UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~March 31,~~September 30, 2022


☐			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~~October 26, 2022, ~~231,805,171~~231,270,298 shares of the registrant’s Class A Common Stock, $.01 par value, and 125,542,029 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 — Three ~~and Nine~~ Months Ended ~~March 31,~~September 30, 2022 and 2021			2

Consolidated Statements of Comprehensive Incom e — Three ~~and Nine~~ Months Ended ~~March 31,~~September 30, 2022 and 2021			3

Consolidated Balance Sheets — ~~March 31,~~September 30, 2022 and June 30, ~~2021~~2022 (Audited)			4

Consolidated Statements of Cash Flows — ~~Nine~~Three Months Ended ~~March 31,~~September 30, 2022 and 2021			5

Notes to Consolidated Financial Statements			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			3932

Item 3. Quantitative and Qualitative Disclosures About Market Risk			6854

Item 4. Controls and Procedures			6854

Part II. Other Information

Item 1. Legal Proceedings			6854

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			6955

Item 6. Exhibits			6955

Signatures			7056

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)
Three Months Ended
March 31 Nine Months Ended
March 31
(In millions, except per share data) 2022 2021 2022 2021
Net sales $ 4,245 $ 3,864 $ 14,176 $ 12,279
Cost of sales 994 939 3,274 2,848
Gross profit 3,251 2,925 10,902 9,431
Operating expenses
Selling, general and administrative 2,275 2,145 7,554 6,761
Restructuring and other charges 22 131 41 172
Goodwill impairment — — — 54
Impairment of other intangible and long-lived assets 216 33 216 60
Total operating expenses 2,513 2,309 7,811 7,047
Operating income 738 616 3,091 2,384
Interest expense 41 43 125 131
Interest income and investment income, net 5 9 19 40
Other components of net periodic benefit cost (1) 2 (2) 12
Other income — — 1 —
Earnings before income taxes 703 580 2,988 2,281
Provision for income taxes 130 122 630 421
Net earnings 573 458 2,358 1,860
Net earnings attributable to noncontrolling interests (3) (2) (8) (8)
Net earnings attributable to redeemable noncontrolling interest (12) — (12) —
Net earnings attributable to The Estée Lauder Companies Inc. $ 558 $ 456 $ 2,338 $ 1,852
Net earnings attributable to The Estée Lauder Companies Inc. per common share
Basic $ 1.55 $ 1.25 $ 6.48 $ 5.10
Diluted $ 1.53 $ 1.24 $ 6.39 $ 5.03
Weighted-average common shares outstanding
Basic 359.2 363.6 360.7 362.9
Diluted 363.6 369.0 365.8 368.1


	Three Months Ended September 30
(In millions, except per share data)		2022		2021

Net sales		$	3,930	$	4,392
Cost of sales		1,023		1,057

Gross profit		2,907		3,335

Operating expenses
Selling, general and administrative		2,244		2,394
Restructuring and other charges		2		6


Total operating expenses		2,246		2,400

Operating income		661		935

Interest expense		46		42
Interest income and investment income, net		15		4
Other components of net periodic benefit cost		(3)		1
Other income		—		1
Earnings before income taxes		633		897

Provision for income taxes		143		202
Net earnings		490		695

Net earnings attributable to noncontrolling interests		—		(1)
Net earnings attributable to redeemable noncontrolling interest		(1)		(2)
Net earnings attributable to The Estée Lauder Companies Inc.		$	489	$	692

Net earnings attributable to The Estée Lauder Companies Inc. per common share
Basic		$	1.37	$	1.91
Diluted		$	1.35	$	1.88

Weighted-average common shares outstanding
Basic		357.9		362.2
Diluted		361.4		367.9

See notes to consolidated financial statements.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


		Three Months Ended March 31				Nine Months Ended March 31					Three Months Ended September 30
(In millions)	(In millions)	2022		2021		2022		2021		(In millions)		2022		2021

Net earnings	Net earnings	$	573	$	458	$	2,358	$	1,860	Net earnings		$	490	$	695

Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):

Net cash flow hedge gain (loss)		5		41		21		(16)
Net cash flow hedge gain										Net cash flow hedge gain		49		21
Retirement plan and other retiree benefit adjustments	Retirement plan and other retiree benefit adjustments	4		7		12		19		Retirement plan and other retiree benefit adjustments		—		4
Translation adjustments	Translation adjustments	28		(121)		(173)		170		Translation adjustments		(381)		(186)
Benefit (provision) for income taxes on components of other comprehensive income	Benefit (provision) for income taxes on components of other comprehensive income	(4)		(32)		(22)		6		Benefit (provision) for income taxes on components of other comprehensive income		(19)		(12)
Total other comprehensive income (loss), net of tax	Total other comprehensive income (loss), net of tax	33		(105)		(162)		179		Total other comprehensive income (loss), net of tax		(351)		(173)
Comprehensive income	Comprehensive income	606		353		2,196		2,039		Comprehensive income		139		522

Comprehensive income attributable to noncontrolling interests:	Comprehensive income attributable to noncontrolling interests:									Comprehensive income attributable to noncontrolling interests:
Net earnings	Net earnings	(3)		(2)		(8)		(8)		Net earnings		—		(1)
Translation adjustments	Translation adjustments	1		1		3		(1)		Translation adjustments		—		1
Total comprehensive income attributable to noncontrolling interests	Total comprehensive income attributable to noncontrolling interests	(2)		(1)		(5)		(9)		Total comprehensive income attributable to noncontrolling interests		—		—

Comprehensive income attributable to redeemable noncontrolling interest:	Comprehensive income attributable to redeemable noncontrolling interest:									Comprehensive income attributable to redeemable noncontrolling interest:
Net earnings	Net earnings	(12)		—		(12)		—		Net earnings		(1)		(2)
Translation adjustments	Translation adjustments	(14)		—		3		—		Translation adjustments		35		17
Total comprehensive income attributable to redeemable noncontrolling interest	Total comprehensive income attributable to redeemable noncontrolling interest	(26)		—		(9)		—		Total comprehensive income attributable to redeemable noncontrolling interest		34		15
Comprehensive income attributable to The Estée Lauder Companies Inc.	Comprehensive income attributable to The Estée Lauder Companies Inc.	$	578	$	352	$	2,182	$	2,030	Comprehensive income attributable to The Estée Lauder Companies Inc.		$	173	$	537

See notes to consolidated financial statements.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED BALANCE SHEETS


(In millions, except share data)	(In millions, except share data)	March 31 2022		June 30 2021		(In millions, except share data)	September 30 2022		June 30 2022
		(Unaudited)					(Unaudited)
ASSETS	ASSETS					ASSETS
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	3,836	$	4,958	Cash and cash equivalents	$	2,938	$	3,957
Accounts receivable, net	Accounts receivable, net	2,209		1,702		Accounts receivable, net	2,156		1,629
Inventory and promotional merchandise	Inventory and promotional merchandise	2,830		2,505		Inventory and promotional merchandise	3,018		2,920
Prepaid expenses and other current assets	Prepaid expenses and other current assets	625		603		Prepaid expenses and other current assets	754		792
Total current assets	Total current assets	9,500		9,768		Total current assets	8,866		9,298

Property, plant and equipment, net	Property, plant and equipment, net	2,493		2,280		Property, plant and equipment, net	2,654		2,650

Other assets	Other assets					Other assets
Operating lease right-of-use assets	Operating lease right-of-use assets	2,034		2,190		Operating lease right-of-use assets	1,858		1,949
Goodwill	Goodwill	2,591		2,616		Goodwill	2,415		2,521
Other intangible assets, net	Other intangible assets, net	3,638		4,095		Other intangible assets, net	3,190		3,428
Other assets	Other assets	1,103		1,022		Other assets	1,006		1,064
Total other assets	Total other assets	9,366		9,923		Total other assets	8,469		8,962
Total assets	Total assets	$	21,359	$	21,971	Total assets	$	19,989	$	20,910

LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities	Current liabilities					Current liabilities
Current debt	Current debt	$	269	$	32	Current debt	$	266	$	268
Accounts payable	Accounts payable	1,470		1,692		Accounts payable	1,392		1,822
Operating lease liabilities	Operating lease liabilities	388		379		Operating lease liabilities	340		365
Other accrued liabilities	Other accrued liabilities	3,287		3,195		Other accrued liabilities	3,273		3,360
Total current liabilities	Total current liabilities	5,414		5,298		Total current liabilities	5,271		5,815

Noncurrent liabilities	Noncurrent liabilities					Noncurrent liabilities
Long-term debt	Long-term debt	5,188		5,537		Long-term debt	5,107		5,144
Long-term operating lease liabilities	Long-term operating lease liabilities	1,948		2,151		Long-term operating lease liabilities	1,781		1,868
Other noncurrent liabilities	Other noncurrent liabilities	1,758		2,037		Other noncurrent liabilities	1,505		1,651
Total noncurrent liabilities	Total noncurrent liabilities	8,894		9,725		Total noncurrent liabilities	8,393		8,663

Contingencies	Contingencies			0		Contingencies

0Redeemable Noncontrolling Interest		865		857
Redeemable Noncontrolling Interest						Redeemable Noncontrolling Interest	808		842

Equity	Equity					Equity
Common stock, $.01 par value; Class A shares authorized: 1,300,000,000 at March 31, 2022 and June 30, 2021; shares issued: 467,516,898 at March 31, 2022 and 462,633,034 at June 30, 2021; Class B shares authorized: 304,000,000 at March 31, 2022 and June 30, 2021; shares issued and outstanding: 125,542,029 at March 31, 2022 and 128,242,029 at June 30, 2021		6		6
Common stock, $.01 par value; Class A shares authorized: 1,300,000,000 at September 30, 2022 and June 30, 2022; shares issued: 468,356,871 at September 30, 2022 and 467,949,351 at June 30, 2022; Class B shares authorized: 304,000,000 at September 30, 2022 and June 30, 2022; shares issued and outstanding: 125,542,029 at September 30, 2022 and 125,542,029 at June 30, 2022						Common stock, $.01 par value; Class A shares authorized: 1,300,000,000 at September 30, 2022 and June 30, 2022; shares issued: 468,356,871 at September 30, 2022 and 467,949,351 at June 30, 2022; Class B shares authorized: 304,000,000 at September 30, 2022 and June 30, 2022; shares issued and outstanding: 125,542,029 at September 30, 2022 and 125,542,029 at June 30, 2022	6		6
Paid-in capital	Paid-in capital	5,746		5,335		Paid-in capital	5,875		5,796
Retained earnings	Retained earnings	14,076		12,244		Retained earnings	14,185		13,912
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(626)		(470)		Accumulated other comprehensive loss	(1,078)		(762)
		19,202		17,115			18,988		18,952
Less: Treasury stock, at cost; 235,234,161 Class A shares at March 31, 2022 and 229,115,665 Class A shares at June 30, 2021		(13,052)		(11,058)
Total stockholders’ equity – The Estée Lauder Companies Inc.		6,150		6,057
Noncontrolling interests		36		34
Less: Treasury stock, at cost; 236,867,993 Class A shares at September 30, 2022 and 236,435,830 Class A shares at June 30, 2022						Less: Treasury stock, at cost; 236,867,993 Class A shares at September 30, 2022 and 236,435,830 Class A shares at June 30, 2022	(13,471)		(13,362)

Total equity	Total equity	6,186		6,091		Total equity	5,517		5,590
Total liabilities, redeemable noncontrolling interest and equity	Total liabilities, redeemable noncontrolling interest and equity	$	21,359	$	21,971	Total liabilities, redeemable noncontrolling interest and equity	$	19,989	$	20,910

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					Three Months Ended September 30
(In millions)	(In millions)	2022		2021		(In millions)	2022		2021

Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net earnings	Net earnings	$	2,358	$	1,860	Net earnings	$	490	$	695
Adjustments to reconcile net earnings to net cash flows from operating activities:	Adjustments to reconcile net earnings to net cash flows from operating activities:					Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization	Depreciation and amortization	546		475		Depreciation and amortization	178		183
Deferred income taxes	Deferred income taxes	(90)		(103)		Deferred income taxes	(53)		(57)
Non-cash stock-based compensation	Non-cash stock-based compensation	283		255		Non-cash stock-based compensation	53		79
Net loss on disposal of property, plant and equipment	Net loss on disposal of property, plant and equipment	6		19		Net loss on disposal of property, plant and equipment	2		1
Non-cash restructuring and other charges	Non-cash restructuring and other charges	2		97		Non-cash restructuring and other charges	9		2
Pension and post-retirement benefit expense	Pension and post-retirement benefit expense	59		75		Pension and post-retirement benefit expense	13		21
Pension and post-retirement benefit contributions	Pension and post-retirement benefit contributions	(30)		(35)		Pension and post-retirement benefit contributions	(5)		(11)
Goodwill, other intangible and long-lived asset impairments		216		114
Changes in fair value of contingent consideration		—		(2)

Gain on previously held equity method investment	Gain on previously held equity method investment	(1)		—		Gain on previously held equity method investment	—		(1)
Other non-cash items	Other non-cash items	(4)		(17)		Other non-cash items	(3)		3
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Increase in accounts receivable, net	Increase in accounts receivable, net	(548)		(506)		Increase in accounts receivable, net	(579)		(583)
Decrease (increase) in inventory and promotional merchandise		(398)		13
Increase in other assets, net		(61)		(122)
Increase (decrease) in accounts payable		(199)		55
Increase (decrease) in other accrued and noncurrent liabilities		(132)		629
Increase in inventory and promotional merchandise						Increase in inventory and promotional merchandise	(229)		(178)
Decrease (increase) in other assets, net						Decrease (increase) in other assets, net	3		(19)
Decrease in accounts payable						Decrease in accounts payable	(375)		(191)
Decrease in other accrued and noncurrent liabilities						Decrease in other accrued and noncurrent liabilities	(135)		(15)
Decrease in operating lease assets and liabilities, net	Decrease in operating lease assets and liabilities, net	(38)		(30)		Decrease in operating lease assets and liabilities, net	(19)		(10)
Net cash flows provided by operating activities		1,969		2,777
Net cash flows used for operating activities						Net cash flows used for operating activities	(650)		(81)

Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Capital expenditures	Capital expenditures	(658)		(386)		Capital expenditures	(152)		(205)
Proceeds from purchase price refund		—		32
Payments for acquired businesses		(3)		(8)

Purchases of investments	Purchases of investments	(10)		(40)		Purchases of investments	—		(6)
Settlement of net investment hedges	Settlement of net investment hedges	108		(175)		Settlement of net investment hedges	138		58
Net cash flows used for investing activities	Net cash flows used for investing activities	(563)		(577)		Net cash flows used for investing activities	(14)		(153)

Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Repayments of current debt, net		(4)		(746)
Proceeds from issuance of long-term debt, net		—		596
Debt issuance costs		(1)		(4)
Proceeds from current debt, net						Proceeds from current debt, net	249		3

Repayments and redemptions of long-term debt	Repayments and redemptions of long-term debt	(16)		(6)		Repayments and redemptions of long-term debt	(254)		(4)
Net proceeds from stock-based compensation transactions	Net proceeds from stock-based compensation transactions	127		180		Net proceeds from stock-based compensation transactions	26		36
Payments to acquire treasury stock	Payments to acquire treasury stock	(1,998)		(316)		Payments to acquire treasury stock	(110)		(557)

Dividends paid to stockholders	Dividends paid to stockholders	(624)		(561)		Dividends paid to stockholders	(215)		(192)
Payments to noncontrolling interest holders for dividends		—		(5)

Net cash flows used for financing activities	Net cash flows used for financing activities	(2,516)		(862)		Net cash flows used for financing activities	(304)		(714)

Effect of exchange rate changes on Cash and cash equivalents	Effect of exchange rate changes on Cash and cash equivalents	(12)		39		Effect of exchange rate changes on Cash and cash equivalents	(51)		(15)
Net increase (decrease) in Cash and cash equivalents		(1,122)		1,377
Net decrease in Cash and cash equivalents						Net decrease in Cash and cash equivalents	(1,019)		(963)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	4,958		5,022		Cash and cash equivalents at beginning of period	3,957		4,958
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	3,836	$	6,399	Cash and cash equivalents at end of period	$	2,938	$	3,995

See notes to consolidated financial statements.

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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, ~~2021.~~2022.

Certain prior year amounts in the notes to the consolidated financial statements 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, ~~2021.~~2022. 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),~~losses, net of tax, reported as translation adjustments through other comprehensive income (loss) (“OCI”) attributable to The Estée Lauder Companies Inc. were ~~$13~~$352 million and ~~$(143)~~$175 million, net of tax, during the three months ended ~~March 31, 2022 and 2021, respectively, and $(182) million and $175 million, net of tax, during the nine months ended March 31,~~September 30, 2022 and 2021, respectively. For the Company’s subsidiaries operating in highly inflationary economies, the U.S. dollar is the functional currency. Remeasurement adjustments in financial statements in a highly inflationary economy and other transactional gains and losses are reflected in earnings. These subsidiaries are not material to the Company’s consolidated financial statements or liquidity.

The Company enters into foreign currency forward contracts and may enter into option contracts to hedge foreign currency transactions for periods consistent with its identified exposures. 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 54 – 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 include net exchange gains (losses) on foreign currency transactions of $3$14 million and ~~$(3)~~$(12) million during the three months ended ~~March 31, 2022 and March 31, 2021, respectively, and $(15) million and $(5) million during the nine months ended March 31,~~September 30, 2022 and 2021, respectively.

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

The Company’s largest customer during the ~~three and nine months ended March 31, 2022~~quarter sells products primarily in China travel ~~retail. This customer~~retail and accounted for ~~$740~~$413 million or ~~17%~~11%, and ~~$690~~$456 million, or ~~18%~~10%, of the Company's consolidated net sales for the three months ended ~~March 31, 2022 and 2021, respectively, and $1,792 million, or 13%, and $1,898 million, or 15%, for the nine months ended March 31,~~September 30, 2022 and 2021, respectively. This customer accounted for ~~$457~~$355 million, or ~~20%~~16%, and ~~$179~~$399 million, or ~~10%~~24%, of the Company's accounts receivable at ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, respectively.

Inventory and Promotional Merchandise

Inventory and promotional merchandise consists of the following:


(In millions)	(In millions)	March 31, 2022		June 30, 2021		(In millions)	September 30, 2022		June 30, 2022
Raw materials	Raw materials	$	778	$	674	Raw materials	$	853	$	791
Work in process	Work in process	336		330		Work in process	343		366
Finished goods	Finished goods	1,454		1,213		Finished goods	1,499		1,449
Promotional merchandise	Promotional merchandise	262		288		Promotional merchandise	323		314
		$	2,830	$	2,505		$	3,018	$	2,920

Property, Plant and Equipment

Property, plant and equipment consists of the following:


(In millions)	(In millions)	March 31, 2022		June 30, 2021		(In millions)	September 30, 2022		June 30, 2022
Assets (Useful Life)	Assets (Useful Life)					Assets (Useful Life)
Land	Land	$	56	$	55	Land	$	51	$	53
Buildings and improvements (10 to 40 years)	Buildings and improvements (10 to 40 years)	496		256		Buildings and improvements (10 to 40 years)	478		491
Machinery and equipment (3 to 10 years)	Machinery and equipment (3 to 10 years)	992		920		Machinery and equipment (3 to 10 years)	975		994
Computer hardware and software (4 to 10 years)	Computer hardware and software (4 to 10 years)	1,428		1,303		Computer hardware and software (4 to 10 years)	1,545		1,468
Furniture and fixtures (5 to 10 years)	Furniture and fixtures (5 to 10 years)	129		125		Furniture and fixtures (5 to 10 years)	127		129
Leasehold improvements	Leasehold improvements	2,307		2,312		Leasehold improvements	2,174		2,246
Construction in progress	Construction in progress	589		647		Construction in progress	806		759
		5,997		5,618			6,156		6,140
Less accumulated depreciation and amortization	Less accumulated depreciation and amortization	(3,504)		(3,338)		Less accumulated depreciation and amortization	(3,502)		(3,490)
		$	2,493	$	2,280		$	2,654	$	2,650

Depreciation and amortization of property, plant and equipment was ~~$140~~$136 million and ~~$129~~$130 million during the three months ended ~~March 31, 2022 and 2021, respectively, and $406 million and $380 million during the nine months ended March 31,~~September 30, 2022 and 2021, 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.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Leases~~

The Company recognized $33 million of long-lived asset impairments, included in Impairments of other intangible and long-lived assets, in the accompanying consolidated statements of earnings for the three and nine months ended March 31, 2021. 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. The impairments were due to the negative impacts of the COVID-19 pandemic. For the three and nine months ended March 31, 2022, the Company did not recognize any long-lived asset impairments.

Income Taxes

The effective rate for income taxes ~~for the three~~was 22.6% and ~~nine months ended March 31, 2022 and 2021 are as follows:~~

Three Months Ended
March 31 Nine Months Ended
March 31
2022 2021 2022 2021
Effective rate for income taxes 18.5 % 21.0 % 21.1 % 18.5 %
Basis-point change from the prior-year period (250) 260

~~The effective tax rate~~22.5% for the three and nine months ended March 31, 2021 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. The impact of the final issuance of GILTI tax regulations with respect to fiscal 2020 and 2019 was recognized as a discrete item in the provision for income taxes in the second and third quarters of fiscal 2021 and resulted in reductions of 30 basis points and 220 basis points to the effective tax rates for the three and nine months ended March 31, 2021, respectively.

~~For~~ the three months ended ~~March 31,~~September 30, 2022 ~~the decrease~~and 2021, respectively. The increase in the effective tax rate was primarily attributable to a lower effective tax rate on the Company's foreign operations, partially offset by a decrease in excess tax benefits associated with stock-based compensation arrangements.

~~For the nine months ended March 31, 2022, the increase in the effective tax rate~~of 10 basis points was primarily attributable to a higher effective tax rate on the ~~Company’s~~Company's foreign operations ~~which includes the retroactive impact of the final GILTI tax regulations recognized in the prior period. Also contributing to the increase was~~and a decrease in excess tax benefits associated with stock-based compensation ~~arrangements.~~arrangements, partially offset by a reduction in income tax reserve adjustments.

On August 16, 2022, the U.S. federal government enacted the Inflation Reduction Act, with tax provisions primarily focused on implementing a 1% excise tax on share repurchases and a 15% corporate alternative minimum tax based on global adjusted financial statement income. The excise tax is effective beginning with the Company’s third quarter of fiscal 2023, while the corporate alternative minimum tax will be effective beginning with the Company’s first quarter of fiscal 2024. The Company is currently evaluating the effect of the new law on its consolidated financial statements.

As of ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled ~~$63~~$59 million and ~~$62~~$61 million, respectively. The total amount of unrecognized tax benefits at ~~March 31,~~September 30, 2022 that, if recognized, would affect the effective tax rate was ~~$53~~$49 million. The total gross interest and penalties accrued related to unrecognized tax benefits during the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 in the accompanying consolidated statements of earnings was $1 ~~million and $5 million, respectively.~~million. The total gross accrued interest and penalties in the accompanying consolidated balance sheets at ~~March 31,~~each of September 30, 2022 and June 30, ~~2021,~~2022, was ~~$15 million and~~ $14 ~~million, respectively.~~million. On the basis of the information available as of ~~March 31,~~September 30, 2022, the Company does not expect significant changes to the total amount of unrecognized tax benefits within the next twelve months.

During the fiscal ~~2022~~2023 first quarter, the Company formally concluded the compliance process with respect to its fiscal ~~2020~~2021 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 nine~~ months ended ~~March 31,~~September 30, 2022.

Other Accrued and Noncurrent Liabilities

Other accrued liabilities consist of the following:


(In millions)	September 30, 2022		June 30, 2022

Employee compensation	$	430	$	693
Deferred revenue	313		312
Payroll and other non-income taxes	325		345
Accrued income taxes	332		267
Sales return accrual	307		252
Other	1,566		1,491
	$	3,273	$	3,360

At September 30, 2022 and June 30, 2022, total Other noncurrent liabilities of $1,505 million and $1,651 million included $633 million and $692 million of deferred tax liabilities, respectively.

Recently Issued Accounting Standards

FASB ASU No. 2022-04 – Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations

In September 2022, the FASB issued authoritative guidance which is intended to enhance the transparency surrounding the use of supplier finance programs. The guidance requires companies that use supplier finance programs to make annual disclosures about the program’s key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period and associated rollforward information. Only the amount outstanding at the end of the period must be disclosed in interim periods. The guidance does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations.

Effective for the Company

– The guidance becomes effective for the Company’s first quarter fiscal 2024 and is applied on a retrospective basis, except for the requirement to disclose rollforward information which is effective prospectively for the Company’s first quarter fiscal 2025. Early adoption is permitted. Annual disclosures need to be provided in interim periods within the initial year of adoption.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Other Accrued and Noncurrent Liabilities~~

~~Other accrued liabilities consist of the following:~~
(In millions) March 31, 2022 June 30, 2021
Advertising, merchandising and sampling $ 322 $ 294
Employee compensation 582 670
Deferred revenue 313 322
Payroll and other non-income taxes 321 359
Accrued income taxes 299 237
Other 1,450 1,313
$ 3,287 $ 3,195

~~At March 31, 2022 and June 30, 2021, total Other noncurrent liabilities of $1,758 million and $2,037 million included $744 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.~~

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

Impact on consolidated financial statements – ~~– On July 1, 2021,~~The Company has a supplier financing arrangement and is currently evaluating the ~~Company adopted~~impact that this ~~standard and recorded a cumulative adjustment of $121 million~~ ~~as an~~ ~~increase to~~guidance will have on its ~~fiscal 2022 opening retained earnings balance to derecognize a deferred tax liability related to a previously held equity method investment that became a foreign subsidiary.~~financial statement disclosures.

~~Recently Issued Accounting Standards~~

Reference Rate Reform (ASC Topic 848 “ASC 848”)

In March 2020, ~~the FASB~~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”) and applies to lease and other contracts, hedging instruments, held-to-maturity debt securities and debt arrangements that reference LIBOR or another rate that is expected to be discontinued as a result of reference rate reform.

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 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 performing a comprehensive evaluation and assessing the impact of applying this guidance, which includes assessing the impact to business processes and internal controls over financial reporting and the related disclosure requirements. For treasury related arrangements, the Company references LIBOR in its interest rate swap agreements and LIBOR is also used for purposes of discounting certain foreign currency and interest rate forward contracts. The Company is currently evaluating the potential impact of modifying treasury related arrangements and applying the relevant ASC 848 optional practical expedients, as needed. For existing lease, debt arrangements and other contracts, the Company ~~does~~will not ~~expect~~adopt any ~~qualifying contract modifications related to reference rate reform and therefore does not expect that the optional guidance in~~ ASC 848 ~~will need~~optional practical expedients as it relates to ~~be applied through December 31, 2022.~~these arrangements. The Company will continue to monitor new contracts that could potentially be eligible for contract modification relief through December 31, 2022.

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~NOTE 2 – ACQUISITION OF BUSINESS~~

~~On May 18, 2021, the Company acquired additional shares in Deciem Beauty Group Inc. (~~“~~DECIEM~~”), a Toronto-based skin care company, for $1,092 million in cash, including proceeds from the issuance of debt. DECIEM is a multi-brand beauty company with a brand portfolio that includes The Ordinary and NIOD. This acquisition is expected to further strengthen the Company’s leadership position in prestige skin care, expand its global consumer reach and complement its business in the online and specialty-multi channels. The Company originally acquired a minority interest in DECIEM in June 2017. The minority interest was accounted for as an equity method investment, which had a carrying value of $65 million at the acquisition date. The acquisition of additional shares increased the Company's fully diluted equity interest from approximately 29% to approximately 76% and was considered a step 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 $913 million, resulting in the recognition of a gain of $848 million. As part of the increase in the Company's investment, the Company was granted the right to purchase (“Call Option”), and granted the remaining investors a right to sell to the Company (“Put Option”), the remaining interests after a three-year period, with a purchase price based on the 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 in the consolidated balance sheets at June 30, 2021. The accounting for the DECIEM business combination was finalized as of March 31, 2022.

~~A summary of the total consideration transferred, including immaterial measurement period adjustments as of March 31, 2022, is as follows:~~

~~(In millions)~~

~~March 31, 2022~~

~~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%)~~

~~647~~

~~Total consideration transferred (100%)~~

~~2,992~~

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 $2,992 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 $647 million was calculated by multiplying the gross-up of the total consideration for the acquired ownership interest of $2,992 million by the related noncontrolling interest of approximately 21.6%.

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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%~~

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 final allocation of the total consideration transferred, including immaterial measurement period adjustments as of March 31, 2022, has been recorded as follows:


~~(In millions)~~	~~March 31, 2022~~
~~Cash~~	$	35
~~Accounts receivable~~	64
~~Inventory~~	~~190~~
~~Other current assets~~	33
~~Property, plant and equipment~~	40
~~Operating lease right-of-use assets~~	40
~~Intangible assets~~	~~1,917~~
~~Goodwill~~	~~1,296~~
~~Deferred income taxes~~	8
~~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~~	45
~~Total liabilities assumed~~	~~631~~
~~Total consideration transferred~~	$	~~2,992~~

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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 nine months ended March 31, 2022. 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 32 – 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 $1,296 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 is not deductible for tax purposes.

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, 2021
Balance as of June 30, 2022												Balance as of June 30, 2022
Goodwill	Goodwill	$	1,786	$	1,214	$	262	$	355	$	3,617	Goodwill	$	1,702	$	1,116	$	249	$	353	$	3,420
Accumulated impairments	Accumulated impairments	(141)		(830)		(30)		—		(1,001)		Accumulated impairments	(138)		(732)		(29)		—		(899)
		1,645		384		232		355		2,616			1,564		384		220		353		2,521

Goodwill measurement period adjustment		13		—		—		—		13

Translation adjustments, goodwill		(34)		—		(6)		—		(40)
Translation adjustments, accumulated impairments		2		—		—		—		2
		(19)		—		(6)		—		(25)

Balance as of March 31, 2022
Translation and other adjustments, goodwill												Translation and other adjustments, goodwill	(101)		—		(5)		(1)		(107)
Translation and other adjustments, accumulated impairments												Translation and other adjustments, accumulated impairments	1		—		—		—		1
													(100)		—		(5)		(1)		(106)

Balance as of September 30, 2022												Balance as of September 30, 2022
Goodwill	Goodwill	1,765		1,214		256		355		3,590		Goodwill	1,601		1,116		244		352		3,313
Accumulated impairments	Accumulated impairments	(139)		(830)		(30)		—		(999)		Accumulated impairments	(137)		(732)		(29)		—		(898)
		$	1,626	$	384	$	226	$	355	$	2,591		$	1,464	$	384	$	215	$	352	$	2,415

~~Other Intangible Assets~~

~~Other intangible assets consist of the following:~~

March 31, 2022 June 30, 2021
(In millions) Gross
Carrying
Value Accumulated
Amortization Total Net
Book
Value Gross
Carrying
Value Accumulated
Amortization Total Net
Book
Value
Amortizable intangible assets:
Customer lists and other $ 2,208 $ 660 $ 1,548 $ 2,273 $ 544 $ 1,729
License agreements 43 43 — 43 43 —
$ 2,251 $ 703 1,548 $ 2,316 $ 587 1,729
Non-amortizable intangible assets:
Trademarks and other 2,090 2,366
Total intangible assets $ 3,638 $ 4,095

129

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Intangible Assets

Other intangible assets consist of the following:


	September 30, 2022						June 30, 2022
(In millions)	Gross Carrying Value		Accumulated Amortization		Total Net Book Value		Gross Carrying Value		Accumulated Amortization		Total Net Book Value
Amortizable intangible assets:
Customer lists and other	$	1,945	$	640	$	1,305	$	2,061	$	625	$	1,436
License agreements	3		3		—		3		3		—
	$	1,948	$	643	1,305		$	2,064	$	628	1,436
Non-amortizable intangible assets:
Trademarks and other					1,885						1,992
Total intangible assets					$	3,190					$	3,428

The aggregate amortization expense related to amortizable intangible assets was ~~$38~~$36 million and ~~$25~~$45 million for the three months ended ~~March 31,~~September 30, 2022 and 2021, ~~respectively, and $122 million and $77 million for the nine months ended March 31, 2022 and 2021,~~ respectively.

The estimated aggregate amortization expense for the remainder of fiscal ~~2022~~2023 and for each of the next four fiscal years is as follows:

Fiscal
(In millions) 2022 2023 2024 2025 2026
Estimated aggregate amortization expense $ 39 $ 155 $ 154 $ 154 $ 154

~~Impairment Testing During the Nine Months Ended March 31, 2022~~

During the fiscal 2022 third quarter, given the lower-than-expected results from international expansion to areas that continue to be impacted by COVID-19, the Company made revisions to the internal forecasts relating to its GLAMGLOW reporting unit. The Company concluded that the changes in circumstances in the reporting unit triggered the need for an interim impairment review of its trademark intangible asset. As of March 31, 2022, the remaining carrying value of the trademark intangible asset was not recoverable and the Company recorded an impairment charge of $11 million reducing the carrying value to zero.

During the fiscal 2022 third quarter, given the lower-than-expected growth within key geographic regions and channels for Dr.Jart+ that continue to be impacted by the spread of COVID-19 variants and resurgence in cases and the potential future impacts relating to the uncertainty of the duration and severity of COVID-19 impacting the financial performance of the brand, the lower than expected growth in key retail channels for DECIEM, and the lower than expected results from international expansion to areas that continue to be impacted by COVID-19 for Too Faced, the Company made revisions to the internal forecasts relating to its Dr. Jart+, DECIEM and Too Faced reporting units.

The Company concluded that the changes in circumstances in the reporting units triggered the need for interim impairment reviews of their trademarks and goodwill. These changes in circumstances were also an indicator that the carrying amounts of Dr.Jart+’s, DECIEM’s and Too Faced’s long-lived assets, including customer lists, may not be recoverable. Accordingly, the Company performed interim impairment tests for the trademarks and a recoverability test for the long-lived assets as of February 28, 2022. The Company concluded that the carrying amounts of the long-lived assets were recoverable. For the Dr.Jart+ reporting unit, the Company also concluded that the carrying value of the trademark intangible asset 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. For the Too Faced and DECIEM reporting units, as the carrying values of the trademarks did not exceed their estimated fair values, which were determined utilizing the relief-from-royalty method to determine discounted projected future cash flows, the Company did not record impairment charges. As of March 31, 2022, the estimated fair values of Too Faced’s and DECIEM's trademarks exceeded their carrying values by 13% and 3%, respectively. For the Too Faced and DECIEM trademark intangible assets, if all other assumptions are held constant, an increase of 100 basis points and 50 basis points, respectively, in the weighted average cost of capital would result in an impairment charge. After adjusting the carrying values of the trademarks, the Company completed interim quantitative impairment tests for goodwill. As the estimated fair value of the Dr.Jart+, DECIEM and Too Faced reporting units were in excess of their carrying values, the Company concluded that the carrying amounts of the goodwill were recoverable and did not record a goodwill impairment charge related to these reporting units. The fair value of these reporting units were based upon an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting units. 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 royalty rates for trademarks. The most significant unobservable input used to estimate the fair value of the Dr. Jart+ trademark intangible asset was the weighted-average cost of capital, which was 10.5%.

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

A summary of the impairment charges for the three and nine months ended March 31, 2022 and the remaining trademark and goodwill carrying values as of March 31, 2022, for each reporting unit, are as follows:

(In millions) Impairment Charge Carrying Value
Reporting Unit: Geographic Region Trademarks Goodwill Trademarks Goodwill
GLAMGLOW The Americas $ 11 $ — $ — $ —
Dr. Jart+ Asia/Pacific 205 — 486 332
Total $ 216 $ — $ 486 $ 332

~~The impairment charges for the three and nine months ended March 31, 2022 were reflected in the skin care product category.~~

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

During November 2020, given the actual and the estimate of the potential future impacts relating to the uncertainty of the duration and severity of COVID-19 impacting the Company and lower than expected results from geographic expansion, the Company made further revisions to the internal forecasts relating to its GLAMGLOW reporting unit. The Company concluded that the changes in circumstances in this reporting unit triggered the need for an interim impairment review of its trademark and goodwill. These changes in circumstances were also an indicator that the carrying amounts of GLAMGLOW's long-lived assets, including customer lists, may not be recoverable. Accordingly, the Company performed an interim impairment test for the trademark and a recoverability test for the long-lived assets as of November 30, 2020. The Company concluded that the carrying value of the trademark for GLAMGLOW exceeded its estimated fair value, which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows, and recorded an impairment charge of $21 million. In addition, the Company concluded that the carrying value of the GLAMGLOW customer lists intangible asset was fully impaired and recorded an impairment charge of $6 million. The fair value of all other long-lived assets of GLAMGLOW exceeded their carrying values and were not impaired as of November 30, 2020. After adjusting the carrying values of the trademark and customer lists intangible assets, the Company completed an interim quantitative impairment test for goodwill and recorded a goodwill impairment charge of $54 million, reducing the carrying value of goodwill for the GLAMGLOW reporting unit to 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.


	Fiscal
(In millions)	2023		2024		2025		2026		2027
Estimated aggregate amortization expense	$	105	$	140	$	140	$	140	$	123

NOTE 43 – CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES

Charges associated with the Post-COVID Business Acceleration Program for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 were as follows:

Sales
Returns
(included in
Net Sales) Cost of Sales Operating Expenses Total
(In millions) Restructuring
Charges Other
Charges
Three months ended March 31, 2022 $ 1 $ — $ 17 $ 1 $ 19
Nine months ended March 31, 2022 $ 3 $ (2) $ 24 $ 6 $ 31


	Sales Returns (included in Net Sales)		Cost of Sales		Operating Expenses				Total
(In millions)					Restructuring Charges		Other Charges

Total	$	5	$	(1)	$	2	$	—	$	6

The types of activities included in restructuring and other charges, and the related accounting criteria, are described below.

Charges associated with restructuring and other activities are not allocated to 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.

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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 realign the Company's business 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.

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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.

As of ~~March 31,~~September 30, 2022, the Company ~~estimates~~estimated a net reduction over the duration of the PCBA Program in the range of ~~2,000~~2,500 to ~~2,500~~3,000 positions globally, including temporary and part-time employees. This reduction takes into account the elimination of some positions, retraining and redeployment of certain employees and investment in new positions in key areas. The Company also ~~estimates~~estimated 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~~As of June 30, 2022, the Company ~~plans to approve~~approved specific initiatives under the PCBA Program ~~through fiscal 2022~~ and expects to substantially complete those initiatives through fiscal 2023. ~~The~~Inclusive of approvals from inception through June 30, 2022, the Company ~~expects~~estimates that the PCBA Program ~~will~~may result in related restructuring and other charges totaling between ~~$400~~$500 million and ~~$500~~$515 million, before taxes.

PCBA Program Approvals

Total PCBA Program cumulative charges (adjustments) approved by the Company through ~~March 31,~~September 30, 2022 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, 2021 $ 42 $ (6) $ 257 $ 21 $ 314
Nine months ended March 31, 2022 (19) 9 5 2 (3)
Cumulative through March 31, 2022 $ 23 $ 3 $ 262 $ 23 $ 311


	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, 2022	$	43	$	9	$	424	$	39	$	515
Three months ended September 30, 2022	—		—		—		—		—
Cumulative through September 30, 2022	$	43	$	9	$	424	$	39	$	515

Included in the above table, cumulative PCBA Program restructuring initiatives approved by the Company through ~~March 31,~~September 30, 2022 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, 2021 $ 132 $ 108 $ 13 $ 4 $ 257
Nine months ended March 31, 2022 3 4 (1) (1) 5
Cumulative through March 31, 2022 $ 135 $ 112 $ 12 $ 3 $ 262


(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total
Restructuring Charges (Adjustments) Approved
Cumulative through June 30, 2022	$	215	$	161	$	43	$	5	$	424
Three months ended September 30, 2022	—		—		—		—		—
Cumulative through September 30, 2022	$	215	$	161	$	43	$	5	$	424

Specific actions taken since the PCBA Program inception include:

•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.

•

Optimize Select Marketing, Brand and Global Functions

– The Company has started to reduce its corporate and certain of its brand office footprints and is moving toward the future of work in a post-COVID environment, by restructuring where and how its employees work and collaborate. In addition, the Company has approved initiatives to reduce organizational complexity and leverage scale across various Global functions. These actions will result in asset write-offs, employee severance, lease termination fees, and consulting and other professional services for the design and implementation of the future structures and processes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~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 across all geographic regions, including the Company's travel retail network. These anticipated closures reflect changing consumer behaviors including higher demand for online and omnichannel capabilities. These activities will result in termination of contracts, a net reduction in workforce, product returns, and 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.

•~~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.write-offs.

•Exit of the Global Distribution of BECCA Products – In reviewing the Company's brand portfolio to improve efficiency and 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~~completed 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 iswould not be renewing its existing license agreements for the Donna Karan New York, DKNY, Michael Kors, Tommy Hilfiger and Ermenegildo Zegna product lines when ~~they~~their respective terms expire in June 2023. The Company ~~expects to continue~~has since negotiated early termination agreements with each of the licensors effective June 30, 2022 and continued to sell products under these licenses ~~through June 30, 2022.~~until such time. These actions resulted in ~~or are expected to result in, employee-related costs,~~ asset write-offs, including charges for the impairment of goodwill, employee-related costs, and consulting and legal fees.

•Brand Transformation – In reviewing the Company’s brand portfolio to accelerate growth within the makeup product category and to support long-term investments, the decision was made to strategically reposition Smashbox to capitalize on changing consumer preferences and to mitigate the impact caused by the COVID-19 pandemic on the brand. These actions will result primarily in product returns and inventory write-offs.

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.

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~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 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.

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 (Adjustments)
Cumulative through June 30, 2021 $ 14 $ 2 $ 201 $ 4 $ 221
Nine months ended March 31, 2022 3 (2) 24 6 31
Cumulative through March 31, 2022 $ 17 $ — $ 225 $ 10 $ 252


	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, 2022	$	18	$	7	$	310	$	13	$	348
Three months ended September 30, 2022	5		(1)		2		—		6
Cumulative through September 30, 2022	$	23	$	6	$	312	$	13	$	354

(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
Nine months ended March 31, 2022 5 7 11 1 24
Cumulative through March 31, 2022 $ 124 $ 82 $ 17 $ 2 $ 225


(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total
Restructuring Charges (Adjustments)
Cumulative through June 30, 2022	$	203	$	86	$	19	$	2	$	310
Three months ended September 30, 2022	(1)		9		(6)		—		2
Cumulative through September 30, 2022	$	202	$	95	$	13	$	2	$	312

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~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Changes in accrued restructuring charges for the ~~nine~~three months ended ~~March 31,~~September 30, 2022 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		$	101	$	—	$	—	$	—	$	101
Balance at June 30, 2022												Balance at June 30, 2022	$	125	$	—	$	—	$	—	$	125
Charges	Charges	5		7		11		1		24		Charges	(1)		9		(6)		—		2
Cash payments	Cash payments	(39)		—		(11)		(1)		(51)		Cash payments	(10)		—		—		—		(10)
Non-cash asset write-offs	Non-cash asset write-offs	—		(7)		—		—		(7)		Non-cash asset write-offs	—		(9)		—		—		(9)
Translation and other adjustments	Translation and other adjustments	(7)		—		—		—		(7)		Translation and other adjustments	(8)		—		7		—		(1)
Balance at March 31, 2022		$	60	$	—	$	—	$	—	$	60
Balance at September 30, 2022												Balance at September 30, 2022	$	106	$	—	$	1	$	—	$	107

Accrued restructuring charges at ~~March 31,~~September 30, 2022 relating to the PCBA Program are expected to result in cash expenditures funded from cash provided by operations of approximately ~~$23~~$64 million, ~~$30~~$34 million and $7$9 million for the remainder of fiscal ~~2022~~2023 and for fiscal ~~2023~~2024 and ~~2024,~~2025, respectively.

Between April 1, 2022 and April 26, 2022, the Company approved certain initiatives under the PCBA Program within areas of Optimize Distribution Network and Optimize Select Marketing, Brand and Global Functions. These initiatives pertain primarily to asset write-offs to close an underperforming freestanding store and the optimization of where and how employees work and collaborate.

~~Once the relevant accounting criteria have been met, the Company expects to record restructuring and other charges of approximately $50 million (before tax) in connection with these initiatives.~~

~~The following presents the restructuring initiatives approved from April 1, 2022 to April 26, 2022 by major cost type:~~

Sales
Returns
(included in
Net Sales) Cost of Sales Operating Expenses Total
(In millions) Restructuring
Charges Other
Charges
Approval Period
April 1, 2022 - April 26, 2022 $ — $ — $ 50 $ — $ 50

~~Included in the above table, cumulative restructuring initiatives approved by the Company from April 1, 2022 to April 26, 2022 were:~~

(In millions) Employee-
Related
Costs Asset-
Related
Costs Contract
Terminations Other Exit
Costs Total
Approval Period
April 1, 2022 - April 26, 2022 $ — $ 34 $ 16 $ — $ 50

~~Leading Beauty Forward Program~~

The Company substantially completed initiatives approved under the Leading Beauty Program (the “LBF Program”) through fiscal 2021. 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, 2021.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 54 – 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 31,~~September 30, 2022, the notional amount of derivatives not designated as hedging instruments was ~~$3,887~~$3,389 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.

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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						Asset Derivatives					Liability Derivatives
			Fair Value (1)					Fair Value (1)						Fair Value (1)					Fair Value (1)
(In millions)	(In millions)	Balance Sheet Location	March 31, 2022		June 30, 2021		Balance Sheet Location	March 31, 2022		June 30, 2021		(In millions)	Balance Sheet Location	September 30, 2022		June 30, 2022		Balance Sheet Location	September 30, 2022		June 30, 2022
Derivatives Designated as Hedging Instruments:	Derivatives Designated as Hedging Instruments:											Derivatives Designated as Hedging Instruments:
Foreign currency cash flow hedges	Foreign currency cash flow hedges	Prepaid expenses and other current assets	$	21	$	12	Other accrued liabilities	$	22	$	20	Foreign currency cash flow hedges	Prepaid expenses and other current assets	$	97	$	57	Other accrued liabilities	$	—	$	1
Net investment hedges	Net investment hedges	Prepaid expenses and other current assets	15		34		Other accrued liabilities	—		—		Net investment hedges	Prepaid expenses and other current assets	39		107		Other accrued liabilities	—		—
Interest rate-related derivatives	Interest rate-related derivatives	Prepaid expenses and other current assets	10		15		Other accrued liabilities	71		—		Interest rate-related derivatives	Prepaid expenses and other current assets	—		24		Other accrued liabilities	154		115
Total Derivatives Designated as Hedging Instruments	Total Derivatives Designated as Hedging Instruments		46		61			93		20		Total Derivatives Designated as Hedging Instruments		136		188			154		116
Derivatives Not Designated as Hedging Instruments:	Derivatives Not Designated as Hedging Instruments:											Derivatives Not Designated as Hedging Instruments:
Foreign currency forward contracts	Foreign currency forward contracts	Prepaid expenses and other current assets	23		6		Other accrued liabilities	25		36		Foreign currency forward contracts	Prepaid expenses and other current assets	31		27		Other accrued liabilities	54		104
Total derivatives	Total derivatives		$	69	$	67		$	118	$	56	Total derivatives		$	167	$	215		$	208	$	220

(1)See Note 65 – 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		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)
		Three Months Ended March 31					Three Months Ended March 31									Three Months Ended September 30											Three Months Ended September 30
(In millions)	(In millions)	2022		2021			2022			2021		(In millions)				2022				2021							2022			2021
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	$	(2)	$	22		Net sales			$	3			$	(7)		Foreign currency forward contracts			$	57			$	15		Net sales			$	15			$	(6)
Interest rate-related derivatives	Interest rate-related derivatives	10		11		Interest expense		—				(1)		Interest rate-related derivatives				7				—				Interest expense		—				—
		8		33				3				(8)						64				15						15				(6)
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		125				—				—		Foreign currency forward contracts(3)				71				36						—				—
Total derivatives	Total derivatives	$	25	$	158			$	3			$	(8)	Total derivatives				$	135			$	51					$	15			$	(6)

(1)~~The~~There was no 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.~~period.

(2)During the three months ended ~~March 31,~~September 30, 2022 and 2021, the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was $3$6 million and $5$2 million, respectively.

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

Amount of Gain (Loss)
Recognized in OCI on
Derivatives Location of Gain (Loss) Reclassified
from AOCI into
Earnings
Amount of Gain (Loss)
Reclassified from AOCI into Earnings(1)
Nine Months Ended
March 31 Nine Months Ended
March 31
(In millions) 2022 2021 2022 2021
Derivatives in Cash Flow Hedging Relationships:
Foreign currency forward contracts $ 5 $ (43) Net sales $ (5) $ (11)
Interest rate-related derivatives 10 14 Interest expense (1) (2)
15 (29) (6) (13)
Derivatives in Net Investment Hedging Relationships(2):
Foreign currency forward contracts(3)
87 (17) — —
Total derivatives $ 102 $ (46) $ (6) $ (13)

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

~~(2)~~During the nine months ended March 31, 2022 and 2021, the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was $8 million and $15 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 on Derivatives (1)														Amount of Gain (Loss) Recognized in Earnings on Derivatives (1)
		Location of Gain (Loss) Recognized in Earnings on Derivatives													Location of Gain (Loss) Recognized in Earnings on Derivatives
			Three Months Ended March 31				Nine Months Ended March 31						Location of Gain (Loss) Recognized in Earnings on Derivatives			Three Months Ended September 30
(In millions)	(In millions)		2022		2021		2022		2021								2022		2021
Derivatives in Fair Value Hedging Relationships:	Derivatives in Fair Value Hedging Relationships:

Interest rate swap contracts	Interest rate swap contracts		Interest expense		$	(69)	$	(18)	$	(85)	$	(23)		Interest rate swap contracts		Interest expense			$	(39)	$	(10)

(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.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(In millions)
Line Item in the Consolidated Balance Sheets in
Which the Hedged Item is Included Carrying Amount of the
Hedged Liabilities Cumulative Amount of Fair
Value Hedging Gain (Loss)
Included in the Carrying Amount of the Hedged Liability
March 31, 2022 March 31, 2022
Current debt $ 251 $ 1
Long-term debt 921 (71)
Total debt $ 1,172 $ (70)

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~


(In millions)
Line Item in the Consolidated Balance Sheets in Which the Hedged Item is Included	Carrying Amount of the Hedged Liabilities		Cumulative Amount of Fair Value Hedging Gain (Loss) Included in the Carrying Amount of the Hedged Liability
	September 30, 2022		September 30, 2022
Current debt	$	—	$	—
Long-term debt	838		(154)
Total debt	$	838	$	(154)

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
2022 2021
(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 $ 4,245 $ 41 $ 3,864 $ 43
The effects of fair value and cash flow hedging relationships:
Gain (loss) on fair value hedge relationships – interest rate contracts:
Hedged item Not applicable 69 Not applicable 18
Derivatives designated as hedging instruments Not applicable (69) Not applicable (18)
Gain (loss) on cash flow hedge relationships – interest rate contracts:
Amount of loss reclassified from AOCI into earnings Not applicable — Not applicable (1)
Gain (loss) on cash flow hedge relationships – foreign currency forward contracts:
Amount of gain reclassified from AOCI into earnings 3 Not applicable (7) Not applicable


	Three Months Ended September 30
	2022				2021
(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	$	3,930	$	46	$	4,392	$	42
The effects of fair value and cash flow hedging relationships:
Gain (loss) on fair value hedge relationships – interest rate contracts:
Hedged item	Not applicable		39		Not applicable		10
Derivatives designated as hedging instruments	Not applicable		(39)		Not applicable		(10)

Gain (loss) on cash flow hedge relationships – interest rate contracts:
Amount of loss reclassified from AOCI into earnings	Not applicable		—		Not applicable		—

Gain (loss) on cash flow hedge relationships – foreign currency forward contracts:
Amount of gain (loss) reclassified from AOCI into earnings	15		Not applicable		(6)		Not applicable

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended March 31
2022 2021
(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 $ 14,176 $ 125 $ 12,279 $ 131
The effects of fair value and cash flow hedging relationships:
Gain (loss) on fair value hedge relationships – interest rate contracts:
Hedged item Not applicable 85 Not applicable 23
Derivatives designated as hedging instruments Not applicable (85) Not applicable (23)
Gain (loss) on cash flow hedge relationships – interest rate contracts:
Amount of loss reclassified from AOCI into earnings Not applicable (1) Not applicable (2)
Gain (loss) on cash flow hedge relationships – foreign currency forward contracts:
Amount of gain reclassified from AOCI into earnings (5) Not applicable (11) 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 on Derivatives																		Amount of Gain (Loss) Recognized in Earnings on Derivatives
		Location of Gain (Loss) Recognized in Earnings on Derivatives		Three Months Ended March 31						Nine Months Ended March 31					Location of Gain (Loss) Recognized in Earnings on Derivatives					Three Months Ended September 30
(In millions)	(In millions)		2022			2021			2022			2021					Location of Gain (Loss) Recognized in Earnings on Derivatives				2022				2021
Derivatives Not Designated as Hedging Instruments:	Derivatives Not Designated as Hedging Instruments:																	Derivatives Not Designated as Hedging Instruments:

Foreign currency forward contracts	Foreign currency forward contracts	Selling, general and administrative		$	17		$	(97)		$	(32)		$	(34)		Foreign currency forward contracts			Selling, general and administrative				$	11		$	(11)

~~Table of Contents~~

~~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 2023.~~June 2024. Hedge effectiveness of the foreign currency forward contracts is based on the forward method, which includes time value in the effectiveness assessment. At ~~March 31,~~September 30, 2022, the Company had cash flow hedges outstanding with a notional amount totaling ~~$1,563~~$1,588 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 foreign currency hedge contracts that are no longer deemed highly effective, hedge accounting is discontinued and gains and losses in AOCI are reclassified to sales when the underlying forecasted transaction occurs. If it is probable that the forecasted transaction will no longer occur, then any gains or losses in AOCI are reclassified to current-period sales. As of ~~March 31,~~September 30, 2022, the Company’s foreign currency cash flow hedges were highly effective.

The estimated net gain on the Company’s derivative instruments designated as cash flow hedges as of ~~March 31,~~September 30, 2022 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $1$68 million. The accumulated net gain ~~(loss)~~ on derivative instruments in AOCI was ~~$20~~$139 million and ~~$(1)~~$90 million as of ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, respectively.

Fair Value Hedges

The Company enters into interest rate derivative contracts to manage the exposure to interest rate fluctuations on its funded indebtedness. The Company has interest rate swap agreements, with notional amounts totaling ~~$250 million,~~ $700 million and $300 million to effectively convert the fixed rate interest on its ~~2022 Senior Notes,~~ 2030 Senior Notes and 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.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 ~~July 2022.~~May 2023. Hedge effectiveness of the net investment hedge contracts is based on the spot method. At ~~March 31,~~September 30, 2022, the Company had net investment hedges outstanding with a notional amount totaling ~~$1,372~~$1,037 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 2two 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 ~~$69~~$167 million at ~~March 31,~~September 30, 2022. 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.

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE 65 – FAIR VALUE MEASUREMENTS

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

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

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

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

~~The following table presents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2022:~~

(In millions) Level 1 Level 2 Level 3 Total
Assets:
Money market funds $ 1,019 $ — $ — $ 1,019
Foreign currency forward contracts — 59 — 59
Interest rate-related derivatives — 10 — 10
Total $ 1,019 $ 69 $ — $ 1,088
Liabilities:
Foreign currency forward contracts $ — $ 47 $ — $ 47
Interest rate-related derivatives — 71 — 71
DECIEM stock options — — 74 74
Total $ — $ 118 $ 74 $ 192

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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~~September 30, ~~2021:~~2022:


(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	$	2,079	$	—	$	—	$	2,079	Money market funds	$	329	$	—	$	—	$	329
Foreign currency forward contracts	Foreign currency forward contracts	—		52		—		52		Foreign currency forward contracts	—		167		—		167
Interest rate-related derivatives		—		15		—		15

Total	Total	$	2,079	$	67	$	—	$	2,146	Total	$	329	$	167	$	—	$	496

Liabilities:	Liabilities:									Liabilities:
Foreign currency forward contracts	Foreign currency forward contracts	$	—	$	56	$	—	$	56	Foreign currency forward contracts	$	—	$	54	$	—	$	54

Interest rate-related derivatives										Interest rate-related derivatives	—		154		—		154
DECIEM stock options	DECIEM stock options	—		—		141		141		DECIEM stock options	—		—		69		69
Total	Total	$	—	$	56	$	141	$	197	Total	$	—	$	208	$	69	$	277

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, 2022:


(In millions)	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	961	$	—	$	—	$	961
Foreign currency forward contracts	—		191		—		191
Interest rate-related derivatives	—		24		—		24
Total	$	961	$	215	$	—	$	1,176

Liabilities:
Foreign currency forward contracts	$	—	$	105	$	—	$	105
Interest rate-related derivatives	—		115		—		115
DECIEM stock options	—		—		74		74
Total	$	—	$	220	$	74	$	294

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

March 31, 2022 June 30, 2021
(In millions) Carrying
Amount Fair
Value Carrying
Amount Fair
Value
Nonderivatives
Cash and cash equivalents $ 3,836 $ 3,836 $ 4,958 $ 4,958
Current and long-term debt 5,457 5,607 5,569 6,262
DECIEM stock options 74 74 141 141
Derivatives
Foreign currency forward contracts – asset (liability), net 12 12 (4) (4)
Interest rate-related derivatives – asset (liability), net (61) (61) 15 15


	September 30, 2022				June 30, 2022
(In millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Nonderivatives
Cash and cash equivalents	$	2,938	$	2,938	$	3,957	$	3,957
Current and long-term debt	5,373		4,809		5,412		5,139
DECIEM stock options	69		69		74		74

Derivatives
Foreign currency forward contracts – asset (liability), net	113		113		86		86
Interest rate-related derivatives – asset (liability), net	(154)		(154)		(91)		(91)

2620

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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, 2022 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)
Other intangible assets, net (trademarks)
GLAMGLOW $ 11 March 31, 2022 $ —
Dr. Jart+ 205 February 28, 2022 486
Total 216 486
Total $ 216 $ 486

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

The following 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 $ —
BECCA(2)
13 February 28, 2021 —
Total 67 —
Other intangible assets, net (trademark and customer lists)
GLAMGLOW 27 November 30, 2020 36
BECCA(2)
34 February 28, 2021 —
Total 61 36
Long-lived assets 33 March 31, 2021 35
Total $ 161 $ 71

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

The following 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~~- related derivatives – 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.

DECIEM stock options – 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 DECIEM. The DECIEM stock options are subject to the terms and conditions of DECIEM's 2021 Stock Option Plan. The ~~initial fair value of the~~ DECIEM stock option liability was calculated using the acquisition date fair value multiplied by the number of options replaced (consisting of vested and partially vested stock options) on the day following the acquisition date. The acquisition date fair value was calculatedis measured using the Monte Carlo Method, which requires certain assumptions. Significant changes in the projected future operating results would result in a higher or lower fair value measurement. Changes to the discount rates or volatilities would have a lesser effect. These inputs are 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~~9 – Stock Programs for discussion.

Changes in the DECIEM stock option liability for the ~~nine~~three months ended ~~March 31,~~September 30, 2022 are included in Selling, general and administrative expenses in the accompanying consolidated statements of earnings and were as follows:


(In millions)	Fair Value
DECIEM stock option liability as of June 30, ~~2021~~2022	$	~~141~~74
Changes in fair value, net of foreign currency remeasurements(1)	~~(58)~~1
Translation adjustments and other, net	~~(9)~~(6)
DECIEM stock option liability as of ~~March 31,~~September 30, 2022	$	7469

(1)Amount includes expense attributable to graded vesting of stock options which is not material ~~for~~for the ~~nine~~three months ended ~~March 31,~~September 30, 2022.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 76 – 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, ~~2021.~~2022.

Accounts Receivable

Accounts receivable, net is stated net of the allowance for doubtful accounts and customer deductions totaling ~~$36~~$28 million and ~~$40~~$27 million as of ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, respectively. Payment terms are short-term in nature and are generally less than one year.

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Changes in the allowance for credit losses are as follows:


(In millions)	~~March 31,~~September 30, 2022
Balance at June 30, ~~2021~~2022	$	2010

~~Adjustment~~Provision for expected credit losses	~~(2)~~3
Write-offs, net & other	(1)
Balance at ~~March 31,~~September 30, 2022	$	1712

The remaining balance of the allowance for doubtful accounts of ~~$19~~$16 million and $17 million as of ~~March 31,~~September 30, 2022 and June 30, 2022, respectively, relates to non-credit losses, which are primarily due to customer deductions.

Deferred Revenue

Changes in deferred revenue during the period are as follows:


		Three Months Ended March 31				Nine Months Ended March 31					Three Months Ended September 30
(In millions)	(In millions)	2022		2021		2022		2021		(In millions)		2022		2021
Deferred revenue, beginning of period	Deferred revenue, beginning of period	$	421	$	420	$	371	$	279	Deferred revenue, beginning of period		$	362	$	371
Revenue recognized that was included in the deferred revenue balance at the beginning of the period	Revenue recognized that was included in the deferred revenue balance at the beginning of the period	(40)		(25)		(288)		(198)		Revenue recognized that was included in the deferred revenue balance at the beginning of the period		(149)		(170)
Revenue deferred (released) during the period		(13)		(30)		285		278
Revenue deferred during the period										Revenue deferred during the period		157		223
Other	Other	(4)		(4)		(4)		2		Other		(8)		2
Deferred revenue, end of period	Deferred revenue, end of period	$	364	$	361	$	364	$	361	Deferred revenue, end of period		$	362	$	426

Transaction Price Allocated to the Remaining Performance Obligations

At ~~March 31,~~September 30, 2022, 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 $313 million. The remaining balance of deferred revenue at ~~March 31,~~September 30, 2022 will be recognized beyond the next twelve months.

NOTE 87 – 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, ~~2021.~~2022.

~~The components of net periodic benefit cost for the three months ended March 31, 2022 and 2021 consisted of the following:~~

Pension Plans Other than
Pension Plans
U.S. International Post-retirement
(In millions) 2022 2021 2022 2021 2022 2021
Service cost $ 12 $ 12 $ 8 $ 9 $ 1 $ 2
Interest cost 8 8 3 2 1 1
Expected return on plan assets (14) (14) (4) (4) — (1)
Amortization of:
Actuarial loss 4 5 — 1 — —
Prior service cost — — — — — —
Settlements — — — 1 — —
Special termination benefits — — 1 1 — —
Net periodic benefit cost $ 10 $ 11 $ 8 $ 10 $ 2 $ 2

2922

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of net periodic benefit cost for the ~~nine~~three months ended ~~March 31,~~September 30, 2022 and 2021 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)	2022		2021		2022		2021		2022		2021		(In millions)	2022		2021		2022		2021		2022		2021
Service cost	Service cost	$	35	$	34	$	24	$	27	$	2	$	2	Service cost	$	9	$	12	$	7	$	8	$	—	$	1
Interest cost	Interest cost	23		23		8		7		4		4		Interest cost	10		8		3		3		2		1
Expected return on plan assets	Expected return on plan assets	(41)		(40)		(11)		(10)		(1)		(1)		Expected return on plan assets	(14)		(14)		(4)		(4)		—		—
Amortization of:	Amortization of:													Amortization of:
Actuarial loss	Actuarial loss	11		15		1		3		1		—		Actuarial loss	1		4		(1)		—		—		—
Prior service cost		—		—		(1)		—		—		—
Settlements		—		—		—		1		—		—

Special termination benefits	Special termination benefits	—		—		4		10		—		—		Special termination benefits	—		—		—		2		—		—
Net periodic benefit cost	Net periodic benefit cost	$	28	$	32	$	25	$	38	$	6	$	5	Net periodic benefit cost	$	6	$	10	$	5	$	9	$	2	$	2

During the ~~nine~~three months ended ~~March 31,~~September 30, 2022, the Company made contributions to its international pension plans totaling ~~$17~~$3 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, 2022		June 30, 2021		(In millions)	September 30, 2022		June 30, 2022
Other assets	Other assets	$	142	$	162	Other assets	$	132	$	151
Other accrued liabilities	Other accrued liabilities	(28)		(28)		Other accrued liabilities	(24)		(24)
Other noncurrent liabilities	Other noncurrent liabilities	(426)		(432)		Other noncurrent liabilities	(349)		(357)
Funded status	Funded status	(312)		(298)		Funded status	(241)		(230)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	229		242		Accumulated other comprehensive loss	158		155
Net amount recognized	Net amount recognized	$	(83)	$	(56)	Net amount recognized	$	(83)	$	(75)

NOTE 98 – CONTINGENCIES

Legal Proceedings

The Company is involved, from time to time, in litigation and other legal proceedings incidental to its business, including product liability matters (including asbestos-related claims), advertising, regulatory, employment, intellectual property, real estate, environmental, ~~regulatory, advertising,~~ trade relations, tax, ~~privacy,~~ and ~~product liability matters (including asbestos-related claims).~~privacy. 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.

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE 109 – 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.~~2022.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 and share units. Compensation expense attributable to net stock-based compensation was ~~$91~~$53 million and ~~$86~~$79 million for the three months ended ~~March 31, 2022 and 2021, respectively, and was $283 million and $255 million for the nine months ended March 31,~~September 30, 2022 and 2021, respectively.

Stock Options

During the ~~nine~~three months ended ~~March 31,~~September 30, 2022, the Company granted stock options in respect of approximately ~~1.1~~1.2 million shares of Class A Common Stock with an exercise price per share of ~~$344.09~~$246.15 and a weighted-average grant date fair value per share of ~~$85.56.~~$79.07. 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~~three months ended ~~March 31,~~September 30, 2022 was ~~$248~~$44 million.

Restricted Stock Units

~~The~~During the three months ended September 30, 2022, the Company granted RSUs in respect of approximately ~~0.7~~1.1 million shares of Class A Common Stock ~~during the nine months ended March 31, 2022~~ with a weighted-average grant date fair value per share of ~~$340.18~~$246.16 that, at the time of grant, are scheduled to vest at ~~0.2~~0.4 million, ~~0.2~~0.4 million, and 0.3 million shares per year, in fiscal ~~2023,~~2024, fiscal ~~2024~~2025 and fiscal ~~2025,~~2026, respectively. Vesting of RSUs is generally subject to the continued employment or the retirement of the grantees. The RSUs are generally 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~~three months ended ~~March 31,~~September 30, 2022, the Company granted PSUs with a target payout of approximately 0.1 million shares of Class A Common Stock with a grant date fair value per share of ~~$344.06,~~$246.15, which will be settled in stock subject to the achievement of the Company’s net sales, ~~and~~ diluted net earnings per common share and return on invested capital goals for the three fiscal years ending June 30, ~~2024,~~2025, 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 ~~2021,~~2022, 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 ~~0.2~~0.1 million PSUs with a performance period ended June 30, ~~2021.~~2022.

DECIEM Stock Options

The DECIEM stock options are liability-classified awards as they are expected to be settled in cash and are remeasured to fair value at each reporting date through date of settlement. Total stock-based compensation expense is attributable to the exchange or replacement of and the remaining requisite service period of stock options. ~~Due to a reduction in the fair value of the DECIEM stock options, the~~The total stock option expense for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 ~~resulted in income of $60 million~~ and ~~$58 million, respectively, net of foreign currency remeasurements.~~2021 was not material. There were no DECIEM stock options exercised during the ~~nine~~three months ended ~~March 31,~~September 30, 2022.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The initial fair value of the DECIEM stock option liability was calculated using the acquisition date fair value multiplied by the number of 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, were reported as part of the total consideration transferred.~~ The DECIEM stock options are reported as a stock option liability of ~~$74~~$69 million and ~~$141~~$74 million in Other noncurrent liabilities in the accompanying consolidated balance sheets at ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, respectively. The fair value of the stock options were calculated using the following key assumptions into the Monte Carlo Method:


		March 31, 2022	June 30, 2021	May 18, 2021		September 30, 2022	June 30, 2022
Risk-free rate	Risk-free rate	1.80%	0.50%	0.50%	Risk-free rate	3.90%	3.20%
Term to mid of last twelve-month period	Term to mid of last twelve-month period	1.67 years	2.42 years	2.54 years	Term to mid of last twelve-month period	1.17 years	1.42 years
Operating leverage adjustment	Operating leverage adjustment	0.45	0.45	0.45	Operating leverage adjustment	0.45	0.45
Net sales discount rate	Net sales discount rate	5.00%	3.40%	3.30%	Net sales discount rate	6.70%	6.00%
EBITDA discount rate	EBITDA discount rate	8.90%	6.90%	6.80%	EBITDA discount rate	10.10%	9.40%
EBITDA volatility	EBITDA volatility	34.00%	37.70%	38.30%	EBITDA volatility	35.70%	33.90%
Net sales volatility	Net sales volatility	15.30%	17.00%	17.20%	Net sales volatility	16.10%	15.30%

NOTE 1110 – NET EARNINGS ATTRIBUTABLE TO THE ESTÉE LAUDER COMPANIES INC. PER COMMON SHARE

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

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


		Three Months Ended March 31			Nine Months Ended March 31							Three Months Ended September 30
(In millions, except per share data)	(In millions, except per share data)		2022		2021		2022		2021		(In millions, except per share data)		2022		2021
Numerator:	Numerator:										Numerator:
Net earnings attributable to The Estée Lauder Companies Inc.	Net earnings attributable to The Estée Lauder Companies Inc.		$	558	$	456	$	2,338	$	1,852	Net earnings attributable to The Estée Lauder Companies Inc.		$	489	$	692

Denominator:	Denominator:										Denominator:
Weighted-average common shares outstanding – Basic	Weighted-average common shares outstanding – Basic		359.2		363.6		360.7		362.9		Weighted-average common shares outstanding – Basic		357.9		362.2
Effect of dilutive stock options	Effect of dilutive stock options		3.5		4.1		3.9		3.9		Effect of dilutive stock options		2.7		4.2
Effect of PSUs	Effect of PSUs		0.2		0.2		0.2		0.2		Effect of PSUs		0.1		0.2
Effect of RSUs	Effect of RSUs		0.7		1.1		1.0		1.1		Effect of RSUs		0.7		1.3
Weighted-average common shares outstanding – Diluted	Weighted-average common shares outstanding – Diluted		363.6		369.0		365.8		368.1		Weighted-average common shares outstanding – Diluted		361.4		367.9

Net earnings attributable to The Estée Lauder Companies Inc. per common share:	Net earnings attributable to The Estée Lauder Companies Inc. per common share:										Net earnings attributable to The Estée Lauder Companies Inc. per common share:
Basic	Basic		$	1.55	$	1.25	$	6.48	$	5.10	Basic		$	1.37	$	1.91
Diluted	Diluted		$	1.53	$	1.24	$	6.39	$	5.03	Diluted		$	1.35	$	1.88

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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			Three Months Ended September 30
(In millions)	(In millions)	2022	2021	2022	2021	(In millions)		2022	2021
Stock options	Stock options	1.0	—	0.8	0.9	Stock options		1.3	0.3
RSUs and PSUs	RSUs and PSUs	—	—	0.1	0.1	RSUs and PSUs		—	0.2

As of ~~March 31,~~September 30, 2022 and 2021, ~~0.7~~0.4 million and ~~0.9~~0.7 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 109 – Stock Programs.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1211 – EQUITY AND REDEEMABLE NONCONTROLLING INTEREST

Total Stockholders’ Equity – The Estée Lauder Companies Inc.


		Three Months Ended March 31			Nine Months Ended March 31							Three Months Ended September 30
(In millions)	(In millions)		2022		2021		2022		2021		(In millions)		2022		2021
Common stock, beginning of the period	Common stock, beginning of the period		$	6	$	6	$	6	$	6	Common stock, beginning of the period		$	6	$	6
Stock-based compensation	Stock-based compensation		—		—		—		—		Stock-based compensation		—		—
Common stock, end of the period	Common stock, end of the period		6		6		6		6		Common stock, end of the period		6		6

Paid-in capital, beginning of the period	Paid-in capital, beginning of the period		5,605		5,068		5,335		4,790		Paid-in capital, beginning of the period		5,796		5,335
Common stock dividends	Common stock dividends		2		1		3		2		Common stock dividends		1		1
Stock-based compensation	Stock-based compensation		139		162		408		439		Stock-based compensation		78		114
Paid-in capital, end of the period	Paid-in capital, end of the period		5,746		5,231		5,746		5,231		Paid-in capital, end of the period		5,875		5,450

Retained earnings, beginning of the period	Retained earnings, beginning of the period		13,735		11,159		12,244		10,134		Retained earnings, beginning of the period		13,912		12,244
Common stock dividends	Common stock dividends		(217)		(195)		(627)		(563)		Common stock dividends		(216)		(193)
Net earnings attributable to The Estée Lauder Companies Inc.	Net earnings attributable to The Estée Lauder Companies Inc.		558		456		2,338		1,852		Net earnings attributable to The Estée Lauder Companies Inc.		489		692
Cumulative effect of adoption of new accounting standards	Cumulative effect of adoption of new accounting standards		—		—		121		(3)		Cumulative effect of adoption of new accounting standards		—		121
Retained earnings, end of the period	Retained earnings, end of the period		14,076		11,420		14,076		11,420		Retained earnings, end of the period		14,185		12,864

Accumulated other comprehensive loss, beginning of the period	Accumulated other comprehensive loss, beginning of the period		(646)		(383)		(470)		(665)		Accumulated other comprehensive loss, beginning of the period		(762)		(470)
Other comprehensive income (loss) attributable to The Estée Lauder Companies Inc.	Other comprehensive income (loss) attributable to The Estée Lauder Companies Inc.		20		(104)		(156)		178		Other comprehensive income (loss) attributable to The Estée Lauder Companies Inc.		(316)		(155)
Accumulated other comprehensive loss, end of the period	Accumulated other comprehensive loss, end of the period		(626)		(487)		(626)		(487)		Accumulated other comprehensive loss, end of the period		(1,078)		(625)

Treasury stock, beginning of the period	Treasury stock, beginning of the period		(12,482)		(10,429)		(11,058)		(10,330)		Treasury stock, beginning of the period		(13,362)		(11,058)
Acquisition of treasury stock	Acquisition of treasury stock		(568)		(212)		(1,850)		(212)		Acquisition of treasury stock		(92)		(519)
Stock-based compensation	Stock-based compensation		(2)		(1)		(144)		(100)		Stock-based compensation		(17)		(37)
Treasury stock, end of the period	Treasury stock, end of the period		(13,052)		(10,642)		(13,052)		(10,642)		Treasury stock, end of the period		(13,471)		(11,614)

Total stockholders’ equity – The Estée Lauder Companies Inc.	Total stockholders’ equity – The Estée Lauder Companies Inc.		6,150		5,528		6,150		5,528		Total stockholders’ equity – The Estée Lauder Companies Inc.		5,517		6,081

Noncontrolling interests, beginning of the period	Noncontrolling interests, beginning of the period		34		35		34		27		Noncontrolling interests, beginning of the period		—		34
Net earnings attributable to noncontrolling interests	Net earnings attributable to noncontrolling interests		3		2		8		8		Net earnings attributable to noncontrolling interests		—		1
Distribution to noncontrolling interest holders			—		(6)		—		(6)

Translation adjustments and other, net	Translation adjustments and other, net		(1)		(1)		(6)		1		Translation adjustments and other, net		—		(1)
Noncontrolling interests, end of the period	Noncontrolling interests, end of the period		36		30		36		30		Noncontrolling interests, end of the period		—		34

Total equity	Total equity		$	6,186	$	5,558	$	6,186	$	5,558	Total equity		$	5,517	$	6,115

Redeemable noncontrolling interest, beginning of the period	Redeemable noncontrolling interest, beginning of the period		$	840	$	—	$	857	$	—	Redeemable noncontrolling interest, beginning of the period		$	842	$	857

Net earnings attributable to redeemable noncontrolling interest	Net earnings attributable to redeemable noncontrolling interest		12		—		12		—		Net earnings attributable to redeemable noncontrolling interest		1		2
Translation adjustments	Translation adjustments		14		—		(3)		—		Translation adjustments		(35)		(17)

Adjustment of redeemable noncontrolling interest to redemption value			(1)		—		(1)		—

Redeemable noncontrolling interest, end of the period	Redeemable noncontrolling interest, end of the period		$	865	$	—	$	865	$	—	Redeemable noncontrolling interest, end of the period		$	808	$	842

Cash dividends declared per common share	Cash dividends declared per common share		$	.60	$	.53	$	1.73	$	1.54	Cash dividends declared per common share		$	.60	$	.53

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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~~three months ended ~~March 31,~~September 30, 2022:

Date Declared

Record Date

Payable Date

Amount per Share

August ~~18, 2021~~17, 2022

August 31, ~~2021~~2022

September ~~15, 2021~~

~~.53~~

~~November 1, 2021~~

~~November 30, 2021~~

~~December 15, 2021~~

~~.60~~

~~February 2, 2022~~

~~February 28, 2022~~

~~March~~ 15, 2022

.60

On ~~May 2,~~November 1, 2022, a dividend was declared in the amount of ~~$.60~~$.66 per share on the Company’s Class A and Class B Common Stock. The dividend is payable in cash on ~~June~~December 15, 2022 to stockholders of record at the close of business on ~~May 31,~~November 30, 2022.

Common Stock

During the ~~nine~~three months ended ~~March 31,~~September 30, 2022, the Company purchased approximately ~~6.2~~0.4 million shares of its Class A Common Stock for ~~$1,998~~$110 million.

~~During the nine months ended March 31, 2022, 2.7 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~~three months ended ~~March 31,~~September 30, 2022:


(In millions)	(In millions)	Net Cash Flow Hedge Gain (Loss)		Amounts Included in Net Periodic Benefit Cost			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, 2021		$	(2)	$	(179)		$	(289)		$	(470)
Balance at June 30, 2022												Balance at June 30, 2022	$	68	$	(114)		$	(716)		$	(762)
OCI before reclassifications	OCI before reclassifications	12		1		(1)	(182)		(2)	(169)		OCI before reclassifications	49		(2)		(1)	(352)		(2)	(305)
Amounts reclassified to Net earnings	Amounts reclassified to Net earnings	4		9			—			13		Amounts reclassified to Net earnings	(11)		—			—			(11)
Net current-period OCI	Net current-period OCI	16		10			(182)			(156)		Net current-period OCI	38		(2)			(352)			(316)
Balance at March 31, 2022		$	14	$	(169)		$	(471)		$	(626)
Balance at September 30, 2022												Balance at September 30, 2022	$	106	$	(116)		$	(1,068)		$	(1,078)

(1)Consists of foreign currency translation losses.

(2)See Note 54 – Derivative Financial Instruments for gains (losses) relating to net investment hedges.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table represents the effects of reclassification adjustments from AOCI into net earnings for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 and 2021:


		Amount Reclassified from AOCI									Affected Line Item in Consolidated Statements of Earnings			Amount Reclassified from AOCI				Affected Line Item in Consolidated Statements of Earnings
		Three Months Ended March 31				Nine Months Ended March 31				Affected Line Item in Consolidated Statements of Earnings			Three Months Ended September 30			Affected Line Item in Consolidated Statements of Earnings
(In millions)	(In millions)	2022		2021		2022		2021				(In millions)		2022

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	$	3	$	(7)	$	(5)	$	(11)		Net sales	Foreign currency forward contracts		$	15	$	(6)	Net sales
Interest rate-related derivatives	Interest rate-related derivatives	—		(1)		(1)		(2)			Interest expense	Interest rate-related derivatives		—		—		Interest expense
		3		(8)		(6)		(13)						15		(6)
Benefit for deferred taxes		—		2		2		3			Provision for income taxes
Benefit (provision) for deferred taxes												Benefit (provision) for deferred taxes		(4)		2		Provision for income taxes
		3		(6)		(4)		(10)			Net earnings			11		(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		—		—		1		—			Other components of net periodic benefit cost (1)

Amortization of actuarial loss	Amortization of actuarial loss	(4)		(6)		(13)		(18)			Other components of net periodic benefit cost (1)	Amortization of actuarial loss		—		(4)		Other components of net periodic benefit cost (1)
Settlements		—		(1)		—		(1)			Other components of net periodic benefit cost (1)
		(4)		(7)		(12)		(19)
Benefit for deferred taxes	Benefit for deferred taxes	1		3		3		5			Provision for income taxes	Benefit for deferred taxes		—		1		Provision for income taxes
		(3)		(4)		(9)		(14)			Net earnings			—		(3)		Net earnings

Total reclassification adjustments, net	Total reclassification adjustments, net	$	—	$	(10)	$	(13)	$	(24)		Net earnings	Total reclassification adjustments, net		$	11	$	(7)	Net earnings

(1)See Note 87 – Pension and Post-Retirement Benefit Plans for additional information.

NOTE 1312 – STATEMENT OF CASH FLOWS

Supplemental cash flow information for the ~~nine~~three months ended ~~March 31,~~September 30, 2022 and 2021 is as follows:


(In millions)	(In millions)	2022		2021		(In millions)	2022		2021
Cash:	Cash:					Cash:
Cash paid during the period for interest	Cash paid during the period for interest	$	110	$	108	Cash paid during the period for interest	$	33	$	30
Cash paid during the period for income taxes	Cash paid during the period for income taxes	$	626	$	435	Cash paid during the period for income taxes	$	113	$	125

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	$	110	$	68	Property, plant and equipment accrued but unpaid	$	171	$	126

Financing lease modifications		$	(13)	$	—

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	$	179	$	167	Right-of-use assets obtained in exchange for new/modified operating lease liabilities	$	70	$	44

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1413 – 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 1one 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 operating income (loss) before charges associated with restructuring and other activities. Returns and charges associated with restructuring and other activities are not allocated to 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, ~~2021.~~2022. 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, ~~2021.~~2022.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


		Three Months Ended March 31			Nine Months Ended March 31							Three Months Ended September 30
(In millions)	(In millions)		2022		2021		2022		2021		(In millions)		2022		2021
PRODUCT CATEGORY DATA	PRODUCT CATEGORY DATA										PRODUCT CATEGORY DATA
Net sales:	Net sales:										Net sales:
Skin Care	Skin Care		$	2,395	$	2,259	$	8,003	$	7,113	Skin Care		$	2,104	$	2,449
Makeup	Makeup		1,114		1,018		3,674		3,243		Makeup		1,052		1,174
Fragrance	Fragrance		579		454		1,987		1,478		Fragrance		607		609
Hair Care	Hair Care		147		128		475		418		Hair Care		158		148
Other	Other		11		15		40		37		Other		14		13
			4,246		3,874		14,179		12,289				3,935		4,393
Returns associated with restructuring and other activities	Returns associated with restructuring and other activities		(1)		(10)		(3)		(10)		Returns associated with restructuring and other activities		(5)		(1)
Net sales	Net sales		$	4,245	$	3,864	$	14,176	$	12,279	Net sales		$	3,930	$	4,392

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		$	667	$	804	$	2,466	$	2,453	Skin Care		$	530	$	717
Makeup	Makeup		7		(72)		228		(115)		Makeup		16		91
Fragrance	Fragrance		105		47		446		248		Fragrance		133		131
Hair Care	Hair Care		(18)		(17)		(8)		(10)		Hair Care		(12)		2
Other	Other		—		(1)		3		(1)		Other		—		—
			761		761		3,135		2,575				667		941
Reconciliation:	Reconciliation:										Reconciliation:
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities		(23)		(145)		(44)		(191)		Charges associated with restructuring and other activities		(6)		(6)
Interest expense	Interest expense		(41)		(43)		(125)		(131)		Interest expense		(46)		(42)
Interest income and investment income, net	Interest income and investment income, net		5		9		19		40		Interest income and investment income, net		15		4
Other components of net periodic benefit cost	Other components of net periodic benefit cost		1		(2)		2		(12)		Other components of net periodic benefit cost		3		(1)
Other income	Other income		—		—		1		—		Other income		—		1
Earnings before income taxes	Earnings before income taxes		$	703	$	580	$	2,988	$	2,281	Earnings before income taxes		$	633	$	897

GEOGRAPHIC DATA(1)	GEOGRAPHIC DATA(1)										GEOGRAPHIC DATA(1)
Net sales:	Net sales:										Net sales:
The Americas	The Americas		$	1,053	$	916	$	3,547	$	2,837	The Americas		$	1,123	$	1,194
Europe, the Middle East & Africa	Europe, the Middle East & Africa		1,990		1,706		6,201		5,276		Europe, the Middle East & Africa		1,682		1,873
Asia/Pacific	Asia/Pacific		1,203		1,252		4,431		4,176		Asia/Pacific		1,130		1,326
			4,246		3,874		14,179		12,289				3,935		4,393
Returns associated with restructuring and other activities	Returns associated with restructuring and other activities		(1)		(10)		(3)		(10)		Returns associated with restructuring and other activities		(5)		(1)
Net sales	Net sales		$	4,245	$	3,864	$	14,176	$	12,279	Net sales		$	3,930	$	4,392

Operating income:	Operating income:										Operating income:
The Americas	The Americas		$	408	$	155	$	1,044	$	256	The Americas		$	125	$	254
Europe, the Middle East & Africa	Europe, the Middle East & Africa		281		361		1,366		1,429		Europe, the Middle East & Africa		334		465
Asia/Pacific	Asia/Pacific		72		245		725		890		Asia/Pacific		208		222
			761		761		3,135		2,575				667		941
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities		(23)		(145)		(44)		(191)		Charges associated with restructuring and other activities		(6)		(6)
Operating income	Operating income		$	738	$	616	$	3,091	$	2,384	Operating income		$	661	$	935

(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 net sales of Dr.Jart+ in the travel retail channel that are reflected in Korea in the Asia/Pacific region.

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

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

RESULTS OF OPERATIONS

We manufacture, market and sell beauty products including those in the skin care, makeup, fragrance and hair care categories, which are distributed in approximately 150 countries and territories. The following table is a comparative summary of operating results for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 and 2021, 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 September 30
(In millions)	(In millions)	2022		2021		2022		2021		(In millions)		2022		2021
NET SALES	NET SALES									NET SALES
By Product Category:	By Product Category:									By Product Category:
Skin Care	Skin Care	$	2,395	$	2,259	$	8,003	$	7,113	Skin Care		$	2,104	$	2,449
Makeup	Makeup	1,114		1,018		3,674		3,243		Makeup		1,052		1,174
Fragrance	Fragrance	579		454		1,987		1,478		Fragrance		607		609
Hair Care	Hair Care	147		128		475		418		Hair Care		158		148
Other	Other	11		15		40		37		Other		14		13
		4,246		3,874		14,179		12,289				3,935		4,393
Returns associated with restructuring and other activities	Returns associated with restructuring and other activities	(1)		(10)		(3)		(10)		Returns associated with restructuring and other activities		(5)		(1)
Net sales	Net sales	$	4,245	$	3,864	$	14,176	$	12,279	Net sales		$	3,930	$	4,392

By Region(1):	By Region(1):									By Region(1):
The Americas	The Americas	$	1,053	$	916	$	3,547	$	2,837	The Americas		$	1,123	$	1,194
Europe, the Middle East & Africa	Europe, the Middle East & Africa	1,990		1,706		6,201		5,276		Europe, the Middle East & Africa		1,682		1,873
Asia/Pacific	Asia/Pacific	1,203		1,252		4,431		4,176		Asia/Pacific		1,130		1,326
		4,246		3,874		14,179		12,289				3,935		4,393
Returns associated with restructuring and other activities	Returns associated with restructuring and other activities	(1)		(10)		(3)		(10)		Returns associated with restructuring and other activities		(5)		(1)
Net sales	Net sales	$	4,245	$	3,864	$	14,176	$	12,279	Net sales		$	3,930	$	4,392

OPERATING INCOME (LOSS)	OPERATING INCOME (LOSS)									OPERATING INCOME (LOSS)
By Product Category:	By Product Category:									By Product Category:
Skin Care	Skin Care	$	667	$	804	$	2,466	$	2,453	Skin Care		$	530	$	717
Makeup	Makeup	7		(72)		228		(115)		Makeup		16		91
Fragrance	Fragrance	105		47		446		248		Fragrance		133		131
Hair Care	Hair Care	(18)		(17)		(8)		(10)		Hair Care		(12)		2
Other	Other	—		(1)		3		(1)		Other		—		—
		761		761		3,135		2,575				667		941
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	(23)		(145)		(44)		(191)		Charges associated with restructuring and other activities		(6)		(6)
Operating income	Operating income	$	738	$	616	$	3,091	$	2,384	Operating income		$	661	$	935

By Region(1):	By Region(1):									By Region(1):
The Americas	The Americas	$	408	$	155	$	1,044	$	256	The Americas		$	125	$	254
Europe, the Middle East & Africa	Europe, the Middle East & Africa	281		361		1,366		1,429		Europe, the Middle East & Africa		334		465
Asia/Pacific	Asia/Pacific	72		245		725		890		Asia/Pacific		208		222
		761		761		3,135		2,575				667		941
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	(23)		(145)		(44)		(191)		Charges associated with restructuring and other activities		(6)		(6)
Operating income	Operating income	$	738	$	616	$	3,091	$	2,384	Operating income		$	661	$	935

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

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

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The 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 September 30
		2022		2021		2022		2021				2022		2021
Net sales	Net sales	100.0	%	100.0	%	100.0	%	100.0	%	Net sales		100.0	%	100.0	%
Cost of sales	Cost of sales	23.4		24.3		23.1		23.2		Cost of sales		26.0		24.1
Gross profit	Gross profit	76.6		75.7		76.9		76.8		Gross profit		74.0		75.9

Operating expenses:	Operating expenses:									Operating expenses:
Selling, general and administrative	Selling, general and administrative	53.6		55.5		53.3		55.1		Selling, general and administrative		57.1		54.5
Restructuring and other charges	Restructuring and other charges	0.5		3.4		0.3		1.4		Restructuring and other charges		0.1		0.1
Goodwill impairment		—		—		—		0.4
Impairment of other intangible and long-lived assets		5.1		0.9		1.5		0.5

Total operating expenses	Total operating expenses	59.2		59.8		55.1		57.4		Total operating expenses		57.2		54.6

Operating income	Operating income	17.4		15.9		21.8		19.4		Operating income		16.8		21.3
Interest expense	Interest expense	1.0		1.1		0.9		1.1		Interest expense		1.2		1.0
Interest income and investment income, net	Interest income and investment income, net	0.1		0.2		0.1		0.3		Interest income and investment income, net		0.4		0.1
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)		—
Other income	Other income	—		—		—		—		Other income		—		—

Earnings before income taxes	Earnings before income taxes	16.6		15.0		21.1		18.6		Earnings before income taxes		16.1		20.4
Provision for income taxes	Provision for income taxes	(3.1)		(3.2)		(4.4)		(3.4)		Provision for income taxes		(3.6)		(4.6)

Net earnings	Net earnings	13.5		11.9		16.6		15.1		Net earnings		12.5		15.8
Net earnings attributable to noncontrolling interests	Net earnings attributable to noncontrolling interests	(0.1)		(0.1)		(0.1)		(0.1)		Net earnings attributable to noncontrolling interests		—		—
Net earnings attributable to redeemable noncontrolling interest	Net earnings attributable to redeemable noncontrolling interest	(0.3)		—		(0.1)		—		Net earnings attributable to redeemable noncontrolling interest		—		—

Net earnings attributable to The Estée Lauder Companies Inc.	Net earnings attributable to The Estée Lauder Companies Inc.	13.1	%	11.8	%	16.5	%	15.1	%	Net earnings attributable to The Estée Lauder Companies Inc.		12.4	%	15.8	%

Not adjusted for differences caused by rounding

Period-over-period changes in our net sales are generally attributable to the impacts from (i) pricing on our base portfolio, including changes in strategic pricing actions and mix, (ii) volume, including changes driven by the impact of new product innovation, (iii) acquisitions and/or divestitures, and/or (iv) foreign currency translation.

The net sales impact from pricing consists of changes in list prices, due to strategic pricing initiatives, and mix shifts within and among product categories, geographic regions and distribution channels. The prices at which we sell our products vary by brand, distribution channel (e.g., wholesale or direct-to-consumer) and may also vary by country. Our brands and products cover a broad array of pricing tiers. Prices of skin care and fragrance products are typically higher than makeup and hair care products.

New product innovation includes the introduction of new products, as well as the innovation of existing products, including reformulations, regional expansion, repackaging and sets. A product is considered "new innovation" for the twelve-month period following the initial shipment date. Our innovation is launched at different price points than existing products and value derived from innovation may vary from year to year. 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~~often has some cannibalizing effect on sales of existing products, which we take into account in our business planning. The impact of new product introductions, including timing compared to introductions in prior periods, also affects our results.

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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~~ 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 continued to disrupt our operating environment globally, primarily impacting retail traffic, travel, supply chain, inventory levels and other logistics during the three months ended March 31, 2022. The resurgence of COVID-19 cases in many Chinese provinces led to restrictions late in the fiscal 2022 third quarter to prevent further spread of the virus. Consequently, retail traffic, travel, and distribution capabilities were temporarily curtailed. Our distribution facilities in Shanghai operated with limited capacity to fulfill brick-and-mortar and online orders beginning in mid-March 2022.

~~Retail 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 quarter of fiscal 2022, there were intermittent closures, primarily in mainland China, which had regional lockdowns. Globally, in areas where stores were open, consumer traffic has not recovered to the pre-pandemic levels.

International passenger traffic remained soft globally. However, passenger traffic in Europe, the Middle East & Africa and The Americas improved, although it remained significantly below pre-pandemic levels. The improvement was due to the partial lifting of COVID-19-related restrictions. In Asia/Pacific, traffic in Hainan was negatively impacted by fewer visitors due to intermittent domestic travel restrictions.

~~Consumer Preferences~~

The continuance of 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. While the demand for makeup has improved significantly in areas where restrictions have been lifted, it continues to be the only category that remains below the pre-pandemic period, given fewer makeup usage occasions and ongoing mask wearing, while skin care, fragrance and hair care have all grown from pre-pandemic levels.

~~Supply Chain~~

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 expect higher costs to negatively impact cost of sales and operating expenses for the remainder of fiscal 2022. We expect to mitigate some of the impact to our business and our costs through strategic price increases, product mix, timing of shipments, inventory levels, use of air freight and less congested ports, and cost savings in other areas. Toward the end of the third quarter of fiscal 2022, we began to experience challenges in logistics in China due to restrictions attributable to the COVID-19 pandemic.

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Business Update

We are a leader in prestige beauty, which combines the repeat purchase and relative affordability of consumer goods with high quality products and services. Within prestige beauty, we are well diversified by product category, geography, brand, product sub-category, channel, consumer segment and price point. This 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 ~~31-34~~30-32 of our Annual Report on Form 10-K for the year ended June 30, ~~2021,~~2022, as well as below.

The COVID-19 pandemic continued to disrupt our operating environment through the fiscal 2023 first quarter, including COVID-related restrictions in China, affecting travel retail in Hainan as well as mainland China. In Hainan, the ongoing restrictions led to prolonged store closures and the curtailment of travel and caused the tightening of inventory by certain of our retailers who had previously placed orders in anticipation of the return of travel that was since delayed. The COVID-related restrictions in mainland China continued to negatively impact retail traffic. During the ~~third~~fiscal 2023 first quarter, our business was also negatively impacted by inflationary pressures, and recession concerns, which caused certain of our retailers in the United States to tighten inventory.

During the first quarter of fiscal ~~2022,~~2023, net sales ~~increased 10%~~decreased 11%, reflecting ~~early stages~~the impacts of ~~a recovery in The Americas and in Europe,~~ the Middle East & Africa as compared to a more difficult environment in the prior-year period. The net sales increase includes incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter.challenges noted above.

•Our skin care net sales ~~benefited from~~declined 14%, including the ~~recent launch~~unfavorable impact of foreign currency translation of 3%. The ~~Hydrating Infused Emulsion~~category continues to be pressured by COVID-19 restrictions in Hainan, including the tightening of inventory by certain of our retailers, and in mainland China. The tightening of inventory by certain of our retailers in the United States also negatively impacted the category's growth. Despite these pressures, net sales continued to grow from La Mer ~~as well as initial shipments of the brand's The Treatment Lotion~~ and ~~continued strength in its Crème de la Mer moisturizer. Incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter also contributed to growth.~~Bobbi Brown.

•~~The COVID-19 pandemic has generally resulted~~Our makeup net sales declined 10%, including the unfavorable impact of foreign currency translation of 4%. While we see progression towards recovery in ~~more~~parts of Asia/Pacific and Europe, Middle East & Africa, driven by strong activation from M·A·C, the limited social and ~~business~~professional activities stemming from the continued COVID-19 restrictions in China, including those impacting travel retail in Hainan and ~~consumers overall wore less makeup. As restrictions lift~~mainland China, and ~~stores reopen in particular locations, we generally see demand for makeup products increasing. During~~a difficult comparison to the ~~third quarter of fiscal 2022, net sales in makeup grew double digits in part~~prior-year period due to ~~this, and was also driven by strong activations, expanded consumer reach and~~ the ~~launch~~timing of ~~MACStack mascara from M·A·C, increases~~shipments, drove the decrease in Estée Lauder foundation products, as well as a strong performance from Clinique. Our brands generated interest in makeup through virtual marketing efforts such as classes, virtual try-on technology and greater emphasis on social media platforms.net sales.

•Our fragrance net sales ~~rose sharply as consumers gravitated~~decreased due to ~~high-end~~the impact of the license terminations related to certain of our designer fragrances of 12% and the unfavorable impact of foreign currency translation of 5%. Overall the category continues to benefit from the shift in consumer demand toward our luxury and artisanal offerings, ~~from Jo Malone London,~~including Tom Ford Beauty, Le Labo, Kilian Paris and ~~Le Labo.~~Jo Malone London.

•Our hair care net sales ~~also grew double digits, reflecting increases~~increased 7%, benefiting from ~~both Aveda~~the fiscal 2022 third quarter launch of The Ordinary’s hair care products and ~~Bumble and bumble as brick-and-mortar channels recover, online growth continues and new products launch.~~Aveda’s distribution expansion into mainland China.

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 June 2023. We expect to continue to sell products under these licenses through June 30, 2022.

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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.

•Net sales in The ~~increase~~Americas decreased 6%, primarily reflecting unfavorable impacts in ~~net~~the United States due to the timing of shipments compared to the prior-year period, the license terminations related to certain of our designer fragrances and the impact of tighter inventory management by certain of our retailers. Latin America grew double digits, reflecting growth in makeup.

•Net sales ~~during the fiscal 2022 third quarter was led by~~in Europe, the Middle East & Africa ~~which benefited~~decreased 10%, including the unfavorable impact of foreign currency translation of 4%, primarily due to continued COVID-19 restrictions in China impacting those impacting travel retail in Hainan. Partially offsetting this decrease was an increase in net sales from ~~ongoing increases~~emerging markets in the region, led by India and the Middle East, driven by growth in the makeup category.

•The continued COVID-19 restrictions impacting our business in Greater China and the Dr.Jart+ travel retail business ~~partly relating to~~in Korea drove the ~~increase~~net sales decline in ~~traffic as a result~~Asia/Pacific of 15%, including the unfavorable impact of foreign currency translation of 8%. Most of the ~~easing of travel restrictions, which varied by location. In addition, brick-and-mortar retail reopened across~~other affiliates in the region ~~driving~~reflected recovery from the prior-year challenges, led by growth in ~~department stores~~our fragrance and ~~freestanding retail stores.~~makeup product categories.

•Net sales rose in The Americas, primarily reflecting the recovery of brick-and-mortar stores, 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 decreased in Asia/Pacific, reflecting tighter COVID-19 restrictions in Greater China, partially offset by a progression towards recovery across other markets in the region.~~

As a result of the invasion of Ukraine, we suspended all our business investments and initiatives and commercial activity in Russia and Ukraine in early March 2022. This included the temporary closure of our owned and authorized freestanding stores and our own brand sites, as well as the suspension of shipments to our retailers in Russia and Ukraine.

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As the safety of our employees remains a top priority, we continue to take significant steps to support our employees in Ukraine, including the continuance of compensation, maintenance of regular communication and offering relocation assistance, and continue to provide compensation and support to our employees in Russia. We are monitoring the effects of this conflict, including risks that may affect our business, and expect that we will adjust our plans accordingly as the situation progresses.

~~For the three and nine months ended March 31, 2022, the results of operations related to Russia and Ukraine were not material to our consolidated financial statements.~~

Outlook

The COVID-19 pandemic continues to disrupt business for us, retailers and other companies with which we do business. There have been, and are likely to continue to be, intermittent store closures and supply chain ~~disruptions.~~challenges. We are mindful that these trends may continue to impact the pace of recovery. ~~The~~We are seeing a continued and prolonged curtailment in international travel, which is also affecting our travel retail business, particularly in ~~most of the world,~~Asia, which ~~had~~historically has 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 adversely impact the goodwill and other intangible assets associated with our brands, as well as long-lived assets (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~~macro environment, including the risk of recession; currency volatility; increasing inflationary pressures; supply chain ~~disruptions;~~challenges; social and political issues; regulatory matters, including the imposition of ~~tariffs;~~tariffs and sanctions; geopolitical tensions; and global security issues. For example, the strengthening of the U.S. dollar could negatively impact results within Europe, the Middle East & Africa due to pricing pressures on our retail customers and consumers in key international travel retail locations. Additionally, we continue to monitor the geopolitical tensions between the United States and China, which could have a material adverse effect on our business. We are also mindful of inflationary pressures on our cost base and are monitoring the impact on consumer preferences.

~~The~~

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As the invasion of Ukraine ~~has negatively impacted~~continues and international sanctions evolve, our ~~operations~~business and ability to operate in ~~both~~ Russia and ~~Ukraine. In~~Ukraine continue to be negatively impacted. During the fiscal ~~2021,~~2023 first quarter, we partially mitigated the negative impact by liquidating the majority of our ~~operations in Ukraine~~remaining in-market inventory and ~~Russia accounted~~not renewing leases that expired or may have been up for ~~approximately 1% of consolidated net sales. In March 2022, we announced a suspension of all~~renewal for our freestanding stores. We are continuously monitoring the evolving situation, including risks and opportunities that may further affect our business, ~~investments~~ and ~~initiatives and commercial activity in Russia. Future~~will continue to adjust our business plans accordingly. There are uncertainties related to the future impacts on our business, including possible new sanctions ~~and counter-sanctions,~~that are difficult to predict due to the high level of ~~uncertainty as to how these developments will evolve.~~geopolitical volatility. On a broader perspective, there could be additional negative impacts to our net sales, earnings, assets and cash flows ~~should these matters continue or escalate;~~from such ~~impacts~~uncertainties. We also note that worsening conditions could ~~include~~exacerbate economic challenges in other countries ~~because of~~such as inflationary pressures, energy shortages, recessions or other consequences. In fiscal 2022, our operations in Ukraine and Russia accounted for approximately 1% of consolidated net sales. Please refer to Risk Factors in Part I, Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, ~~2021,~~2022, for a more complete discussion of the risks we encounter in our business and industry.

The uncertainty around the timing, speed and duration of the recovery from the adverse impacts of the COVID-19 pandemic, including the impacts on our business of the ongoing restrictions in China, and the other macro challenges we are facing, 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, including continuing to execute upon and ~~by executing upon our~~benefit from efficiencies attributable to previously approved initiatives under the Post-COVID Business Acceleration Program. As the current situation 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.

Post-COVID Business Acceleration Program

Information about our restructuring initiative, the Post-COVID Business Acceleration Program, is described in Notes to Consolidated Financial Statements, Note 43 – Charges Associated with Restructuring and Other Activities herein, as well as, in Notes to Consolidated Financial Statements, Note 8 – Charges Associated with Restructuring and Other Activities and in the Overview on page 33 of our Annual Report on Form 10-K for the year ended June 30, ~~2021.~~2022.

NET SALES


	Three Months Ended September 30
($ in millions)		2022			2021
As Reported:
Net sales		$	3,930		$	4,392
$ Change from prior-year period		(462)
% Change from prior-year period		(11)		%

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

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 47 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

Reported net sales decreased, primarily driven by lower net sales from the skin care and makeup product categories and from all geographic regions primarily due to continued impacts of COVID-19 restrictions in China, affecting travel retail in Hainan and mainland China, as well as the impact of the license terminations related to certain of our designer fragrances effective June 30, 2022. Partially offsetting the decrease in net sales was higher results from the hair care product category.

Skin care net sales declined, primarily driven by Estée Lauder, Dr.Jart+ and Origins, partially offset by higher net sales from La Mer and Bobbi Brown. Makeup net sales decreased due to lower net sales from Estée Lauder and Tom Ford Beauty, partially offset by higher net sales from M·A·C. Partially offsetting these decreases in net sales were hair care net sales increases from The Ordinary and our two hair care brands, led by Aveda.

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~~Goodwill and Other Intangible Asset Impairments~~

~~During the fiscal 2022 third quarter, given the lower-than-expected results from international expansion to areas that continue to be impacted by COVID-19, we made revisions~~Net sales decreased in Asia/Pacific, primarily due to the internal forecasts relating to our GLAMGLOW reporting unit. We concluded that the changes in circumstances in the reporting unit triggered the need for an interim impairment review of its trademark intangible asset. As of March 31, 2022, the remaining carrying value of the trademark intangible asset was not recoverable and we recorded an impairment charge of $11 million reducing the carrying value to zero.

During the fiscal 2022 third quarter, given the lower-than-expected growth within key geographic regions and channels for Dr.Jart+ that continue to be impacted by the spread of COVID-19 variants and resurgence in cases and the potential future impacts relating to the uncertainty of the duration and severity of COVID-19 impacting the financial performance of the brand, the lower than expected growth in key retail channels for DECIEM, and the lower than expected results from international expansion to areas that continue to be impacted by COVID-19 for Too Faced, we made revisions to the internal forecasts relating to its Dr. Jart+, DECIEM and Too Faced reporting units.

We concluded that the changes in circumstances in the reporting units triggered the need for interim impairment reviews of their trademarks and goodwill. These changes in circumstances were also an indicator that the carrying amounts of Dr.Jart+’s, DECIEM’s and Too Faced’s long-lived assets, including customer lists, may not be recoverable. Accordingly, we performed interim impairment tests for the trademarks and a recoverability test for the long-lived assets as of February 28, 2022. We concluded that the carrying amounts of the long-lived assets were recoverable. For the Dr.Jart+ reporting unit, we also concluded that the carrying value of the trademark intangible asset 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. For the Too Faced and DECIEM reporting units, as the carrying values of the trademarks did not exceed their estimated fair values, which were determined utilizing the relief-from-royalty method to determine discounted projected future cash flows, we did not record impairment charges. As of March 31, 2022, the estimated fair values of Too Faced’s and DECIEM's trademarks exceeded their carrying values by 13% and 3%, respectively. For the Too Faced and DECIEM trademark intangible assets, if all other assumptions are held constant, an increase of 100 basis points and 50 basis points, respectively, in the weighted average cost of capital would result in an impairment charge. After adjusting the carrying values of the trademarks, we completed interim quantitative impairment tests for goodwill. As the estimated fair value of the Dr.Jart+, DECIEM and Too Faced reporting units were in excess of their carrying values, we concluded that the carrying amounts of the goodwill were recoverable and did not record a goodwill impairment charge related to these reporting units. The fair value of these reporting units were based upon an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting units. 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 royalty rates for trademarks. The most significant unobservable input used to estimate the fair value of the Dr. Jart+ trademark intangible asset was the weighted-average cost of capital, which was 10.5%.

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~~The impairment charges for the three and nine months ended March 31, 2022 were reflected in the skin care product category.~~

The fair value of the Dr. Jart+ trademark was equal to its carrying value subsequent to the impairment charge taken as of March 31, 2022. The key assumptions used to determine the estimated fair value of the reporting unit are primarily predicated on the estimated futurecontinued impacts of COVID-19 ~~the success of future new product launches, the achievement of distribution expansion plans,~~restrictions in China, affecting retail traffic and the realization of cost reduction and other efficiency efforts. If such plans do not materialize, or if there are further challenges in the business environments in which the reporting unit operates, resulting changes in the key assumptions could have negative impacts on the estimated fair value of the reporting unit and it is possible we could recognize additional impairment charges in the future.

~~NET SALES~~
Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions) 2022 2021 2022 2021
As Reported:
Net sales $ 4,245 $ 3,864 $ 14,176 $ 12,279
$ Change from prior-year period 381 1,897
% Change from prior-year period 10 % 15 %
Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency 11 % 15 %

~~(1)See “Reconciliations of Non-GAAP Financial Measures”~~ ~~beginning on~~ ~~page 58~~ ~~for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.~~

~~Reported net~~travel. Net sales ~~increased for the three and nine months ended March 31, 2022, driven by higher net sales from every major product category and~~ in Europe, the Middle East & Africa ~~and The Americas~~declined, primarily ~~reflecting (i)~~due to the continued ~~progression towards brick-and-mortar and~~impacts of COVID-19 restrictions impacting travel ~~recovery compared to the prior-year challenges, which included widespread store closures,~~retail in Hainan, as well as 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.

~~Reported~~ net sales in Asia/Pacific decreased and increased for the three and nine months ended March 31, 2022, respectively. For the three months ended March 31, 2022, net sales decreased due to a resurgence of COVID-19 cases across many Chinese provinces which led to restrictions to further prevent the spread of the virus. For the nine months ended March 31, 2022, net sales increased, led by mainland China and Korea.

For the three and nine months ended March 31, 2022, reported net sales increased from every major product category. Skin care net sales increased in both periods, led by La Mer and benefited from incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter. Fragrance net sales grew double-digits, led by Jo Malone London, Tom Ford Beauty and Le Labo. The net sales increases from Estée Lauder and M·A·C drove the increases in the makeup net sales. Hair care net sales increased in both periods, due to higher net sales from Aveda and Bumble and bumble.

For the three and nine months ended March 31, 2022, reported net sales grew double-digits in Europe, the Middle East & Africa and The Americas and benefited from incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter. Net sales increased in Europe, the Middle East & Africa, reflecting recovery across the region, led by our travel retail business and the United Kingdom. ~~The increases in net~~Net sales in The Americas ~~reflected higher net sales throughout~~decreased, driven by the ~~region.~~United States, reflecting a difficult comparison to the prior-year period due to timing of shipments, the impact of tighter inventory management by certain of our retailers, as well as the impact of the license terminations related to certain of our designer fragrances effective June 30, 2022.

The total net sales ~~increases were~~decrease was impacted by approximately ~~$53~~$176 million of unfavorable ~~and $31 million of favorable~~ foreign currency ~~translation for the three and nine months ended March 31, 2022, respectively.~~translation.

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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 impact of returns associated with restructuring and other activities for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 and 2021 of $5 million and $1 million, respectively.

Reported net sales decreased 10%, driven by the decrease from volume of 8%, the unfavorable impact from foreign currency translation of 4%, and ~~$3 million, respectively.~~the impact from the license terminations of certain of our designer fragrances of 1%. Partially offsetting these decreases was the increase from pricing of 3%, due to the favorable impact from strategic pricing actions and changes in mix.

Product Categories

Skin Care


		Three Months Ended March 31					Nine Months Ended March 31						Three Months Ended September 30
($ in millions)	($ in millions)	2022			2021		2022			2021		($ in millions)		2022			2021
As Reported:	As Reported:											As Reported:
Net sales	Net sales	$	2,395		$	2,259	$	8,003		$	7,113	Net sales		$	2,104		$	2,449
$ Change from prior-year period	$ Change from prior-year period	136					890					$ Change from prior-year period		(345)
% Change from prior-year period	% Change from prior-year period	6		%			13		%			% Change from prior-year period		(14)		%

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	7		%			12		%			% Change from prior-year period in constant currency		(11)		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 5847 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

Reported skin care net sales decreased, reflecting lower net sales from Estée Lauder, Dr.Jart+ and Origins, of approximately $332 million, combined, primarily driven by continued impacts of COVID-19 restrictions in Hainan, including the tightening of inventory by certain of our retailers, and in mainland China. Also contributing to the decrease in net sales was the tightening of inventory by certain of our retailers in the United States.

Partially offsetting these decreases in skin care net sales were higher net sales from La Mer and Bobbi Brown of approximately $25 million, combined. The increase in net sales from La Mer reflected the continued success of hero products, as well as recent launches and targeted expanded consumer reach. Bobbi Brown net sales increased, primarily driven by continued success of hero products and targeted expanded consumer reach.

The skin care net sales decrease was impacted by approximately $85 million of unfavorable foreign currency translation.

Reported skin care net sales decreased 14%, driven by the decrease from volume of 14% and the unfavorable impact from foreign currency translation of 3%. Partially offsetting these decreases was the increase from pricing of 3%, due to the favorable impact from strategic pricing actions and changes in mix.

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THE ESTÉE LAUDER COMPANIES INC.

Makeup


	Three Months Ended September 30
($ in millions)		2022			2021
As Reported:
Net sales		$	1,052		$	1,174
$ Change from prior-year period		(122)
% Change from prior-year period		(10)		%

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

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 47 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

Reported makeup net sales decreased, reflecting lower net sales from Estée Lauder and Tom Ford Beauty of approximately $114 million, combined, primarily driven by continued impacts of COVID-19 restrictions in China, impacting travel retail in Hainan and mainland China.

Partially offsetting these decreases in net sales were higher net sales from M·A·C, primarily driven by the continued success of hero products and recent launches, as well as the brick-and-mortar recovery, including increased retail traffic compared to the prior-year period.

The makeup net sales decrease was impacted by approximately $50 million of unfavorable foreign currency translation.

Reported makeup net sales decreased 10%, driven by the decrease from volume of 5%, the unfavorable impact from foreign currency translation of 4%, and a decrease from pricing of 1%, due to the unfavorable impact from changes in mix, partially offset by the favorable impact from strategic pricing actions.

Fragrance


	Three Months Ended September 30
($ in millions)		2022			2021
As Reported:
Net sales		$	607		$	609
$ Change from prior-year period		(2)
% Change from prior-year period		—		%

Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency		5		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 47 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

Reported ~~skin care~~fragrance net sales ~~increased for~~remained virtually flat. This reflected the ~~three months ended March 31,~~impact of the license terminations related to the Donna Karan New York, DKNY, Michael Kors, Tommy Hilfiger and Ermenegildo Zegna product lines ("certain of our designer fragrance licenses") effective June 30, 2022 ~~reflecting~~of approximately $64 million, which were largely offset by higher net sales from ~~La Mer~~our luxury and ~~incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter of approximately $269 million, combined. Net sales from La Mer increased,~~artisanal offerings, led by ~~our travel retail business~~Tom Ford Beauty and ~~mainland China, primarily reflecting continued success of hero products, such as Crème de la Mer~~Le Labo, and the Genaissance de la Mer line of products, the current-year launch of The Hydrating Infused Emulsion, the fiscal 2022 third-quarter launch of the new upgraded The Treatment Lotion and targeted expanded consumer reach.

~~Partially offsetting the increase in skin care net sales for the three months ended March 31, 2022, were lower~~by higher net sales from ~~Estée Lauder and Origins~~Clinique of approximately ~~$157~~$56 million, combined. The ~~decreases~~increase in net sales from ~~Estée Lauder~~Tom Ford Beauty reflected the continued success of Private Blend and ~~Origins reflected lower traffic in Asia due to the resurgence of COVID-19 cases in many Chinese provinces, which led to restrictions to prevent further spread of the virus.~~Signature fragrances and new product launches. Net sales from Estée Lauder also declined due to 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.

~~Reported skin care net sales~~Le Labo increased, for the nine months ended March 31, 2022, reflecting higher net sales from La Mer and Clinique, as well as incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter of approximately $869 million, combined. Net sales from La Mer increased, as discussed above. Clinique net sales increased, primarily driven by our travel retail business and North America, reflecting the continued success of ~~existing products, such as~~hero product franchises, new product launches and targeted expanded consumer reach. Net sales from Clinique increased, primarily reflecting growth in the ~~Take The Day Off~~Happy franchise line of ~~products and Even Better Clinical Radical Dark Spot Corrector + Interrupter.~~products.

~~Partially offsetting the increase in skin care~~

The fragrance net sales ~~for the nine months ended March 31, 2022, were lower net sales from Estée Lauder and Origins of approximately $197 million, combined, as discussed above.~~

~~The skin care net sales increases were~~decrease was impacted by approximately ~~$16~~$35 million of unfavorable ~~and $57 million of favorable~~ foreign currency ~~translation for the three and nine months ended March 31, 2022, respectively.~~translation.

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Reported fragrance net sales remained virtually flat, driven by the impact from the license terminations of certain of our designer fragrances of 12% and the unfavorable impact from foreign currency translation of 5%. Partially offsetting these decreases was the increase from volume of 13% and the increase from pricing of 4%, due to the favorable impact from strategic pricing actions and changes in mix.

~~Makeup~~Hair Care


		Three Months Ended March 31					Nine Months Ended March 31						Three Months Ended September 30
($ in millions)	($ in millions)	2022			2021		2022			2021		($ in millions)		2022			2021
As Reported:	As Reported:											As Reported:
Net sales	Net sales	$	1,114		$	1,018	$	3,674		$	3,243	Net sales		$	158		$	148
$ Change from prior-year period	$ Change from prior-year period	96					431					$ Change from prior-year period		10
% Change from prior-year period	% Change from prior-year period	9		%			13		%			% Change from prior-year period		7		%

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	11		%			14		%			% Change from prior-year period in constant currency		11		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 58 ~~for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.~~

~~Reported makeup net sales increased for the three months ended March 31, 2022, led by higher net sales from M·A·C, Estée Lauder and Clinique, of approximately $109 million, combined.~~ The continued progression towards recovery in makeup, including increased usage occasions compared to the prior-year period, led to the increase in makeup net sales in The Americas and Europe, the Middle East & Africa. The increase in net sales from M·A·C was primarily driven by the continued success of hero products, such as Studio Fix, the fiscal 2022 third quarter launch of MACStack mascara and successful social media campaigns during key shopping moments. Net sales from Estée Lauder increased, primarily due to the continued success of existing products, such as the Double Wear and Futurist product franchises and new product launches, such as the current-year launches of Double Wear Sheer Long-Wear Makeup. Net sales for Clinique increased, primarily reflecting continued success from Even Better Makeup and successful performance in the lip, concealer and eye subcategories.

~~Reported makeup net sales increased for the nine months ended March 31, 2022, led by higher net~~ ~~sales from Estée Lauder and M·A·C of approximately~~ ~~$303 million, combined, as noted above. The n~~et sales increase from M·A·C also benefited from the continued success of existing products, such as Ruby's Crew and Re-Think Pink in the lip subcategory and Magic Extension in the mascara subcategory, as well as the success of the fiscal 2022 third quarter launch of MACStack mascara.

~~The makeup net sales increases were impacted by approximately $19 million and $14 million of unfavorable foreign currency translation for the three and nine months ended March 31, 2022, respectively.~~

~~Fragrance~~
Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions) 2022 2021 2022 2021
As Reported:
Net sales $ 579 $ 454 $ 1,987 $ 1,478
$ Change from prior-year period 125 509
% Change from prior-year period 28 % 34 %
Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency 31 % 35 %

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~~THE ESTÉE LAUDER COMPANIES INC.~~

~~Reported fragrance net sales increased for the three months ended March 31, 2022, primarily driven by Jo Malone London, Tom Ford Beauty, Le Labo and~~ ~~Estée Lauder~~ ~~of approximately~~ ~~$107 million, combined. F~~ragrance net sales grew in every geographic region, reflecting continued growth in luxury fragrances, the brick-and-mortar and travel recovery in various parts of the world due to more store openings, increased retail traffic, successful performance during holiday and key shopping moments, and the easing of travel restrictions compared to the prior-year period. The increase in net sales from Jo Malone London reflected the fiscal 2022 third quarter launches of House of Roses and Mediterranean Blossoms and continued growth of the home and bath & body subcategories. Net sales increased from Tom Ford Beauty, also benefiting from the continued success of Private Blend and Signature fragrances and the fiscal 2022 third quarter product launches of Costa Azzurra parfum, Rose de Chine and Rose d'Amalfi. Net sales from Le Labo increased, also reflecting the continued success of hero product franchises, current-year product launches and targeted expanded consumer reach. The increase in net sales from Estée Lauder was primarily due to the continued success of the Beautiful Magnolia line of products.

~~Reported fragrance net sales increased for the nine months ended March 31, 2022, primarily driven by Jo Malone London, Tom Ford Beauty and Le Labo of approximately~~ $378 million, combined, and grew double digits in every geographic region, as discussed above. The increases in net sales from Jo Malone London reflected the continued success of our hero products, current-year launches and continued growth of the home and bath & body subcategories. Net sales increased from Tom Ford Beauty, reflecting the continued success of Private Blend and Signature fragrances, current-year product launches and the diversification of product offerings by region. Net sales from Le Labo increased, as discussed above.

The fragrance net sales increases were impacted by approximately $14 million and $8 million of unfavorable foreign currency translation for the three and nine months ended March 31, 2022, respectively.

~~Hair Care~~
Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions) 2022 2021 2022 2021
As Reported:
Net sales $ 147 $ 128 $ 475 $ 418
$ Change from prior-year period 19 57
% Change from prior-year period 15 % 14 %
Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency 17 % 14 %

~~(1)See “Reconciliations of Non-GAAP Financial Measures”~~ ~~beginning on~~ ~~page 58~~ for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

Reported hair care net sales increased, ~~for the three and nine months ended March 31, 2022,~~ reflecting higher net sales from ~~Aveda~~The Ordinary and ~~Bumble~~our two hair care brands. The increase was led by The Ordinary and ~~bumble, combined,~~Aveda, of approximately ~~$18~~$7 million, ~~and $49 million, respectively, primarily due to the continued progression towards salon and retail store recovery in North America.~~combined. Net sales from The Ordinary increased, benefiting from the fiscal 2022 third quarter launch of hair care products. The increase in net sales from Aveda ~~increased in both periods, reflecting~~was primarily due to the continued success of existing product franchises, the fiscal 2023 first quarter launch of the Color Control franchise and the fiscal ~~2022 third~~2023 first quarter ~~relaunch of Full Spectrum Semi-Permanent Treatment Hair Color.~~ distribution expansion into mainland China.

The ~~increases in~~hair care net sales increase was impacted by approximately $6 million of unfavorable foreign currency translation.

Reported hair care net sales increased 7%, driven by the increase from ~~Bumble~~pricing of 14%, due to the favorable impact from strategic pricing actions and ~~bumble also reflected~~changes in mix. Partially offsetting this increase was the ~~success~~decrease from volume of ~~hero products,~~3%, partially offset by new product innovation, and the ~~fiscal 2022 third quarter product launches~~unfavorable impact from foreign currency translation of ~~Bb. Thickening Plumping Mask and Bb. Thickening Go Big Plumping Treatment, and targeted expanded consumer reach.~~4%.

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 September 30
($ in millions)		2022			2021
As Reported:
Net sales		$	1,123		$	1,194
$ Change from prior-year period		(71)
% Change from prior-year period		(6)		%

Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency		(7)		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 47 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

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THE ESTÉE LAUDER COMPANIES INC.

Reported net sales in The Americas decreased, primarily driven by lower net sales in the United States of approximately $72 million. The decrease in net sales in the United States reflected a difficult comparison to the prior-year period due to timing of holiday shipments in the prior-year period, the impact of license terminations related to certain of our designer fragrance licenses effective June 30, 2022 and the impact of tighter inventory management by certain of our retailers.

Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions) 2022 2021 2022 2021
As Reported:
Net sales $ 1,053 $ 916 $ 3,547 $ 2,837
$ Change from prior-year period 137 710
% Change from prior-year period 15 % 25 %
Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency 14 % 25 %

Partially offsetting the decrease was an increase in net sales in Latin America of approximately $13 million, led by recovery in makeup.

Net sales in The Americas were impacted by approximately $7 million of favorable foreign currency translation.

Reported net sales in The Americas decreased 6%, driven by the decrease from volume of 9% and the impact from the license terminations related to certain of our designer fragrances of 3%. Partially offsetting this decrease was the increase from pricing of 5%, due to the favorable impact from strategic pricing actions and changes in mix, and the favorable impact from foreign currency translation of 1%.

Europe, the Middle East & Africa


	Three Months Ended September 30
($ in millions)		2022			2021
As Reported:
Net sales		$	1,682		$	1,873
$ Change from prior-year period		(191)
% Change from prior-year period		(10)		%

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

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 5847 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 nine months ended March 31, 2022 in every country and product category, reflecting the brick-and-mortar and makeup recovery from the prior-year challenges that included store closures, lower retail traffic, fewer makeup usage occasions and quarantines, stemming from the COVID-19 pandemic. The net sales increases were led by higher net sales in North America of approximately $125 million and $658 million, respectively, also benefiting from incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter, higher net sales from many of our brands, led by M·A·C and Clinique, and targeted expanded consumer reach.

~~Net sales in The Americas were impacted by approximately $6 million and $13 million of favorable foreign currency translation for the three and nine months ended March 31, 2022, respectively.~~

~~Europe, the Middle East & Africa~~
Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions) 2022 2021 2022 2021
As Reported:
Net sales $ 1,990 $ 1,706 $ 6,201 $ 5,276
$ Change from prior-year period 284 925
% Change from prior-year period 17 % 18 %
Non-GAAP Financial Measure(1):
% Change from prior-year period in constant currency 19 % 18 %

~~Reported net sales for the three and nine months ended March 31, 2022 increased~~decreased in Europe, the Middle East & Africa, ~~reflecting continued recovery across the region,~~ primarily ~~due to store openings, increased retail traffic, and the easing of travel restrictions compared to the prior year, led~~driven by lower results from our travel retail business and the United Kingdom, combined, of approximately ~~$271 million and $712 million, respectively. Despite the fiscal 2022 third quarter resurgence~~$166 million. The decrease in ~~COVID-19 cases in many Chinese provinces, which led to restrictions to prevent further spread of the virus and the curtailment of travel,~~ net sales ~~increased in~~from our travel retail business reflects the continued impacts of COVID-19 restrictions impacting travel retail in Hainan. The decrease in net sales from the United Kingdom was driven by lower net sales from Estée Lauder, M·A·C and Jo Malone London.

Partially offsetting these decreases were increases in net sales in our emerging markets, led by an increase in net sales from India and the Middle East, of approximately $11 million, combined, reflecting ~~continued strength of our brands with the Chinese consumer, the easing of travel restrictions~~growth in makeup.

Net sales in Europe, the Middle East & Africa ~~and The Americas, and continued success~~were impacted by approximately $83 million of ~~hero product franchises from La Mer and Jo Malone London. These benefits were partially offset by lower~~unfavorable foreign currency translation.

Reported net sales in Europe, the Middle East & Africa decreased 10%, driven by the decrease from ~~Estée Lauder products, primarily reflecting lower net sales~~volume of 7%, the unfavorable impact from foreign currency translation of 4%, and the impact from the ~~Advanced Night Repair product franchise primarily~~license terminations related to certain of our designer fragrances of 1%. Partially offsetting these decreases was the increase from pricing of 2%, due to the ~~prior-period launch of Advanced Night Repair Synchronized Multi-Recovery Complex. Net sales~~favorable impact from strategic pricing actions and changes in the United Kingdom increased, primarily reflecting brick-and-mortar recovery, as noted above, and benefiting from the growth in makeup and fragrance. The increases in net sales in the United Kingdom also reflected incremental net sales attributable to the increase in our ownership of DECIEM in the fiscal 2021 fourth quarter.mix.

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Net sales in Europe, the Middle East & Africa were impacted by approximately $47 million and $45 million of unfavorable foreign currency translation for the three and nine months ended March 31, 2022, respectively.

Asia/Pacific


		Three Months Ended March 31					Nine Months Ended March 31						Three Months Ended September 30
($ in millions)	($ in millions)	2022			2021		2022			2021		($ in millions)		2022			2021
As Reported:	As Reported:											As Reported:
Net sales	Net sales	$	1,203		$	1,252	$	4,431		$	4,176	Net sales		$	1,130		$	1,326
$ Change from prior-year period	$ Change from prior-year period	(49)					255					$ Change from prior-year period		(196)
% Change from prior-year period	% Change from prior-year period	(4)		%			6		%			% Change from prior-year period		(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	(3)		%			5		%			% Change from prior-year period in constant currency		(7)		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 5847 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

Reported net sales decreased in Asia/Pacific, ~~for the three months ended March 31, 2022,~~ primarily driven by lower results in ~~mainland~~Greater China and ~~Hong Kong~~the Dr.Jart+ travel retail business in Korea, of approximately ~~$54~~$217 million, combined, due to the ~~resurgence~~continued impacts of COVID-19 ~~cases toward the end of the fiscal 2022 third quarter that led to~~ restrictions ~~to prevent further spread of the virus. These restrictions resulted~~ in ~~limited capacity in our Shanghai distribution facilities and the temporary curtailment of retail traffic, travel and other distribution capabilities.~~China.

~~Reported~~Partially offsetting the net sales ~~increased~~decrease were increases in ~~Asia/Pacific for the nine months ended March 31, 2022, reflecting higher net sales in mainland China, despite the resurgence in COVID-19 cases in many Chinese provinces toward the end~~most of the ~~fiscal 2022 third quarter, and Korea of approximately $257 million, combined. Net sales~~other affiliates in ~~mainland China increased, primarily due~~the region, as COVID-19 restrictions eased compared to the ~~continued success of hero products franchises from Estée Lauder, La Mer and Jo Malone London, reflecting continued~~prior-year period, led by growth in ~~skin care~~our fragrance and ~~strong momentum in fragrance, successful performance during holiday and key shopping moments, new~~makeup product launches, and the current-year launch on a new third-party online platform. Net sales increased in Korea, despite the challenging brick-and-mortar retail environment, primarily reflecting the continued success of hero product franchises from Jo Malone London and strong momentum in fragrance.categories.

Net sales in Asia/Pacific were impacted by approximately ~~$11~~$100 million of unfavorable foreign currency translation.

Reported net sales in Asia/Pacific decreased 15%, driven by the decrease from volume of 9% and ~~$64 million of favorable~~the unfavorable impact from foreign currency translation ~~for~~of 8%. Partially offsetting these decreases was the ~~three~~increase from pricing of 2%, due to the favorable impact from strategic pricing actions and ~~nine months ended March 31, 2022, respectively.~~changes in mix.

GROSS MARGIN

Gross margin ~~increased~~decreased to ~~76.6% and 76.9% for the three and nine months ended March 31, 2022, respectively, as compared with 75.7% and 76.8% in the prior-year periods.~~

Favorable (Unfavorable) Basis Points
March 31, 2022
Three Months Ended Nine Months Ended
Mix of business (30) (35)
Obsolescence charges 65 (5)
Manufacturing costs and other (25) (10)
Foreign exchange transactions 60 50
Subtotal 70 —
Charges associated with restructuring and other activities 20 10
Total 90 10

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~~THE ESTÉE LAUDER COMPANIES INC.~~

~~The increase in gross margin~~74.0% for the three months ended ~~March 31,~~September 30, 2022 ~~reflected favorable obsolescence charges due to a higher level of destruction~~as compared with 75.9% in the prior-year ~~period, the favorable impact from transactional foreign exchange due to the strengthening of the U.S. Dollar and the favorable impact from under-absorption of manufacturing overhead~~period.


												Favorable (Unfavorable) Basis Points
												September 30, 2022
												Three Months Ended
Mix of business												(145)
Obsolescence charges												15
Manufacturing costs and other												(65)
Foreign exchange transactions												5
Subtotal												(190)
Charges associated with restructuring and other activities												—
Total												(190)

The decrease in ~~the prior-year period, partially offset by higher inbound transportation costs driven by global supply chain disruptions as discussed above and an~~gross margin reflected unfavorable ~~impact~~impacts from our mix of ~~business. The unfavorable impact from our mix of~~ business ~~was primarily driven by the change in category mix,~~ primarily due to the increase in ~~makeup~~promotional items and ~~fragrance net sales, and higher costs from new skin care products, partially offset by strategic price increases.~~

~~The increase in gross margin for~~ the ~~nine months ended March 31, 2022 reflected a favorable transactional foreign exchange impact due~~unfavorable timing of promotional activity compared to the strengthening of the U.S. Dollar, partially offset by an unfavorable impact from our mix of business. The unfavorable impact from our mix of business was primarily due to lower gross margins on DECIEM products, change in category mix primarily due to the increase in makeup and fragrance net sales and higher costs from new products and product sets, partially offset by strategic price increases.

~~OPERATING EXPENSES~~

~~Operating expenses as a percentage of net sales was 59.2% and 55.1% for the three and nine months ended March 31, 2022, respectively, as compared with 59.8% and 57.4% in the~~ prior-year ~~periods.~~

Favorable (Unfavorable) Basis Points
March 31, 2022
Three Months Ended Nine Months Ended
General and administrative expenses 90 70
Advertising, merchandising, sampling and product development 10 30
Selling 20 70
Stock-based compensation — 10
Store operating costs 10 10
Shipping (80) (50)
Foreign exchange transactions (10) (10)
Subtotal 40 130
Charges associated with restructuring and other activities 290 110
Goodwill, other intangible and long-lived asset impairments (420) (60)
Acquisition-related stock compensation income 150 50
Total 60 230

The favorable change in operating expense margin for the three months ended March 31, 2022, was driven by income related to the change in fair value of acquisition-related stock options of $60 million relating to the increase in our investment in DECIEM during the fiscal 2021 fourth quarter, disciplined general and administrative expense management and the increase in net sales. Partially offsetting these favorable changes were the year-over-year impact of other intangible and long-lived asset impairments of $183 million,period, as well as higher ~~shipping~~manufacturing costs due to ~~the increase in net sales volume and increased shipping rates.~~

The favorable change in operating expense margin for the nine months ended March 31, 2022, was driven by the increase in net sales, disciplined general and administrative expense management, the favorable impact from selling expenses, primarily due to the shift in channel mix to online, travel retail and specialty-multi, and income related to the change in fair value of acquisition-related stock options of $58 million relating to the increase in our investment in DECIEM during the fiscal 2021 fourth quarter. Partially offsetting these favorable changes in operating expense margin were the year-over-year impact of goodwill, other intangible and long-lived asset impairments of $102 million and higher shipping costs as discussed above.

continued inflationary pressures.

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THE ESTÉE LAUDER COMPANIES INC.

OPERATING EXPENSES

Operating expenses as a percentage of net sales was 57.2% for the three months ended September 30, 2022 as compared with 54.6% in the prior-year period.


												Favorable (Unfavorable) Basis Points
												September 30, 2022
												Three Months Ended
General and administrative expenses												30
Advertising, merchandising, sampling and product development												(150)
Selling												(20)
Stock-based compensation												40
Store operating costs												(70)
Shipping												(90)
Foreign exchange transactions												10
Subtotal												(250)


Changes in fair value of acquisition-related stock options												(10)

Total												(260)

The unfavorable change in operating expense margin was primarily due to an unfavorable impact from advertising, merchandising, sampling and product development expenses driven by a decrease in net sales, higher shipping rates due to continued inflationary pressures and shifts in mode of transportation, and higher store operating costs due to the brick-and-mortar recovery, including more stores being open compared to the prior-year period. This change was partially offset by a decrease in general and administrative expenses and stock-based compensation, primarily due to lower employee incentive compensation, as compared to the prior-year period.

OPERATING RESULTS


		Three Months Ended March 31						Nine Months Ended March 31							Three Months Ended September 30
($ in millions)	($ in millions)	2022			2021			2022			2021			($ in millions)		2022			2021
As Reported:	As Reported:													As Reported:
Operating income	Operating income	$	738		$	616		$	3,091		$	2,384		Operating income		$	661		$	935
$ Change from prior-year period	$ Change from prior-year period	122						707						$ Change from prior-year period		(274)
% Change from prior-year period	% Change from prior-year period	20		%				30		%				% Change from prior-year period		(29)		%

Operating margin	Operating margin	17.4		%	15.9		%	21.8		%	19.4		%	Operating margin		16.8		%	21.3		%

Non-GAAP Financial Measure(1):	Non-GAAP Financial Measure(1):													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, the change in fair value of acquisition-related stock options and changes in fair value of contingent consideration		15		%				23		%
% Change in operating income from the prior-year period adjusting for the impact of charges associated with restructuring and other activities														% Change in operating income from the prior-year period adjusting for the impact of charges associated with restructuring and other activities		(29)		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 5847 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

The ~~increase~~decrease in reported operating margin ~~for the three and nine months ended March 31, 2022 from the prior-year period~~ was primarily driven by a decrease in net sales, decrease in gross margin and the ~~favorable changes~~increase in operating ~~expense margin and gross margin,~~expenses, discussed ~~above, partially offset by the year-over-year impact~~above.

Table of ~~goodwill, other intangible and long-lived asset impairments of $183 million and $102 million, respectively.~~Contents

THE ESTÉE LAUDER COMPANIES INC.

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

Product Categories

Skin Care


		Three Months Ended March 31					Nine Months Ended March 31						Three Months Ended September 30
($ in millions)	($ in millions)	2022			2021		2022			2021		($ in millions)		2022			2021
As Reported:	As Reported:											As Reported:
Operating income	Operating income	$	667		$	804	$	2,466		$	2,453	Operating income		$	530		$	717
$ Change from prior-year period	$ Change from prior-year period	(137)					13					$ Change from prior-year period		(187)
% Change from prior-year period	% Change from prior-year period	(17)		%			1		%			% Change from prior-year period		(26)		%

Non-GAAP Financial Measure(1):	Non-GAAP Financial Measure(1):											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 the change in fair value of acquisition-related stock options		3		%			4		%
% Change in operating income from the prior-year period adjusting for the change in fair value of acquisition-related stock options												% Change in operating income from the prior-year period adjusting for the change in fair value of acquisition-related stock options		(26)		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning on page 58 ~~for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.~~

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

Reported skin care operating income decreased for the three months ended March 31, 2022, reflecting the current year impact of other intangible asset impairments related to Dr.Jart+ and GLAMGLOW of approximately $216 million, combined, as well as lower results from Estée Lauder. The decrease in operating income from Estée Lauder was primarily due to the decrease in net sales.

Partially offsetting the decreases in operating income for the three months ended March 31, 2022 were higher results from La Mer primarily due to the increase in net sales, as well as $58 million of income related to the change in fair value of acquisition-related stock options relating to the increase in our investment in DECIEM during the fiscal 2021 fourth quarter.

Reported skin care operating income increased for the nine months ended March 31, 2022, reflecting higher results from La Mer, Bobbi Brown and Clinique of approximately $355 million, combined, and $56 million of income related to the change in fair value of acquisition-related stock options relating to the increase in our investment in DECIEM during the fiscal 2021 fourth quarter. The higher results for La Mer reflected the increase in net sales, partially offset by the increase in cost of sales primarily due to higher costs for promotional items and 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, partially offset by higher advertising and promotional activities primarily to support holiday and key shopping moments and new product launches.

Partially offsetting the increases in operating income for the nine months ended March 31, 2022 were the unfavorable year-over-year impact of goodwill and other intangible asset impairments related to Dr.Jart+ and GLAMGLOW of approximately $135 million, combined, as well as lower results from Estée Lauder. The decrease in operating income from Estée Lauder was primarily due to the decrease in net sales, the increase in cost of sales primarily due to higher costs for promotional items and higher advertising and promotional activities to support hero products, holiday and key shopping moments and new product launches.

~~Makeup~~
Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions) 2022 2021 2022 2021
As Reported:
Operating income (loss) $ 7 $ (72) $ 228 $ (115)
$ Change from prior-year period 79 343
% 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 long-lived asset impairments 100+% 100+

~~(1)See “Reconciliations of Non-GAAP Financial Measures”~~ ~~beginning on~~ ~~page 58~~47 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

Reported ~~makeup~~skin care operating income ~~increased for the three months ended March 31, 2022,~~decreased, reflecting ~~higher~~lower results from ~~M·A·C, Clinique,~~ Estée Lauder, Clinique and ~~La Mer~~Origins of approximately ~~$69~~$234 million, combined, ~~and~~primarily driven by decreases in net sales. Also contributing to the ~~favorable year-over-year impact~~decrease in operating income from Estée Lauder was an increase in cost of ~~long-lived asset impairments of $24 million.~~sales primarily due to higher costs for promotional items. Operating income from ~~M·A·C increased~~Clinique also decreased due to higher cost of sales and shipping expenses driven by continued supply chain challenges and inflationary pressures. Partially offsetting the ~~increase~~decreases in net sales, partially offset by higher advertising and promotional activities to support new product launches and higher selling costs due to the brick-and-mortar recovery, including more stores being open and increased retail traffic compared to the prior year. The higher results from Clinique were primarily due to the increases in net sales, partially offset by higher selling costs due to the brick-and-mortar recovery and higher shipping costs. Operatingoperating income for Estée Lauder ~~increased primarily due to the increase in net sales, partially offset by higher~~and Clinique was disciplined advertising and promotional ~~activities relating~~expense management.

Partially offsetting the decrease in skin care operating income was lower employee incentive compensation compared to ~~strategic investments to support~~ the prior-year period.

Makeup


	Three Months Ended September 30
($ in millions)		2022			2021
As Reported:
Operating income (loss)		$	16		$	91
$ Change from prior-year period		(75)
% Change from prior-year period		(82)		%

Reported makeup ~~recovery~~operating income decreased, reflecting lower results from Estée Lauder and ~~digital advertising and social media spending. Operating~~Tom Ford Beauty of approximately $128 million, combined, primarily driven by a decrease in net sales. The decrease in operating income from ~~La Mer increased primarily due to an increase in net sales, partially offset by~~Estée Lauder also reflected higher cost of sales, ~~due,~~as well as increased costs for advertising and promotional activities.

Partially offsetting the decrease in ~~part~~makeup operating income was lower corporate general and administrative expenses and employee incentive compensation compared to ~~an increase in promotional items.~~the prior-year period.

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THE ESTÉE LAUDER COMPANIES INC.

Reported makeup operating income increased for the nine months ended March 31, 2022, primarily driven by higher results from Estée Lauder and M·A·C of approximately $179 million, combined, reflecting the increases in net sales, partially offset by higher advertising and promotional activities as discussed above.

Fragrance
Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions) 2022 2021 2022 2021
As Reported:
Operating income $ 105 $ 47 $ 446 $ 248
$ Change from prior-year period 58 198
% Change from prior-year period 100+% 80 %
Non-GAAP Financial Measure(1):
% Change in operating income from the prior-year period adjusting for long-lived asset impairments and changes in fair value of contingent consideration 88 % 75 %


	Three Months Ended September 30
($ in millions)		2022			2021
As Reported:
Operating income		$	133		$	131
$ Change from prior-year period		2
% Change from prior-year period		2		%

Reported fragrance operating income ~~increased for the three and nine months ended March 31, 2022, primarily driven by~~remained virtually flat. This included higher results from ~~Jo Malone London,~~ Tom Ford Beauty and ~~Le Labo, combined,~~Clinique of approximately ~~$46~~$22 million, ~~and $171 million, respectively, as well as the favorable year-over-year impact of long-lived asset impairments of $9 million. In both periods, the~~combined. The higher ~~results~~operating income from ~~Jo Malone London~~Tom Ford Beauty was primarily ~~reflected the~~driven by an increase in net sales, partially offset by higher cost of sales given the growth of the home subcategory and the increase in promotional items and the increase in selling costs resulting from the brick-and-mortar recovery. Also partially offsetting the increase in net sales from Jo Malone London for the nine months ended March 31, 2022, were higher advertising and promotional activities primarily to support 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 higher cost of sales due, in part, to the increase in promotional items and the increasestrategic investments in advertising and promotional activities to ~~support strategic investments in digital advertising~~drive hero products and ~~social media spending (including costs associated with influencers), hero product franchises, and~~support new product launches. ~~The increases in~~Clinique operating income increased, primarily due to an increase in net sales. Operating income also increased due to lower employee incentive compensation compared to the prior-year period.

Largely offsetting the increase was the impact of license terminations related to certain of our designer fragrances effective June 30, 2022 and lower results from ~~Le Labo, in both periods, was~~Jo Malone London of approximately $32 million, combined. Operating income from Jo Malone London decreased, primarily driven by ~~the~~higher cost of sales and shipping costs due to increased inflationary pressures, partially offset by an increase in net sales.

Hair Care


		Three Months Ended March 31					Nine Months Ended March 31						Three Months Ended September 30
($ in millions)	($ in millions)	2022			2021		2022			2021		($ in millions)		2022		2021
As Reported:	As Reported:											As Reported:
Operating loss		$	(18)		$	(17)	$	(8)		$	(10)
Operating income (loss)												Operating income (loss)		$	(12)	$	2
$ Change from prior-year period	$ Change from prior-year period	(1)					2					$ Change from prior-year period		(14)
% Change from prior-year period	% Change from prior-year period	(6)		%			20		%			% Change from prior-year period		(100+)%

Reported hair care operating ~~income~~results decreased, ~~for the three months ended March 31, 2022,~~ primarily driven by ~~increased operating expenses~~lower results from Aveda and Bumble and bumble. The lower results from Aveda were primarily driven by higher advertising and promotional activities to support the ~~salon and retail story recovery,~~brand's expansion into mainland China during the fiscal 2023 first quarter, partially offset by ~~increases~~an increase in ~~operating~~net sales. Operating results from Bumble and bumble ~~and Aveda, primarily due to the increases in net sales.~~

~~Reported hair care operating income increased for the nine months ended March 31, 2022,~~decreased, primarily driven by higher ~~results from Bumble~~strategic investments in advertising and ~~bumble, primarily due to the~~promotional activities, partially offset by an increase in net sales.

Partially offsetting the decrease in hair care operating income was lower corporate general and administrative expenses and employee incentive compensation compared to the prior-year period.

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THE ESTÉE LAUDER COMPANIES INC.

Geographic Regions

The Americas


		Three Months Ended March 31				Nine Months Ended March 31					Three Months Ended September 30
($ in millions)	($ in millions)	2022		2021		2022		2021		($ in millions)		2022			2021
As Reported:	As Reported:									As Reported:
Operating income	Operating income	$	408	$	155	$	1,044	$	256	Operating income		$	125		$	254
$ Change from prior-year period	$ Change from prior-year period	253				788				$ Change from prior-year period		(129)
% Change from prior-year period	% Change from prior-year period	100+%				100+%				% Change from prior-year period		(51)		%

Non-GAAP Financial Measure(1):										Non-GAAP Financial Measure(1):

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 the change in fair value of acquisition-related stock options		100+%				100+%
% Change in operating income from the prior-year period adjusting for the change in fair value of acquisition-related stock options										% Change in operating income from the prior-year period adjusting for the change in fair value of acquisition-related stock options		(50)		%

(1)See “Reconciliations of Non-GAAP Financial Measures” beginning onon page ~~58 f~~or47 for reconciliations between non-GAAP financial measures and the most directly comparable U.S. GAAP measures.

Reported operating results ~~increased~~decreased in The Americas, ~~for the three months ended March 31, 2022,~~ primarily reflecting ~~higher~~lower operating results from North America of approximately ~~$251 million,~~$134 million. The decrease in operating results in the United States is primarily due to ~~the increase~~a decrease in net sales higher intercompany royalty income primarily from growth in our travel retail business and $60 million of income related to the change in fair value of acquisition-related stock options relating to the increase in our investment in DECIEM during the fiscal 2021 fourth quarter, partially offset by an unfavorable year-over-year impact of other intangible asset impairments relating to GLAMGLOW of $11 million.

Reported operating results increased in The Americas for the nine months ended March 31, 2022, primarily reflecting higher operating results from North America of approximately $776 million, primarily due to the increase in net sales, higher intercompany royalty income primarily from growth in our travel retail business, favorable year-over-year impact of goodwill and other intangible asset impairments relating to GLAMGLOW of $70 million and $58 million of acquisition-related stock option income relating to the increase in our investment in DECIEM during the fiscal 2021 fourth quarter. Partially offsetting these increases in operating income were higher advertising and promotional activities, primarily to support strategic investments in digital advertising and social media spending and in-store promotions given the increase in brick-and-mortar traffic, and increases in cost of sales and selling ~~expense~~expenses due to the brick-and-mortar recovery, including more stores being open and ~~makeup recovery~~increased retail traffic compared to the ~~prior-year.~~prior-year period.

Europe, the Middle East & Africa


		Three Months Ended March 31					Nine Months Ended March 31						Three Months Ended September 30
($ in millions)	($ in millions)	2022			2021		2022			2021		($ in millions)		2022			2021
As Reported:	As Reported:											As Reported:
Operating income	Operating income	$	281		$	361	$	1,366		$	1,429	Operating income		$	334		$	465
$ Change from prior-year period	$ Change from prior-year period	(80)					(63)					$ Change from prior-year period		(131)
% Change from prior-year period	% Change from prior-year period	(22)		%			(4)		%			% Change from prior-year period		(28)		%

Non-GAAP Financial Measure(1):
% Change in operating income from the prior-year period adjusting for long-lived asset impairments and changes in contingent consideration		(29)		%			(6)		%

Reported operating income decreased in Europe, the Middle East & Africa, primarily driven by lower results from our travel retail business of approximately $148 million. Operating income decreased in our travel retail business reflecting the (i) decrease in net sales (ii) increase in cost of sales due to higher costs due to inflationary pressures and (iii) higher advertising and promotional activity primarily to support investments in key markets and digital media campaigns to expand consumer reach.

~~(1)~~Asia/Pacific


	Three Months Ended September 30
($ in millions)		2022			2021
As Reported:
Operating income		$	208		$	222
$ Change from prior-year period		(14)
% Change from prior-year period		(6)		%

~~See “~~
~~Reconciliations~~

Reported operating income decreased in Asia/Pacific, primarily driven by a decrease in net sales in Greater China that reflected the continued impacts of ~~Non-GAAP Financial Measures”~~ ~~beginning on~~ ~~page 58~~ ~~for reconciliations between non-GAAP financial measures~~COVID-19 restrictions in China, partially offset by disciplined advertising and ~~the most directly comparable U.S. GAAP measures.~~promotional expense management.

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THE ESTÉE LAUDER COMPANIES INC.

Reported operating income decreased in Europe, the Middle East & Africa for the three and nine months ended March 31, 2022, primarily driven by lower results from our travel retail business and the United Kingdom, combined, of approximately $121 million and $162 million, respectively. In both periods, operating income decreased in 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 shipping costs due to the increase in net sales volume and shipping rates. Also contributing to the decrease in operating income from our travel retail business was higher advertising and promotional activity primarily to support strategic investments in key areas of growth (primarily hero products and the skin care product category), as well as to capture the current-year increase in airport traffic. These higher expenses were partially offset by the increase in net sales. Operating income decreased in the United Kingdom in both periods, led by higher selling and store operations costs as more brick-and-mortar locations were open compared to the prior-year, partially offset by an increase in net sales.

Partially offsetting these decreases in operating income for the three and nine months ended March 31, 2022 were higher results from several affiliates across the region, reflecting the brick-and-mortar recovery, compared to the prior-year periods.

~~Asia/Pacific~~
Three Months Ended
March 31 Nine Months Ended
March 31
($ in millions) 2022 2021 2022 2021
As Reported:
Operating income $ 72 $ 245 $ 725 $ 890
$ Change from prior-year period (173) (165)
% Change from prior-year period (71) % (19) %
Non-GAAP Financial Measure(1):
% Change in operating income from the prior-year period adjusting for other intangible asset impairments 13 % 4 %

Reported operating income decreased in Asia/Pacific for the three and nine months ended December 31. 2021, reflecting the current year other intangible asset impairment relating to Dr. Jart+ of $205 million, partially offset by increases in operating results from other affiliates across the region due to the progression towards recovery.

INTEREST AND INVESTMENT INCOME


		Three Months Ended March 31				Nine Months Ended March 31					Three Months Ended September 30
(In millions)	(In millions)	2022		2021		2022		2021		(In millions)		2022		2021
Interest expense	Interest expense	$	41	$	43	$	125	$	131	Interest expense		$	46	$	42
Interest income and investment income, net	Interest income and investment income, net	$	5	$	9	$	19	$	40	Interest income and investment income, net		$	15	$	4

Interest income and investment income, net ~~decreased~~increased, primarily ~~due~~reflecting higher interest rates compared to ~~equity method investment income recognized in~~ the prior-year ~~period relating to our previously held equity method investment in DECIEM.~~period.

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~

PROVISION FOR INCOME TAXES

The provision for income taxes represents U.S. federal, foreign, state and local income taxes. The effective rate differs from the federal statutory rate primarily due to the effect of state and local income taxes, the tax impact of share-based compensation, the taxation of foreign income and income tax reserve adjustments, which represent changes in our net liability for unrecognized tax benefits including tax settlements and lapses of the applicable statutes of limitations. Our effective tax rate will change from quarter-to-quarter based on recurring and non-recurring factors including the geographical mix of earnings, enacted tax legislation, state and local income taxes, tax reserve adjustments, the tax impact of share-based compensation, the interaction of various global tax 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 September 30
		2022		2021		2022		2021				2022		2021
Effective rate for income taxes	Effective rate for income taxes	18.5	%	21.0	%	21.1	%	18.5	%	Effective rate for income taxes		22.6	%	22.5	%
Basis-point change from the prior-year period	Basis-point change from the prior-year period	(250)				260				Basis-point change from the prior-year period		10

The effective tax rate for the three and nine months ended March 31, 2021 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. The impact of the final issuance of GILTI tax regulations with respect to fiscal 2020 and 2019 was recognized as a discrete item in the provision for income taxes in the second and third quarters of fiscal 2021 and resulted in reductions of 30 basis points and 220 basis points to the effective tax rates for the three and nine months ended March 31, 2021, respectively.

~~For the three months ended March 31, 2022, the decrease~~increase in the effective tax rate was primarily attributable to a lower effective tax rate on the Company's foreign operations, partially offset by a decrease in excess tax benefits associated with stock-based compensation arrangements.

NET EARNINGS ATTRIBUTABLE TO THE ESTÉE LAUDER COMPANIES INC.


		Three Months Ended March 31					Nine Months Ended March 31						Three Months Ended September 30
($ in millions, except per share data)	($ in millions, except per share data)	2022			2021		2022			2021		($ in millions, except per share data)		2022			2021
As Reported:	As Reported:											As Reported:
Net earnings attributable to The Estée Lauder Companies Inc.	Net earnings attributable to The Estée Lauder Companies Inc.	$	558		$	456	$	2,338		$	1,852	Net earnings attributable to The Estée Lauder Companies Inc.		$	489		$	692
$ Change from prior-year period	$ Change from prior-year period	102					486					$ Change from prior-year period		(203)
% Change from prior-year period	% Change from prior-year period	22		%			26		%			% Change from prior-year period		(29)		%
Diluted net earnings per common share	Diluted net earnings per common share	$	1.53		$	1.24	$	6.39		$	5.03	Diluted net earnings per common share		$	1.35		$	1.88
% Change from prior-year period	% Change from prior-year period	24		%			27		%			% Change from prior-year period		(28)		%

Non-GAAP Financial Measure(1):	Non-GAAP Financial Measure(1):											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, other intangible and long-lived asset impairments, the change in fair value of acquisition-related stock options and changes in fair value of contingent consideration		17		%			20		%
% 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												% 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		(28)		%

(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.

Table of Contents

THE ESTÉE LAUDER COMPANIES INC.

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 per common share adjusted to exclude the impact of charges associated with restructuring and other activities; ~~goodwill, other intangible and long-lived asset impairments; the changes in fair value of contingent consideration;~~ the change in fair value of acquisition-related stock options; and the effects of foreign currency translation.

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

($ in millions, except per share data) Three Months Ended
March 31 Variance % Change
% Change
in
constant currency
2022 2021
Net sales, as reported $ 4,245 $ 3,864 $ 381 10 % 11 %
Returns associated with restructuring and other activities 1 10 (9)
Net sales, as adjusted $ 4,246 $ 3,874 $ 372 10 % 11 %
Operating income, as reported $ 738 $ 616 $ 122 20 % 18 %
Charges associated with restructuring and other activities 23 145 (122)
Other intangible and long-lived asset impairments 216 33 183
Change in fair value of acquisition-related stock options (60) — (60)
Operating income, as adjusted $ 917 $ 794 $ 123 15 % 16 %
Diluted net earnings per common share, as reported $ 1.53 $ 1.24 $ .29 24 % 22 %
Charges associated with restructuring and other activities .05 .31 (.26)
Other intangible and long-lived asset impairments .45 .07 .38
Change in fair value of acquisition-related stock options (less portion attributable to redeemable noncontrolling interest) (.13) — (.13)
Diluted net earnings per common share, as adjusted $ 1.90 $ 1.62 $ .28 17 % 18 %

~~Table of Contents~~

~~THE ESTÉE LAUDER COMPANIES INC.~~


($ 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 September 30								Variance		% Change			% Change in constant currency
		2022		2021													2022				2021
Net sales, as reported	Net sales, as reported	$	14,176	$	12,279			$	1,897			15	%			15	%	Net sales, as reported			$	3,930			$	4,392			$	(462)		(11)	%	(7)	%
Returns associated with restructuring and other activities	Returns associated with restructuring and other activities	3		10		(7)										Returns associated with restructuring and other activities			5				1				4
Net sales, as adjusted	Net sales, as adjusted	$	14,179	$	12,289	$	1,890			15	%			15	%	Net sales, as adjusted			$	3,935			$	4,393			$	(458)	(10)		%	(6)	%

Operating income, as reported	Operating income, as reported	$	3,091	$	2,384	$	707			30	%			28	%	Operating income, as reported			$	661			$	935			$	(274)	(29)		%	(26)	%
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	44		191		(147)										Charges associated with restructuring and other activities			6				6				—
Goodwill, other intangible and long-lived asset impairments		216		114		102
Changes in fair value of contingent consideration		—		(2)		2

Change in fair value of acquisition-related stock options	Change in fair value of acquisition-related stock options	(58)		—		(58)										Change in fair value of acquisition-related stock options			1				—				1
Operating income, as adjusted	Operating income, as adjusted	$	3,293	$	2,687	$	606			23	%			22	%	Operating income, as adjusted			$	668			$	941			$	(273)	(29)		%	(26)	%

Diluted net earnings per common share, as reported	Diluted net earnings per common share, as reported	$	6.39	$	5.03	$	1.36			27	%			25	%	Diluted net earnings per common share, as reported			$	1.35			$	1.88			$	(.53)	(28)		%	(25)	%
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	.09		.41		(.32)										Charges associated with restructuring and other activities			.02				.01				.01
Goodwill, other intangible and long-lived asset impairments		.45		.25		.20

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

Change in fair value of acquisition-related stock options (less portion attributable to redeemable noncontrolling interest)	Change in fair value of acquisition-related stock options (less portion attributable to redeemable noncontrolling interest)	(.13)		—		(.13)										Change in fair value of acquisition-related stock options (less portion attributable to redeemable noncontrolling interest)			—				—				—
Diluted net earnings per common share, as adjusted	Diluted net earnings per common share, as adjusted	$	6.80	$	5.68	$	1.12			20	%			19	%	Diluted net earnings per common share, as adjusted			$	1.37			$	1.89			$	(.52)	(28)		%	(24)	%

As diluted net earnings 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~~table reconciles 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
Three Months Ended
March 31
($ in millions) 2022 2021 Variance
By Product Category:
Skin Care $ 2,395 $ 2,259 $ 136 $ 16 $ 152 6 % 7 %
Makeup 1,114 1,018 96 19 115 9 11
Fragrance 579 454 125 14 139 28 31
Hair Care 147 128 19 3 22 15 17
Other 11 15 (4) — (4) (27) (27)
4,246 3,874 372 52 424 10 11
Returns associated with restructuring and other activities (1) (10) 9 (1) 8
Total $ 4,245 $ 3,864 $ 381 $ 51 $ 432 10 % 11 %
By Region:
The Americas $ 1,053 $ 916 $ 137 $ (6) $ 131 15 % 14 %
Europe, the Middle East & Africa 1,990 1,706 284 47 331 17 19
Asia/Pacific 1,203 1,252 (49) 11 (38) (4) (3)
4,246 3,874 372 52 424 10 11
Returns associated with restructuring and other activities (1) (10) 9 (1) 8
Total $ 4,245 $ 3,864 $ 381 $ 51 $ 432 10 % 11 %


	As Reported						Impact of foreign currency translation		Variance, in constant currency		% Change, as reported		% Change, in constant currency
	Three Months Ended September 30
($ in millions)	2022		2021		Variance
By Product Category:
Skin Care	$	2,104	$	2,449	$	(345)	$	85	$	(260)	(14)	%	(11)	%
Makeup	1,052		1,174		(122)		50		(72)		(10)		(6)
Fragrance	607		609		(2)		35		33		0		5
Hair Care	158		148		10		6		16		7		11
Other	14		13		1		—		1		8		8
	3,935		4,393		(458)		176		(282)		(10)		(6)
Returns associated with restructuring and other activities	(5)		(1)		(4)		—		(4)
Total	$	3,930	$	4,392	$	(462)	$	176	$	(286)	(11)	%	(7)	%

By Region:
The Americas	$	1,123	$	1,194	$	(71)	$	(7)	$	(78)	(6)	%	(7)	%
Europe, the Middle East & Africa	1,682		1,873		(191)		83		(108)		(10)		(6)
Asia/Pacific	1,130		1,326		(196)		100		(96)		(15)		(7)
	3,935		4,393		(458)		176		(282)		(10)		(6)
Returns associated with restructuring and other activities	(5)		(1)		(4)		—		(4)
Total	$	3,930	$	4,392	$	(462)	$	176	$	(286)	(11)	%	(7)	%

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As Reported Impact of foreign
currency translation Variance,
in constant currency % Change,
as reported % Change,
in constant currency
Nine Months Ended
March 31
($ in millions) 2022 2021 Variance
By Product Category:
Skin Care $ 8,003 $ 7,113 $ 890 $ (57) $ 833 13 % 12 %
Makeup 3,674 3,243 431 14 445 13 14
Fragrance 1,987 1,478 509 8 517 34 35
Hair Care 475 418 57 3 60 14 14
Other 40 37 3 — 3 8 8
14,179 12,289 1,890 (32) 1,858 15 15
Returns associated with restructuring and other activities (3) (10) 7 (1) 6
Total $ 14,176 $ 12,279 $ 1,897 $ (33) $ 1,864 15 % 15 %
By Region:
The Americas $ 3,547 $ 2,837 $ 710 $ (13) $ 697 25 % 25 %
Europe, the Middle East & Africa 6,201 5,276 925 45 970 18 18
Asia/Pacific 4,431 4,176 255 (64) 191 6 5
14,179 12,289 1,890 (32) 1,858 15 15
Returns associated with restructuring and other activities (3) (10) 7 (1) 6
Total $ 14,176 $ 12,279 $ 1,897 $ (33) $ 1,864 15 % 15 %

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

As Reported Add:
Changes in
Other intangible and long-lived asset impairments Add:
Changes in fair value of contingent consideration Add:
Change in fair value of acquisition-related stock options Variance, as adjusted % Change, as reported % Change, as adjusted
Three Months Ended
March 31
($ in millions) 2022 2021 Variance
By Product Category:
Skin Care $ 667 $ 804 $ (137) $ 216 $ — $ (58) $ 21 (17) % 3 %
Makeup 7 (72) 79 (24) — (2) 53 100+ 100+
Fragrance 105 47 58 (9) — — 49 100+ 88
Hair Care (18) (17) (1) — — — (1) (6) (6)
Other — (1) 1 — — — 1 100+ 100
761 761 — $ 183 $ — $ (60) $ 123 — % 15 %
Charges associated with restructuring and other activities (23) (145) 122
Total $ 738 $ 616 $ 122
By Region:
The Americas $ 408 $ 155 $ 253 $ 11 — $ (60) $ 204 100+% 100+%
Europe, the Middle East & Africa 281 361 (80) (33) — — (113) (22) (29)
Asia/Pacific 72 245 (173) 205 — — 32 (71) 13
761 761 — $ 183 $ — $ (60) $ 123 — % 15 %
Charges associated with restructuring and other activities (23) (145) 122
Total $ 738 $ 616 $ 122

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		As Reported						Add: Changes in Goodwill, other intangible and long-lived asset impairments				Add: Changes in fair value of contingent consideration		Add: Change in fair value of acquisition-related stock options			Variance, as adjusted				% Change, as reported				% Change, as adjusted					As Reported																		Add: Change in fair value of acquisition-related stock options		Variance, as adjusted				% Change, as reported					% Change, as adjusted
		Nine Months Ended March 31																		Three Months Ended September 30																									% Change, as reported
($ in millions)	($ in millions)	2022		2021		Variance										($ in millions)				2022							2021				Variance
By Product Category:	By Product Category:																																			By Product Category:
Skin Care	Skin Care	$	2,466	$	2,453	$	13			$	135								$	(56)		$	92			1		%		4		%	Skin Care				$	530				$	717			$	(187)					$	1				$	(186)				(26)	%		(26)	%
Makeup	Makeup	228		(115)		343		(24)				—				(2)				317				100+					100+	Makeup				16					91					(75)							—				(75)					(82)				(82)
Fragrance	Fragrance	446		248		198		(9)				2		—			191				80				75		Fragrance			133					131					2								—		2				2					2
Hair Care	Hair Care	(8)		(10)		2		—				—		—			2				20				20		Hair Care			(12)					2					(14)								—		(14)				(100+)					(100+)
Other	Other	3		(1)		4		—				—		—			4				100+				100+		Other			—					—					—								—		—				—					—
		3,135		2,575		560		$	102			$	2	$	(58)		$	606			22	%			23	%				667					941					(274)								$	1	$	(273)			(29)		%			(29)		%
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	(44)		(191)		147																					Charges associated with restructuring and other activities			(6)					(6)					0
Total	Total	$	3,091	$	2,384	$	707																				Total			$	661				$	935				$	(274)

By Region:	By Region:																										By Region:
The Americas	The Americas	$	1,044	$	256	$	788	$	(70)			$	—	$	(58)		$	660			100+%				100+%		The Americas			$	125				$	254				$	(129)							$	1	$	(128)			(51)		%			(50)		%
Europe, the Middle East & Africa	Europe, the Middle East & Africa	1,366		1,429		(63)		(33)				2		—			(94)				(4)				(6)		Europe, the Middle East & Africa			334					465					(131)								—		(131)				(28)					(28)
Asia/Pacific	Asia/Pacific	725		890		(165)		205				—		—			40				(19)				4		Asia/Pacific			208					222					(14)								—		(14)				(6)					(6)
		3,135		2,575		560		$	102			$	2	$	(58)		$	606			22	%			23	%				667					941					(274)								$	1	$	(273)			(29)		%			(29)		%
Charges associated with restructuring and other activities	Charges associated with restructuring and other activities	(44)		(191)		147																					Charges associated with restructuring and other activities			(6)					(6)					—
Total	Total	$	3,091	$	2,384	$	707																				Total			$	661				$	935				$	(274)

FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

Overview

Our principal sources of funds historically have been cash flows from operations, borrowings pursuant to our commercial paper program, borrowings from the issuance of long-term debt and committed and uncommitted credit lines provided by banks and other lenders in the United States and abroad. At ~~March 31,~~September 30, 2022, we had cash and cash equivalents of ~~$3,836~~$2,938 million compared with ~~$4,958~~$3,957 million at June 30, ~~2021.~~2022. 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. 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, 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.

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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~~October 26, 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.

Debt

At ~~March 31,~~September 30, 2022, 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), (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)
455 — 455
3.70% Senior Notes, due August 15, 2042 (“2042 Senior Notes”) (4), (13)
247 — 247
6.00% Senior Notes, due May 15, 2037 (“2037 Senior Notes”) (5), (13)
294 — 294
5.75% Senior Notes, due October 15, 2033 (“2033 Senior Notes”) (6)
197 — 197
1.950% Senior Notes, due March 15, 2031 ("2031 Senior Notes") (7), (13)
574 — 574
2.600% Senior Notes, due April 15, 2030 ("2030 Senior Notes") (8), (13)
643 — 643
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)
497 — 497
2.35% Senior Notes, due August 15, 2022 (“2022 Senior Notes”) (12), (13)
— 251 251
Other long-term borrowings 11 — 11
Other current borrowings — 18 18
$ 5,188 $ 269 $ 5,457


($ in millions)	Long-term Debt		Current Debt		Total Debt
3.125% Senior Notes, due December 1, 2049 (“2049 Senior Notes”) (1), (12)	$	636	$	—	$	636
4.15% Senior Notes, due March 15, 2047 (“2047 Senior Notes”) (2), (12)	494		—		494
4.375% Senior Notes, due June 15, 2045 (“2045 Senior Notes”) (3), (12)	455		—		455
3.70% Senior Notes, due August 15, 2042 (“2042 Senior Notes”) (4), (12)	247		—		247
6.00% Senior Notes, due May 15, 2037 (“2037 Senior Notes”) (5), (12)	295		—		295
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), (12)	548		—		548
2.600% Senior Notes, due April 15, 2030 ("2030 Senior Notes") (8), (12)	586		—		586
2.375% Senior Notes, due December 1, 2029 (“2029 Senior Notes”) (9), (12)	642		—		642
3.15% Senior Notes, due March 15, 2027 (“2027 Senior Notes”) (10), (12)	499		—		499
2.00% Senior Notes, due December 1, 2024 (“2024 Senior Notes”) (11), (12)	498		—		498

Commercial paper	—		249		249
Other long-term borrowings	10		—		10
Other current borrowings	—		17		17

	$	5,107	$	266	$	5,373

(1)Consists of $650 million principal, unamortized debt discount of $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 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$2 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$3 million, debt issuance costs of $4 million and a ~~$18~~$45 million loss 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 $3$4 million and a ~~$53~~$109 million 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 $3 million.

(10)Consists of $500 million principal and debt issuance costs of $2$1 million.

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

(12)~~Consists of $250 million principal and a $1 million gain to reflect the fair value of interest rate swaps.~~

~~(13)~~The Senior Notes contain certain customary incurrence–based covenants, including limitations on indebtedness secured by liens.

Total debt as a percent of total capitalization ~~(excluding noncontrolling interests)~~ was ~~47% and 48%~~49% at ~~March 31,~~September 30, 2022 and June 30, ~~2021, respectively.~~2022.

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Cash Flows


		Nine Months Ended March 31					Three Months Ended September 30
(In millions)	(In millions)	2022		2021		(In millions)	2022		2021
Net cash flows provided by operating activities		$	1,969	$	2,777
Net cash flows used for operating activities						Net cash flows used for operating activities	$	(650)	$	(81)
Net cash flows used for investing activities	Net cash flows used for investing activities	$	(563)	$	(577)	Net cash flows used for investing activities	$	(14)	$	(153)
Net cash flows used for financing activities	Net cash flows used for financing activities	$	(2,516)	$	(862)	Net cash flows used for financing activities	$	(304)	$	(714)

The change in net cash flows ~~from~~used for operating activities primarily reflected ~~higher~~lower earnings before tax, excluding non-cash items, and the unfavorable change in working capital, ~~needs~~reflecting lower accounts payable due to ~~support growth compared to~~timing of payments, higher inventory levels and lower other accrued liabilities, which includes the prior-year period and actions taken to mitigate global supply chain challenges, as well as higher cash paid for taxes. These changes were partially offset by higher earnings before taxes, excluding non-cash items.

settlement of net investment hedges.

The change in net cash flows used for investing activities primarily reflected an increase in capital expenditures, primarily driven by increased investments for a new manufacturing facility in Japan, online capabilities and information technology enhancements, as well as investments to support the reopening of our offices located around the world where COVID-19 cases subsided. Partially offsetting this increase is a favorable impact from the settlement of net investment hedges, which ~~has a corresponding~~is offset by the unfavorable ~~impact that is reflected in the~~ change in ~~working~~other accrued liabilities as discussed above, and a decrease in capital ~~noted above.~~expenditures compared to the prior-year period.

The change in net cash flows used for financing activities primarily reflected ~~an increase~~a decrease relating to ~~higher~~lower treasury stock repurchases and proceeds from the issuance of ~~long-term debt, net in the prior-year period,~~short-term commercial paper, partially offset by the repayment of ~~short-term debt made in~~ the ~~prior-year period.~~

outstanding principal balance of our $250 million 2.35% senior note that matured during the fiscal 2023 first quarter.

Dividends

For a summary of quarterly cash dividends declared per share on our Class A and Class B Common Stock during the ~~nine~~three months ended ~~March 31,~~September 30, 2022, see Notes to Consolidated Financial Statements, Note 1211 – 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, ~~2021.~~2022.

Commitments, Contractual Obligations and Contingencies

There have been no 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, ~~2021.~~2022. For a discussion of contingencies, see Notes to Consolidated Financial Statements, Note 98 – 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 54 – Derivative Financial Instruments.

Foreign Exchange Risk Management

For a discussion of foreign exchange risk management, see Notes to Consolidated Financial Statements, Note 54 – Derivative Financial Instruments (Cash Flow Hedges, Net Investment Hedges).

Credit Risk

For a discussion of credit risk, see Notes to Consolidated Financial Statements, Note 54 – 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 ~~$258~~$282 million and ~~$218~~$259 million as of ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, 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 decrease by approximately ~~$41~~$58 million and ~~$83~~$41 million as of ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, respectively.

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

OFF-BALANCE SHEET ARRANGEMENTS

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

CRITICAL ACCOUNTING POLICIES

As disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2021,~~2022, 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 - impairment assessment and income ~~taxes and business combinations.~~taxes. Since June 30, ~~2021,~~2022, 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:

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

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

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

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

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

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

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

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

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

(10)changes in global or local conditions, including those due to 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;

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(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, ~~2021.~~2022.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

Item 4. Controls and Procedures.

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and to ensure that information required to be disclosed is accumulated and communicated to management, including our principal executive and financial officers, to allow timely decisions regarding disclosure. The Chief Executive Officer and the Chief Financial Officer, with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of ~~March 31,~~September 30, 2022 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~~first quarter of fiscal ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

For a discussion of legal proceedings, see Notes to Consolidated Financial Statements, Note 98 – Contingencies.

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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 2022 845,738 $ 325.44 838,246 28,006,703
February 2022 365,988 303.78 365,988 27,640,715
March 2022 673,197 273.06 673,161 26,967,554
1,884,923 302.53 1,877,395


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)
July 2022	215,000	$	252.79	215,000	25,665,782
August 2022	51,540	267.25		51,540	25,614,242
September 2022	173,300	243.41		100,250	25,513,992
	439,840	250.79		366,790

(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.

Subsequent to ~~March 31,~~September 30, 2022 and as of ~~April~~October 26, 2022, we purchased approximately ~~0.6~~0.3 million additional shares of our Class A Common Stock for ~~$154~~$57 million pursuant to our share repurchase program.

Item 6. Exhibits.


Exhibit Number						Description





~~10.1~~						~~Amendment to amended and restated The~~ ~~Estée~~ ~~Lauder Companies Retirement Growth Account Plan, effective as of May 31, 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 31,~~September 30, 2022 are formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Statements of Earnings, (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 31,~~September 30, 2022 is formatted in iXBRL

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

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SIGNATURES

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


	THE ESTÉE LAUDER COMPANIES INC.

	By:	/s/ TRACEY T. TRAVIS
Date: ~~May 3,~~November 2, 2022		Tracey T. Travis
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

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(In millions)		Impairment Charge				Carrying Value
Reporting Unit:	Geographic Region	Trademarks		Goodwill		Trademarks		Goodwill
GLAMGLOW	The Americas	$	11	$	—	$	—	$	—
Dr. Jart+	Asia/Pacific	205		—		486		332

Total		$	216	$	—	$	486	$	332


	Three Months Ended March 31
	2022				2021
(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	$	4,245	$	41	$	3,864	$	43
The effects of fair value and cash flow hedging relationships:
Gain (loss) on fair value hedge relationships – interest rate contracts:
Hedged item	Not applicable		69		Not applicable		18
Derivatives designated as hedging instruments	Not applicable		(69)		Not applicable		(18)

Gain (loss) on cash flow hedge relationships – interest rate contracts:
Amount of loss reclassified from AOCI into earnings	Not applicable		—		Not applicable		(1)

Gain (loss) on cash flow hedge relationships – foreign currency forward contracts:
Amount of gain reclassified from AOCI into earnings	3		Not applicable		(7)		Not applicable


	Nine Months Ended March 31
	2022				2021
(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	$	14,176	$	125	$	12,279	$	131
The effects of fair value and cash flow hedging relationships:
Gain (loss) on fair value hedge relationships – interest rate contracts:
Hedged item	Not applicable		85		Not applicable		23
Derivatives designated as hedging instruments	Not applicable		(85)		Not applicable		(23)

Gain (loss) on cash flow hedge relationships – interest rate contracts:
Amount of loss reclassified from AOCI into earnings	Not applicable		(1)		Not applicable		(2)

Gain (loss) on cash flow hedge relationships – foreign currency forward contracts:
Amount of gain reclassified from AOCI into earnings	(5)		Not applicable		(11)		Not applicable


(In millions)	Impairment charges		Date of Fair Value Measurement	Fair Value(1)



Other intangible assets, net (trademarks)
GLAMGLOW	$	11	March 31, 2022	$	—
Dr. Jart+	205		February 28, 2022	486

Total	216			486

Total	$	216		$	486


	As Reported						Add: Changes in Other intangible and long-lived asset impairments		Add: Changes in fair value of contingent consideration		Add: Change in fair value of acquisition-related stock options		Variance, as adjusted		% Change, as reported		% Change, as adjusted
	Three Months Ended March 31
($ in millions)	2022		2021		Variance
By Product Category:
Skin Care	$	667	$	804	$	(137)	$	216	$	—	$	(58)	$	21	(17)	%	3	%
Makeup	7		(72)		79		(24)		—		(2)		53		100+		100+
Fragrance	105		47		58		(9)		—		—		49		100+		88
Hair Care	(18)		(17)		(1)		—		—		—		(1)		(6)		(6)
Other	—		(1)		1		—		—		—		1		100+		100
	761		761		—		$	183	$	—	$	(60)	$	123	—	%	15	%
Charges associated with restructuring and other activities	(23)		(145)		122
Total	$	738	$	616	$	122

By Region:
The Americas	$	408	$	155	$	253	$	11	—		$	(60)	$	204	100+%		100+%
Europe, the Middle East & Africa	281		361		(80)		(33)		—		—		(113)		(22)		(29)
Asia/Pacific	72		245		(173)		205		—		—		32		(71)		13
	761		761		—		$	183	$	—	$	(60)	$	123	—	%	15	%
Charges associated with restructuring and other activities	(23)		(145)		122
Total	$	738	$	616	$	122