~ minority interest was accounted for as an equity method investment, which had a carrying value of ~~$133~~$65 million at the acquisition date. The acquisition of additional shares increased the ~~remaining~~Company's fully diluted equity interest ~~in Have & Be~~from approximately 29% to approximately 76% and was considered a step ~~acquisition, whereby~~acquisition. On a fully diluted basis, the DECIEM stock options, discussed below, approximated 4% of the total capital structure. Accordingly, for purposes of determining the consideration transferred, the Company excluded the DECIEM stock options, which resulted in an increase in the Company’s post-acquisition undiluted equity interest from approximately 30% to approximately 78% and the post-acquisition undiluted equity interest of the remaining noncontrolling interest holders of approximately 22%. The Company remeasured the previously held equity method investment to its fair value of ~~$682~~$913 million, resulting in the recognition of a gain of ~~$549~~$848 million. ~~The acquisition~~As part of the ~~remaining equity interest also resulted~~increase in the ~~recognition of~~Company's investment, the Company was granted the right to purchase (“Call Option”), and granted the remaining investors a ~~previously unrealized foreign currency gain of $4 million, which was reclassified from accumulated OCI. The total gain~~right to sell to the Company (“Put Option”), the remaining interests after a three-year period, with a purchase price based on the ~~Company’s previously held~~future performance of DECIEM (the “net Put (Call) Option”). As a result of this redemption feature, the Company recorded redeemable noncontrolling interest, at its acquisition‑date fair value, that is classified as mezzanine equity ~~method investment of $553 million is included in Other income~~ in the ~~accompanying~~ consolidated ~~statements~~balance sheets at June 30, 2021. As of ~~earnings (loss) for~~December 31, 2021, the nine months ended March 31, 2020. The fair value of the previously held equity method investment was determined based upon a valuation of the acquired business, as of the date of acquisition, using an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies. The accounting for the ~~Have & Be~~DECIEM business combination ~~was finalized as~~is provisional pending the finalization of ~~June 30, 2020.~~the opening balance sheet, the final valuation report, and allocation of the total consideration transferred.

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

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

119

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of the total consideration transferred, including immaterial measurement period adjustments as of December 31, 2021, is as follows:


(In millions)	December 31, 2021
Cash paid	$	1,095
Fair value of DECIEM stock options liability	104
Fair value of net Put (Call) Option	233
Total consideration for the acquired ownership interest (approximately 47.9%)	1,432
Fair value of previously held equity method investment (approximately 30.5%)	913
Fair value of redeemable noncontrolling interest (approximately 21.6%)	648
Total consideration transferred (100%)	$	2,993

As part of the acquisition of additional shares, DECIEM stock options were issued in replacement of and exchange for certain vested and unvested stock options previously issued by DECIEM. The total fair value of the DECIEM stock options of $295 million was recorded as part of the total consideration transferred, comprising of $191 million of Cash paid for vested options settled as of the acquisition date and $104 million reported as a stock options liability on the Company's consolidated balance sheet as it is not an assumed liability of DECIEM and is expected to be settled in cash upon completion of the exercise of the Put (Call). The acquisition-date fair value of the DECIEM stock options liability was calculated by multiplying the acquisition-date fair value by the number of DECIEM stock options replaced the day after the acquisition date. The stock options replaced consist of vested and partially vested stock options. See Note 10 – Stock Programs for information relating to the DECIEM stock options.

The acquisition-date fair value of the previously held equity method investment was calculated by multiplying the gross-up of the total consideration for the acquired ownership interest of $2,993 million by the related effective previously held equity interest of approximately 30.5%.

The acquisition-date fair value of the redeemable noncontrolling interest includes the acquisition-date fair value of the net Put (Call) Option of $233 million. The remaining acquisition-date fair value of the redeemable noncontrolling interest of $648 million was calculated by multiplying the gross-up of the total consideration for the acquired ownership interest of $2,993 million by the related noncontrolling interest of approximately 21.6%.

The acquisition-date fair values of the DECIEM stock options and the net Put (Call) Option were calculated by incorporating significant assumptions including the starting equity value, revenue growth rates and EBITDA and the following key assumptions into the Monte Carlo Method:


						May 18, 2021
Risk-free rate						0.50%
Term to mid of last twelve-month period						2.54 years
Operating leverage adjustment						0.45
Net sales discount rate						3.30%
EBITDA discount rate						6.80%
EBITDA volatility						38.30%
Net sales volatility						17.20%

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company recorded a preliminary allocation of the total consideration transferred to the tangible and identifiable intangible assets acquired and liabilities assumed based on their fair value at the acquisition date. The total consideration transferred includes the cash paid at closing, the fair value of its previously held equity method investment, the fair value of the redeemable noncontrolling interest, including the fair value of the net Put (Call) Option, and the fair value of the DECIEM stock options liability. The excess of the total consideration transferred over the fair value of the net tangible and intangible assets acquired was recorded as goodwill. To determine the acquisition date estimated fair value of intangible assets acquired, the Company applied the income approach, specifically the multi-period excess earnings method for customer relationships and the relief-from-royalty method for trademarks. The significant assumptions used in these approaches include revenue growth rates and profit margins, terminal values, weighted-average cost of capital used to discount future cash flows, and a customer attrition rate for customer relationships and royalty rates for trademarks. The preliminary allocation of the total consideration transferred, including immaterial measurement period adjustments as of December 31, 2021, has been recorded as follows:


(In millions)	December 31, 2021
Cash	$	35
Accounts receivable	64
Inventory	192
Other current assets	33
Property, plant and equipment	40
Operating lease right-of-use assets	40
Intangible assets	1,917
Goodwill	1,295
Deferred income taxes	7
Total assets acquired	3,623

Accounts payable	21
Operating lease liabilities	8
Other accrued liabilities	78
Deferred income taxes	479
Long-term operating lease liabilities	44
Total liabilities assumed	630
Total consideration transferred	$	2,993

The results of operations for DECIEM and acquisition-related costs were not material to the Company's consolidated statements of earnings for the three and six months ended December 31, 2021. Pro forma results of operations for the fiscal 2021 periods reflecting the acquisition of DECIEM are not presented, as the impact on the Company’s consolidated financial results would not have been material.

NOTE 3 – GOODWILL AND OTHER INTANGIBLE ASSETS

As previously discussed in Note 2 – Acquisition of Business, in May 2021 the Company increased its investment in DECIEM, which resulted in the inclusion of additional goodwill of $1,295 million, amortizable intangible assets (customer lists) of $701 million with amortization periods of 7 years to 14 years, and non-amortizable intangible assets (trademarks) of $1,216 million. Goodwill associated with the acquisition is primarily attributable to the future revenue growth opportunities associated with sales growth in the skin care category, as well as the value associated with DECIEM's assembled workforce. As such, the goodwill has been allocated to the Company’s skin care product category. The goodwill recorded in connection with this acquisition will not be deductible for tax purposes. These amounts are provisional pending finalization of the opening balance sheet, the final valuation report, and allocation of the total consideration transferred.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill

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


(In millions)	(In millions)	Skin Care		Makeup		Fragrance		Hair Care		Total		(In millions)	Skin Care		Makeup		Fragrance		Hair Care		Total
Balance as of June 30, 2020
Balance as of June 30, 2021												Balance as of June 30, 2021
Goodwill	Goodwill	$	519	$	1,210	$	254	$	389	$	2,372	Goodwill	$	1,786	$	1,214	$	262	$	355	$	3,617
Accumulated impairments	Accumulated impairments	(95)		(817)		(26)		(33)		(971)		Accumulated impairments	(141)		(830)		(30)		—		(1,001)
		424		393		228		356		1,401			1,645		384		232		355		2,616

Goodwill acquired during the period		0		6		0		4		10
Impairment charges(1)		(54)		(13)		0		0		(67)
Goodwill measurement period adjustment												Goodwill measurement period adjustment	12		—		—		—		12

Translation adjustments, goodwill	Translation adjustments, goodwill	21		0		4		3		28		Translation adjustments, goodwill	(52)		—		(5)		—		(57)
Translation adjustments, accumulated impairments	Translation adjustments, accumulated impairments	(1)		0		0		(2)		(3)		Translation adjustments, accumulated impairments	1		—		—		—		1
		(34)		(7)		4		5		(32)			(39)		—		(5)		—		(44)

Balance as of March 31, 2021
Balance as of December 31, 2021												Balance as of December 31, 2021
Goodwill	Goodwill	540		1,216		258		396		2,410		Goodwill	1,746		1,214		257		355		3,572
Accumulated impairments	Accumulated impairments	(150)		(830)		(26)		(35)		(1,041)		Accumulated impairments	(140)		(830)		(30)		—		(1,000)
		$	390	$	386	$	232	$	361	$	1,369		$	1,606	$	384	$	227	$	355	$	2,572

~~(1)~~
A goodwill impairment charge of $13 million was recorded in connection with the exit of the global distribution of BECCA products and is included in Restructuring and other charges in the accompanying consolidated statements of earnings (loss) for the three and nine months ended March 31, 2021. See ~~Note 4 – Charges Associated with Restructuring and~~

Other ~~Activities~~ ~~for further information relating to the Post-COVID Business Acceleration Program. See~~ “~~Impairment Testing During the Nine Months Ended March 31, 2021~~” ~~below for further information relating to fiscal 2021 impairment charges related to GLAMGLOW.~~Intangible Assets

Other intangible assets consist of the following:


		March 31, 2021						June 30, 2020							December 31, 2021						June 30, 2021
(In millions)	(In millions)	Gross Carrying Value		Accumulated Amortization		Total Net Book Value		Gross Carrying Value		Accumulated Amortization		Total Net Book Value		(In millions)	Gross Carrying Value		Accumulated Amortization		Total Net Book Value		Gross Carrying Value		Accumulated Amortization		Total Net Book Value
Amortizable intangible assets:	Amortizable intangible assets:													Amortizable intangible assets:
Customer lists and other	Customer lists and other	$	1,641	$	564	$	1,077	$	1,590	$	475	$	1,115	Customer lists and other	$	2,208	$	622	$	1,586	$	2,273	$	544	$	1,729
License agreements	License agreements	43		43		0		43		43		0		License agreements	43		43		—		43		43		—
		$	1,684	$	607	1,077		$	1,633	$	518	1,115			$	2,251	$	665	1,586		$	2,316	$	587	1,729
Non-amortizable intangible assets:	Non-amortizable intangible assets:													Non-amortizable intangible assets:
Trademarks and other	Trademarks and other					1,217						1,223		Trademarks and other					2,297						2,366
Total intangible assets	Total intangible assets					$	2,294					$	2,338	Total intangible assets					$	3,883					$	4,095

The aggregate amortization expense related to amortizable intangible assets was ~~$25~~$39 million and ~~$23~~$27 million for the three months ended ~~March~~December 31, 2021 and 2020, respectively, and ~~$77~~$84 million and ~~$45~~$52 million for the ~~nine~~six months ended ~~March~~December 31, 2021 and 2020, respectively.

The estimated aggregate amortization expense for the remainder of fiscal ~~2021~~2022 and for each of the next four fiscal years is as follows:


	Fiscal
(In millions)	2022		2023		2024		2025		2026
Estimated aggregate amortization expense	$	77	$	155	$	154	$	154	$	154

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

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

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

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

NOTE 4 – CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES

Charges associated with ~~restructuring activities~~the Post-COVID Business Acceleration Program for the three and six months ended ~~March~~December 31, 2021 were as follows:

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


	Sales Returns (included in Net Sales)		Cost of Sales		Operating Expenses				Total
(In millions)					Restructuring Charges		Other Charges
Three months ended December 31, 2021	$	1	$	(1)	$	7	$	3	$	10
Six months ended December 31, 2021	$	2	$	(2)	$	7	$	5	$	12

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

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

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~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Charges associated with restructuring and other activities are not allocated to ~~our~~the Company's product categories or geographic regions because they are centrally directed and controlled, are not included in internal measures of product category or geographic region performance and result from activities that are deemed Company-wide initiatives to redesign, resize and reorganize select areas of the business.

~~Leading Beauty Forward Program~~

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

~~LBF Program Approvals~~

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

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

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

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

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

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~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~LBF Program Restructuring and Other Charges~~

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

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

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

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

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

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

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

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

Post-COVID Business Acceleration Program

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

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~At this time~~

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2021, the Company estimates a net reduction over the duration of the PCBA Program in the range of ~~approximately 1,500~~2,000 to ~~2,000~~2,500 positions globally, including temporary and part-time employees. This reduction takes into account the elimination of some positions, retraining and redeployment of certain employees and investment in new positions in key areas. The Company also estimates the closure over the duration of the PCBA Program of approximately 10% to 15% of its freestanding stores globally, primarily in Europe, the Middle East & Africa and in North America.

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

PCBA Program Approvals

~~The~~Total PCBA Program cumulative charges (adjustments) approved by the Company through ~~March~~December 31, 2021 were:


		Sales Returns (included in Net Sales)		Cost of Sales			Operating Expenses						Total			Sales Returns (included in Net Sales)			Cost of Sales		Operating Expenses				Total
(In millions)	(In millions)					Restructuring Charges			Other Charges			(In millions)						Restructuring Charges			Other Charges
Total Charges (Adjustments) Approved	Total Charges (Adjustments) Approved																Total Charges (Adjustments) Approved
Nine months ended March 31, 2021		$	39	$	(6)		$	180		$	17		$	230
Cumulative through June 30, 2021															Cumulative through June 30, 2021	$	42		$	(6)	$	257	$	21	$	314
Six months ended December 31, 2021															Six months ended December 31, 2021	(19)			9		(13)		—		(23)
Cumulative through December 31, 2021															Cumulative through December 31, 2021	$	23		$	3	$	244	$	21	$	291

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


(In millions)	(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total		(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total
Restructuring Charges Approved	Restructuring Charges Approved											Restructuring Charges Approved
Nine months ended March 31, 2021		$	73	$	99	$	5	$	3	$	180
Cumulative through June 30, 2021												Cumulative through June 30, 2021	$	132	$	108	$	13	$	4	$	257
Six months ended December 31, 2021												Six months ended December 31, 2021	(11)		2		(3)		(1)		(13)
Cumulative through December 31, 2021												Cumulative through December 31, 2021	$	121	$	110	$	10	$	3	$	244

Specific actions taken since the PCBA Program inception include:

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

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

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

•Exit of Certain Designer Fragrance Licenses – In reviewing the Company’s brand portfolio of fragrances and to focus on investing its resources on alternative opportunities for long-term growth and value creation globally, the Company announced that it is not renewing its existing license agreements for Donna Karan New York, DKNY, Michael Kors, Tommy Hilfiger and Ermenegildo Zegna when they expire in June 2023. The Company expects to continue to sell products under these licenses through June 30, 2022. These actions resulted in, or are expected to result in, employee-related costs, asset write-offs, including charges for the impairment of goodwill, and consulting and legal fees.

PCBA Program Restructuring and Other Charges

Restructuring charges are comprised of the following:

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

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

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

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

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

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

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

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

•Temporary labor backfill,

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

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

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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


	Sales Returns (included in Net Sales)		Cost of Sales		Operating Expenses				Total
(In millions)					Restructuring Charges		Other Charges
Total Charges (Adjustments)
Cumulative through June 30, 2021	$	14	$	2	$	201	$	4	$	221
Six months ended December 31, 2021	2		(2)		7		5		12
Cumulative through December 31, 2021	$	16	$	—	$	208	$	9	$	233

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

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


(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total
Restructuring Charges (Adjustments)
Cumulative through June 30, 2021	$	119	$	75	$	6	$	1	$	201
Six months ended December 31, 2021	(8)		5		10		—		7
Cumulative through December 31, 2021	$	111	$	80	$	16	$	1	$	208

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


(In millions)	(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total		(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total
Balance at June 30, 2021												Balance at June 30, 2021	$	101	$	—	$	—	$	—	$	101
Charges	Charges	$	70	$	93	$	4	$	0	$	167	Charges	(8)		5		10		—		7
Cash payments	Cash payments	(8)		0		(4)		0		(12)		Cash payments	(28)		—		(10)		—		(38)
Noncash asset write-offs		0		(93)		0		0		(93)
Balance at March 31, 2021		$	62	$	0	$	0	$	0	$	62
Non-cash asset write-offs												Non-cash asset write-offs	—		(5)		—		—		(5)
Translation and other adjustments												Translation and other adjustments	(6)		—		—		—		(6)
Balance at December 31, 2021												Balance at December 31, 2021	$	59	$	—	$	—	$	—	$	59

Accrued restructuring charges at ~~March~~December 31, 2021 relating to the PCBA Program are expected to result in cash expenditures funded from cash provided by operations of approximately ~~$37~~$31 million, ~~$18~~$24 million and $7$4 million for the remainder of fiscal ~~2021~~2022 and for fiscal ~~2022~~2023 and ~~2023,~~2024, respectively.

~~NOTE 5 – DEBT~~Leading Beauty Forward Program

~~In August 2020,~~The Company substantially completed initiatives approved under the ~~Company repaid~~Leading Beauty Program (the “LBF Program”) through fiscal 2021. Additional information about the ~~remaining $750 million borrowed under its $1,500 million revolving credit facility that was outstanding as of~~LBF Program is included in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, ~~2020.~~2021.

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

1916

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~These recently issued notes are summarized as follows:~~

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

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

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

NOTE 65 – 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 to hedge a portion of its net investment in certain foreign operations, which are designated as net investment hedges. The Company enters into the net investment hedges to offset the risk of changes in the U.S. dollar value of the Company’s investment in these foreign operations due to fluctuating foreign exchange rates. Time value is excluded from the effectiveness assessment and is recognized under a systematic and rational method over the life of the hedging instrument in Selling, general and administrative expenses. The net gain or loss on net investment hedges is recorded within translation adjustments, as a component of accumulated OCI (“AOCI”) on the Company’s consolidated balance sheets, until the sale or substantially complete liquidation of the underlying assets of the Company’s investment. The Company also enters into foreign currency forward contracts, and may use option contracts, not designated as hedging instruments, to mitigate the change in fair value of specific assets and liabilities on the consolidated balance sheets. At ~~March~~December 31, 2021, the notional amount of derivatives not designated as hedging instruments was ~~$4,404~~$3,656 million. The Company does not utilize derivative financial instruments for trading or speculative purposes. Costs associated with entering into derivative financial instruments have not been material to the Company’s consolidated financial results.

For each derivative contract entered into, where the Company looks to obtain hedge accounting treatment, the Company formally and contemporaneously documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking the hedge transaction, the nature of the risk being hedged, and how the hedging instruments’ effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively. This process includes linking all derivatives to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. At inception, the Company evaluates the effectiveness of hedge relationships quantitatively, and has elected to perform, after initial evaluation, qualitative effectiveness assessments of certain hedge relationships to support an ongoing expectation of high effectiveness, if effectiveness testing is required. If based on the qualitative assessment, it is determined that a derivative has ceased to be a highly effective hedge, the Company will perform a quantitative assessment to determine whether to discontinue hedge accounting with respect to that derivative prospectively.

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The fair values of the Company’s derivative financial instruments included in the consolidated balance sheets are presented as follows:

Asset Derivatives Liability Derivatives
Fair Value (1)
Fair Value (1)
(In millions) Balance Sheet
Location March 31
2021 June 30
2020 Balance Sheet
Location March 31
2021 June 30
2020
Derivatives Designated as Hedging Instruments
Foreign currency cash flow hedges Prepaid expenses and other current assets $ 16 $ 26 Other accrued liabilities $ 21 $ 3
Net investment hedges Prepaid expenses and other current assets 115 21 Other accrued liabilities 0 62
Interest rate-related derivatives Prepaid expenses and other current assets 7 15 Other accrued liabilities 15 3
Total Derivatives Designated as Hedging Instruments 138 62 36 68
Derivatives Not Designated as Hedging Instruments
Foreign currency forward contracts Prepaid expenses and other current assets 5 40 Other accrued liabilities 108 15
Total derivatives $ 143 $ 102 $ 144 $ 83


	Asset Derivatives					Liability Derivatives
		Fair Value (1)					Fair Value (1)
(In millions)	Balance Sheet Location	December 31 2021		June 30 2021		Balance Sheet Location	December 31 2021		June 30 2021
Derivatives Designated as Hedging Instruments:
Foreign currency cash flow hedges	Prepaid expenses and other current assets	$	19	$	12	Other accrued liabilities	$	17	$	20
Net investment hedges	Prepaid expenses and other current assets	49		34		Other accrued liabilities	—		—
Interest rate-related derivatives	Prepaid expenses and other current assets	6		15		Other accrued liabilities	7		—
Total Derivatives Designated as Hedging Instruments		74		61			24		20
Derivatives Not Designated as Hedging Instruments:
Foreign currency forward contracts	Prepaid expenses and other current assets	16		6		Other accrued liabilities	46		36
Total derivatives		$	90	$	67		$	70	$	56

(1)See Note 76 – Fair Value Measurements for further information about how the fair value of derivative assets and liabilities are determined.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The amounts of the gains and losses related to the Company’s derivative financial instruments designated as hedging instruments that are included in the assessment of effectiveness are as follows:

Amount of Gain (Loss)
Recognized in OCI on
Derivatives Location of Gain (Loss)
Reclassified from AOCI
into Earnings (Loss)
Amount of Gain (Loss)
Reclassified from AOCI into Earnings (Loss)(1)
Three Months Ended
March 31 Three Months Ended
March 31
(In millions) 2021 2020 2021 2020
Derivatives in Cash Flow Hedging Relationships:
Foreign currency forward contracts $ 22 $ 46 Net sales $ (7) $ 10
Interest rate-related derivatives 11 (2) Interest expense (1) 0
33 44 (8) 10
Derivatives in Net Investment Hedging Relationships(2):
Foreign currency forward contracts(3)
125 (20) 0 0
Total derivatives $ 158 $ 24 $ (8) $ 10

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

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

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


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

Foreign currency forward contracts	Foreign currency forward contracts	$	(43)	$	50		Net sales			$	(11)			$	29		Foreign currency forward contracts			$	(8)			$	(34)		Net sales			$	(2)			$	(5)
Interest rate-related derivatives	Interest rate-related derivatives	14		(11)		Interest expense		(2)				0		Interest rate-related derivatives				—				3				Interest expense		(1)				—
		(29)		39				(13)				29						(8)				(31)						(3)				(5)
Derivatives in Net Investment Hedging Relationships(2):	Derivatives in Net Investment Hedging Relationships(2):													Derivatives in Net Investment Hedging Relationships(2):
Foreign currency forward contracts(3)	Foreign currency forward contracts(3)	(17)		(54)				0				0		Foreign currency forward contracts(3)				34				(79)						—				—
Total derivatives	Total derivatives	$	(46)	$	(15)			$	(13)			$	29	Total derivatives				$	26			$	(110)					$	(3)			$	(5)

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

(2)During the ~~nine~~three months ended ~~March~~December 31, 2021 and 2020, the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was ~~$15~~$3 million and ~~$37~~$5 million, respectively.

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


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

Foreign currency forward contracts	$	7	$	(65)	Net sales	$	(8)	$	(4)
Interest rate-related derivatives	—		3		Interest expense	(1)		(1)
	7		(62)			(9)		(5)
Derivatives in Net Investment Hedging Relationships(2):
Foreign currency forward contracts(3)	70		(142)			—		—
Total derivatives	$	77	$	(204)		$	(9)	$	(5)

(2)During the six months ended December 31, 2021 and 2020, the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was $5 million and $10 million, respectively.

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

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

Interest rate swap contracts	Interest rate swap contracts		Interest expense		$	(18)	$	12	$	(23)		$	13	Interest rate swap contracts		Interest expense		$	(6)	$	(3)	$	(16)	$	(5)

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

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


(In millions)	(In millions)					(In millions)
Line Item in the Consolidated Balance Sheets in Which the Hedged Item is Included	Line Item in the Consolidated Balance Sheets in Which the Hedged Item is Included	Carrying Amount of the Hedged Liabilities		Cumulative Amount of Fair Value Hedging Gain (Loss) Included in the Carrying Amount of the Hedged Liability		Line Item in the Consolidated Balance Sheets in Which the Hedged Item is Included	Carrying Amount of the Hedged Liabilities		Cumulative Amount of Fair Value Hedging Gain (Loss) Included in the Carrying Amount of the Hedged Liability
		March 31, 2021		March 31, 2021			December 31, 2021		December 31, 2021
Current debt	Current debt	$	451	$	1	Current debt	$	253	$	3
Long-term debt	Long-term debt	936		(9)		Long-term debt	988		(4)
Total debt	Total debt	$	1,387	$	(8)	Total debt	$	1,241	$	(1)

2319

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended March 31

Three Months Ended December 31

2021

2020

2021

2020

(In millions)

Net Sales

Interest
Expense

Net Sales

Interest
Expense

(In millions)

Net Sales

Interest
Expense

Net Sales

Interest
Expense

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

3,864

3,345

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

5,539

4,853

The effects of fair value and cash flow hedging relationships:

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

Hedged item

Not applicable

(12)

Hedged item

Not applicable

Derivatives designated as hedging instruments

Not applicable

(18)

Not applicable

Derivatives designated as hedging instruments

Not applicable

(6)

Not applicable

(3)

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

Amount of loss reclassified from AOCI into earnings (loss)

Not applicable

(1)

Not applicable

Amount of loss reclassified from AOCI into earnings

Not applicable

(1)

Not applicable

—

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

Amount of gain reclassified from AOCI into earnings (loss)

(7)

Not applicable

Amount of gain reclassified from AOCI into earnings

(2)

Not applicable

(5)

Not applicable

2420

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended March 31

Six Months Ended December 31

2021

2020

2021

2020

(In millions)

Net Sales

Interest
Expense

Net Sales

Interest
Expense

(In millions)

Net Sales

Interest
Expense

Net Sales

Interest
Expense

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

12,279

131

11,864

112

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

9,931

8,415

The effects of fair value and cash flow hedging relationships:

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

Hedged item

Not applicable

(13)

Hedged item

Not applicable

Derivatives designated as hedging instruments

Not applicable

(23)

Not applicable

Derivatives designated as hedging instruments

Not applicable

(16)

Not applicable

(5)

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

Amount of loss reclassified from AOCI into earnings

Not applicable

(2)

Not applicable

Amount of loss reclassified from AOCI into earnings

Not applicable

(1)

Not applicable

(1)

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

Amount of gain reclassified from AOCI into earnings

(11)

Not applicable

Amount of gain reclassified from AOCI into earnings

(8)

Not applicable

(4)

Not applicable

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

Amount of Gain (Loss)
Recognized in Earnings (Loss) on Derivatives
Location of Gain (Loss) Recognized in Earnings (Loss) on Derivatives Three Months Ended
March 31 Nine Months Ended
March 31
(In millions) 2021 2020 2021 2020
Derivatives Not Designated as Hedging Instruments:
Foreign currency forward contracts Selling, general and administrative $ (97) $ 49 $ (34) $ 52


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

Foreign currency forward contracts	Selling, general and administrative	$	(38)	$	42	$	(49)	$	63

2521

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash Flow Hedges

The Company enters into foreign currency forward contracts, and may enter into foreign currency option contracts, to hedge anticipated transactions and receivables and payables denominated in foreign currencies, for periods consistent with the Company’s identified exposures. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on the cash flows that the Company receives from foreign subsidiaries. The foreign currency forward contracts entered into to hedge anticipated transactions have been designated as cash flow hedges and have varying maturities through the end of ~~December 2022.~~September 2023. Hedge effectiveness of the foreign currency forward contracts is based on the forward method, which includes time value in the effectiveness assessment. At ~~March~~December 31, 2021, the Company had cash flow hedges outstanding with a notional amount totaling ~~$1,390~~$1,422 million.

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

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

The estimated net ~~loss~~gain on the Company’s derivative instruments designated as cash flow hedges as of ~~March~~December 31, 2021 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $8$3 million. The accumulated net gain (loss) on derivative instruments in AOCI was $4$15 million and ~~$20~~$(1) million as of ~~March~~December 31, 2021 and June 30, ~~2020,~~2021, respectively.

Fair Value Hedges

The Company enters into interest rate derivative contracts to manage the exposure to interest rate fluctuations on its funded indebtedness. The Company has interest rate swap agreements, with notional amounts totaling ~~$450 million,~~ $250 million, $700 million and ~~$700~~$300 million to effectively convert the fixed rate interest on its ~~2021 Senior Notes,~~ 2022 Senior Notes, 2030 Senior Notes and ~~2030~~2031 Senior Notes, respectively, to variable interest rates based on three-month LIBOR plus a margin. These interest rate swap agreements are designated as fair value hedges of the related long-term debt, and the changes in the fair value of the interest rate swap agreements are exactly offset by the change in the fair value of the underlying long-term debt.

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

Net Investment Hedges

The Company enters into foreign currency forward contracts, designated as net investment hedges, to hedge a portion of its net investment in certain foreign operations. The net gain or loss on these contracts is recorded within translation adjustments, as a component of AOCI on the Company’s consolidated balance sheets. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on the Company’s net investment in these foreign operations. The net investment hedge contracts have varying maturities through the end of ~~April 2021.~~January 2022. Hedge effectiveness of the net investment hedge contracts is based on the spot method. At ~~March~~December 31, 2021, the Company had net investment hedges outstanding with a notional amount totaling ~~$1,920~~$1,419 million.

Credit Risk

As a matter of policy, the Company enters into derivative contracts only with counterparties that have a long-term credit rating of at least A- or higher by at least 2 nationally recognized rating agencies. The counterparties to these contracts are major financial institutions. Exposure to credit risk in the event of nonperformance by any of the counterparties is limited to the gross fair value of contracts in asset positions, which totaled ~~$143~~$90 million at ~~March~~December 31, 2021. To manage this risk, the Company has strict counterparty credit guidelines that are continually monitored. Accordingly, management believes risk of loss under these hedging contracts is remote.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 76 – FAIR VALUE MEASUREMENTS

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

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

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

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

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


(In millions)	(In millions)	Level 1		Level 2		Level 3		Total		(In millions)	Level 1		Level 2		Level 3		Total
Assets:	Assets:									Assets:
Money market funds	Money market funds	$	3,518	$	0	$	—	$	3,518	Money market funds	$	2,165	$	—	$	—	$	2,165
Foreign currency forward contracts	Foreign currency forward contracts	0		136		0		136		Foreign currency forward contracts	—		84		—		84
Interest rate-related derivatives	Interest rate-related derivatives	0		7		0		7		Interest rate-related derivatives	—		6		—		6
Total	Total	$	3,518	$	143	$	0	$	3,661	Total	$	2,165	$	90	$	—	$	2,255

Liabilities:	Liabilities:									Liabilities:
Foreign currency forward contracts	Foreign currency forward contracts	$	0	$	129	$	0	$	129	Foreign currency forward contracts	$	—	$	63	$	—	$	63
Interest rate-related derivatives	Interest rate-related derivatives	0		15		0		15		Interest rate-related derivatives	—		7		—		7
Contingent consideration		0		0		2		2
DECIEM stock options										DECIEM stock options	—		—		138		138
Total	Total	$	0	$	144	$	2	$	146	Total	$	—	$	70	$	138	$	208

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of June 30, ~~2020:~~2021:


(In millions)	(In millions)	Level 1		Level 2		Level 3		Total		(In millions)	Level 1		Level 2		Level 3		Total
Assets:	Assets:									Assets:
Money market funds	Money market funds	$	2,810	$	0	$	0	$	2,810	Money market funds	$	2,079	$	—	$	—	$	2,079
Foreign currency forward contracts	Foreign currency forward contracts	0		87		0		87		Foreign currency forward contracts	—		52		—		52
Interest rate-related derivatives	Interest rate-related derivatives	0		15		0		15		Interest rate-related derivatives	—		15		—		15
Total	Total	$	2,810	$	102	$	0	$	2,912	Total	$	2,079	$	67	$	—	$	2,146

Liabilities:	Liabilities:									Liabilities:
Foreign currency forward contracts	Foreign currency forward contracts	$	0	$	80	$	0	$	80	Foreign currency forward contracts	$	—	$	56	$	—	$	56
Interest rate-related derivatives		0		3		0		3
Contingent consideration		0		0		4		4

DECIEM stock options										DECIEM stock options	—		—		141		141
Total	Total	$	0	$	83	$	4	$	87	Total	$	—	$	56	$	141	$	197

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

March 31
2021 June 30
2020
(In millions) Carrying
Amount Fair
Value Carrying
Amount Fair
Value
Nonderivatives
Cash and cash equivalents $ 6,399 $ 6,399 $ 5,022 $ 5,022
Current and long-term debt 5,958 6,465 6,136 6,902
Contingent consideration 2 2 4 4
Derivatives
Foreign currency forward contracts – asset (liability), net 7 7 7 7
Interest rate-related derivatives – asset (liability), net (8) (8) 12 12

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

(In millions) Impairment charges Date of Fair Value Measurement
Fair Value(1)
Goodwill
GLAMGLOW $ 54 November 30, 2020 $ 0
BECCA(2)
13 February 28, 2021 0
Total 67 0
Other intangible assets, net (trademark and customer lists)
GLAMGLOW 27 November 30, 2020 36
BECCA(2)
34 February 28, 2021 0
Total 61 36
Long-lived assets 33 March 31, 2021 35
Total $ 161 $ 71

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

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


	December 31 2021				June 30 2021
(In millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Nonderivatives
Cash and cash equivalents	$	4,603	$	4,603	$	4,958	$	4,958
Current and long-term debt	5,531		6,195		5,569		6,262
DECIEM stock options	138		138		141		141

Derivatives
Foreign currency forward contracts – asset (liability), net	21		21		(4)		(4)
Interest rate-related derivatives – asset (liability), net	(1)		(1)		15		15

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

(In millions) Impairment charges Date of Fair Value Measurement
Fair Value(1)
Goodwill $ 786 March 31, 2020 $ 103
Other intangible assets, net (trademark) 324 March 31, 2020 417
Long-lived assets 13 March 31, 2020 11
Total $ 1,123 $ 531

~~(1)~~


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

Goodwill	$	54	November 30, 2020	$	—
Other intangible assets, net (trademark and customer lists)	27		November 30, 2020	36
Total	$	81		$	36

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.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

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

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

~~Contingent consideration~~DECIEM stock options – ~~Contingent consideration obligations consist~~The stock option liability represents the employee stock options issued by DECIEM in replacement and exchange for certain vested and unvested DECIEM employee stock options previously issued by DECIEM, in connection with the Company's acquisition of ~~potential obligations related~~DECIEM. The DECIEM stock options are subject to the ~~Company’s acquisitions in previous years.~~terms and conditions of DECIEM's 2021 Stock Option Plan. The ~~amounts to be paid under these obligations are contingent upon~~initial fair value of the ~~achievement of stipulated financial targets~~DECIEM stock option liability was calculated using the acquisition date fair value multiplied by the ~~business subsequent to acquisition. At March 31, 2021, the fair values~~number of ~~the contingent consideration related to certain acquisition earn-outs were based~~options replaced (consisting of vested and partially vested stock options) on the ~~Company’s estimate of~~day following the ~~applicable financial targets as per the terms of the agreements. Significant changes in the projected future operating results would result in a significantly higher or lower~~acquisition date. The acquisition date fair value ~~measurement. As these~~was calculated using the Monte Carlo Method, which requires certain assumptions. These inputs are ~~unobservable inputs, the Company’s contingent consideration is classified within~~categorized as Level 3 of the valuation hierarchy. The DECIEM stock options are remeasured to fair value at each reporting date through the period when the options are exercised or repurchased (i.e., when they are settled), with an offsetting entry to compensation expense. See Note 2 – Acquisition of Business and Note 10 – Stock Programs for discussion.

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


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

NOTE 87 – REVENUE RECOGNITION

The Company’s revenue recognition accounting policies are described in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, ~~2020.~~2021.

Accounts Receivable

Accounts receivable, net is stated net of the allowance for doubtful accounts and customer deductions totaling ~~$50~~$36 million and ~~$63~~$40 million as of ~~March~~December 31, 2021 and June 30, ~~2020,~~2021, respectively. During the first quarter of fiscal 2021, the Company adopted ASC 326 using the modified retrospective transition approach and, accordingly, the prior comparative period was not restated. Under this new standard, the Company is required to measure credit losses based on the Company’s estimate of expected losses rather than incurred losses, which generally results in earlier recognition of allowances for credit losses. In accordance with ASC 326, the Company evaluated certain criteria, including aging and historical write-offs, current economic condition of specific customers and future economic conditions of countries utilizing a consumption index to determine the appropriate allowance for credit losses. The Company writes-off receivables once it is determined that the receivables are no longer collectible and as allowed by local laws. Payment terms are short-term in nature and are generally less than one year.

Changes in the allowance for credit losses are as follows:


(In millions)	December 31 2021
Balance at June 30, 2021	$	20

Adjustment for expected credit losses	(2)
Write-offs, net & other	(1)
Balance at December 31, 2021	$	17

The remaining balance of the allowance for doubtful accounts of $19 million, as of December 31, 2021, relates to non-credit losses, which are primarily due to customer deductions.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Changes in the allowance for credit losses are as follows:~~


~~(In millions)~~
~~Balance at June 30, 2020~~	$	36
~~ASC 326 cumulative effect adjustment (pre-tax)~~	4
~~Adjustment for expected credit losses~~	~~(5)~~
~~Write-offs, net & other~~	~~(10)~~
~~Balance at March 31, 2021~~	$	25

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

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

Deferred Revenue

Changes in deferred revenue during the period are as follows:


	Three Months Ended December 31				Six Months Ended December 31
(In millions)	2021		2020		2021		2020
Deferred revenue, beginning of period	$	426	$	409	$	371	$	279
Revenue recognized that was included in the deferred revenue balance at the beginning of the period	(78)		(83)		(248)		(173)
Revenue deferred during the period	75		92		298		308
Other	(2)		2		—		6
Deferred revenue, end of period	$	421	$	420	$	421	$	420

Three Months Ended
March 31 Nine Months Ended
March 31
(In millions) 2021 2020 2021 2020
Deferred revenue, beginning of period $ 420 $ 425 $ 279 $ 361
Revenue recognized that was included in the deferred revenue balance at the beginning of the period (25) (26) (198) (268)
Revenue deferred (released) during the period (30) (37) 278 269
Other (4) 0 2 0
Deferred revenue, end of period $ 361 $ 362 $ 361 $ 362

Transaction Price Allocated to the Remaining Performance Obligations

At ~~March~~December 31, 2021, the combined estimated revenue expected to be recognized in the next twelve months related to performance obligations for customer loyalty programs, gift with purchase promotions, purchase with purchase promotions and gift card liabilities that are unsatisfied (or partially unsatisfied) is ~~$310 million, and the~~$377 million. The remaining balance of deferred revenue at December 31, 2021 will be recognized beyond the next twelve months.

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE 98 – PENSION AND POST-RETIREMENT BENEFIT PLANS

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

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


		Pension Plans								Other than Pension Plans					Pension Plans								Other than Pension Plans
		U.S.				International				Post-retirement					U.S.				International				Post-retirement
(In millions)	(In millions)	2021		2020		2021		2020		2021		2020		(In millions)	2021		2020		2021		2020		2021		2020
Service cost	Service cost	$	12	$	9	$	9	$	9	$	2	$	0	Service cost	$	11	$	11	$	8	$	9	$	—	$	—
Interest cost	Interest cost	8		9		2		3		1		2		Interest cost	7		7		2		3		2		2
Expected return on plan assets	Expected return on plan assets	(14)		(14)		(4)		(4)		(1)		0		Expected return on plan assets	(13)		(13)		(3)		(3)		(1)		—
Amortization of:	Amortization of:													Amortization of:
Actuarial loss	Actuarial loss	5		5		1		1		0		0		Actuarial loss	3		5		1		1		1		—

Settlements		0		0		1		0		0		0
Prior service cost														Prior service cost	—		—		(1)		—		—		—
Special termination benefits	Special termination benefits	0		0		1		1		0		0		Special termination benefits	—		—		1		7		—		—
Net periodic benefit cost	Net periodic benefit cost	$	11	$	9	$	10	$	10	$	2	$	2	Net periodic benefit cost	$	8	$	10	$	8	$	17	$	2	$	2

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

Pension Plans Other than
Pension Plans
U.S. International Post-retirement
(In millions) 2021 2020 2021 2020 2021 2020
Service cost $ 34 $ 29 $ 27 $ 27 $ 2 $ 2
Interest cost 23 26 7 8 4 5
Expected return on plan assets (40) (40) (10) (11) (1) (1)
Amortization of:
Actuarial loss 15 12 3 4 0 0
Settlements 0 0 1 0 0 0
Special termination benefits 0 0 10 1 0 0
Net periodic benefit cost $ 32 $ 27 $ 38 $ 29 $ 5 $ 6

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


	Pension Plans								Other than Pension Plans
	U.S.				International				Post-retirement
(In millions)	2021		2020		2021		2020		2021		2020
Service cost	$	23	$	22	$	16	$	18	$	1	$	—
Interest cost	15		15		5		5		3		3
Expected return on plan assets	(27)		(26)		(7)		(6)		(1)		—
Amortization of:
Actuarial loss	7		10		1		2		1		—
Prior service cost	—		—		(1)		—		—		—
Special termination benefits	—		—		3		9		—		—
Net periodic benefit cost	$	18	$	21	$	17	$	28	$	4	$	3

During the six months ended December 31, 2021, the Company made contributions to its international pension plans totaling $11 million.

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


(In millions)	(In millions)	March 31 2021		June 30 2020		(In millions)	December 31 2021		June 30 2021
Other assets	Other assets	$	137	$	127	Other assets	$	150	$	162
Other accrued liabilities	Other accrued liabilities	(27)		(27)		Other accrued liabilities	(28)		(28)
Other noncurrent liabilities	Other noncurrent liabilities	(470)		(440)		Other noncurrent liabilities	(427)		(432)
Funded status	Funded status	(360)		(340)		Funded status	(305)		(298)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	304		324		Accumulated other comprehensive loss	233		242
Net amount recognized	Net amount recognized	$	(56)	$	(16)	Net amount recognized	$	(72)	$	(56)

NOTE 109 – ~~COMMITMENTS AND~~ CONTINGENCIES

~~Commitments~~

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

Legal Proceedings

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

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1110 – STOCK PROGRAMS

Additional information relating to the Company's stock programs and the DECIEM stock options 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, 2021.

The Company's 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, including long-term price-vested units ~~(“PVUs”)~~ and share units. Compensation expense attributable to net stock-based compensation was ~~$86~~$113 million and ~~$71~~$105 million for the three months ended ~~March~~December 31, 2021 and 2020, respectively, and was ~~$255~~$192 million and ~~$210~~$169 million for the ~~nine~~six months ended ~~March~~December 31, 2021 and 2020, respectively.

Stock Options

During the ~~nine~~six months ended ~~March~~December 31, 2021, the Company granted stock options in respect of approximately ~~1.5~~1.1 million shares of Class A Common Stock with an exercise price per share of ~~$218.40~~$344.09 and a weighted-average grant date fair value per share of ~~$54.61.~~$85.56. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model. The aggregate intrinsic value of stock options exercised during the ~~nine~~six months ended ~~March~~December 31, 2021 was ~~$317~~$178 million.

Restricted Stock Units

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Restricted Stock Units~~

The Company granted RSUs in respect of approximately ~~1.0~~0.7 million shares of Class A Common Stock during the ~~nine~~six months ended ~~March~~December 31, 2021 with a weighted-average grant date fair value per share of ~~$219.01~~$343.71 that, at the time of grant, are scheduled to vest ~~as follows:~~at 0.3 million, ~~in fiscal 2022, 0.4~~0.2 million, and 0.2 million shares per year, in fiscal 2023, fiscal 2024 and ~~0.3 million in~~ fiscal ~~2024.~~2025, respectively. Vesting of RSUs is generally subject to the continued employment or the retirement of the grantees. The RSUs are accompanied by dividend equivalent rights, payable upon settlement of the RSUs either in cash or shares (based on the terms of the particular award) and, as such, were generally valued at the closing market price of the Company’s Class A Common Stock on the date of grant.

Performance Share Units

During the ~~nine~~six months ended ~~March~~December 31, 2021, the Company granted PSUs with a target payout of approximately 0.1 million shares of Class A Common Stock with a ~~weighted-average~~ grant date fair value per share of ~~$218.11,~~$344.06, which will be settled in stock subject to the achievement of the Company’s net sales and diluted net earnings per common share for the three fiscal years ending June 30, ~~2023,~~2024, all subject to continued employment or the retirement of the grantees. For PSUs granted, no settlement will occur for results below the applicable minimum threshold. PSUs are accompanied by dividend equivalent rights that will be payable in cash upon settlement of the PSUs and, as such, were valued at the closing market value of the Company’s Class A Common Stock on the date of grant.

In September ~~2020,~~2021, approximately 0.2 million shares of the Company’s Class A Common Stock were issued, and related accrued dividends were paid, relative to the target goals set at the time of the issuance, in settlement of ~~0.5~~0.2 million PSUs ~~which vested as of~~with a performance period ended June 30, ~~2020.~~2021.

~~Long-term Performance Share Units~~DECIEM Stock Options

In March 2021, the Company granted to the Company’s Chief Executive Officer (“CEO”) PSUs with an aggregate payout of 68,578 shares of the Company's Class A Common Stock, to incentivize him to continue serving through at least June 30, 2024. Generally, no portion of this award will vest unless the Company has achieved positive Cumulative Operating Income,

The DECIEM stock options are liability-classified awards as defined in the performance share unit award agreement, during the relevant performance period, and delivery of shares of the Company’s Class A Common Stock, if any, will be made on September 2, 2025. The PSUsthey are accompanied by dividend equivalent rights that will be payable in cash at the same time as any delivery of shares of the Company's Class A Common Stock. The aggregate grant date fair value of the PSUs of approximately $20 million was estimated using the closing stock price of the Company's Class A Common Stock on the date of grant. As of March 31, 2021, the total unrecognized compensation cost related to unvested PSU awards was $20 million and the related period over which it is expected to be ~~recognized~~settled in cash and are remeasured to fair value at each reporting date through date of settlement. Total stock-based compensation expense is ~~approximately 3.3 years, subject~~attributable to the ~~performance condition being met.~~exchange or replacement of and the remaining requisite service period of stock options. The total stock option expense for the three and six months ended December 31, 2021 was not material. There were no stock options exercised during the six months ended December 31, 2021.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Long-term Price-Vested Units~~

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

Number
of
Shares
per
Tranche Stock Price Goal
(per Share) Service Period Performance Period for Stock Price Goal Performance Period for Cumulative Operating Income Goal Share Delivery Date
First tranche 27,457 $ 323.03 March 11, 2021 - June 30, 2024 March 11, 2021 - June 30, 2024 July 1, 2021 - June 30, 2025 September 2, 2025
Second tranche 28,598 $ 333.21 March 11, 2021 - June 30, 2024 March 11, 2021 - June 30, 2024 July 1, 2021 - June 30, 2025 September 2, 2025
Third tranche 29,872 $ 343.61 March 11, 2021 - June 30, 2024 March 11, 2021 - June 30, 2024 July 1, 2021 - June 30, 2025 September 2, 2025
Total shares 85,927

Generally, delivery of shares of the Company’s Class A Common Stock, if any, will be made on September 2, 2025. The PVUs are accompanied by dividend equivalent rights that will be payable in cash at the same time as any delivery of shares of the Company's Class A Common Stock. The aggregate grant dateinitial fair value of the ~~PVUs~~DECIEM stock option liability was calculated using the acquisition date fair value multiplied by the number of ~~approximately $20~~options replaced (consisting of vested and partially vested stock options) on the day following the acquisition date. As discussed in Note 2 – Acquisition of Business, DECIEM stock options, with total fair value of $295 million, ~~was estimated~~were reported as part of the total consideration transferred. The DECIEM stock options are reported as a stock option liability of $138 million and $141 million in Other noncurrent liabilities in the accompanying consolidated balance sheets at December 31, 2021 and June 30, 2021, respectively. The fair value of the stock options were calculated using the following key assumptions into the Monte Carlo ~~Method, which requires certain assumptions. The assumptions used for this award were as follows:~~Method:


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

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


	December 31, 2021	June 30, 2021	May 18, 2021
Risk-free rate	1.00%	0.50%	0.50%
Term to mid of last twelve-month period	1.92 years	2.42 years	2.54 years
Operating leverage adjustment	0.45	0.45	0.45
Net sales discount rate	3.90%	3.40%	3.30%
EBITDA discount rate	7.40%	6.90%	6.80%
EBITDA volatility	40.40%	37.70%	38.30%
Net sales volatility	18.20%	17.00%	17.20%

NOTE 1211 – NET EARNINGS ~~(LOSS)~~ ATTRIBUTABLE TO THE ESTÉE LAUDER COMPANIES INC. PER COMMON SHARE

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

A reconciliation between the numerator and denominator of the basic and diluted EPS computations is as follows:


	Three Months Ended December 31			Six Months Ended December 31
(In millions, except per share data)		2021		2020		2021		2020
Numerator:
Net earnings attributable to The Estée Lauder Companies Inc.		$	1,088	$	873	$	1,780	$	1,396

Denominator:
Weighted-average common shares outstanding – Basic		360.6		363.0		361.4		363.4
Effect of dilutive stock options		4.1		3.8		4.2		3.8
Effect of PSUs		0.2		0.2		0.2		0.2
Effect of RSUs		1.1		1.0		1.2		1.1
Weighted-average common shares outstanding – Diluted		366.0		368.0		367.0		368.5

Net earnings attributable to The Estée Lauder Companies Inc. per common share:
Basic		$	3.02	$	2.40	$	4.93	$	3.84
Diluted		$	2.97	$	2.37	$	4.85	$	3.79

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~A reconciliation between the numerator and denominator of the basic and diluted EPS computations is as follows:~~

Three Months Ended
March 31 Nine Months Ended
March 31
(In millions, except per share data) 2021 2020 2021 2020
Numerator:
Net earnings (loss) attributable to The Estée Lauder Companies Inc. $ 456 $ (6) $ 1,852 $ 1,146
Denominator:
Weighted-average common shares outstanding – Basic 363.6 360.2 362.9 360.6
Effect of dilutive stock options(1)
4.1 0 3.9 4.6
Effect of PSUs(1)
0.2 0 0.2 0.3
Effect of RSUs(1)
1.1 0 1.1 1.6
Weighted-average common shares outstanding – Diluted 369.0 360.2 368.1 367.1
Net earnings (loss) attributable to The Estée Lauder Companies Inc. per common share:
Basic $ 1.25 $ (.02) $ 5.10 $ 3.18
Diluted $ 1.24 $ (.02) $ 5.03 $ 3.12

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

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

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

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


	Three Months Ended December 31		Six Months Ended December 31
(In millions)	2021	2020	2021	2020
Stock options	1.1	1.5	0.7	1.4
RSUs and PSUs	—	—	0.1	0.1

As of ~~March~~December 31, 2021 and 2020, ~~0.9~~0.7 million and ~~1.2~~0.8 million shares, respectively, of Class A Common Stock underlying PSUs have been excluded from the calculation of diluted EPS because the number of shares ultimately issued is contingent on the achievement of certain performance targets of the Company, as discussed in Note 1110 – Stock Programs.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1312 – EQUITY AND REDEEMABLE NONCONTROLLING INTEREST

Total Stockholders’ Equity – The Estée Lauder Companies Inc.


	Three Months Ended December 31			Six Months Ended December 31
(In millions)		2021		2020		2021		2020
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		5,450		4,913		5,335		4,790
Common stock dividends		—		—		1		1
Stock-based compensation		155		155		269		277
Paid-in capital, end of the period		5,605		5,068		5,605		5,068

Retained earnings, beginning of the period		12,864		10,480		12,244		10,134
Common stock dividends		(217)		(194)		(410)		(368)
Net earnings attributable to The Estée Lauder Companies Inc.		1,088		873		1,780		1,396
Cumulative effect of adoption of new accounting standards		—		—		121		(3)
Retained earnings, end of the period		13,735		11,159		13,735		11,159

Accumulated other comprehensive loss, beginning of the period		(625)		(594)		(470)		(665)
Other comprehensive income (loss) attributable to The Estée Lauder Companies Inc.		(21)		211		(176)		282
Accumulated other comprehensive loss, end of the period		(646)		(383)		(646)		(383)

Treasury stock, beginning of the period		(11,614)		(10,353)		(11,058)		(10,330)
Acquisition of treasury stock		(763)		—		(1,282)		—
Stock-based compensation		(105)		(76)		(142)		(99)
Treasury stock, end of the period		(12,482)		(10,429)		(12,482)		(10,429)

Total stockholders’ equity – The Estée Lauder Companies Inc.		6,218		5,421		6,218		5,421

Noncontrolling interests, beginning of the period		34		29		34		27
Net earnings attributable to noncontrolling interests		4		4		5		6

Translation adjustments and other, net		(4)		2		(5)		2
Noncontrolling interests, end of the period		34		35		34		35

Total equity		$	6,252	$	5,456	$	6,252	$	5,456

Redeemable noncontrolling interest, beginning of the period		$	842	$	—	$	857	$	—

Net loss attributable to redeemable noncontrolling interest		(2)		—		—		—
Translation adjustments		—		—		(17)		—



Redeemable noncontrolling interest, end of the period		$	840	$	—	$	840	$	—

Cash dividends declared per common share		$	.60	$	.53	$	1.13	$	1.01

Three Months Ended
March 31 Nine Months Ended
March 31
(In millions) 2021 2020 2021 2020
Common stock, beginning of the period $ 6 $ 6 $ 6 $ 6
Stock-based compensation 0 0 0 0
Common stock, end of the period 6 6 6 6
Paid-in capital, beginning of the period 5,068 4,615 4,790 4,403
Common stock dividends 1 1 2 3
Stock-based compensation 162 144 439 354
Paid-in capital, end of the period 5,231 4,760 5,231 4,760
Retained earnings, beginning of the period 11,159 10,775 10,134 9,984
Common stock dividends (195) (174) (563) (506)
Net earnings (loss) attributable to The Estée Lauder Companies Inc. 456 (6) 1,852 1,146
Cumulative effect of adoption of new accounting standards 0 0 (3) (29)
Retained earnings, end of the period 11,420 10,595 11,420 10,595
Accumulated other comprehensive loss, beginning of the period (383) (569) (665) (563)
Other comprehensive income (loss) (104) (143) 178 (149)
Accumulated other comprehensive loss, end of the period (487) (712) (487) (712)
Treasury stock, beginning of the period (10,429) (10,253) (10,330) (9,444)
Acquisition of treasury stock (212) (65) (212) (768)
Stock-based compensation (1) (2) (100) (108)
Treasury stock, end of the period (10,642) (10,320) (10,642) (10,320)
Total stockholders’ equity – The Estée Lauder Companies Inc. 5,528 4,329 5,528 4,329
Noncontrolling interests, beginning of the period 35 27 27 25
Net earnings attributable to noncontrolling interests 2 2 8 9
Distribution to noncontrolling interest holders (6) 0 (6) (4)
Other comprehensive (income) loss (1) 0 1 (1)
Noncontrolling interests, end of the period 30 29 30 29
Total equity $ 5,558 $ 4,358 $ 5,558 $ 4,358
Cash dividends declared per common share $ .53 $ .48 $ 1.54 $ 1.39

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Date Declared

Record Date

Payable Date

Amount per Share

August ~~19, 2020~~18, 2021

August 31, ~~2020~~2021

September 15, ~~2020~~

~~.48~~

~~October 30, 2020~~

~~November 30, 2020~~

~~December 15, 2020~~2021

.53

~~February 4,~~November 1, 2021

~~February 26,~~November 30, 2021

~~March~~December 15, 2021

~~.53~~.60

On ~~April 30, 2021,~~February 2, 2022, a dividend was declared in the amount of ~~$.53~~$.60 per share on the Company’s Class A and Class B Common Stock. The dividend is payable in cash on ~~June~~March 15, ~~2021~~2022 to stockholders of record at the close of business on ~~May~~February 28, ~~2021.~~2022.

Common Stock

During the ~~nine~~six months ended ~~March~~December 31, 2021, the Company purchased approximately ~~1.2~~4.3 million shares of its Class A Common Stock for ~~$316~~$1,428 million. ~~In March 2021, the Company resumed its repurchase of shares of the Company's Class A Common Stock.~~

During the ~~nine~~six months ended ~~March~~December 31, 2021, ~~approximately 4.6~~2.0 million shares of the Company’s Class B Common Stock were converted into the same amount of shares of the Company’s Class A Common Stock.

Accumulated Other Comprehensive Income

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


(In millions)	(In millions)	Net Cash Flow Hedge Gain (Loss)		Retirement Plan and Other Retiree Benefit Adjustments			Translation Adjustments			Total		(In millions)	Net Cash Flow Hedge Gain (Loss)		Amounts Included in Net Periodic Benefit Cost			Translation Adjustments			Total
Balance at June 30, 2020		$	14	$	(244)		$	(435)		$	(665)
Balance at June 30, 2021												Balance at June 30, 2021	$	(2)	$	(179)		$	(289)		$	(470)
OCI before reclassifications	OCI before reclassifications	(22)		1		(1)	175		(2)	154		OCI before reclassifications	5		1		(1)	(195)		(2)	(189)
Amounts reclassified to Net earnings	Amounts reclassified to Net earnings	10		14			0			24		Amounts reclassified to Net earnings	7		6			—			13
Net current-period OCI	Net current-period OCI	(12)		15			175			178		Net current-period OCI	12		7			(195)			(176)
Balance at March 31, 2021		$	2	$	(229)		$	(260)		$	(487)
Balance at December 31, 2021												Balance at December 31, 2021	$	10	$	(172)		$	(484)		$	(646)

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

(2)See Note 65 – Derivative Financial Instruments for gains (losses) relating to net investment hedges.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


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

Gain (Loss) on Cash Flow Hedges	Gain (Loss) on Cash Flow Hedges										Gain (Loss) on Cash Flow Hedges
Foreign currency forward contracts	Foreign currency forward contracts	$	(7)	$	10	$	(11)	$	29	Net sales	Foreign currency forward contracts	$	(2)	$	(5)	$	(8)	$	(4)		Net sales
Interest rate-related derivatives	Interest rate-related derivatives	(1)		0		(2)		0		Interest expense	Interest rate-related derivatives	(1)		—		(1)		(1)			Interest expense
		(8)		10		(13)		29				(3)		(5)		(9)		(5)
Benefit (provision) for deferred taxes		2		(2)		3		(7)		Provision for income taxes
Benefit for deferred taxes											Benefit for deferred taxes	—		1		2		1			Provision for income taxes
		$	(6)	$	8	(10)		$	22	Net earnings (loss)		(3)		(4)		(7)		(4)			Net earnings

Retirement Plan and Other Retiree Benefit Adjustments	Retirement Plan and Other Retiree Benefit Adjustments										Retirement Plan and Other Retiree Benefit Adjustments
Amortization of prior service cost											Amortization of prior service cost	1		—		1		—			Other components of net periodic benefit cost (1)
Amortization of actuarial loss	Amortization of actuarial loss	$	(6)	$	(6)	$	(18)	$	(16)	Other components of net periodic benefit cost (1)	Amortization of actuarial loss	(5)		(6)		(9)		(12)			Other components of net periodic benefit cost (1)
Settlements		(1)		0		(1)		0		Other components of net periodic benefit cost (1)
		(7)		(6)		(19)		(16)		Earnings before income taxes (1)		(4)		(6)		(8)		(12)
Benefit for deferred taxes	Benefit for deferred taxes	3		1		5		3		Provision for income taxes	Benefit for deferred taxes	1		1		2		2			Provision for income taxes
		$	(4)	$	(5)	$	(14)	$	(13)	Net earnings (loss)		(3)		(5)		(6)		(10)			Net earnings

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

		$	0	$	0	0		$	(2)	Net earnings (loss)
Total reclassification adjustments, net	Total reclassification adjustments, net	$	(10)	$	3	$	(24)	$	7	Net earnings (loss)	Total reclassification adjustments, net	$	(6)	$	(9)	$	(13)	$	(14)		Net earnings

(1)See Note 98 – Pension and Post-Retirement Benefit Plans for additional information.

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~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE 1413 – STATEMENT OF CASH FLOWS

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


(In millions)	(In millions)	2021		2020		(In millions)	2021		2020
Cash:	Cash:					Cash:
Cash paid during the period for interest	Cash paid during the period for interest	$	108	$	94	Cash paid during the period for interest	$	80	$	84
Cash paid during the period for income taxes	Cash paid during the period for income taxes	$	435	$	472	Cash paid during the period for income taxes	$	317	$	320

Non-cash investing and financing activities:	Non-cash investing and financing activities:					Non-cash investing and financing activities:

Property, plant and equipment accrued but unpaid	Property, plant and equipment accrued but unpaid	$	68	$	47	Property, plant and equipment accrued but unpaid	$	108	$	63

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

Financing lease modifications						Financing lease modifications	$	(14)	$	—
Right-of-use assets obtained in exchange for new/modified operating lease liabilities						Right-of-use assets obtained in exchange for new/modified operating lease liabilities	$	139	$	148

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1514 – SEGMENT DATA AND RELATED INFORMATION

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

The accounting policies for the Company’s reportable segments are substantially the same as those for the consolidated financial statements, as described in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, ~~2020.~~2021. The assets and liabilities of the Company are managed centrally and are reported internally in the same manner as the consolidated financial statements; thus, no additional information is produced for the Chief Executive or included herein. There has been no significant variance in the total or long-lived asset values associated with the Company’s segment data since June 30, ~~2020.~~2021.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


		Three Months Ended March 31				Nine Months Ended March 31					Three Months Ended December 31			Six Months Ended December 31
(In millions)	(In millions)	2021		2020		2021		2020		(In millions)		2021		2020		2021		2020
PRODUCT CATEGORY DATA	PRODUCT CATEGORY DATA									PRODUCT CATEGORY DATA
Net sales:	Net sales:									Net sales:
Skin Care	Skin Care	$	2,259	$	1,723	$	7,113	$	5,770	Skin Care		$	3,159	$	2,819	$	5,608	$	4,854
Makeup	Makeup	1,018		1,146		3,243		4,249		Makeup		1,386		1,247		2,560		2,225
Fragrance	Fragrance	454		349		1,478		1,392		Fragrance		799		618		1,408		1,024
Hair Care	Hair Care	128		119		418		417		Hair Care		180		154		328		290
Other	Other	15		8		37		36		Other		16		15		29		22
		3,874		3,345		12,289		11,864				5,540		4,853		9,933		8,415
Returns associated with restructuring and other activities	Returns associated with restructuring and other activities	(10)		0		(10)		0		Returns associated with restructuring and other activities		(1)		—		(2)		—
Net sales	Net sales	$	3,864	$	3,345	$	12,279	$	11,864	Net sales		$	5,539	$	4,853	$	9,931	$	8,415

Operating income (loss) before charges associated with restructuring and other activities:	Operating income (loss) before charges associated with restructuring and other activities:									Operating income (loss) before charges associated with restructuring and other activities:
Skin Care	Skin Care	$	804	$	418	$	2,453	$	1,822	Skin Care		$	1,082	$	928	$	1,799	$	1,649
Makeup	Makeup	(72)		(283)		(115)		(790)		Makeup		130		28		221		(43)
Fragrance	Fragrance	47		0		248		163		Fragrance		210		141		341		201
Hair Care	Hair Care	(17)		(2)		(10)		10		Hair Care		8		4		10		7
Other	Other	(1)		1		(1)		7		Other		3		(1)		3		—
		761		134		2,575		1,212				1,433		1,100		2,374		1,814
Reconciliation:	Reconciliation:									Reconciliation:
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	(145)		(25)		(191)		(63)		Charges associated with restructuring and other activities		(15)		(37)		(21)		(46)
Interest expense	Interest expense	(43)		(42)		(131)		(112)		Interest expense		(42)		(43)		(84)		(88)
Interest income and investment income, net	Interest income and investment income, net	9		14		40		41		Interest income and investment income, net		10		17		14		31
Other components of net periodic benefit cost	Other components of net periodic benefit cost	(2)		(1)		(12)		(3)		Other components of net periodic benefit cost		2		(7)		1		(10)
Other income	Other income	0		0		0		576		Other income		—		—		1		—
Earnings before income taxes	Earnings before income taxes	$	580	$	80	$	2,281	$	1,651	Earnings before income taxes		$	1,388	$	1,030	$	2,285	$	1,701

GEOGRAPHIC DATA(1)	GEOGRAPHIC DATA(1)									GEOGRAPHIC DATA(1)
Net sales:	Net sales:									Net sales:
The Americas	The Americas	$	916	$	892	$	2,837	$	3,278	The Americas		$	1,300	$	1,048	$	2,494	$	1,921
Europe, the Middle East & Africa	Europe, the Middle East & Africa	1,706		1,525		5,276		5,281		Europe, the Middle East & Africa		2,338		2,030		4,211		3,570
Asia/Pacific	Asia/Pacific	1,252		928		4,176		3,305		Asia/Pacific		1,902		1,775		3,228		2,924
		3,874		3,345		12,289		11,864				5,540		4,853		9,933		8,415
Returns associated with restructuring and other activities	Returns associated with restructuring and other activities	(10)		0		(10)		0		Returns associated with restructuring and other activities		(1)		—		(2)		—
Net sales	Net sales	$	3,864	$	3,345	$	12,279	$	11,864	Net sales		$	5,539	$	4,853	$	9,931	$	8,415

Operating income (loss):
Operating income:										Operating income:
The Americas	The Americas	$	155	$	(217)	$	256	$	(571)	The Americas		$	382	$	36	$	636	$	101
Europe, the Middle East & Africa	Europe, the Middle East & Africa	361		202		1,429		1,084		Europe, the Middle East & Africa		620		657		1,085		1,068
Asia/Pacific	Asia/Pacific	245		149		890		699		Asia/Pacific		431		407		653		645
		761		134		2,575		1,212				1,433		1,100		2,374		1,814
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	(145)		(25)		(191)		(63)		Charges associated with restructuring and other activities		(15)		(37)		(21)		(46)
Operating income	Operating income	$	616	$	109	$	2,384	$	1,149	Operating income		$	1,418	$	1,063	$	2,353	$	1,768

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

Operating income attributable to the travel retail sales included in Europe, the Middle East & Africa is included in that region and in The Americas.

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~NOTE 16 – SUBSEQUENT EVENTS~~

~~Debt~~

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

~~Derivative Financial Instruments~~

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

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

RESULTS OF OPERATIONS

We manufacture, market and sell beauty products including those in the skin care, makeup, fragrance and hair care categories, which are distributed in approximately 150 countries and territories. The following table is a comparative summary of operating results for the three and ~~nine~~six months ended ~~March~~December 31, 2021 and 2020, and reflects the basis of presentation described in Notes to Consolidated Financial Statements, Note 1 – Summary of Significant Accounting Policies for all periods presented. Products and services that do not meet our definition of skin care, makeup, fragrance and hair care have been included in the “other” category.


		Three Months Ended March 31				Nine Months Ended March 31					Three Months Ended December 31				Six Months Ended December 31
(In millions)	(In millions)	2021		2020		2021		2020		(In millions)	2021		2020		2021		2020
NET SALES	NET SALES									NET SALES
By Product Category:	By Product Category:									By Product Category:
Skin Care	Skin Care	$	2,259	$	1,723	$	7,113	$	5,770	Skin Care	$	3,159	$	2,819	$	5,608	$	4,854
Makeup	Makeup	1,018		1,146		3,243		4,249		Makeup	1,386		1,247		2,560		2,225
Fragrance	Fragrance	454		349		1,478		1,392		Fragrance	799		618		1,408		1,024
Hair Care	Hair Care	128		119		418		417		Hair Care	180		154		328		290
Other	Other	15		8		37		36		Other	16		15		29		22
		3,874		3,345		12,289		11,864			5,540		4,853		9,933		8,415
Returns associated with restructuring and other activities	Returns associated with restructuring and other activities	(10)		—		(10)		—		Returns associated with restructuring and other activities	(1)		—		(2)		—
Net sales	Net sales	$	3,864	$	3,345	$	12,279	$	11,864	Net sales	$	5,539	$	4,853	$	9,931	$	8,415

By Region(1):	By Region(1):									By Region(1):
The Americas	The Americas	$	916	$	892	$	2,837	$	3,278	The Americas	$	1,300	$	1,048	$	2,494	$	1,921
Europe, the Middle East & Africa	Europe, the Middle East & Africa	1,706		1,525		5,276		5,281		Europe, the Middle East & Africa	2,338		2,030		4,211		3,570
Asia/Pacific	Asia/Pacific	1,252		928		4,176		3,305		Asia/Pacific	1,902		1,775		3,228		2,924
		3,874		3,345		12,289		11,864			5,540		4,853		9,933		8,415
Returns associated with restructuring and other activities	Returns associated with restructuring and other activities	(10)		—		(10)		—		Returns associated with restructuring and other activities	(1)		—		(2)		—
Net sales	Net sales	$	3,864	$	3,345	$	12,279	$	11,864	Net sales	$	5,539	$	4,853	$	9,931	$	8,415

OPERATING INCOME (LOSS)	OPERATING INCOME (LOSS)									OPERATING INCOME (LOSS)
By Product Category:	By Product Category:									By Product Category:
Skin Care	Skin Care	$	804	$	418	$	2,453	$	1,822	Skin Care	$	1,082	$	928	$	1,799	$	1,649
Makeup	Makeup	(72)		(283)		(115)		(790)		Makeup	130		28		221		(43)
Fragrance	Fragrance	47		—		248		163		Fragrance	210		141		341		201
Hair Care	Hair Care	(17)		(2)		(10)		10		Hair Care	8		4		10		7
Other	Other	(1)		1		(1)		7		Other	3		(1)		3		—
		761		134		2,575		1,212			1,433		1,100		2,374		1,814
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	(145)		(25)		(191)		(63)		Charges associated with restructuring and other activities	(15)		(37)		(21)		(46)
Operating income	Operating income	$	616	$	109	$	2,384	$	1,149	Operating income	$	1,418	$	1,063	$	2,353	$	1,768

By Region(1):	By Region(1):									By Region(1):
The Americas	The Americas	$	155	$	(217)	$	256	$	(571)	The Americas	$	382	$	36	$	636	$	101
Europe, the Middle East & Africa	Europe, the Middle East & Africa	361		202		1,429		1,084		Europe, the Middle East & Africa	620		657		1,085		1,068
Asia/Pacific	Asia/Pacific	245		149		890		699		Asia/Pacific	431		407		653		645
		761		134		2,575		1,212			1,433		1,100		2,374		1,814
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	(145)		(25)		(191)		(63)		Charges associated with restructuring and other activities	(15)		(37)		(21)		(46)
Operating income	Operating income	$	616	$	109	$	2,384	$	1,149	Operating income	$	1,418	$	1,063	$	2,353	$	1,768

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

Operating income attributable to the travel retail sales included in Europe, the Middle East & Africa is included in that region and in The Americas.

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


		Three Months Ended March 31				Nine Months Ended March 31					Three Months Ended December 31				Six Months Ended December 31
		2021		2020		2021		2020			2021		2020		2021		2020
Net sales	Net sales	100.0	%	100.0	%	100.0	%	100.0	%	Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	Cost of sales	24.3		25.0		23.2		23.5		Cost of sales	22.1		22.3		23.0		22.7
Gross profit	Gross profit	75.7		75.0		76.8		76.5		Gross profit	77.9		77.7		77.0		77.3

Operating expenses:	Operating expenses:									Operating expenses:
Selling, general and administrative	Selling, general and administrative	55.5		60.7		55.1		56.9		Selling, general and administrative	52.0		53.4		53.1		54.9
Restructuring and other charges	Restructuring and other charges	3.4		0.7		1.4		0.5		Restructuring and other charges	0.3		0.7		0.2		0.5
Goodwill impairment	Goodwill impairment	—		8.2		0.4		6.6		Goodwill impairment	—		1.1		—		0.6
Impairment of other intangible and long-lived assets	Impairment of other intangible and long-lived assets	0.9		2.1		0.5		2.8		Impairment of other intangible and long-lived assets	—		0.6		—		0.3
Total operating expenses	Total operating expenses	59.8		71.7		57.4		66.8		Total operating expenses	52.3		55.8		53.3		56.3

Operating income	Operating income	15.9		3.3		19.4		9.7		Operating income	25.6		21.9		23.7		21.0
Interest expense	Interest expense	1.1		1.3		1.1		1.0		Interest expense	0.8		0.9		0.8		1.0
Interest income and investment income, net	Interest income and investment income, net	0.2		0.4		0.3		0.3		Interest income and investment income, net	0.2		0.4		0.1		0.4
Other components of net periodic benefit cost	Other components of net periodic benefit cost	0.1		—		0.1		—		Other components of net periodic benefit cost	—		0.1		—		0.1
Other income	Other income	—		—		—		4.9		Other income	—		—		—		—

Earnings before income taxes	Earnings before income taxes	15.0		2.4		18.6		13.9		Earnings before income taxes	25.1		21.2		23.0		20.2
Provision for income taxes	Provision for income taxes	(3.2)		(2.5)		(3.4)		(4.2)		Provision for income taxes	(5.4)		(3.2)		(5.0)		(3.6)

Net earnings (loss)		11.9		(0.1)		15.1		9.7
Net earnings										Net earnings	19.7		18.1		18.0		16.7
Net earnings attributable to noncontrolling interests	Net earnings attributable to noncontrolling interests	(0.1)		(0.1)		(0.1)		—		Net earnings attributable to noncontrolling interests	(0.1)		(0.1)		(0.1)		(0.1)
Net loss attributable to redeemable noncontrolling interest										Net loss attributable to redeemable noncontrolling interest	—		—		—		—

Net earnings (loss) attributable to The Estée Lauder Companies Inc.		11.8	%	(0.2)	%	15.1	%	9.7	%
Net earnings attributable to The Estée Lauder Companies Inc.										Net earnings attributable to The Estée Lauder Companies Inc.	19.6	%	18.0	%	17.9	%	16.6	%

Not adjusted for differences caused by rounding

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

Non-GAAP Financial Measures

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

Overview

COVID-19 Business Update

The COVID-19 pandemic ~~continues~~continued to disrupt our operating environment, ~~temporarily~~ impacting retail traffic and ~~certain~~ consumer ~~preferences. During~~preferences during the three months ended ~~March~~December 31, ~~2021,~~2021. The spread of the Delta and Omicron variants and resurgence of COVID-19 cases in ~~several countries, particularly in Western Europe and Latin America,~~most parts of the world led to periodic point-of-sale staffing shortages as well as government restrictions to prevent further spread of the virus. These restrictions included ~~temporary business closures,~~the intermittent closure of businesses deemed non-essential, curtailment of travel, social distancing, vaccination requirements for brick-and-mortar businesses, and quarantines.

Retail ~~impact~~Impact

While most brick-and-mortar retail stores globally that sell our products, whether operated by us or our customers, were open during much of the ~~third~~second quarter of fiscal ~~2021, most notably in China and the United States,~~2022, there were intermittent closures throughout the ~~rest~~world due to safety protocols or restrictions. In much of Asia/Pacific, restrictions eased during the ~~world. In~~second quarter of fiscal 2022, although mainland China had regional lockdowns and much of Western Europe, particularly in the United Kingdom, ~~Japan, Canada, Italy, Spain, France, Mexico~~experienced increased restrictions as the quarter progressed. In North America in late calendar year 2021, restrictions and ~~Brazil,~~store closures varied by location. COVID-19 cases generally eased in ~~particular, many retail stores were temporarily closed for some period during the third quarter of fiscal 2021 due to the resurgence of COVID-19 cases.~~Latin America. Globally, in areas where stores were open, consumer traffic ~~was significantly reduced as compared~~has not recovered to the pre-COVID-19 pandemic period. In addition, while domestic travel in China, especially in Hainan, and some other travel corridors in Asia/Pacific, most notably Korea, were open, international travel haspre-pandemic levels.

International passenger traffic remained largely curtailed ~~globally~~globally. However, passenger traffic in Europe, the Middle East & Africa and The Americas improved, but remained significantly below pre-pandemic levels. The improvement was due to ~~both~~the partial lifting of government restrictions, most notably in the United Kingdom and ~~consumer health concerns that continue to adversely impact consumer~~the United States. In Asia/Pacific, increased travel restrictions remained in place during much of the quarter, and traffic in ~~most~~Hainan was negatively impacted by fewer visitors due to intermittent domestic travel ~~retail locations.~~restrictions.

~~Somewhat offsetting~~During the ~~significant declines in brick-and-mortar channels,~~second quarter of fiscal 2022, net sales ~~growth~~ of our products online (through our own websites, third-party platforms and websites of our retailers) ~~has remained~~continued to grow in The Americas and Asia/Pacific, benefiting from strong holiday performance and key shopping moments. The launch of a third-party online platform in ~~every region during~~mainland China also contributed to online net sales growth in Asia/Pacific. Excluding incremental online net sales attributable to the ~~third~~increase in our ownership of DECIEM in the fiscal 2021 fourth quarter, online net sales declined in Europe, the Middle East & Africa reflecting early stages of ~~fiscal 2021.~~a brick-and-mortar recovery.

Consumer Preferences

The COVID-19 pandemic-related closures of offices, retail stores and other businesses and the significant decline in social gatherings have influenced consumer preferences and practices. ~~Specifically,~~While the demand for makeup improved significantly versus the prior year, it continues to be ~~weak~~the only category that remains below the pre-pandemic period, given fewer makeup usage occasions and ongoing mask wearing, while ~~other categories~~skin care, fragrance and hair care have ~~been more resilient.~~all grown from pre-pandemic levels.

~~Cost Controls~~Supply Chain

~~In response to the ongoing impacts from the~~The COVID-19 pandemic has contributed to global supply chain disruptions, including manufacturing and transportation delays, due to closures, employee absences, port congestion, labor and container shortages, and shipment delays. As a result, we ~~continue~~expect higher costs to ~~implement~~negatively impact cost ~~control actions in certain areas~~of sales and operating expenses for the remainder of fiscal 2022. We expect to mitigate some of the impact to our business ~~to effectively manage the changing business environment.~~and our costs through strategic price increases, product mix, timing of shipments, use of air freight and less congested ports, and cost savings in other areas.

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THE ESTÉE LAUDER COMPANIES INC.

Business Update

We are a leader in prestige beauty, which combines the repeat purchase and relative affordability of consumer goods with ~~the~~ high quality products and ~~services of luxury goods.~~services. Within prestige beauty, we are well diversified by product category, geography, brand, product ~~category, product~~ sub-category, ~~geography,~~ channel, consumer segment and price point. This ~~diversity~~diversification allows us to leverage consumer analytics and insights with agility by deploying our brands to fast growing and profitable opportunities. These analytics and insights, combined with our creativity, inform our innovation to provide a broad, locally-relevant and inclusive range of prestige products allowing us to compete effectively for a greater share of a consumer's beauty routine. Elements of our strategy are described in the Overview on pages ~~28-31~~31-34 of our Annual Report on Form 10-K for the ~~fiscal~~ year ended June 30, ~~2020,~~2021, as well as below.

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

During the ~~third~~second quarter of fiscal ~~2021,~~2022, net sales increased ~~approximately 16% from~~14%, reflecting early stages of a recovery and successful performance during holidays and key shopping moments in The Americas and in Europe, the Middle East & Africa as compared to a more difficult environment in the prior-year ~~period, reflecting an easier comparison against~~period. The net sales increase includes incremental net sales attributable to the ~~outbreak~~increase in our ownership of ~~COVID-19~~DECIEM in ~~early calendar 2020. We saw increases across most product categories and all regions, as well as strong growth online.~~the fiscal 2021 fourth quarter.

•Our skin care net sales benefited from the recent launch of ~~the new Estée Lauder Advanced Night Repair Synchronized Multi-Recovery Complex, the launch of the new~~ The ~~Concentrate~~Hydrating Infused Emulsion from La Mer, ~~and~~as well as continued strength in ~~basic skin care from Clinique. Dr. Jart+~~the brand’s The Treatment Lotion and ~~Origins also~~Crème de la Mer moisturizer. Incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter contributed to ~~skin care growth. These new products support high-loyalty~~growth, and Clinique’s hero ~~franchises.~~franchises resonated well in The Americas and in Europe, the Middle East & Africa.

•The COVID-19 pandemic has generally resulted in more limited social and business activities and consumers overall wore less makeup. ~~Demand~~As restrictions lift and stores reopen in particular locations, we generally see demand for ~~lipstick and foundation were most acutely impacted, contributing to lower~~ makeup products increasing. During the second quarter of fiscal 2022, net sales ~~across the portfolio.~~in makeup grew in part due to this, and was also driven by increases in Estée Lauder foundation products, as well as strong activations and expanded consumer reach from M·A·C and Too Faced. Our brands ~~continued to generate~~generated interest in makeup through virtual marketing efforts such as classes, virtual try on technology and greater emphasis on social media ~~platforms, as well as a focus on sub-categories that continue to resonate with consumers.~~platforms.

•Our fragrance net sales ~~increased in the third quarter of fiscal 2021, reflecting strength in luxury~~rose sharply as consumers gravitated to high-end and artisanal ~~scents. Fragrance net sales growth was led by~~offerings from Jo Malone London, Tom Ford Beauty, Le Labo and Kilian ~~Paris and Le Labo. The category also benefited from the launch of Beautiful Magnolia from Estée Lauder.~~Paris.

•Our hair care net sales ~~increased,~~grew, reflecting ~~Aveda's launch of Botanical Repair~~increases from both Aveda and Bumble and bumble as brick-and-mortar channels reopened.

In September 2021, we announced that we are not renewing our existing license agreements for Donna Karan New York, DKNY, Michael Kors, Tommy Hilfiger and Ermenegildo Zegna when they expire in ~~the first quarter of fiscal 2021.~~June 2023. We expect to continue to sell products under these licenses through June 30, 2022.

Our global distribution capability and operations allow us to focus on targeted expanded consumer reach wherever consumer demographics and trends are the most attractive. Our regional organizations, and the expertise of our people there, enable our brands to be more locally and culturally relevant in both product assortment and communications. We are evolving the way we connect with our consumers in stores, online and where they travel, including by expanding our digital and social media presence and the engagement of global and local influencers to amplify brand or product stories. We tailor implementation of our strategy by market to drive consumer engagement and embrace cultural diversity. We continuously strive to strengthen our presence in large, image-building core markets, while broadening our presence in emerging markets.

•The increase in net sales during the fiscal 2022 second quarter was led by The Americas, primarily reflecting the reopening of brick-and-mortar stores, stronger holiday performance, targeted expanded consumer reach and incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter.

•Net sales in Europe, the Middle East & Africa grew due to ongoing increases in our travel retail business, partly relating to the increase in traffic as a result of the easing of travel restrictions. In addition, brick-and-mortar retail reopened across the region, and online net sales growth, ~~by geographic region in the third quarter~~inclusive of ~~fiscal 2021 reflects, in part, the cadence of COVID-19 recovery and resurgence around the world.~~

DECIEM, continued.

•Net sales increased in ~~The Americas,~~Asia/Pacific, reflecting some recovery in North America compared to the prior year where brick-and-mortar retail locations were shut down toward the end of the fiscal 2020 third quarter as COVID-19 spread globally. This was partially offset by declines in Latin America where many retail locations closed as the resurgence of COVID-19 led to increased government restrictions and store closures during the third quarter of fiscal 2021.

•~~The Europe, the Middle East & Africa region~~higher net sales ~~returned to growth, led by our travel retail business, direct-to-consumer online and retailer restocking in advance of further recovery.~~

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

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Outlook

The COVID-19 pandemic ~~has disrupted~~continues to disrupt business ~~both~~ for ~~our Company~~us, retailers and ~~for the retailers who sell our products.~~other companies with which we do business. There have been, ~~restructurings~~ and ~~bankruptcies in the retail industry, including among our customers~~are likely to continue to be, intermittent store closures and ~~an acceleration in the shifts in preferences as to where and how consumers shop, as well as changes in their preferences for certain products.~~supply chain disruptions. We are mindful that these trends may continue to impact the pace of recovery. The continued curtailment in international travel is also affecting our travel retail business in most of the world, which had been historically one of our fastest growth areas. We expect to invest in areas to support the recovery, including advertising, online, research and development and supply chain, to drive growth in areas of opportunity and help nurture emerging trends in the rest of the business. In addition to impacting net sales and profitability, these and other challenges may ~~impact our ability to collect receivables and our operating cash flows generally, and may~~ adversely impact the goodwill and other intangible assets associated with our brands, ~~and the~~as well as long-lived assets ~~in certain of our freestanding stores~~ (i.e. potentially resulting in impairments).

We believe that the best way to increase long-term stockholder value is to continue providing superior products and services in the most efficient and effective manner while recognizing shifts in consumers’ behaviors and shopping practices. Accordingly, our long-term strategy has numerous initiatives across geographic regions, product categories, brands, channels of distribution and functions designed to grow our sales, provide cost efficiencies, leverage our strengths and make us more productive and profitable. We plan to build upon and leverage our history of outstanding creativity and innovation, high quality products and services, and engaging communications while investing for long-term sustainable growth.

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

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

~~Leading Beauty Forward Program and~~ Post-COVID Business Acceleration Program

Information about our restructuring ~~initiatives, the Leading Beauty Forward Program and~~initiative, the Post-COVID Business Acceleration Program, ~~are~~is described in Notes to Consolidated Financial Statements, Note 4 – Charges Associated with Restructuring and Other Activities herein, as well as, in Notes to Consolidated Financial Statements, Note 108 – Charges Associated with Restructuring and Other Activities and in the Overview on page 3033 of our Annual Report on Form 10-K for the ~~fiscal~~ year ended June 30, ~~2020.~~2021.

~~Goodwill and Other Intangible Asset Impairments~~

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

NET SALES

Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions) 2021 2020 2021 2020
As Reported:
Net sales $ 3,864 $ 3,345 $ 12,279 $ 11,864
$ Change from prior-year period 519 415
% Change from prior-year period 16 % 3 %
Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency 13 % 2 %


	Three Months Ended December 31				Six Months Ended December 31
($ in millions)		2021			2020		2021			2020
As Reported:
Net sales		$	5,539		$	4,853	$	9,931		$	8,415
$ Change from prior-year period		686					1,516
% Change from prior-year period		14		%			18		%

Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency		14		%			17		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 6154 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

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Reported net sales increased for the three and six months ended ~~March~~December 31, 2021, ~~primarily reflecting higher net sales in our skin care and fragrance product categories and in all geographic regions. The net sales growth in our skin care product category reflected~~driven by higher net sales from ~~Estée Lauder,~~every product category and in every geographic region primarily reflecting (i) the continued progression towards brick-and-mortar and travel recovery compared to the prior-year challenges, which included widespread store closures, lower retail traffic, travel restrictions and quarantines, stemming from the COVID-19 pandemic; (ii) the continued success of hero product franchises; (iii) successful performance for holiday and key shopping moments (iv) new product launches; and (v) targeted expanded consumer reach.

For the three and six months ended December 31, 2021, reported net sales from every product category grew double digits. Skin care net sales increased in both periods, led by higher net sales from La Mer and Clinique, as well as incremental net sales ~~growth from Dr. Jart+ and Origins. Fragrance~~attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter. The increases in fragrance net sales ~~increased,~~ primarily ~~benefiting from~~reflected higher net sales from Jo Malone London, ~~and~~ Tom Ford ~~Beauty.~~Beauty, Le Labo and Kilian Paris. The net sales ~~growth~~increases from Estée Lauder and M·A·C drove the increases in the ~~skin~~makeup net sales. Hair care and fragrance product categories reflected the success of hero product franchises, new product offerings and successful holiday events. Net sales grew internationally, led by higher net sales in mainland China and in our travel retail business, as well as net sales growth in Australia, Korea and and Hong Kong. Direct-to-consumer online net sales grew double-digits, representing approximately 15% of net sales for the three months ended March 31, 2021 compared to approximately 12% in the prior-year period.

~~Reported~~ net sales increased ~~for the nine months ended March 31, 2021, primarily reflecting higher net sales~~ in our skin care and fragrance product categories and in our Asia/Pacific region. The net sales increase in our skin care product category was primarily driven by higher net sales from Estée Lauder, La Mer, Dr. Jart+ and Clinique. Fragrance net sales increased, primarily benefiting from higher net sales from Jo Malone London and Tom Ford Beauty. Net sales in Asia/Pacific increased, primarilyboth periods, due to higher net sales ~~in mainland China~~from Aveda and ~~Korea. Despite~~Bumble and bumble.

For the three and six months ended December 31, 2021, reported net sales ~~growth~~grew in every geographic region and benefited from incremental net sales attributable to the increase in our ~~travel retail business (primarily~~ownership of DECIEM in ~~Hainan), net~~the fiscal 2021 fourth quarter. Net sales increased in ~~our~~ Europe, the Middle East & Africa in both periods, reflecting continued progression towards recovery across the region, ~~declined due~~led by our travel retail business, the United Kingdom and Russia. The increases in net sales in The Americas reflected higher net sales throughout the region. Net sales increased in mainland China in both periods, driving the growth in Asia/Pacific, however, several countries in the region continued to be negatively impacted by the ~~continued challenges~~spread of COVID-19 variants and resurgence in cases, which led to government restrictions that were implemented to prevent further spread of the COVID-19 pandemic, including temporary retail store closures and reduced consumer foot traffic in brick-and-mortar retail locations, the continued curtailment of international travel, and continued social distancing and quarantines. Direct-to-consumer online net sales continued to have strong growth, representing approximately 18% of net sales for the nine months ended March 31, 2021 compared to approximately 12% in the prior-year period.virus.

The total net sales ~~changes~~increases were impacted by approximately ~~$95~~$7 million and ~~$212~~$84 million of favorable foreign currency translation for the three and ~~nine~~six months ended ~~March~~December 31, 2021, respectively.

Returns associated with restructuring and other activities are not allocated to our product categories or geographic regions because they result from activities that are deemed a Company-wide initiative to redesign, resize and reorganize select corporate functions and go-to-market structures. Accordingly, the following discussions of Net sales by Product Categories and Geographic Regions exclude the ~~fiscal 2021 third quarter~~ impact of returns associated with restructuring and other activities for the three and six months ended December 31, 2021 of ~~approximately $10 million.~~$1 million and $2 million, respectively.

Product Categories

Skin Care

Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions) 2021 2020 2021 2020
As Reported:
Net sales $ 2,259 $ 1,723 $ 7,113 $ 5,770
$ Change from prior-year period 536 1,343
% Change from prior-year period 31 % 23 %
Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency 28 % 21 %


	Three Months Ended December 31					Six Months Ended December 31
($ in millions)	2021			2020		2021			2020
As Reported:
Net sales	$	3,159		$	2,819	$	5,608		$	4,854
$ Change from prior-year period	340					754
% Change from prior-year period	12		%			16		%

Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency	11		%			14		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 6154 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

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Reported skin care net sales increased for the three and six months ended ~~March~~December 31, 2021, reflecting higher net sales from ~~Estée Lauder,~~ La Mer, incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter and Clinique, combined, of approximately ~~$502~~$295 million ~~combined.~~and $610 million, respectively. Net sales ~~increased~~ from ~~Estée Lauder and~~ La Mer increased in both periods, led by our travel retail business ~~(primarily in Hainan)~~ and mainland China, ~~reflecting strong growth from direct-to-consumer online net sales of products from these brands~~ primarily due to ~~the~~ successful performance during holiday and promotional events. Net sales increased from Estée Lauder, reflecting the continued success of hero product franchises, such as Advanced Night Repair, Revitalizing Supreme+ and Daywear, as well as fiscal 2021 product launches, such as Advanced Night Repair Synchronized Multi-Recovery Complex, Revitalizing Supreme+ Bright, and the relaunch of Perfectionist Pro. The increase in net sales from La Mer also benefited fromkey shopping moments, the continued success of hero products, such as ~~Crè~~The Treatment Lotion, Créme de la Mer ~~The Concentrate, The Treatment Lotion~~ and ~~The Eye Concentrate, as well as~~ the ~~fiscal 2021~~Genaissance line of products, the current year launch of ~~the Genaissance de la Mer~~ The ~~Concentrated Night Balm~~Hydrating Infused Emulsion, and targeted expanded consumer reach. ~~Net~~In both periods, net sales ~~increased~~ from Clinique ~~for the three months ended March 31, 2021, primarily due to higher net sales in~~increased, driven by our travel retail business ~~(primarily in Hainan)~~ and in North America, ~~reflecting~~primarily due to the continued success of existing products, such as ~~Dramatically Different products and~~ Even Better Clinical Radical Dark Spot Corrector + Interrupter and ~~new product launches, such as Moisture Surge 100H Auto-Replenishing Hydrator.~~

~~Reported skin care net sales increased for~~ the ~~nine months ended March 31, 2021, reflecting higher net sales from Estée Lauder, La Mer,~~Take The Day Off line of products, the current-year launch of Smart Clinical Repair Wrinkle Correcting Serum and Clinique, as well as incremental net sales attributable to our acquisition of Dr. Jart+ at the end of the fiscal 2020 second quarter, of approximately $1,452 million, combined. Net sales increased from Estée Lauder, La Mer and Clinique, as noted above.targeted expanded consumer reach.

The skin care net sales increases were impacted by approximately ~~$58~~$25 million and ~~$139~~$73 million of favorable foreign currency translation for the three and ~~nine~~six months ended ~~March~~December 31, 2021, respectively.

Makeup

~~Makeup~~


		Three Months Ended March 31					Nine Months Ended March 31						Three Months Ended December 31					Six Months Ended December 31
($ in millions)	($ in millions)	2021			2020		2021			2020		($ in millions)	2021			2020		2021			2020
As Reported:	As Reported:											As Reported:
Net sales	Net sales	$	1,018		$	1,146	$	3,243		$	4,249	Net sales	$	1,386		$	1,247	$	2,560		$	2,225
$ Change from prior-year period	$ Change from prior-year period	(128)					(1,006)					$ Change from prior-year period	139					335
% Change from prior-year period	% Change from prior-year period	(11)		%			(24)		%			% Change from prior-year period	11		%			15		%

Non-GAAP Financial Measure(1):	Non-GAAP Financial Measure(1):											Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency	% Change from prior-year period in constant currency	(13)		%			(25)		%			% Change from prior-year period in constant currency	12		%			15		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 6154 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

Reported makeup net sales ~~decreased~~increased for the three and ~~nine~~six months ended ~~March~~December 31, 2021, ~~due to lower~~led by higher net sales from ~~virtually all brands, led by M·A·C,~~ Estée Lauder and ~~Clinique,~~M·A·C, combined, of approximately ~~$115~~$92 million and ~~$766~~$223 million, respectively. The continued progression towards recovery in makeup, ~~product category continues~~including increased usage occasions compared to the prior year, led to the increase in makeup net sales in The Americas and Europe, the Middle East & Africa in both periods. Makeup net sales in Asia/Pacific declined in both periods, as several countries in the region continued to be ~~more~~ negatively impacted by the ~~effects~~spread of COVID-19 variants and resurgence in cases, which led to government restrictions implemented to prevent further spread of the ~~COVID-19 pandemic, especially the challenging environment~~virus. Net sales from Estée Lauder increased in ~~brick-and-mortar retail locations,~~both periods, primarily driven by the continued ~~consumer preference for skin care~~success of existing products, such as the Double Wear and Futurist product franchises; new product launches, such as the current-year launches of Double Wear Sheer Long-Wear Foundation; successful performance during holiday and key shopping moments; new third-party online platform launch in mainland China; and the ~~limited use of makeup. The~~ continued ~~decline in prestige makeup and ongoing competitive activity~~progression towards brick-and-mortar recovery in North ~~America also contributed to the decline~~America. The increase in net sales from ~~these brands~~M·A·C, in both ~~periods.~~periods, was primarily due to the continued progression towards brick-and-mortar recovery and successful performance during holiday and key shopping moments in North America and in Europe, the Middle East & Africa.

Reported makeup net sales for the six months ended December 31, 2021 also benefited from higher net sales from Tom Ford Beauty primarily due to continued strength in lip products, such as Scarlet Rouge and Equus, and the continued progression towards brick-and-mortar recovery in North America.

The makeup net sales ~~decreases~~increases were impacted by approximately ~~$24~~$12 million of unfavorable and ~~$46~~$5 million of favorable foreign currency translation for the three and ~~nine~~six months ended ~~March~~December 31, 2021, respectively.

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Fragrance

Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions) 2021 2020 2021 2020
As Reported:
Net sales $ 454 $ 349 $ 1,478 $ 1,392
$ Change from prior-year period 105 86
% Change from prior-year period 30 % 6 %
Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency 27 % 5 %


	Three Months Ended December 31					Six Months Ended December 31
($ in millions)	2021			2020		2021			2020
As Reported:
Net sales	$	799		$	618	$	1,408		$	1,024
$ Change from prior-year period	181					384
% Change from prior-year period	29		%			38		%

Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency	30		%			37		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 6154 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

Reported fragrance net sales increased for the three and six months ended ~~March~~December 31, 2021, primarily driven by Jo Malone London, Tom Ford Beauty, Le Labo, Kilian Paris, combined, of approximately $161 million and $305 million, respectively. In both periods, fragrance net sales grew double digits in every geographic region, partially reflecting the continued progression towards brick-and-mortar and travel recovery in various parts of the world due to ~~higher~~more store openings, increased retail traffic, and the easing of travel restrictions compared to the prior year. The increases in net sales from Jo Malone London ~~and Tom Ford Beauty~~also reflected the continued success of ~~approximately $86 million, combined, and net sales of~~our hero products, ~~from these brands increased in all geographic regions. Jo Malone London benefited from~~such as English Pear & Freesia, successful performance during holiday and ~~promotional events~~key shopping moments and ~~new product launches, such as~~continued growth of the ~~Blossoms Collection and Scarlet Poppy Cologne Intense. The increase in net~~home subcategory. Net sales increased from Tom Ford Beauty ~~was primarily due to~~in both periods, also benefiting from successful campaigns during holiday and key shopping moments, the continued success of Private Blend fragrances, such as Oud Wood and Rose Prick, and Signature fragrances, such as the Ombre Leather line of products, and the diversification of product offerings by region. In both periods, net sales from Le Labo grew strong double digits in every geographic region, also reflecting the continued success of hero product franchises, such as ~~Oud Wood~~Santal 33, the new product launch of Thé Matcha 26 and ~~Black Orchid,~~targeted expanded consumer reach. Net sales increased from Kilian Paris in both periods, also benefiting from the ~~continued~~ success of ~~the fiscal 2021 second quarter launch of Bitter Peach, and new product launches in the third quarter of fiscal 2021,~~hero fragrances, such as ~~Tubereuse Nue~~Good girl gone Bad by KILIAN and ~~Costa Azzurra.~~Love, don't be shy, as well as current-year launches, including Apple Brandy on the Rocks.

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

~~Partially offsetting these increases in net sales for the nine months ended March 31, 2021, were lower~~ net sales from certain of our designer fragrances, ~~led by our travel retail business,~~ primarily due to the continued ~~challenging environment as a result~~progression towards brick-and-mortar and travel recovery in various parts of the ~~COVID-19 pandemic.~~world, as discussed above, and the current-year launch of Michael Kors Super Gorgeous!

The fragrance net sales increases were impacted by approximately ~~$10~~$4 million of unfavorable and ~~$21~~$6 million of favorable foreign currency translation for the three and ~~nine~~six months ended ~~March~~December 31, 2021, respectively.

Hair Care

Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions) 2021 2020 2021 2020
As Reported:
Net sales $ 128 $ 119 $ 418 $ 417
$ Change from prior-year period 9 1
% Change from prior-year period 8 % — %
Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency 6 % (1) %


	Three Months Ended December 31					Six Months Ended December 31
($ in millions)	2021			2020		2021			2020
As Reported:
Net sales	$	180		$	154	$	328		$	290
$ Change from prior-year period	26					38
% Change from prior-year period	17		%			13		%

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

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 6154 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

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Reported hair care net sales increased for the three and six months ended ~~March~~December 31, 2021, ~~primarily due to~~reflecting higher net sales from Aveda ~~driven by~~and Bumble and bumble primarily due to the continued progression towards salon and retail store recovery in North America. Net sales from Aveda increased in both periods, also reflecting successful performance during holiday in North America and the continued success of existing product franchises, such as Invati, Nutriplenish and Botanical Repair. In both periods, the ~~continued success of the fiscal 2021 first quarter launch of Botanical Repair, which led to growth~~increase in ~~all geographic regions.~~

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

~~The increases in net sales for the three and nine months ended March 31, 2021 from Aveda~~ also reflected ~~strong growth from direct-to-consumer online net sales.~~the success of hero products, such as Hairdresser's Invisible Oil Primer, the current-year launches of Hairdresser's Invisible Oil Ultra Rich and Bb. Illuminated Blonde, and targeted expanded consumer reach.

Geographic Regions

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

The Americas

Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions) 2021 2020 2021 2020
As Reported:
Net sales $ 916 $ 892 $ 2,837 $ 3,278
$ Change from prior-year period 24 (441)
% Change from prior-year period 3 % (13) %
Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency 4 % (12) %


	Three Months Ended December 31					Six Months Ended December 31
($ in millions)	2021			2020		2021			2020
As Reported:
Net sales	$	1,300		$	1,048	$	2,494		$	1,921
$ Change from prior-year period	252					573
% Change from prior-year period	24		%			30		%

Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency	24		%			29		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 6154 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

Reported net sales in The Americas increased for the three and six months ended ~~March~~December 31, 2021 ~~led by~~in every country and every product category, reflecting the ~~United States of approximately $26 million,~~continued progression towards brick-and-mortar and ~~in all product categories, except makeup. The increase in the United States partially reflected a~~makeup recovery ~~compared to~~from the prior-year challenges that included store closures, lower retail traffic, fewer makeup usage occasions and quarantines, stemming from the ~~outbreak of COVID-19.~~

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

~~Reported net sales in The Americas decreased in virtually all countries for the nine months ended March 31, 2021, led by the United States~~ of approximately ~~$387~~$236 million and in all product categories, led by makeup. The net sales decrease in the region was led by M·A·C and Estée Lauder (primarily due to the declines in the makeup category), as a result of the continued challenging environment caused by the COVID-19 pandemic, including the resurgence of COVID-19 cases, reduced consumer traffic in brick-and-mortar retail locations, and continued social distancing. The decline in North America prestige beauty, primarily makeup, and the ongoing competitive activity also contributed to the decline in net sales.

~~Direct-to-consumer online net sales in The Americas grew double digits~~$536 million for the three and ~~nine~~six months ended ~~March~~December 31, 2021, respectively, also benefiting from successful performance during holiday and ~~represented approximately 19% and 22% of total~~key shopping moments, incremental net sales attributable to the increase in our ownership of DECIEM in the ~~region compared to approximately 15%~~fiscal 2021 fourth quarter and ~~14% in the prior-year periods, respectively.~~higher net sales from many of our brands, including M·A·C, Clinique, Tom Ford Beauty, Aveda, Jo Malone London and Le Labo.

Net sales in The Americas were impacted by approximately ~~$10~~$1 million and ~~$39~~$7 million of ~~unfavorable~~favorable foreign currency translation for the three and ~~nine~~six months ended ~~March~~December 31, 2021, respectively.

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Europe, the Middle East & Africa

Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions) 2021 2020 2021 2020
As Reported:
Net sales $ 1,706 $ 1,525 $ 5,276 $ 5,281
$ Change from prior-year period 181 (5)
% Change from prior-year period 12 % — %
Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency 10 % (1) %


	Three Months Ended December 31					Six Months Ended December 31
($ in millions)	2021			2020		2021			2020
As Reported:
Net sales	$	2,338		$	2,030	$	4,211		$	3,570
$ Change from prior-year period	308					641
% Change from prior-year period	15		%			18		%

Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency	16		%			18		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 6154 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

Reported net sales for the three and six months ended ~~March~~December 31, 2021 increased in Europe, the Middle East & Africa, reflecting ~~higher net~~early stages of recovery across the region, primarily due to store openings, increased retail traffic, and the easing of travel restrictions compared to the prior year, and successful performance during holiday and key shopping moments, led by our travel retail business, the United Kingdom and Russia, combined, of approximately $238 million and $497 million, respectively. Net sales increased in our travel retail business ~~and Russia~~in both periods, reflecting continued strength of ~~approximately $221 million, combined. Despite~~our brands with the ~~continued curtailment~~Chinese consumer, the easing of ~~international~~ travel ~~as a result of~~restrictions, which drove increased traffic levels compared to the ~~COVID-19 pandemic, the increase in net sales from our travel retail business was led by the~~prior-year periods, and continued success of hero product franchises from La Mer, Origins, Clinique, Jo Malone London and Tom Ford Beauty. In both periods, these benefits were partially offset by lower net sales from Estée Lauder ~~La Mer~~products, primarily reflecting a decrease in promotional activity and Origins, reflecting the increase in China travel retail (primarily Hainan) due, in part, to increased duty-free purchase limits and the acceleration of new digital selling models. The net sales increase from Russia primarily reflects the timing of shipments related to retailer restocking and the shift in sales orders from some retailers in the prior-year period related to a system implementation.

~~Partially offsetting these increases in net sales for the three months ended March 31, 2021, were~~ lower net sales from the Advanced Night Repair product franchise primarily due to the prior-period launch of Advanced Night Repair Synchronized Multi-Recovery Complex. Net sales in the United Kingdom and Russia increased in both periods, primarily reflecting the continued ~~challenges from the resurgence of COVID-19 cases that led to government restrictions, such~~progression towards brick-and-mortar recovery, as ~~quarantines~~noted above, and ~~temporary closures of businesses deemed non-essential.~~

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

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

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

Net sales in Europe, the Middle East & Africa were impacted by approximately ~~$24~~$13 million of unfavorable and ~~$54~~$2 million of favorable foreign currency translation for the three and ~~nine~~six months ended ~~March~~December 31, 2021, respectively.

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~~THE ESTÉE LAUDER COMPANIES INC.~~

Asia/Pacific

Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions) 2021 2020 2021 2020
As Reported:
Net sales $ 1,252 $ 928 $ 4,176 $ 3,305
$ Change from prior-year period 324 871
% Change from prior-year period 35 % 26 %
Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency 26 % 20 %


	Three Months Ended December 31					Six Months Ended December 31
($ in millions)	2021			2020		2021			2020
As Reported:
Net sales	$	1,902		$	1,775	$	3,228		$	2,924
$ Change from prior-year period	127					304
% Change from prior-year period	7		%			10		%

Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency	6		%			8		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 6154 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

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Reported net sales increased in Asia/Pacific ~~increased~~ for the three months ended ~~March~~December 31, 2021, ~~reflecting~~primarily due to higher net sales ~~primarily~~ in mainland China ~~Australia, Korea~~ and ~~Hong Kong~~Australia of approximately ~~$334~~$148 million, ~~combined, and in all product categories.~~combined. The increase in net sales in mainland China ~~reflected higher~~was primarily due to the continued success of hero products franchises from Estée Lauder, La Mer and Jo Malone London, reflecting continued growth in skin care and strong momentum in fragrance, successful performance during holiday and key shopping moments, new product launches, and the current-year launch on a new third-party online platform. The increase in net sales in all product categories, led by skin care. The success of holiday and promotional events in mainland China contributed to growth in virtually all brands and all channels, led by Estée Lauder and La Mer and department stores and third-party platforms, respectively. Net sales in Australia ~~increased in all product categories and from all brands, led by Estée Lauder and Clinique,~~was primarily driven by a recovery compared to the prior-year challenges, ~~stemming from~~including the ~~outbreak~~easing of ~~COVID-19. Net~~restrictions and increased retail traffic, as well as incremental net sales ~~increased in Korea, reflecting growth in all product categories, except makeup, and benefited from~~attributable to the increase in ~~net sales from Dr. Jart+ and Jo Malone London. Net sales~~our ownership of DECIEM in ~~Hong Kong increased for~~ the ~~three months ended March 31,~~fiscal 2021 in all product categories, except makeup, and from most brands, led by La Mer and Estée Lauder, reflecting an easy comparison to the prior-year period as a result of the outbreak of COVID-19. Direct-to-consumer online net sales in Asia/Pacific for the three months ended March 31, 2021 grew double digits.fourth quarter.

Partially offsetting these increases in net sales for the three months ended ~~March~~December 31, 2021, were lower net sales in ~~Japan primarily due to~~Korea, reflecting the ~~ongoing challenges~~challenging brick-and-mortar retail environment stemming from the COVID-19 pandemic ~~including reduced consumer traffic in brick-and-mortar retail locations,~~and the ~~continued curtailment~~timing of ~~international travel, and social distancing and quarantines.~~holiday shipments compared to the prior-year period.

Reported net sales increased in Asia/Pacific ~~increased~~ for the ~~nine~~six months ended ~~March~~December 31, 2021, reflecting higher net sales ~~primarily~~ in mainland China and Korea of approximately ~~$984~~$296 million, ~~combined, and in our skin care product category. The increase in net~~combined. Net sales in mainland China ~~reflected higher net sales primarily in our skin care product category, led by Estée Lauder, La Mer and Dr. Jart+,~~increased, as ~~well as third-party platforms and department stores.~~noted above. Net sales increased in Korea, despite the challenging brick-and-mortar retail environment, primarily ~~benefiting~~reflecting the continued success of hero product franchises from ~~incremental net sales from our acquisition of Dr. Jart+ at the end of the fiscal 2020 second quarter~~Dr.Jart+ and ~~higher net sales from~~ Jo Malone ~~London. Direct-to-consumer~~London, continued growth in skin care and strong momentum in fragrance and double-digit growth from online net sales in Asia/Pacific for the nine months ended March 31, 2021 grew double digits, representing approximately 31% of total net sales in the region compared to approximately 25% in the prior-year period.

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

Net sales in Asia/Pacific were impacted by approximately ~~$80~~$19 million and ~~$196~~$75 million of favorable foreign currency translation for the three and ~~nine~~six months ended ~~March~~December 31, 2021, respectively.

~~We strategically stagger~~

GROSS MARGIN

Gross margin increased to 77.9% and decreased to 77.0% for the three and six months ended December 31, 2021, respectively, as compared with 77.7% and 77.3% in the prior-year periods.


	Favorable (Unfavorable) Basis Points
	December 31, 2021
	Three Months Ended	Six Months Ended
Mix of business	(10)	(40)
Obsolescence charges	—	(35)
Manufacturing costs and other	(10)	(10)
Foreign exchange transactions	40	45
Subtotal	20	(40)
Charges associated with restructuring and other activities	—	10
Total	20	(30)

The increase in gross margin for the three months ended December 31, 2021 reflected a favorable transactional foreign exchange impact due to the strengthening of the United States Dollar, partially offset by an unfavorable impact from our ~~new~~mix of business. The unfavorable impact from our mix of business was primarily driven by lower gross margins on DECIEM products (included in the current-year period due to the acquisition of the controlling interest in the fourth quarter of fiscal 2021) combined with the change in category mix, primarily due to the increase in makeup net sales, partially offset by strategic price increases and lower costs from product ~~launches~~sets.

The decrease in gross margin for the six months ended December 31, 2021 reflected an unfavorable impact from our mix of business, primarily due to lower gross margins on DECIEM products and higher costs from product sets, partially offset by ~~geographic market, which may account for differences in regional sales growth.~~strategic price increases. Partially offsetting the unfavorable impact from our mix of business was a favorable transactional foreign exchange impact, as noted above.

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~~GROSS MARGIN~~

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

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

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

OPERATING EXPENSES

Operating expenses as a percentage of net sales was ~~59.8%~~52.3% and ~~57.4%~~53.3% for the three and ~~nine~~six months ended ~~March~~December 31, 2021, respectively, as compared with ~~71.7%~~55.8% and ~~66.8%~~56.3% in the prior-year periods.


	Favorable (Unfavorable) Basis Points
	December 31, 2021
	Three Months Ended	Six Months Ended
General and administrative expenses	110	90
Advertising, merchandising, sampling and product development	(30)	30
Selling	110	90
Stock-based compensation	20	20
Store operating costs	—	10
Shipping	(60)	(50)
Foreign exchange transactions	(10)	(10)
Subtotal	140	180
Charges associated with restructuring and other activities	40	30
Goodwill and other intangible asset impairments	170	90


Total	350	300

Favorable (Unfavorable) Basis Points
March 31, 2021
Three Months Ended Nine Months Ended
General and administrative expenses (230) (180)
Advertising, merchandising, sampling and product development 200 60
Selling 520 320
Stock-based compensation (20) (40)
Store operating costs 70 30
Shipping — (10)
Foreign exchange transactions (10) 20
Subtotal 530 200
Charges associated with restructuring and other activities (270) (90)
Goodwill, other intangible and long-lived asset impairments 940 850
Changes in fair value of contingent consideration (10) (20)
Total 1,190 940
The favorable changes in operating expense margin for the three and six months ended December 31, 2021, were driven by the increase in net sales, primarily due to the continued progression towards brick-and-mortar and travel recovery in various parts of the world and successful performance during holiday and key shopping moments, as discussed above. For both periods, the decrease in operating expense margin also reflected the favorable impact from selling expenses, primarily due to the shift in channel mix to online, travel retail and specialty-multi, disciplined general and administrative expense management, and the year-over-year favorable impact of goodwill and other intangible asset impairments of $81 million.

Partially offsetting the benefits to operating expense margin for the three and six months ended December 31, 2021 were higher shipping costs due to the increase in net sales volume and increased shipping rates. Further offsetting the benefits to operating expense margin for the three months ended December 31, 2021 were higher advertising and promotional activities, primarily to support strategic investments in key areas of growth (e.g., Hainan, the skin care and fragrance product categories), the continued progression towards makeup recovery, holiday and key shopping moments, and in-store and airport promotions given the increase in brick-and-mortar and airport traffic.

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

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

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

OPERATING RESULTS

Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions) 2021 2020 2021 2020
As Reported:
Operating income $ 616 $ 109 $ 2,384 $ 1,149
$ Change from prior-year period 507 1,235
% Change from prior-year period 100+% 100+%
Operating margin 15.9 % 3.3 % 19.4 % 9.7 %
Non-GAAP Financial Measure(1):
% Change in operating income from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, goodwill, other intangible and long-lived asset impairments and changes in fair value of contingent consideration 66 % 16 %


	Three Months Ended December 31						Six Months Ended December 31
($ in millions)	2021			2020			2021			2020
As Reported:
Operating income	$	1,418		$	1,063		$	2,353		$	1,768
$ Change from prior-year period	355						585
% Change from prior-year period	33		%				33		%

Operating margin	25.6		%	21.9		%	23.7		%	21.0		%

Non-GAAP Financial Measure(1):
% Change in operating income from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, goodwill and other intangible asset impairments, changes in fair value of contingent consideration and acquisition-related stock option expense	22		%				26		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 6154 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

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

Charges associated with restructuring and other activities are not allocated to the our product categories or geographic regions because they are centrally directed and controlled, are not included in internal measures of product category or geographic region performance and result from activities that are deemed Company-wide initiatives to redesign, resize and reorganize select areas of the business. Accordingly, the following discussions of Operating income by Product Categories and Geographic Regions exclude the impact of charges associated with restructuring and other ~~activities~~activities.

Product Categories

Skin Care


	Three Months Ended December 31					Six Months Ended December 31
($ in millions)	2021			2020		2021			2020
As Reported:
Operating income	$	1,082		$	928	$	1,799		$	1,649
$ Change from prior-year period	154					150
% Change from prior-year period	17		%			9		%

Non-GAAP Financial Measure(1):
% Change in operating income from the prior-year period adjusting for the impact of goodwill and other intangible asset impairments and acquisition-related stock option expense	7		%			4		%

(1)See “Reconciliations of ~~$145 million, or 4% of net sales~~Non-GAAP Financial Measures” beginning on page 54 for reconciliations between non-GAAP financial measures and ~~$25 million, or 1% of net sales for~~ the ~~three months ended March 31, 2021 and 2020, respectively, and $191 million, or 2% of net sales and $63 million, or 1% of net sales for the nine months ended March 31, 2021 and 2020, respectively.~~most directly comparable U.S. GAAP measures.

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~~Product Categories~~Reported skin care operating income increased for the three and six months ended December 31, 2021, led by higher results from La Mer and Clinique, combined, of approximately $89 million and $177 million, respectively, as well as a favorable year-over-year impact of goodwill and other intangible asset impairments related to GLAMGLOW of $81 million. In both periods, the increase in operating income from La Mer reflected higher net sales, partially offset by higher advertising and promotional activities primarily to support holiday and key shopping moments and new product launches. Operating income from Clinique increased, primarily due to higher net sales in both periods and, for the six months ended December 31, 2021, partially offset by higher advertising and promotional activities primarily to support holiday and key shopping moments and new product launches.

~~Skin Care~~

Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions) 2021 2020 2021 2020
As Reported:
Operating income $ 804 $ 418 $ 2,453 $ 1,822
$ Change from prior-year period 386 631
% Change from prior-year period 92 % 35 %
Non-GAAP Financial Measure(1):
% Change in operating income from the prior-year period adjusting for the impact of goodwill, other intangible and long-lived asset impairments and changes in fair value of contingent consideration 70 % 35 %
Partially offsetting the increases in operating income for the three and six months ended December 31, 2021 were lower results from Estée Lauder and Origins, combined, of approximately $106 million and $193 million, respectively. In both periods, the decrease in operating income from Estée Lauder was primarily due to the decrease in net sales, primarily related to our travel retail business, higher advertising and promotional activities to support hero products, holiday and key shopping moments and new product launches, and the increase in cost of sales primarily due to higher costs for promotional items. Operating income decreased from Origins in both periods, reflecting lower net sales and the increase in advertising and promotional activities related to social media spending (including costs associated with influencers) and new product launches.

Reported skin care operating income for the six months ended December 31, 2021 also benefited from high results from Bobbi Brown, primarily due to the increase in net sales as a result of the continued success of existing products, such as Vitamin Enriched Face Base, and successful holiday and key shopping moments, which led to double-digit net sales growth in every geographic region.

Makeup


	Three Months Ended December 31				Six Months Ended December 31
($ in millions)	2021		2020		2021		2020
As Reported:
Operating income (loss)	$	130	$	28	$	221	$	(43)
$ Change from prior-year period	102				264
% Change from prior-year period	100+%				100+%

Reported makeup operating income increased for the three months ended December 31, 2021, primarily driven by higher results from M·A·C, Tom Ford Beauty, Too Faced, and Estée Lauder of approximately $59 million, combined. Operating income from M·A·C and Tom Ford Beauty increased, primarily due to the increase in net sales. The higher results from Too Faced primarily reflected the increase in net sales and lower advertising and promotional expense as a result of more disciplined expense management. The higher results from Estée Lauder was primarily due to the increase in net sales, partially offset by higher advertising and promotional activities relating to strategic investments to support the makeup recovery, digital advertising and social media spending, and holiday and key shopping moments.

Partially offsetting these increases in makeup operating income for the three months ended December 31, 2021, were lower results from Clinique due to higher advertising and promotional activities relating to strategic investments to support the makeup recovery and holiday and key shopping moments.

Reported makeup operating results increased for the six months ended December 31, 2021, primarily driven by higher results from Estée Lauder, M·A·C, and Tom Ford Beauty of approximately $174 million, combined. The higher results from Estée Lauder and M·A·C were primarily due to the increases in net sales, partially offset by higher advertising and promotional activities relating to strategic investments to support the makeup recovery, digital advertising and social media spending, and holiday and promotional events. Operating income from Tom Ford Beauty increased, primarily due to the increase in net sales.

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Fragrance


	Three Months Ended December 31					Six Months Ended December 31
($ in millions)	2021			2020		2021			2020
As Reported:
Operating income	$	210		$	141	$	341		$	201
$ Change from prior-year period	69					140
% Change from prior-year period	49		%			70		%

Non-GAAP Financial Measure(1):
% Change in operating income from the prior-year period adjusting for changes in fair value of contingent consideration	51		%			71		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 6154 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

Reported ~~skin~~fragrance operating income increased for the three and six months ended December 31, 2021, primarily driven by higher results from Jo Malone London, Tom Ford Beauty, Le Labo and certain of our designer fragrances, combined, of approximately $68 million and $148 million, respectively. In both periods, the higher results from Jo Malone London primarily reflected the increase in net sales, partially offset by higher cost of sales given the growth of the home subcategory and the increase in promotional items, as well as the increase in advertising and promotional activities primarily to support holiday and key shopping moments, in-store promotions given the increase in brick-and-mortar traffic, and new product launches. Operating results from Tom Ford Beauty increased in both periods, primarily due to higher net sales, partially offset by the increase in advertising and promotional activities to support strategic investments in digital advertising and social media spending (including costs associated with influencers), hero product franchises, and new product launches; higher cost of sales due, in part, to the increase in promotional items; and higher selling expenses due to the continued progression towards brick-and-mortar recovery, including more store openings and increased retail traffic compared to the prior year. The increases in operating income from Le Labo and certain of our designer fragrances, in both periods, were primarily driven by the increases in net sales.

Hair Care


	Three Months Ended December 31					Six Months Ended December 31
($ in millions)	2021			2020		2021			2020
As Reported:
Operating income	$	8		$	4	$	10		$	7
$ Change from prior-year period	4					3
% Change from prior-year period	100		%			43		%

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

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

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

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

net sales, as previously discussed.

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~~Makeup~~Geographic Regions

Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions) 2021 2020 2021 2020
As Reported:
Operating loss $ (72) $ (283) $ (115) $ (790)
$ Change from prior-year period 211 675
% Change from prior-year period 75 % 85 %
Non-GAAP Financial Measure(1):
% Change in operating loss from the prior-year period adjusting for the impact of goodwill, other intangible and long-lived asset impairments (100+)% (100+)%
The Americas


	Three Months Ended December 31				Six Months Ended December 31
($ in millions)	2021		2020		2021		2020
As Reported:
Operating income	$	382	$	36	$	636	$	101
$ Change from prior-year period	346				535
% Change from prior-year period	100+%				100+%





Non-GAAP Financial Measure(1):
% Change in operating income from the prior-year period adjusting for the impact of goodwill and other intangible asset impairments and acquisition-related stock option expense	100+%				100+%

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

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

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

~~Fragrance~~

Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions) 2021 2020 2021 2020
As Reported:
Operating income $ 47 $ — $ 248 $ 163
$ Change from prior-year period 47 85
% Change from prior-year period — % 52 %
Non-GAAP Financial Measure(1):
% Change in operating income from the prior-year period adjusting for the impact of long-lived asset impairments and changes in fair value of contingent consideration — % 60 %

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

Reported fragrance operating income increased for the three and nine months ended March 31, 2021, primarily reflecting higher results from Tom Ford Beauty and Jo Malone London, combined, of approximately $62 million and $110 million, respectively. In both periods, the increases in operating income from these brands reflected higher net sales and lower selling expenses due to the impacts of the COVID-19 pandemic on brick-and-mortar retail locations, including the decline in consumer traffic, store closures, and the continued shift in consumer preference to online.

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

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

~~Hair Care~~

Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions) 2021 2020 2021 2020
As Reported:
Operating income (loss) $ (17) $ (2) $ (10) $ 10
$ Change from prior-year period (15) (20)
% Change from prior-year period (100+)% (100+)%

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

Partially offsetting the decrease in operating results for the nine months ended March 31, 2021, were higher results from Aveda driven by the successes of existing product franchises, a new launch and holiday events, as discussed above.

~~Geographic Regions~~

~~The Americas~~

Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions) 2021 2020 2021 2020
As Reported:
Operating income (loss) $ 155 $ (217) $ 256 $ (571)
$ Change from prior-year period 372 827
% Change from prior-year period 100+% 100+%
Non-GAAP Financial Measure(1):
% Change in operating income (loss) from the prior-year period adjusting for the impact of goodwill, other intangible and long-lived asset impairments and changes in fair value of contingent consideration 20 % (39) %

~~(1)See “Reconciliations of Non-GAAP Financial Measures”~~ ~~beginning on page 61~~54 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

Reported operating results increased in The Americas for the three and ~~nine~~six months ended ~~March~~December 31, 2021, ~~driven by~~primarily reflecting higher operating results in the North America of approximately $344 million and $526 million, respectively, primarily due to the increases in net sales, higher intercompany royalty income primarily from growth in our travel retail business and favorable year-over-year impact of goodwill and other intangible ~~and long-lived~~ asset impairments related to GLAMGLOW of ~~approximately $346 million~~$81 million. Partially offsetting these increases in operating income in both periods were higher advertising and ~~$1,042 million, for~~promotional activities, primarily to support strategic investments in digital advertising and social media spending, holiday and key shopping moments, and in-store promotions given the ~~three~~increase in brick-and-mortar traffic, and ~~nine months, respectively, and lower~~increases in selling ~~expenses~~expense due to the ~~impacts of~~continued progression towards brick-and-mortar and makeup recovery from the prior-year challenges, including store closures, lower retail traffic and quarantines, stemming from the COVID-19 ~~pandemic~~pandemic.

Europe, the Middle East & Africa


	Three Months Ended December 31					Six Months Ended December 31
($ in millions)	2021			2020		2021			2020
As Reported:
Operating income	$	620		$	657	$	1,085		$	1,068
$ Change from prior-year period	(37)					17
% Change from prior-year period	(6)		%			2		%

Non-GAAP Financial Measure(1):
% Change in operating income from the prior-year period adjusting for changes in contingent consideration	(5)		%			2		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on ~~brick-and-mortar retail locations, discussed above.~~

page 54 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

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

Europe, the Middle East & Africa

Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions) 2021 2020 2021 2020
As Reported:
Operating income $ 361 $ 202 $ 1,429 $ 1,084
$ Change from prior-year period 159 345
% Change from prior-year period 79 % 32 %
Non-GAAP Financial Measure(1):
% Change in operating income from the prior-year period adjusting for the impact of long-lived asset impairments and changes in fair value of contingent consideration 97 % 35 %

~~(1)See “Reconciliations of Non-GAAP Financial Measures”~~ ~~beginning on page 61~~ for ~~reconciliations between non-GAAP financial measures~~the three months ended December 31, 2021, primarily driven by lower results from our travel retail business and the ~~most directly comparable U.S. GAAP measures.~~United Kingdom of approximately $67 million, combined. Operating income decreased from our travel retail business, reflecting the (i) increase in intercompany royalty expense to The Americas primarily due to the growth of our travel retail business and (ii) higher advertising and promotional activity primarily to support strategic investments in key areas of growth (primarily Hainan, hero products and the skin care product category), as well as to capture the current-year increase in airport traffic. Also contributing to the decrease in operating income from our travel retail business was higher shipping costs due to the increase in net sales volume and shipping rates. These higher expenses were partially offset by the increase in net sales. Operating income in the United Kingdom decreased, primarily driven by higher advertising and promotional activity to support strategic investments across the brands and incremental expenses attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter, partially offset by the increase in net sales. Partially offsetting these decreases in operating income were higher results from several affiliates reflecting the continued progression towards brick-and-mortar recovery, including store openings, increased retail traffic, and the easing of travel restrictions, compared to the prior year.

Reported operating income increased in Europe, the Middle East & Africa for the ~~three and nine~~six months ended ~~March~~December 31, 2021, reflecting the continued progression towards brick-and-mortar recovery, including store openings, increased retail traffic, and the easing of travel restrictions, compared to the prior year, led by Russia. The increase in operating income in Russia was primarily ~~driven~~due to the increase in net sales, partially offset by higher advertising and promotional activity to support strategic investments across the brands. Partially offsetting these increases in operating income was lower results from our travel retail business, reflecting the increase in intercompany royalty expense to The Americas primarily due to the growth of our travel retail business and ~~Russia, combined,~~higher advertising and promotional activity to support strategic investments in key areas of ~~approximately $194 million~~growth (primarily Hainan, hero products and ~~$458 million, respectively, reflecting~~the skin care product category), as well as to capture the current-year increase in airport traffic. Also contributing to the decrease in operating income from our travel retail business was higher shipping costs due to the increase in net sales volume and ~~disciplined expense management.~~

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

Asia/Pacific


	Three Months Ended December 31					Six Months Ended December 31
($ in millions)	2021			2020		2021			2020
As Reported:
Operating income	$	431		$	407	$	653		$	645
$ Change from prior-year period	24					8
% Change from prior-year period	6		%			1		%

Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions) 2021 2020 2021 2020
As Reported:
Operating income $ 245 $ 149 $ 890 $ 699
$ Change from prior-year period 96 191
% Change from prior-year period 64 % 27 %

Reported operating income increased in Asia/Pacific for the three ~~and nine~~ months ended ~~March 31,~~December 31. 2021, primarily ~~reflecting~~driven by higher operating results ~~from~~in mainland ~~China. In both periods, the~~China and Korea of approximately $27 million, combined. The increase in operating income ~~from~~in mainland China was ~~driven by~~primarily due to the increase in net sales, partially offset by higher cost of sales due, in part, to the increase in promotional items, and higher advertising and promotional activity to support strategic investments in digital advertising and social media spending, holiday and key shopping moments, hero product franchises and new product launches. Operating results increased in Korea driven by disciplined expense management, offset by the decrease in net sales.

Reported operating income increased in Asia/Pacific for the six months ended December 31. 2021, primarily due to ~~investments to support holiday events~~mainland China and ~~campaigns and new product launches and a difficult comparison to~~Korea of approximately $32 million, combined. Operating income in mainland China increased, as noted above. Operating income increased in Korea primarily driven by the ~~prior-year period that reflected cost saving actions implemented~~increase in ~~response to the impacts of the COVID-19 pandemic.~~

net sales. Partially offsetting ~~the~~these increases in operating income ~~for the three and nine months ended March 31, 2021~~in Asia/Pacific were lower results from Japan ~~reflecting~~and Thailand of approximately $25 million, combined, primarily driven by the decrease in net ~~sales.~~sales due the challenging retail environment that continues to be negatively impacted by the spread of COVID-19 variants and resurgence in cases.

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INTEREST AND INVESTMENT INCOME

Three Months Ended
March 31 Nine Months Ended
March 31
(In millions) 2021 2020 2021 2020
Interest expense $ 43 $ 42 $ 131 $ 112
Interest income and investment income, net $ 9 $ 14 $ 40 $ 41

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


	Three Months Ended December 31				Six Months Ended December 31
(In millions)	2021		2020		2021		2020
Interest expense	$	42	$	43	$	84	$	88
Interest income and investment income, net	$	10	$	17	$	14	$	31

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

~~OTHER INCOME~~

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

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

PROVISION FOR INCOME TAXES

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


		Three Months Ended March 31				Nine Months Ended March 31					Three Months Ended December 31				Six Months Ended December 31
		2021		2020		2021		2020			2021		2020		2021		2020
Effective rate for income taxes	Effective rate for income taxes	21.0	%	105.0	%	18.5	%	30.0	%	Effective rate for income taxes	21.5	%	14.9	%	21.9	%	17.6	%
Basis-point change from the prior-year period	Basis-point change from the prior-year period	(8,400)				(1,150)				Basis-point change from the prior-year period	660				430

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For the three and ~~nine~~six months ended ~~March~~December 31, 2021 and 2020, the ~~decrease~~increase in the effective tax rate was primarily attributable to ~~the impact of nondeductible goodwill charges recognized in the three and nine months ended March 31, 2020 and~~ a ~~lower~~higher effective tax rate on our foreign operations. ~~The lower amount of earnings before income taxes~~Also contributing to the increase in the effective tax rate for ~~the three and nine months ended March 31, 2020 increased the impact of the nondeductible charges.~~both periods was a decrease in excess tax benefits associated with stock-based compensation arrangements.

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

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THE ESTÉE LAUDER COMPANIES INC.

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

Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions, except per share data) 2021 2020 2021 2020
As Reported:
Net earnings (loss) attributable to The Estée Lauder Companies Inc. $ 456 $ (6) $ 1,852 $ 1,146
$ Change from prior-year period 462 706
% Change from prior-year period 100+% 62 %
Diluted net earnings (loss) per common share $ 1.24 $ (.02) $ 5.03 $ 3.12
% Change from prior-year period 100+% 61 %
Non-GAAP Financial Measure(1):
% Change in diluted net earnings (loss) per common share from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, goodwill, other intangible and long-lived asset impairments, other income and changes in fair value of contingent consideration 92 % 23 %


	Three Months Ended December 31					Six Months Ended December 31
($ in millions, except per share data)	2021			2020		2021			2020
As Reported:
Net earnings attributable to The Estée Lauder Companies Inc.	$	1,088		$	873	$	1,780		$	1,396
$ Change from prior-year period	215					384
% Change from prior-year period	25		%			28		%
Diluted net earnings per common share	$	2.97		$	2.37	$	4.85		$	3.79
% Change from prior-year period	25		%			28		%

Non-GAAP Financial Measure(1):
% Change in diluted net earnings per common share from the prior-year period adjusting for the impact of charges associated with restructuring and other activities, goodwill and other intangible asset impairments and changes in fair value of contingent consideration	15		%			21		%

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

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

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

~~Table~~consideration; acquisition-related stock option expense; and the effects of ~~Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

foreign currency translation.

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

Three Months Ended
March 31 Variance %
Change % Change
in Constant
Currency
($ in millions, except per share data) 2021 2020
Net sales, as reported $ 3,864 $ 3,345 $ 519 16 % 13 %
Returns associated with restructuring and other activities 10 — 10
Net sales, as adjusted $ 3,874 $ 3,345 $ 529 16 % 13 %
Operating income, as reported $ 616 $ 109 $ 507 100+% 100+%
Charges associated with restructuring and other activities 145 25 120
Goodwill, other intangible and long-lived asset impairments 33 346 (313)
Changes in fair value of contingent consideration — (2) 2
Operating income, as adjusted $ 794 $ 478 $ 316 66 % 64 %
Diluted net earnings (loss) per common share, as reported $ 1.24 $ (.02) $ 1.26 100+% 100+%
Charges associated with restructuring and other activities .31 .05 .26
Goodwill and other intangible asset impairments .07 .83 (.76)
Changes in fair value of contingent consideration — (.01) .01
Diluted net earnings (loss) per common share, as adjusted $ 1.62 $ 0.85 $ .77 92 % 88 %

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($ in millions, except per share data)	($ in millions, except per share data)	Nine Months Ended March 31				Variance				% Change				% Change in constant currency		($ in millions, except per share data)			Three Months Ended December 31								Variance		% Change			% Change in constant currency
		2021		2020													2021				2020
Net sales, as reported	Net sales, as reported	$	12,279	$	11,864			$	415			3	%			2	%	Net sales, as reported			$	5,539			$	4,853			$	686		14	%	14	%
Returns associated with restructuring and other activities	Returns associated with restructuring and other activities	10		—		10										Returns associated with restructuring and other activities			1				—				1
Net sales, as adjusted	Net sales, as adjusted	$	12,289	$	11,864	$	425			4	%			2	%	Net sales, as adjusted			$	5,540			$	4,853			$	687	14		%	14	%

Operating income, as reported	Operating income, as reported	$	2,384	$	1,149	$	1,235			100+%				100+%		Operating income, as reported			$	1,418			$	1,063			$	355	33		%	33	%
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	191		63		128										Charges associated with restructuring and other activities			15				37				(22)
Goodwill, other intangible and long-lived asset impairments		114		1,123		(1,009)
Goodwill and other intangible asset impairments																Goodwill and other intangible asset impairments			—				81				(81)
Changes in fair value of contingent consideration	Changes in fair value of contingent consideration	(2)		(9)		7										Changes in fair value of contingent consideration			—				(2)				2
Acquisition-related stock option expense																Acquisition-related stock option expense			2				—				2
Operating income, as adjusted	Operating income, as adjusted	$	2,687	$	2,326	$	361			16	%			14	%	Operating income, as adjusted			$	1,435			$	1,179			$	256	22		%	21	%

Diluted net earnings (loss) per common share, as reported		$	5.03	$	3.12	$	1.91			61	%			59	%
Diluted net earnings per common share, as reported																Diluted net earnings per common share, as reported			$	2.97			$	2.37			$	.60	25		%	25	%
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	.41		.14		.27										Charges associated with restructuring and other activities			.03				.08				(.05)
Goodwill, other intangible and long-lived asset impairments		.25		2.62		(2.37)
Other income		—		(1.23)		1.23
Goodwill and other intangible asset impairments																Goodwill and other intangible asset impairments			—				.17				(.17)

Changes in fair value of contingent consideration	Changes in fair value of contingent consideration	(.01)		(.02)		.01										Changes in fair value of contingent consideration			—				(.01)				.01

Diluted net earnings (loss) per common share, as adjusted		$	5.68	$	4.63	$	1.05			23	%			20	%
Acquisition-related stock option expense																Acquisition-related stock option expense			.01				—				.01
Diluted net earnings per common share, as adjusted																Diluted net earnings per common share, as adjusted			$	3.01			$	2.61			$	.40	15		%	15	%

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($ in millions, except per share data)	Six Months Ended December 31				Variance		% Change		% Change in constant currency
	2021		2020
Net sales, as reported	$	9,931	$	8,415	$	1,516	18	%	17	%
Returns associated with restructuring and other activities	2		—		2
Net sales, as adjusted	$	9,933	$	8,415	$	1,518	18	%	17	%

Operating income, as reported	$	2,353	$	1,768	$	585	33	%	32	%
Charges associated with restructuring and other activities	21		46		(25)
Goodwill and other intangible asset impairments	—		81		(81)
Changes in fair value of contingent consideration	—		(2)		2
Acquisition-related stock option expense	2		—		2
Operating income, as adjusted	$	2,376	$	1,893	$	483	26	%	24	%

Diluted net earnings per common share, as reported	$	4.85	$	3.79	$	1.06	28	%	27	%
Charges associated with restructuring and other activities	.05		.09		(.04)
Goodwill and other intangible asset impairments	—		.17		(.17)

Changes in fair value of contingent consideration	—		(.01)		.01
Acquisition-related stock option expense	—		—		—
Diluted net earnings per common share, as adjusted	$	4.90	$	4.04	$	.86	21	%	20	%

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

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

As Reported Impact of foreign
currency translation Variance,
in constant currency % Change,
as reported % Change,
in
constant currency
($ in millions) Three Months Ended
March 31, 2021 Three Months Ended
March 31, 2020 Variance
By Product Category:
Skin Care $ 2,259 $ 1,723 $ 536 $ (58) $ 478 31 % 28 %
Makeup 1,018 1,146 (128) (24) (152) (11) (13)
Fragrance 454 349 105 (10) 95 30 27
Hair Care 128 119 9 (2) 7 8 6
Other 15 8 7 — 7 88 88
3,874 3,345 529 (94) 435 16 13
Returns associated with restructuring and other activities (10) — (10) (1) (11)
Total $ 3,864 $ 3,345 $ 519 $ (95) $ 424 16 % 13 %
By Region:
The Americas $ 916 $ 892 $ 24 $ 10 $ 34 3 % 4 %
Europe, the Middle East & Africa 1,706 1,525 181 (24) 157 12 10
Asia/Pacific 1,252 928 324 (80) 244 35 26
3,874 3,345 529 (94) 435 16 13
Returns associated with restructuring and other activities (10) — (10) (1) (11)
Total $ 3,864 $ 3,345 $ 519 $ (95) $ 424 16 % 13 %


	As Reported						Impact of foreign currency translation		Variance, in constant currency		% Change, as reported		% Change, in constant currency
	Three Months Ended December 31
($ in millions)	2021		2020		Variance
By Product Category:
Skin Care	$	3,159	$	2,819	$	340	$	(25)	$	315	12	%	11	%
Makeup	1,386		1,247		139		12		151		11		12
Fragrance	799		618		181		4		185		29		30
Hair Care	180		154		26		1		27		17		18
Other	16		15		1		1		2		7		13
	5,540		4,853		687		(7)		680		14		14
Returns associated with restructuring and other activities	(1)		—		(1)		—		(1)
Total	$	5,539	$	4,853	$	686	$	(7)	$	679	14	%	14	%

By Region:
The Americas	$	1,300	$	1,048	$	252	$	(1)	$	251	24	%	24	%
Europe, the Middle East & Africa	2,338		2,030		308		13		321		15		16
Asia/Pacific	1,902		1,775		127		(19)		108		7		6
	5,540		4,853		687		(7)		680		14		14
Returns associated with restructuring and other activities	(1)		—		(1)		—		(1)
Total	$	5,539	$	4,853	$	686	$	(7)	$	679	14	%	14	%

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																				As Reported								Impact of foreign currency translation				Variance, in constant currency				% Change, as reported				% Change, in constant currency
		As Reported						Impact of foreign currency translation		Variance, in constant currency			% Change, as reported			% Change, in constant currency				Six Months Ended December 31
($ in millions)	($ in millions)	Nine Months Ended March 31, 2021		Nine Months Ended March 31, 2020		Variance						($ in millions)			2021				2020				Variance
By Product Category:	By Product Category:																					By Product Category:
Skin Care	Skin Care	$	7,113	$	5,770	$	1,343	$	(139)	$	1,204		23	%		21	%	Skin Care		$	5,608			$	4,854	$	754			$	(73)			$	681			16	%			14	%
Makeup	Makeup	3,243		4,249		(1,006)		(46)		(1,052)			(24)			(25)		Makeup		2,560				2,225		335			(5)				330				15				15
Fragrance	Fragrance	1,478		1,392		86		(21)		65			6			5		Fragrance		1,408				1,024		384		(6)				378				38				37
Hair Care	Hair Care	418		417		1		(4)		(3)			—			(1)		Hair Care		328				290		38		—				38				13				13
Other	Other	37		36		1		(1)		—			3			—		Other		29				22		7		—				7				32				32
		12,289		11,864		425		(211)		214			4			2				9,933				8,415		1,518		(84)				1,434				18				17
Returns associated with restructuring and other activities	Returns associated with restructuring and other activities	(10)		—		(10)		(1)		(11)								Returns associated with restructuring and other activities		(2)				—		(2)		—				(2)
Total	Total	$	12,279	$	11,864	$	415	$	(212)	$	203		3	%		2	%	Total		$	9,931			$	8,415	$	1,516	$	(84)			$	1,432			18		%		17		%

By Region:	By Region:																	By Region:
The Americas	The Americas	$	2,837	$	3,278	$	(441)	$	39	$	(402)		(13)	%		(12)	%	The Americas		$	2,494			$	1,921	$	573	$	(7)			$	566			30		%		29		%
Europe, the Middle East & Africa	Europe, the Middle East & Africa	5,276		5,281		(5)		(54)		(59)			—			(1)		Europe, the Middle East & Africa		4,211				3,570		641		(2)				639				18				18
Asia/Pacific	Asia/Pacific	4,176		3,305		871		(196)		675			26			20		Asia/Pacific		3,228				2,924		304		(75)				229				10				8
		12,289		11,864		425		(211)		214			4			2				9,933				8,415		1,518		(84)				1,434				18				17
Returns associated with restructuring and other activities	Returns associated with restructuring and other activities	(10)		—		(10)		(1)		(11)								Returns associated with restructuring and other activities		(2)				—		(2)		—				(2)
Total	Total	$	12,279	$	11,864	$	415	$	(212)	$	203		3	%		2	%	Total		$	9,931			$	8,415	$	1,516	$	(84)			$	1,432			18		%		17		%

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

As Reported
($ in millions) Three Months Ended
March 31, 2021 Three Months Ended
March 31, 2020 Variance Add:
Changes in
Goodwill, other intangible and long-lived asset impairments Add:
Changes in fair value of contingent consideration Variance, as adjusted % Change, as reported % Change, as adjusted
By Product Category:
Skin Care $ 804 $ 418 $ 386 $ (54) $ — $ 332 92 % 70 %
Makeup (72) (283) 211 (265) — (54) 75 (100+)
Fragrance 47 — 47 7 2 56 — —
Hair Care (17) (2) (15) (1) — (16) (100+) (100+)
Other (1) 1 (2) — — (2) (100+) (100+)
761 134 627 $ (313) $ 2 $ 316 100+% 66 %
Charges associated with restructuring and other activities (145) (25) (120)
Total $ 616 $ 109 $ 507
By Region:
The Americas $ 155 $ (217) $ 372 $ (346) $ — $ 26 100+% 20 %
Europe, the Middle East & Africa 361 202 159 33 2 194 79 97
Asia/Pacific 245 149 96 — — 96 64 64
761 134 627 $ (313) $ 2 $ 316 100+% 66 %
Charges associated with restructuring and other activities (145) (25) (120)
Total $ 616 $ 109 $ 507


	As Reported						Add: Changes in Goodwill and other intangible asset impairments		Add: Changes in fair value of contingent consideration		Add: Acquisition-related stock option expense		Variance, as adjusted		% Change, as reported		% Change, as adjusted
	Three Months Ended December 31
($ in millions)	2021		2020		Variance
By Product Category:
Skin Care	$	1,082	$	928	$	154	$	(81)	$	—	$	2	$	75	17	%	7	%
Makeup	130		28		102		—		—		—		102		100+		100+
Fragrance	210		141		69		—		2		—		71		49		51
Hair Care	8		4		4		—		—		—		4		100		100
Other	3		(1)		4		—		—		—		4		100+		100+
	1,433		1,100		333		$	(81)	$	2	$	2	$	256	30	%	22	%
Charges associated with restructuring and other activities	(15)		(37)		22
Total	$	1,418	$	1,063	$	355

By Region:
The Americas	$	382	$	36	$	346	$	(81)	$	—	$	2	$	267	100+%		100+%
Europe, the Middle East & Africa	620		657		(37)		—		2		—		(35)		(6)		(5)
Asia/Pacific	431		407		24		—		—		—		24		6		6
	1,433		1,100		333		$	(81)	$	2	$	2	$	256	30	%	22	%
Charges associated with restructuring and other activities	(15)		(37)		22
Total	$	1,418	$	1,063	$	355

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																						As Reported								Add: Changes in Goodwill and other intangible asset impairments					Add: Changes in fair value of contingent consideration					Add: Acquisition-related stock option expense					Variance, as adjusted					% Change, as reported			% Change, as adjusted
		As Reported						Add: Changes in Goodwill, other intangible and long-lived asset impairments		Add: Changes in fair value of contingent consideration		Variance, as adjusted			% Change, as reported			% Change, as adjusted				Six Months Ended December 31
($ in millions)	($ in millions)	Nine Months Ended March 31, 2021		Nine Months Ended March 31, 2020		Variance								($ in millions)			2021				2020				Variance
By Product Category:	By Product Category:																							By Product Category:
Skin Care	Skin Care	$	2,453	$	1,822	$	631	$	27	$	3	$	661		35	%		35	%	Skin Care		$	1,799			$	1,649	$	150				$	(81)				$	—				$	2				$	71			9	%		4	%
Makeup	Makeup	(115)		(790)		675		(1,042)		—		(367)			85			(100+)		Makeup		221				(43)		264				—					—					—					264				100+			100+
Fragrance	Fragrance	248		163		85		7		4		96			52			60		Fragrance		341				201		140		—					2					—					142					70			71
Hair Care	Hair Care	(10)		10		(20)		(1)		—		(21)			(100+)			(100+)		Hair Care		10				7		3		—					—					—					3					43			43
Other	Other	(1)		7		(8)		—		—		(8)			(100+)			(100+)		Other		3				—		3		—					—					—					3					—			—
		2,575		1,212		1,363		$	(1,009)	$	7	$	361		100+%			16	%			2,374				1,814		560		$	(81)				$	2				$	2				$	483				31	%		26	%
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	(191)		(63)		(128)														Charges associated with restructuring and other activities		(21)				(46)		25
Total	Total	$	2,384	$	1,149	$	1,235													Total		$	2,353			$	1,768	$	585

By Region:	By Region:																			By Region:
The Americas	The Americas	$	256	$	(571)	$	827	$	(1,042)	$	3	$	(212)		100+%			(39)	%	The Americas		$	636			$	101	$	535	$	(81)				$	—				$	2				$	456				100+%			100+%
Europe, the Middle East & Africa	Europe, the Middle East & Africa	1,429		1,084		345		33		4		382			32			35		Europe, the Middle East & Africa		1,085				1,068		17		—					2					—					19					2			2
Asia/Pacific	Asia/Pacific	890		699		191		—		—		191			27			27		Asia/Pacific		653				645		8		—					—					—					8					1			1
		2,575		1,212		1,363		$	(1,009)	$	7	$	361		100+%			16	%			2,374				1,814		560		$	(81)				$	2				$	2				$	483				31	%		26	%
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	(191)		(63)		(128)														Charges associated with restructuring and other activities		(21)				(46)		25
Total	Total	$	2,384	$	1,149	$	1,235													Total		$	2,353			$	1,768	$	585

FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

Overview

Our principal sources of funds historically have been cash flows from operations, borrowings pursuant to our commercial paper program, borrowings from the issuance of long-term debt and committed and uncommitted credit lines provided by banks and other lenders in the United States and abroad. At ~~March~~December 31, 2021, we had cash and cash equivalents of ~~$6,399~~$4,603 million compared with ~~$5,022~~$4,958 million at June 30, ~~2020.~~2021. Our cash and cash equivalents are maintained at a number of financial institutions. To mitigate the risk of uninsured balances, we select financial institutions based on their credit ratings and financial strength, and we perform ongoing evaluations of these institutions to limit our concentration risk exposure.

Based on past performance and current expectations, we believe that cash on hand, cash generated from operations, available credit lines and access to credit markets will be adequate to support seasonal working capital needs, currently planned business operations, information technology enhancements, capital expenditures, acquisitions, dividends, stock repurchases, restructuring initiatives, commitments and other contractual obligations on both a near-term and long-term basis.

The Tax Cuts and Jobs Act (“TCJA”) resulted in the Transition Tax on unrepatriated earnings of our foreign subsidiaries and changed the tax law in ways that present opportunities to repatriate cash without additional U.S. federal income tax. As a result, we changed our indefinite reinvestment assertion related to certain foreign earnings, and we continue to analyze the indefinite reinvestment assertion on our remaining applicable foreign earnings. The issuance of guidance subsequent to the enactment of the TCJA has enabled us to access a substantial portion of the cash in offshore jurisdictions associated with our permanently reinvested earnings without significant cost. We do not believe that continuing to reinvest our foreign earnings impairs our ability to meet our domestic debt or working capital obligations. If these reinvested earnings were repatriated into the United States as dividends, we would be subject to state income taxes and applicable foreign taxes in certain jurisdictions.

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

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Credit Ratings

Changes in our credit ratings will likely result in changes in our borrowing costs. Our credit ratings also impact the cost of our revolving credit facility. Downgrades in our credit ratings may reduce our ability to issue commercial paper and/or long-term debt and would likely increase the relative costs of borrowing. A credit rating is not a recommendation to buy, sell, or hold securities, is subject to revision or withdrawal at any time by the assigning rating organization, and should be evaluated independently of any other rating. As of ~~April 26, 2021,~~January 27, 2022, our long-term debt is rated A+ with a stable outlook by Standard & Poor’s and A1 with a stable outlook by Moody’s.

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Debt

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

($ in millions) Long-term
Debt Current
Debt Total Debt
3.125% Senior Notes, due December 1, 2049 (“2049 Senior Notes”) (1), (14)
$ 635 $ — $ 635
4.15% Senior Notes, due March 15, 2047 (“2047 Senior Notes”) (2), (14)
494 — 494
4.375% Senior Notes, due June 15, 2045 (“2045 Senior Notes”) (3), (14)
455 — 455
3.70% Senior Notes, due August 15, 2042 (“2042 Senior Notes”) (4), (14)
247 — 247
6.00% Senior Notes, due May 15, 2037 (“2037 Senior Notes”) (5), (14)
294 — 294
5.75% Senior Notes, due October 15, 2033 (“2033 Senior Notes”) (6)
197 — 197
1.950% Senior Notes, due March 15, 2031 (“2031 Senior Notes”) (7), (14),(15)
592 — 592
2.600% Senior Notes, due April 15, 2030 (“2030 Senior Notes”) (8), (14)
680 — 680
2.375% Senior Notes, due December 1, 2029 (“2029 Senior Notes”) (9), (14)
641 — 641
3.15% Senior Notes, due March 15, 2027 (“2027 Senior Notes”) (10), (14)
498 — 498
2.00% Senior Notes, due December 1, 2024 (“2024 Senior Notes”) (11), (14)
496 — 496
2.35% Senior Notes, due August 15, 2022 (“2022 Senior Notes”) (12), (14)
256 — 256
1.70% Senior Notes, due May 10, 2021 (“2021 Senior Notes”) (13), (14), (15)
— 451 451
Other long-term borrowings 2 — 2
Other current borrowings — 20 20
$ 5,487 $ 471 $ 5,958


($ in millions)	Long-term Debt		Current Debt		Total Debt
3.125% Senior Notes, due December 1, 2049 (“2049 Senior Notes”) (1), (13)	$	636	$	—	$	636
4.15% Senior Notes, due March 15, 2047 (“2047 Senior Notes”) (2), (13)	494		—		494
4.375% Senior Notes, due June 15, 2045 (“2045 Senior Notes”) (3), (13)	456		—		456
3.70% Senior Notes, due August 15, 2042 (“2042 Senior Notes”) (4), (13)	247		—		247
6.00% Senior Notes, due May 15, 2037 (“2037 Senior Notes”) (5), (13)	294		—		294
5.75% Senior Notes, due October 15, 2033 (“2033 Senior Notes”) (6)	197		—		197
1.950% Senior Notes, due March 15, 2031 ("2031 Senior Notes") (7), (13)	596		—		596
2.600% Senior Notes, due April 15, 2030 ("2030 Senior Notes") (8), (13)	688		—		688
2.375% Senior Notes, due December 1, 2029 (“2029 Senior Notes”) (9), (13)	642		—		642
3.15% Senior Notes, due March 15, 2027 (“2027 Senior Notes”) (10), (13)	498		—		498
2.00% Senior Notes, due December 1, 2024 (“2024 Senior Notes”) (11), (13)	496		—		496
2.35% Senior Notes, due August 15, 2022 (“2022 Senior Notes”) (12), (13)	—		253		253

Other long-term borrowings	15		—		15
Other current borrowings	—		19		19

	$	5,259	$	272	$	5,531

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

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

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

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

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

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

(7)Consists of $600 million, principal, unamortized debt discount of $4 million, ~~and~~ debt issuance costs of $4 ~~million.~~million and a $4 million gain to reflect the fair value of interest rate swaps.

(8)Consists of $700 million principal, unamortized debt discount of $1 million, debt issuance costs of $4$3 million and a ~~$15~~$8 million ~~adjustment~~loss to reflect the fair value of interest rate swaps.

(9)Consists of $650 million principal, unamortized debt discount of $5 million and debt issuance costs of $4$3 million.

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

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

(12)Consists of $250 million principal and a $6$3 million ~~adjustment~~gain to reflect the fair value of interest rate swaps.

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

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

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

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

Total debt as a percent of total capitalization (excluding noncontrolling interests) was ~~52%~~47% and ~~61%~~48% at ~~March~~December 31, 2021 and June 30, ~~2020,~~2021, respectively.

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Cash Flows

Nine Months Ended
March 31
(In millions) 2021 2020
Net cash provided by operating activities $ 2,777 $ 1,945
Net cash used for investing activities $ (577) $ (1,557)
Net cash provided by (used for) financing activities $ (862) $ 1,525


	Six Months Ended December 31
(In millions)	2021		2020
Net cash flows provided by operating activities	$	1,846	$	1,978
Net cash flows used for investing activities	$	(414)	$	(397)
Net cash flows used for financing activities	$	(1,775)	$	(1,119)

The change in net cash flows from ~~operations~~operating activities primarily reflected the ~~improvement~~unfavorable net change in working capital as working capital needs returned to a more normalized level compared to the prior-year period, primarily ~~due~~in the first quarter of fiscal 2022, and we took actions to ~~other accrued liabilities, driven by an increase in accrued employee incentive compensation, as previously discussed, and accounts payable,~~mitigate supply chain challenges. These changes were partially offset by ~~the unfavorable change in accounts receivable due to the increase in net sales. The change in net cash flows from operations also reflects~~ higher earnings before taxes, excluding non-cash items.

The change in net cash flows used for investing activities primarily reflected ~~cash paid~~an increase in ~~fiscal 2020 relating to the second quarter acquisition of Have&Be Co. Ltd., partially offset~~capital expenditures, primarily driven by increased investments for a new manufacturing facility in Japan, online capabilities and information technology enhancements. Partially offsetting this increase is a favorable impact from the settlement of net investment ~~hedges.~~hedges, which has a corresponding unfavorable impact that is reflected in the change in working capital noted above.

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

Dividends

For a summary of quarterly cash dividends declared per share on our Class A and Class B Common Stock during the ~~nine~~six months ended ~~March~~December 31, 2021, see Notes to Consolidated Financial Statements, Note 1312 – Equity and Redeemable Noncontrolling Interest.

Pension and Post-retirement Plan Funding

There have been no significant changes to our pension and post-retirement funding as discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2020.~~2021.

Commitments, Contractual Obligations and Contingencies

In February 2021, we agreed to acquire additional shares in DECIEM Beauty Group Inc. (“DECIEM”) that will increase our existing equity interest from approximately 29% to approximately 76%. Upon closing, which is expected to occur in May 2021, we will pay approximately $1,000 million and will also have the right to purchase, and will grant the remaining investors a right to sell to us, the remaining interests after a three-year period, with a purchase price based on the future performance of DECIEM. There have been no ~~other~~ significant changes to our commitments and contractual obligations as discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2020.~~2021. For a discussion of contingencies, see Notes to Consolidated Financial Statements, Note 109 – Contingencies.

Derivative Financial Instruments and Hedging Activities

For a discussion of our derivative financial instruments and hedging activities, see Notes to Consolidated Financial Statements, Note 65 – Derivative Financial Instruments.

Foreign Exchange Risk Management

For a discussion of foreign exchange risk management, see Notes to Consolidated Financial Statements, Note 65 – Derivative Financial Instruments (Cash Flow Hedges, Net Investment ~~Hedges)~~Hedges).

Credit Risk

For a discussion of credit risk, see Notes to Consolidated Financial Statements, Note 65 – Derivative Financial Instruments (Credit Risk).

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Market Risk

We address certain financial exposures through a controlled program of market risk management that includes the use of foreign currency forward contracts to reduce the effects of fluctuating foreign currency exchange rates and to mitigate the change in fair value of specific assets and liabilities on the balance sheet. To perform a sensitivity analysis of our foreign currency forward contracts, we assess the change in fair values from the impact of hypothetical changes in foreign currency exchange rates. A hypothetical 10% weakening of the U.S. dollar against the foreign exchange rates for the currencies in our portfolio would have resulted in a net decrease in the fair value of our portfolio of approximately ~~$198~~$228 million and ~~$222~~$218 million as of ~~March~~December 31, 2021 and June 30, ~~2020,~~2021, respectively. This potential change does not consider our underlying foreign currency exposures.

In addition, we enter into interest rate derivatives to manage the effects of interest rate movements on our aggregate liability portfolio, including future debt issuances. Based on a hypothetical 100 basis point increase in interest rates, the estimated fair value of our interest rate derivatives would ~~increase (decrease)~~decrease by approximately ~~$(58)~~$76 million and $9$83 million as of ~~March~~December 31, 2021 and June 30, ~~2020,~~2021, respectively.

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Our sensitivity analysis represents an estimate of reasonably possible net losses that would be recognized on our portfolio of derivative financial instruments assuming hypothetical movements in future market rates and is not necessarily indicative of actual results, which may or may not occur. It does not represent the maximum possible loss or any expected loss that may occur, since actual future gains and losses will differ from those estimated, based upon actual fluctuations in market rates, operating exposures, and the timing thereof, and changes in our portfolio of derivative financial instruments during the year. We believe, however, that any such loss incurred would be offset by the effects of market rate movements on the respective underlying transactions for which the derivative financial instrument was intended.

OFF-BALANCE SHEET ARRANGEMENTS

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

CRITICAL ACCOUNTING POLICIES

As disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2020,~~2021, the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in those financial statements. These estimates and assumptions can be subjective and complex, and consequently, actual results could differ from those estimates. Our most critical accounting policies relate to goodwill, other intangible assets and long-lived assets, income taxes and business combinations. Since June 30, ~~2020,~~2021, there have been no significant changes to the assumptions and estimates related to our critical accounting policies.

RECENTLY ISSUED ACCOUNTING STANDARDS

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

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(19)additional factors as described in our filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended June 30, ~~2020.~~2021.

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

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

Item 4. Controls and Procedures.

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

As part of our review of internal control over financial reporting, we make changes to systems and processes to improve such controls and increase efficiencies, including from the impacts of COVID-19, while ensuring that we maintain an effective internal control environment. There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the ~~third~~second quarter of fiscal ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

For a discussion of legal proceedings, see Notes to Consolidated Financial Statements, Note 109 – Contingencies.

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

Share Repurchase Program

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

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


Period	Total Number of Shares Purchased(1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Number of Shares that May Yet Be Purchased Under the Program(2)
October 2021	843,000	$	314.99	843,000	30,270,737
November 2021	982,985	338.56		650,462	29,620,275
December 2021	775,326	351.21		775,326	28,844,949
	2,601,311	334.69		2,268,788

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

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

~~In March~~

Subsequent to December 31, 2021 and as of January 27, 2022, we ~~resumed the repurchase of~~purchased approximately 0.8 million additional shares of our Class A Common Stock for $273 million pursuant to our share repurchase program. ~~Subsequent to March 31, 2021 and as of April 26, 2021, we purchased approximately 0.2 million additional shares for $66 million.~~

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Item 6. Exhibits.


Exhibit Number						Description


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

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

10.1						~~Price-Vested Unit Award Agreement with Fabrizio Freda under~~$2 .5 Billion Credit Facility, dated as of October 2 2 , 20 21 , among The Estée Lauder Companies Inc. ~~Amended~~, the Eligible Subsidiaries of the Company, as defined therein, the lenders listed therein, and ~~Restated Fiscal 2002 Share Incentive Plan (including Notice of Grant)~~JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.1 to our Current Report on Form 8-K filed on ~~March 16, 2021)~~October 2 2 , 20 21 ) ~~(SEC~~(SEC File No. 1-1-14064).1 ~~4064)~~.*†

10.2						~~Performance Share Unit Award Agreement with Fabrizio Freda under~~ The ~~Estée~~Estee Lauder Companies ~~Inc. Amended~~Retirement Growth Account Plan, as amended and ~~Restated Fiscal 2002 Share Incentive Plan (including Notice~~restated, effective as of ~~Grant) (filed~~January 1, 2019, as ~~Exhibit 10.2 to our Current Report on Form 8-K filed on March 16, 2021)~~further amended through January 1, 2022 (SEC File No. 1-14064).*†

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

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

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

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

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

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

*Incorporated herein by reference.
† Exhibit is a management contract or compensatory plan or arrangement.

* Incorporated herein by reference.

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

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SIGNATURES

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


	THE ESTÉE LAUDER COMPANIES INC.

	By:	/s/TRACEY T. TRAVIS
Date: ~~May~~February 3, ~~2021~~2022		Tracey T. Travis
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

7667


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


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


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


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

Operating income, as reported	$	616	$	109	$	507	100+%		100+%
Charges associated with restructuring and other activities	145		25		120
Goodwill, other intangible and long-lived asset impairments	33		346		(313)
Changes in fair value of contingent consideration	—		(2)		2
Operating income, as adjusted	$	794	$	478	$	316	66	%	64	%

Diluted net earnings (loss) per common share, as reported	$	1.24	$	(.02)	$	1.26	100+%		100+%
Charges associated with restructuring and other activities	.31		.05		.26
Goodwill and other intangible asset impairments	.07		.83		(.76)

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


	As Reported
($ in millions)	Three Months Ended March 31, 2021		Three Months Ended March 31, 2020		Variance		Add: Changes in Goodwill, other intangible and long-lived asset impairments		Add: Changes in fair value of contingent consideration		Variance, as adjusted		% Change, as reported		% Change, as adjusted
By Product Category:
Skin Care	$	804	$	418	$	386	$	(54)	$	—	$	332	92	%	70	%
Makeup	(72)		(283)		211		(265)		—		(54)		75		(100+)
Fragrance	47		—		47		7		2		56		—		—
Hair Care	(17)		(2)		(15)		(1)		—		(16)		(100+)		(100+)
Other	(1)		1		(2)		—		—		(2)		(100+)		(100+)
	761		134		627		$	(313)	$	2	$	316	100+%		66	%
Charges associated with restructuring and other activities	(145)		(25)		(120)
Total	$	616	$	109	$	507

By Region:
The Americas	$	155	$	(217)	$	372	$	(346)	$	—	$	26	100+%		20	%
Europe, the Middle East & Africa	361		202		159		33		2		194		79		97
Asia/Pacific	245		149		96		—		—		96		64		64
	761		134		627		$	(313)	$	2	$	316	100+%		66	%
Charges associated with restructuring and other activities	(145)		(25)		(120)
Total	$	616	$	109	$	507