Estee Lauder Earnings 2020-09-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

el-20200930

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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 September 30, 2020


☐			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 October 26, 2020, 226,538,215 shares of the registrant’s Class A Common Stock, $.01 par value, and 135,067,429 shares of the registrant’s Class B Common Stock, $.01 par value, were outstanding.

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THE ESTÉE LAUDER COMPANIES INC.

INDEX


			Page

Part I. Financial Information

Item 1. Financial Statements (Unaudited)

Consolidated Statements of Earnings — Three Months Ended September 30, 2020 and 2019			2

Consolidated Statements of Comprehensive Incom e — Three Months Ended September 30, 2020 and 2019			3

Consolidated Balance Sheets — September 30, 2020 and June 30, 2020 (Audited)			4

Consolidated Statements of Cash Flows — Three Months Ended September 30, 2020 and 2019			5

Notes to Consolidated Financial Statements			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			31

Item 3. Quantitative and Qualitative Disclosures About Market Risk			52

Item 4. Controls and Procedures			52

Part II. Other Information

Item 1. Legal Proceedings			52

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			53

Item 6. Exhibits			53

Signatures			54

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)


	Three Months Ended September 30
(In millions, except per share data)		2020		2019

Net sales		$	3,562	$	3,895
Cost of sales		825		908

Gross profit		2,737		2,987

Operating expenses
Selling, general and administrative		2,026		2,185
Restructuring and other charges		6		23


Total operating expenses		2,032		2,208

Operating income		705		779

Interest expense		45		32
Interest income and investment income, net		14		14
Other components of net periodic benefit cost		3		1

Earnings before income taxes		671		760

Provision for income taxes		146		162
Net earnings		525		598

Net earnings attributable to noncontrolling interests		(2)		(3)
Net earnings attributable to The Estée Lauder Companies Inc.		$	523	$	595

Net earnings attributable to The Estée Lauder Companies Inc. per common share
Basic		$	1.44	$	1.65
Diluted		$	1.42	$	1.61

Weighted-average common shares outstanding
Basic		362.1		361.4
Diluted		367.2		368.6

See notes to consolidated financial statements.

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THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended September 30
(In millions)	2020		2019

Net earnings	$	525	$	598

Other comprehensive income (loss):

Net cash flow hedge loss	(31)		(2)
Amounts included in net periodic benefit cost	6		5
Translation adjustments	78		(70)
Benefit for deferred income taxes on components of other comprehensive income	18		3
Total other comprehensive gain (loss)	71		(64)
Comprehensive income	596		534

Comprehensive income attributable to noncontrolling interests:
Net earnings	(2)		(3)


Comprehensive income attributable to The Estée Lauder Companies Inc.	$	594	$	531

See notes to consolidated financial statements.

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THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED BALANCE SHEETS


(In millions, except share data)	September 30 2020		June 30 2020
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	4,267	$	5,022
Accounts receivable, net	1,812		1,194
Inventory and promotional merchandise	2,204		2,062
Prepaid expenses and other current assets	512		614
Total current assets	8,795		8,892

Property, plant and equipment, net	2,077		2,055

Other assets
Operating lease right-of-use assets	2,322		2,282
Goodwill	1,421		1,401
Other intangible assets, net	2,358		2,338
Other assets	930		813
Total other assets	7,031		6,834
Total assets	$	17,903	$	17,781

LIABILITIES AND EQUITY
Current liabilities
Current debt	$	473	$	1,222
Accounts payable	1,178		1,177
Operating lease liabilities	399		375
Other accrued liabilities	2,694		2,405
Total current liabilities	4,744		5,179

Noncurrent liabilities
Long-term debt	4,913		4,914
Long-term operating lease liabilities	2,309		2,278
Other noncurrent liabilities	1,456		1,448
Total noncurrent liabilities	8,678		8,640

Contingencies

Equity
Common stock, $.01 par value; Class A shares authorized: 1,300,000,000 at September 30, 2020 and June 30, 2020; shares issued: 453,152,184 at September 30, 2020 and 451,927,441 at June 30, 2020; Class B shares authorized: 304,000,000 at September 30, 2020 and June 30, 2020; shares issued and outstanding: 135,067,429 at September 30, 2020 and 135,235,429 at June 30, 2020	6		6
Paid-in capital	4,913		4,790
Retained earnings	10,480		10,134
Accumulated other comprehensive loss	(594)		(665)
	14,805		14,265
Less: Treasury stock, at cost; 226,727,480 Class A shares at September 30, 2020 and 226,637,238 Class A shares at June 30, 2020	(10,353)		(10,330)
Total stockholders’ equity – The Estée Lauder Companies Inc.	4,452		3,935
Noncontrolling interests	29		27
Total equity	4,481		3,962
Total liabilities and equity	$	17,903	$	17,781

See notes to consolidated financial statements.

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THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended September 30
(In millions)	2020		2019

Cash flows from operating activities
Net earnings	$	525	$	598
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization	156		143
Deferred income taxes	(39)		11
Non-cash stock-based compensation	64		56
Net loss on disposal of property, plant and equipment	2		2

Pension and post-retirement benefit expense	23		21
Pension and post-retirement benefit contributions	(7)		(9)




Other non-cash items	(10)		(2)
Changes in operating assets and liabilities:
Increase in accounts receivable, net	(607)		(487)
Increase in inventory and promotional merchandise	(94)		(83)
Decrease (increase) in other assets, net	39		(48)
Decrease in accounts payable	(21)		(400)
Increase in other accrued and noncurrent liabilities	316		31
Increase (decrease) in operating lease assets and liabilities, net	11		(3)
Net cash flows provided by (used for) operating activities	358		(170)

Cash flows from investing activities
Capital expenditures	(116)		(125)
Proceeds from purchase price refund	32		—
Payment for acquired business	(6)		—

Purchases of investments	(40)		(5)
Settlement of net investment hedges	(112)		2
Net cash flows used for investing activities	(242)		(128)

Cash flows from financing activities
Proceeds (repayments) of current debt, net	(747)		5


Repayments and redemptions of long-term debt	(2)		(5)
Net proceeds from stock-based compensation transactions	58		55
Payments to acquire treasury stock	(25)		(313)

Dividends paid to stockholders	(174)		(156)
Payments to noncontrolling interest holders for dividends	—		(2)
Net cash flows used for financing activities	(890)		(416)

Effect of exchange rate changes on Cash and cash equivalents	19		(14)
Net decrease in Cash and cash equivalents	(755)		(728)
Cash and cash equivalents at beginning of period	5,022		2,987
Cash and cash equivalents at end of period	$	4,267	$	2,259

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, 2020.

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

Management Estimates

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

Currency Translation and Transactions

All assets and liabilities of foreign subsidiaries and affiliates are translated at period-end rates of exchange, while revenue and expenses are translated at monthly average rates of exchange for the period. Unrealized translation gains (losses), net of tax, reported as translation adjustments through other comprehensive income (loss) (“OCI”) attributable to The Estée Lauder Companies Inc. were $91 million and $(72) million, net of tax, during the three months ended September 30, 2020 and 2019, 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 4 – 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 losses on foreign currency transactions of $1 million and $3 million during the three months ended September 30, 2020 and 2019, respectively.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Concentration of Credit Risk

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

The Company’s largest customer during the quarter sells products primarily in China travel retail and accounted for $554 million, or 16%, and $169 million, or 4%, of the Company's consolidated net sales for the three months ended September 30, 2020 and 2019, respectively. This customer accounted for $289 million, or 15%, and $297 million, or 24%, of the Company's accounts receivable at September 30, 2020 and June 30, 2020, respectively.

Another major customer of the Company during the quarter sells products primarily within the United States and accounted for $215 million, or 11%, and $87 million, or 7%, of the Company’s accounts receivable at September 30, 2020 and June 30, 2020, respectively. This customer accounted for $181 million, or 5%, and $279 million, or 7%, of the Company’s consolidated net sales for the three months ended September 30, 2020 and 2019, respectively.

Inventory and Promotional Merchandise

Inventory and promotional merchandise consists of the following:


(In millions)	September 30 2020		June 30 2020
Raw materials	$	553	$	542
Work in process	266		305
Finished goods	1,126		995
Promotional merchandise	259		220
	$	2,204	$	2,062

Property, Plant and Equipment

Property, plant and equipment consists of the following:


(In millions)	September 30 2020		June 30 2020
Assets (Useful Life)
Land	$	34	$	33
Buildings and improvements (10 to 40 years)	419		400
Machinery and equipment (3 to 10 years)	913		865
Computer hardware and software (4 to 10 years)	1,374		1,335
Furniture and fixtures (5 to 10 years)	122		120
Leasehold improvements	2,426		2,381
	5,288		5,134
Less accumulated depreciation and amortization	(3,211)		(3,079)
	$	2,077	$	2,055

The cost of assets related to projects in progress of $523 million and $501 million as of September 30, 2020 and June 30, 2020, respectively, is included in their respective asset categories above. Depreciation and amortization of property, plant and equipment was $125 million during the three months ended September 30, 2020 and 2019. 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.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes

The effective rate for income taxes was 21.8% and 21.3% for the three months ended September 30, 2020 and 2019, respectively. The increase in the effective tax rate of 50 basis points was primarily attributable to a higher effective tax rate on the Company's foreign operations.

The fiscal 2021 first quarter effective tax rate included a 130 basis point reduction to the current period effective tax rate due to the impact of the U.S. government issuance of final global intangible low-taxed income (“GILTI”) tax regulations in July 2020 under the Tax Cuts and Jobs Act that provide for a high-tax exception to the current year GILTI tax. These newly-issued regulations are retroactive to the original enactment of the GILTI tax provision, which includes the Company's 2019 and 2020 fiscal years. The Company is currently evaluating the impact and ability to apply the GILTI regulations relating to fiscal 2019 and fiscal 2020.

The fiscal 2021 first quarter effective tax rate also included a 120 basis point increase to the current period effective tax rate due to the pending December 31, 2020 expiration of a tax law in China that expanded the corporate income tax deduction allowance for advertising and promotion expenses (“expiring China tax law”). The favorable impact from a possible re-enactment of the expiring China tax law would be recognized in the provision for income taxes in the period that includes the date of such re-enactment.

As of September 30, 2020 and June 30, 2020, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $73 million and $70 million, respectively. The total amount of unrecognized tax benefits at September 30, 2020 that, if recognized, would affect the effective tax rate was $58 million. The total gross interest and penalties accrued related to unrecognized tax benefits during the three months ended September 30, 2020 in the accompanying consolidated statements of earnings was $1 million. The total gross accrued interest and penalties in the accompanying consolidated balance sheets at September 30, 2020 and June 30, 2020, was $14 million and $13 million, respectively. On the basis of the information available as of September 30, 2020, it is reasonably possible that the total amount of unrecognized tax benefits could decrease in a range of $5 million to $10 million within the next twelve months as a result of projected resolutions of global tax examinations and controversies and a potential lapse of the applicable statutes of limitations.

Other Accrued Liabilities

Other accrued liabilities consist of the following:


(In millions)	September 30 2020		June 30 2020
Advertising, merchandising and sampling	$	316	$	256
Employee compensation	405		424
Deferred revenue	353		222
Payroll and other taxes	277		250
Accrued income taxes	269		208
Sales return accrual	253		212
Other	821		833
	$	2,694	$	2,405

Debt

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

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recently Adopted Accounting Standards

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

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

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

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

Effective for the Company – Fiscal 2021 first quarter.

Impact on consolidated financial statements – On July 1, 2020, the Company adopted ASC 326. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. See Note 6 – Revenue Recognition for further discussion.

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

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

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

Impact on consolidated financial statements – On July 1, 2020, the Company adopted this guidance prospectively to all implementation costs incurred after the date of adoption. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

Recently Issued Accounting Standards

Reference Rate Reform (ASC Topic 848) (Accounting Standards Update (“ASU”) 2020-04 - Facilitation of the Effects of Reference Rate Reform on Financial Reporting)

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

Effective for the Company – This guidance can be applied for a limited time, as of the beginning of the interim period that includes March 12, 2020 or any date thereafter, through December 31, 2022. The guidance will no longer be available to apply after December 31, 2022.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

Impact on consolidated financial statements – The Company is currently evaluating the impact of applying this guidance and believes that it has transactions that may fall under the scope.

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

NOTE 2 – GOODWILL AND OTHER INTANGIBLE ASSETS

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


(In millions)	Skin Care		Makeup		Fragrance		Hair Care		Total
Balance as of June 30, 2020
Goodwill	$	519	$	1,210	$	254	$	389	$	2,372
Accumulated impairments	(95)		(817)		(26)		(33)		(971)
	424		393		228		356		1,401

Goodwill acquired during the period	—		2		—		4		6

Translation adjustments, goodwill	10		—		5		1		16
Translation adjustments, accumulated impairments	(1)		—		—		(1)		(2)
	9		2		5		4		20

Balance as of September 30, 2020
Goodwill	529		1,212		259		394		2,394
Accumulated impairments	(96)		(817)		(26)		(34)		(973)
	$	433	$	395	$	233	$	360	$	1,421

Other intangible assets consist of the following:


	September 30, 2020						June 30, 2020
(In millions)	Gross Carrying Value		Accumulated Amortization		Total Net Book Value		Gross Carrying Value		Accumulated Amortization		Total Net Book Value
Amortizable intangible assets:
Customer lists and other	$	1,615	$	500	$	1,115	$	1,590	$	475	$	1,115
License agreements	43		43		$	—	43		43		$	—
	$	1,658	$	543	$	1,115	$	1,633	$	518	$	1,115
Non-amortizable intangible assets:
Trademarks and other					1,243						1,223
Total intangible assets					$	2,358					$	2,338

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The aggregate amortization expense related to amortizable intangible assets was $25 million and $11 million for the three months ended September 30, 2020 and 2019, respectively. The estimated aggregate amortization expense for the remainder of fiscal 2021 and for each of the next four fiscal years is as follows:


	Fiscal
(In millions)	2021		2022		2023		2024		2025
Estimated aggregate amortization expense	$	77	$	102	$	101	$	100	$	99

NOTE 3 – CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES

Charges associated with restructuring activities for the three months ended September 30, 2020 were as follows:


	Sales Returns (included in Net Sales)		Cost of Sales		Operating Expenses				Total
(In millions)					Restructuring Charges		Other Charges
Leading Beauty Forward Program	$	—	$	3	$	(8)	$	2	$	(3)
Post-COVID Business Acceleration Program	—		—		12		—		12
Total	$	—	$	3	$	4	$	2	$	9

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

Leading Beauty Forward Program

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

LBF Program Approvals

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


	Sales Returns (included in Net Sales)		Cost of Sales		Operating Expenses				Total
(In millions)					Restructuring Charges		Other Charges
Total Charges Approved
Cumulative through June 30, 2020	$	13	$	85	$	511	$	358	$	967
Three months ended September 30, 2020	1		—		(8)		7		—
Cumulative through September 30, 2020	$	14	$	85	$	503	$	365	$	967

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total
Restructuring Charges Approved
Cumulative through June 30, 2020	$	460	$	28	$	7	$	16	$	511
Three months ended September 30, 2020	(8)		—		—		—		(8)
Cumulative through September 30, 2020	$	452	$	28	$	7	$	16	$	503

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

LBF Program Restructuring and Other Charges

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


(In millions)	Sales Returns (included in Net Sales)		Cost of Sales		Operating Expenses				Total
					Restructuring Charges		Other Charges
Total Charges
Cumulative through June 30, 2020	$	14	$	65	$	491	$	304	$	874
Three months ended September 30, 2020	—		3		(8)		2		(3)
Cumulative through September 30, 2020	$	14	$	68	$	483	$	306	$	871


(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total
Restructuring Charges (Adjustments)
Cumulative through June 30, 2020	$	451	$	27	$	6	$	7	$	491
Three months ended September 30, 2020	(8)		—		—		—		(8)
Cumulative through September 30, 2020	$	443	$	27	$	6	$	7	$	483

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

Changes in accrued restructuring charges for the three months ended September 30, 2020 relating to the LBF Program were:


(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total
Balance at June 30, 2020	$	112	$	—	$	—	$	—	$	112
Charges (adjustments)	(8)		—		—		—		(8)
Cash payments	(23)		—		—		—		(23)


Balance at September 30, 2020	$	81	$	—	$	—	$	—	$	81

Accrued restructuring charges at September 30, 2020 relating to the LBF Program are expected to result in cash expenditures funded from cash provided by operations of approximately $56 million, $20 million and $5 million for the remainder of fiscal 2021 and for fiscal 2022 and 2023, respectively. The expected cash expenditures for fiscal 2024 are de minimis.

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

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 resize the Company's business against the dramatic shifts to its distribution landscape and consumer behaviors in the wake of the COVID-19 pandemic. The PCBA Program is designed to help improve efficiency and effectiveness by rebalancing resources to growth areas of prestige beauty. It is expected to further strengthen the Company by building upon the foundational capabilities in which the Company has invested.

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.

In connection with the PCBA Program, at this time the Company estimates a net reduction in the range of approximately 1,500 to 2,000 positions globally, which is about 3% of its current workforce including temporary and part-time employees. This reduction takes into account the elimination of some positions, retraining and redeployment of certain employees and investment in new positions in key areas. The Company also estimates the closure of approximately 10% to 15% of its freestanding stores globally, primarily in Europe, the Middle East & Africa and in North America.

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

PCBA Program Approvals

Total cumulative charges approved by the Company through September 30, 2020 were:

Sales
Returns
(included in
Net Sales)

Cost of Sales

Operating Expenses

Total

(In millions)

Restructuring
Charges

Other
Charges

Total Charges Approved

Three months ended September 30, 2020

Price	196.33	EPS	5
Shares	369	P/E	38
MCap	72,367	P/FCF	67
Net Debt	636	EBIT	2,577
TEV	73,003	TEV/EBIT	28
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-09-30	Filed 2020-11-02
10-K	2020-06-30	Filed 2020-08-28
10-Q	2020-03-31	Filed 2020-05-01
10-Q	2019-12-31	Filed 2020-02-06
10-Q	2019-09-30	Filed 2019-10-31
10-K	2019-06-30	Filed 2019-08-23
10-Q	2019-03-31	Filed 2019-05-01
10-Q	2018-12-31	Filed 2019-02-05
10-Q	2018-09-30	Filed 2018-10-31
10-K	2018-06-30	Filed 2018-08-24
10-Q	2018-03-31	Filed 2018-05-02
10-Q	2017-12-31	Filed 2018-02-02
10-Q	2017-09-30	Filed 2017-11-01
10-K	2017-06-30	Filed 2017-08-25
10-Q	2017-03-31	Filed 2017-05-03
10-Q	2016-12-31	Filed 2017-02-02
10-Q	2016-09-30	Filed 2016-11-02
10-K	2016-06-30	Filed 2016-08-24
10-Q	2016-03-31	Filed 2016-05-03
10-Q	2015-12-31	Filed 2016-02-05
10-Q	2015-09-30	Filed 2015-11-02
10-K	2015-06-30	Filed 2015-08-20
10-Q	2015-03-31	Filed 2015-05-05
10-Q	2014-12-31	Filed 2015-02-05
10-Q	2014-09-30	Filed 2014-11-04
10-K	2014-06-30	Filed 2014-08-20
10-Q	2014-03-31	Filed 2014-05-02
10-Q	2013-12-31	Filed 2014-02-05
10-Q	2013-09-30	Filed 2013-11-01
10-K	2013-06-30	Filed 2013-08-23
10-Q	2013-03-31	Filed 2013-05-03
10-Q	2012-12-31	Filed 2013-02-06
10-Q	2012-09-30	Filed 2012-11-02
10-K	2012-06-30	Filed 2012-08-17
10-Q	2012-03-31	Filed 2012-05-07
10-Q	2011-12-31	Filed 2012-02-06
10-Q	2011-09-30	Filed 2011-11-04
10-K	2011-06-30	Filed 2011-08-22
10-Q	2011-03-31	Filed 2011-05-06
10-Q	2010-12-31	Filed 2011-02-04
10-Q	2010-09-30	Filed 2010-11-01
10-K	2010-06-30	Filed 2010-08-20
10-Q	2010-03-31	Filed 2010-04-27
10-Q	2009-12-31	Filed 2010-01-28

8-K	2020-11-10	Shareholder Vote, Exhibits
8-K	2020-10-30	Earnings, Other Events, Exhibits
8-K	2020-08-18	Earnings, Exit Costs, Other Events, Exhibits
8-K	2020-05-01
8-K	2020-04-13
8-K	2020-04-07
8-K	2020-04-07
8-K	2020-03-18
8-K	2020-02-21
8-K	2020-02-05
8-K	2019-11-19
8-K	2019-11-18
8-K	2019-11-15
8-K	2019-10-30
8-K	2019-08-16
8-K	2019-04-30
8-K	2019-03-06
8-K	2019-02-14
8-K	2019-02-04
8-K	2018-11-13
8-K	2018-10-30
8-K	2018-10-26
8-K	2018-08-17
8-K	2018-07-19
8-K	2018-05-01
8-K	2018-04-16
8-K	2018-02-14
8-K	2018-02-01

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EX-31.1	el-q1fy2021xex311.htm
EX-31.2	el-q1fy2021xex312.htm
EX-32.1	el-q1fy2021xex321.htm
EX-32.2	el-q1fy2021xex322.htm

EL 10Q Quarterly Report

Estee Lauder Earnings 2020-09-30