ESTEE LAUDER COMPANIES INC [EL] Filings

10-Q 1 el-20240930.htm 10-Q el-20240930

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, 2024


☐			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 24, 2024, 233,435,997 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 (Loss) — Three Months Ended September 30, 2024 and 2023			2

Consolidated Statements of Comprehensive Incom e (Loss) — Three Months Ended September 30, 2024 and 2023			3

Consolidated Balance Sheets — September 30, 2024 and June 30, 2024			4

Consolidated Statements of Cash Flows — Three Months Ended September 30, 2024 and 2023			5

Notes to Consolidated Financial Statements			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			34

Item 3. Quantitative and Qualitative Disclosures About Market Risk			59

Item 4. Controls and Procedures			59

Part II. Other Information

Item 1. Legal Proceedings			59

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			59

Item 5. Other Information			60

Item 6. Exhibits			60

Signatures			61

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

(Unaudited)


	Three Months Ended September 30
(In millions, except per share data)		2024		2023

Net sales		$	3,361	$	3,518
Cost of sales		928		1,070

Gross profit		2,433		2,448

Operating expenses
Selling, general and administrative		2,298		2,349
Restructuring and other charges		97		1
Talcum litigation settlement agreements		159		—


Total operating expenses		2,554		2,350

Operating income (loss)		(121)		98

Interest expense		92		95
Interest income and investment income, net		35		41
Other components of net periodic benefit cost		2		(2)

Earnings (loss) before income taxes		(180)		46

Provision (benefit) for income taxes		(24)		10
Net earnings (loss)		(156)		36


Net earnings attributable to redeemable noncontrolling interest		—		(5)
Net earnings (loss) attributable to The Estée Lauder Companies Inc.		$	(156)	$	31

Net earnings (loss) attributable to The Estée Lauder Companies Inc. per common share
Basic		$	(.43)	$	0.09
Diluted		$	(.43)	$	0.09

Weighted average common shares outstanding
Basic		359.6		358.4
Diluted		359.6		360.5

See notes to consolidated financial statements.

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THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Three Months Ended September 30
(In millions)		2024		2023

Net earnings (loss)		$	(156)	$	36

Other comprehensive income (loss):

Net cash flow hedge gain (loss)		(57)		19
Cross-currency swap contract gain		12		—
Retirement plan and other retiree benefit adjustments		2		(1)
Translation adjustments		108		(120)
Benefit (provision) for income taxes on components of other comprehensive income		18		(38)
Total other comprehensive income (loss), net of tax		83		(140)
Comprehensive loss		(73)		(104)






Comprehensive loss (income) attributable to redeemable noncontrolling interest:
Net earnings		—		(5)
Translation adjustments		—		11
Total comprehensive loss attributable to redeemable noncontrolling interest		—		6
Comprehensive loss attributable to The Estée Lauder Companies Inc.		$	(73)	$	(98)

See notes to consolidated financial statements.

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THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions, except share and per share data)	September 30 2024		June 30 2024

ASSETS
Current assets
Cash and cash equivalents	$	2,350	$	3,395
Accounts receivable, net	1,977		1,727
Inventory and promotional merchandise	2,255		2,175
Prepaid expenses and other current assets	633		625
Total current assets	7,215		7,922

Property, plant and equipment, net	3,233		3,136

Other assets
Operating lease right-of-use assets	1,973		1,833
Goodwill	2,162		2,143
Other intangible assets, net	5,207		5,183
Other assets	1,527		1,460
Total other assets	10,869		10,619
Total assets	$	21,317	$	21,677

LIABILITIES AND EQUITY
Current liabilities
Current debt	$	504	$	504
Accounts payable	1,135		1,440
Operating lease liabilities	393		354
Other accrued liabilities	3,454		3,404
Total current liabilities	5,486		5,702

Noncurrent liabilities
Long-term debt	7,311		7,267
Long-term operating lease liabilities	1,802		1,701
Other noncurrent liabilities	1,634		1,693
Total noncurrent liabilities	10,747		10,661

Commitments and contingencies



Equity
Common stock, $.01 par value; Class A shares authorized: 1,300,000,000 at September 30, 2024 and June 30, 2024; shares issued: 471,407,641 at September 30, 2024 and 471,018,569 at June 30, 2024; Class B shares authorized: 304,000,000 at September 30, 2024 and June 30, 2024; shares issued and outstanding: 125,542,029 at September 30, 2024 and June 30, 2024	6		6
Paid-in capital	6,778		6,685
Retained earnings	13,031		13,427
Accumulated other comprehensive loss	(1,057)		(1,140)
	18,758		18,978
Less: Treasury stock, at cost; 237,972,181 Class A shares at September 30, 2024 and 237,871,995 Class A shares at June 30, 2024	(13,674)		(13,664)


Total equity	5,084		5,314
Total liabilities and equity	$	21,317	$	21,677

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)	2024		2023

Cash flows from operating activities
Net earnings (loss)	$	(156)	$	36
Adjustments to reconcile net earnings (loss) to net cash flows from operating activities:
Depreciation and amortization	208		203
Deferred income taxes	(79)		(57)
Non-cash stock-based compensation	74		80
Net loss on disposal of property, plant and equipment	1		1
Non-cash restructuring and other charges	11		2
Pension and post-retirement benefit expense	18		13
Pension and post-retirement benefit contributions	(32)		(54)




Other non-cash items	1		7
Changes in operating assets and liabilities:
Increase in accounts receivable, net	(219)		(477)
Decrease (increase) in inventory and promotional merchandise	(10)		62
Increase in other assets, net	(47)		(17)
Decrease in accounts payable	(337)		(255)
Increase (decrease) in other accrued and noncurrent liabilities	(100)		51
Decrease in operating lease assets and liabilities, net	(3)		(3)
Net cash flows used for operating activities	(670)		(408)

Cash flows from investing activities
Capital expenditures	(141)		(295)




Purchases of investments	(1)		—
Settlement of net investment hedges	(18)		—
Net cash flows used for investing activities	(160)		(295)

Cash flows from financing activities
Repayments of current debt, net	—		(1)




Repayments and redemptions of long-term debt	(1)		(3)
Net proceeds from stock-based compensation transactions	15		15
Payments to acquire treasury stock	(10)		(3)

Settlement of cross-currency swaps	10		9
Dividends paid to stockholders	(240)		(236)

Net cash flows used for financing activities	(226)		(219)

Effect of exchange rate changes on Cash and cash equivalents	11		(17)
Net decrease in Cash and cash equivalents	(1,045)		(939)
Cash and cash equivalents at beginning of period	3,395		4,029
Cash and cash equivalents at end of period	$	2,350	$	3,090

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 normal and recurring 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, 2024.

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, 2024. Management evaluates the related estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions. Significant changes, if any, in those estimates and assumptions resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.

Currency Translation and Transactions

All assets and liabilities of foreign subsidiaries and affiliates are translated at period-end rates of exchange, while revenue and expenses are translated at 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 $115 million and $(143) million, net of tax, during the three months ended September 30, 2024 and 2023, respectively. For the Company’s subsidiaries operating in highly inflationary economies, the U.S. dollar is the functional currency, and these subsidiaries are not material to the Company's consolidated financial statements or liquidity. Remeasurement adjustments in financial statements in a highly inflationary economy and other transactional gains and losses are reflected in earnings.

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 uses cross-currency swap contracts to hedge the impact of foreign currency changes on certain intercompany foreign currency denominated debt. Additionally, the Company 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 (loss) include net exchange gains on foreign currency transactions of $19 million and $16 million during the three months ended September 30, 2024 and 2023, 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 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. While the Company does not believe it is exposed significantly to any undue concentration of credit risk at this time, it continues to monitor its customers' abilities, individually and collectively, to make timely payments.

The Company’s largest customer during the first quarter of fiscal 2025 sells products primarily within the United States and accounted for $200 million, or 10%, and $78 million, or 4%, of the Company's accounts receivable at September 30, 2024 and June 30, 2024, respectively.

Inventory and Promotional Merchandise

Inventory and promotional merchandise consists of the following:


(In millions)	September 30, 2024		June 30, 2024
Raw materials	$	673	$	696
Work in process	272		308
Finished goods	1,025		903
Promotional merchandise	285		268
	$	2,255	$	2,175

Property, Plant and Equipment

Property, plant and equipment consists of the following:


(In millions)	September 30, 2024		June 30, 2024
Assets (Useful Life)
Land and improvements(1)	$	76	$	68
Buildings and improvements (10 to 40 years)	1,028		929
Machinery and equipment (3 to 20 years)	1,339		1,253
Computer hardware and software (4 to 10 years)	1,932		1,861
Furniture and fixtures (5 to 10 years)	141		137
Leasehold improvements	2,504		2,418
Construction in progress	470		500
	7,490		7,166
Less accumulated depreciation and amortization	(4,257)		(4,030)
	$	3,233	$	3,136

(1)Land improvements are depreciated over a 10 year useful life.

Depreciation and amortization of property, plant and equipment was $168 million and $162 million during the three months ended September 30, 2024 and 2023, respectively. Depreciation and amortization related to the Company’s manufacturing process is included in Cost of sales, and all other depreciation and amortization is included in Selling, general and administrative expenses in the accompanying consolidated statements of earnings (loss).

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes

The effective rate for income taxes was 13.3% and 21.7% for the three months ended September 30, 2024 and 2023, respectively. The decrease in the effective tax rate of 840 basis points was primarily attributable to the impact of the discrete treatment of the charge associated with the talcum litigation settlement agreements (See Note 8 - Commitments and Contingencies for further discussion) and charges associated with restructuring and other activities recorded in the first quarter of fiscal 2025. The loss before income taxes in the first quarter of fiscal 2025 increased the impact of these discrete items on the effective tax rate.

On August 16, 2022, the U.S. federal government enacted the Inflation Reduction Act, including a tax provision implementing a 15% corporate alternative minimum tax based on global adjusted financial statement income. The corporate alternative minimum tax did not have an impact on the Company's consolidated financial statements for the three months ended September 30, 2024 and 2023.

On August 26, 2024, the U.S. Tax Court issued a decision in Varian Medical Systems, Inc. v. Commissioner. The decision related to the Tax Cuts and Jobs Act deduction for certain deemed foreign dividends otherwise subject to the Transition Tax on unrepatriated earnings of applicable foreign subsidiaries. Based on the Company's evaluation of the technical merits of this decision, the Company intends to timely file a protective refund claim with the U.S. Internal Revenue Service in fiscal 2025 claiming a Transition Tax payable reduction of approximately $73 million. Although the Company has accrued the $73 million estimated tax benefit in the provision for income taxes and reduced the Transition Tax payable in the fiscal 2025 first quarter by $73 million, at this time the Company believes it is more-likely-than-not that the intended Transition Tax payable reduction claim will not be sustained. As such, in the fiscal 2025 first quarter the Company has correspondingly increased the provision for income taxes for the estimated $73 million tax benefit to establish an uncertain tax position reserve accrual for the estimated $73 million Transition Tax at issue. As a result, there was no net impact from this development in the provision for income taxes and accompanying consolidated statement of earnings (loss) for the three months ended September 30, 2024. In the accompanying consolidated balance sheet as of September 30, 2024, the $73 million Transition Tax payable reduction and offsetting $73 million uncertain tax position reserve accrual are included in Other noncurrent liabilities.

In December 2021, the Organization for Economic Cooperation and Development issued "Pillar Two" Global Anti-Base Erosion model rules for countries to enact into domestic law that would establish a 15% global minimum tax applied on a country-by-country basis for multinational companies. In certain countries that have enacted legislation incorporating the global minimum tax, it became effective for the Company at the beginning of fiscal 2025. The estimated tax impact of such legislation has been included in the provision for income taxes for the three months ended September 30, 2024 and was not material. We are continuing to monitor and evaluate the potential impact of newly enacted legislation incorporating the global minimum tax in additional countries.

As of September 30, 2024 and June 30, 2024, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $138 million and $65 million, respectively. The total amount of unrecognized tax benefits at September 30, 2024 that, if recognized, would affect the effective tax rate was $128 million. The significant increase in the gross amount of unrecognized tax benefits as of September 30, 2024 as compared to June 30, 2024 was attributable to having established an uncertain tax position reserve accrual for the Transition Tax payable reduction position determined in the fiscal 2025 first quarter based on the August 26, 2024 U.S. Tax Court decision in Varian Medical Systems v. Commissioner, as discussed above. The total gross interest and penalties accrued related to unrecognized tax benefits during the three months ended September 30, 2024 in the accompanying consolidated statements of earnings (loss) was $2 million. The total gross accrued interest and penalties in the accompanying consolidated balance sheets at September 30, 2024 and June 30, 2024, was $19 million and $17 million, respectively. On the basis of the information available as of September 30, 2024, the Company does not expect significant changes to the total amount of unrecognized tax benefits within the next twelve months.

At September 30, 2024 and June 30, 2024, total Other assets of $1,527 million and $1,460 million included $1,107 million and $1,018 million of deferred tax assets, respectively.

Supplier Finance Programs

Under the Company's supplier finance programs, the Company agrees to pay the banks the stated amount of confirmed invoices from its designated suppliers on the due dates of the invoices. The Company may terminate the agreements upon written notice (with notice periods ranging from 30 to 60 days) or immediately upon a breach. The supplier invoices that have been confirmed as valid under the programs require payment in full within 90 days of the invoice date.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Outstanding obligations confirmed as valid totaling $58 million as of September 30, 2024 and June 30, 2024, are included in Accounts payable in the accompanying consolidated balance sheets.

Other Accrued Liabilities

Other accrued liabilities consist of the following:


(In millions)	September 30, 2024		June 30, 2024
Advertising, merchandising and sampling	$	298	$	276
Employee compensation	442		576
Accrued sales incentives	397		426
Deferred revenue	338		327
Payroll and other non-income taxes	356		333
Accrued income taxes	182		335

Other	1,441		1,131
	$	3,454	$	3,404

Recently Adopted 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 became effective for the Company’s first quarter fiscal 2024 and has been applied on a retrospective basis, except for the requirement to disclose rollforward information annually which is effective prospectively for the Company beginning in fiscal 2025.

Impact on consolidated financial statements – The Company has supplier financing arrangements and applied the disclosure requirements as required by the amendments. Such information is included in Supplier Finance Programs above within Note 1 – Summary of Significant Accounting Policies.

Recently Issued Accounting Standards

FASB ASU No. 2023-07 – Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued authoritative guidance to improve reportable segment disclosure requirements. Companies are required to disclose significant segment expenses by reportable segment if they are regularly provided to the chief operating decision maker (CODM). Companies are also required to disclose other segment items by reportable segment. The guidance clarifies that companies may disclose more than one measure of segment profit or loss used by the CODM, provided that at least one of the reported measures includes the segment profit or loss measure that is most consistent with U.S. GAAP measurement principles. All existing annual disclosures about segment profit or loss, as well as the new requirements, must now be provided on an interim basis. Additionally, on an annual basis, the CODM’s title and position is required, as well as an explanation of how the CODM uses the reported measure(s) and other disclosures. The guidance does not change how companies identify their operating segments, aggregate those operating segments, or apply the quantitative thresholds to determine their reportable segments.

Effective for the Company – The guidance is effective for the Company’s fiscal year ending June 30, 2025 Form 10-K and then in interim periods beginning in the Company’s first quarter of fiscal 2026. Early adoption is permitted. The guidance should be applied retrospectively unless impracticable.

Impact on consolidated financial statements – The Company is currently evaluating the impact that this guidance will have on its financial statement disclosures.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FASB ASU No. 2023-09 – Income Taxes (Topic 740): Improvements to Income Tax Disclosures

In December 2023, the FASB issued authoritative guidance to amend and enhance existing annual income tax disclosures primarily focusing on two reporting areas: (1) greater disaggregation of information in the effective tax rate reconciliations and (2) disclosure of income taxes paid, disaggregated by applicable jurisdiction.

Companies are required to use specific categories to prepare and disclose a tabular rate reconciliation (using both percentages and reporting currency amounts) of:

•the reported income tax expense (or benefit) from continuing operations and the product of the income (or loss) from continuing operations before income taxes and the applicable statutory federal income tax rate of the jurisdiction of domicile; and

•reconciling items within certain categories that are equal to or greater than a specified quantitative threshold, including the nature, effect, and underlying causes of the reconciling items and the judgment used in categorizing the reconciling items.

The guidance also requires companies to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign jurisdictions including individual jurisdictions with amounts paid equal to or greater than a specified quantitative threshold. The guidance also codifies existing SEC rules that require companies to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign as well as income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign jurisdictions.

Effective for the Company – The guidance is effective for the Company’s fiscal year ending June 30, 2026 Form 10-K. Early adoption is permitted. The guidance should be applied on a prospective basis with the option to apply the standard retrospectively.

Impact on consolidated financial statements – The Company is currently evaluating the impact that this guidance will have on its financial statement disclosures.

SEC Final Rule Release No. 33-11275 – The Enhancement and Standardization of Climate-Related Disclosures for Investors

In March 2024, the SEC adopted rules intended to enhance and standardize climate-related disclosures in registration statements and annual reports. The rules require significant effects of severe weather events and other natural conditions, amounts related to carbon offsets and renewable energy credits or certificates, as well as material impacts on financial estimates and assumptions that are due to severe weather events and other natural conditions or disclosed climate-related targets or transition plans to be disclosed in the annual financial statements in certain circumstances.

Effective for the Company – On April 4, 2024, the SEC issued an order staying the final rule on climate-related disclosures pending certain legal challenges. Under the rule as currently issued, the disclosure requirements related to the annual financial statements are expected to be effective for the Company's fiscal year ending June 30, 2026 Form 10-K. The Company is not required to provide comparative information in the year of adoption.

Impact on consolidated financial statements – The Company is currently evaluating the impact that this guidance will have on its annual financial statement disclosures.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

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, 2024
Goodwill	$	1,612	$	1,116	$	253	$	353	$	3,334
Accumulated impairments	(429)		(732)		(30)		—		(1,191)
	1,183		384		223		353		2,143



Translation adjustments, goodwill	31		—		3		1		35
Translation adjustments, accumulated impairments	(16)		—		—		—		(16)
	15		—		3		1		19

Balance as of September 30, 2024
Goodwill	1,643		1,116		256		354		3,369
Accumulated impairments	(445)		(732)		(30)		—		(1,207)
	$	1,198	$	384	$	226	$	354	$	2,162

Other Intangible Assets

Other intangible assets consist of the following:


	September 30, 2024						June 30, 2024
(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	$	2,025	$	948	$	1,077	$	1,971	$	895	$	1,076


Non-amortizable intangible assets:
Trademarks					4,130						4,107
Total intangible assets					$	5,207					$	5,183

The aggregate amortization expense related to amortizable intangible assets was $36 million for the three months ended September 30, 2024 and 2023.

The estimated aggregate amortization expense for the remainder of fiscal 2025 and for each of the next four fiscal years is as follows:


	Fiscal
(In millions)	2025		2026		2027		2028		2029
Estimated aggregate amortization expense	$	109	$	145	$	128	$	103	$	102

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES

Restructuring Program Component of the Profit Recovery and Growth Plan

As announced on November 1, 2023, the Company launched the Profit Recovery and Growth Plan ("PRGP") to help progressively rebuild its profit margins in fiscal years 2025 and 2026.

The PRGP is focused on rebuilding stronger, more sustainable profitability, supporting sales growth acceleration and increasing speed and agility. The plan is designed to improve gross margin, lower the cost base and reduce overhead expenses, while increasing investments in key consumer-facing activities. Upon completion of this plan, the Company expects to have improved its gross margin and expense base to drive greater operating leverage for the future.

As a component of the PRGP, on February 5, 2024, the Company announced a two-year restructuring program ("Restructuring Program"). The Restructuring Program’s main focus includes the reorganization and rightsizing of certain areas of the Company as well as simplification and acceleration of processes. The Company committed to this course of action on February 1, 2024.

In connection with the Restructuring Program, as of September 30, 2024, the Company continues to estimate a net reduction in the range of approximately 1,800 to 3,000 positions globally, which is about 3-5% of its positions including temporary and part-time employees as of June 30, 2023. This reduction takes into account the elimination of some positions as well as retraining and redeployment of certain employees in select areas.

The Company plans to substantially complete specific initiatives under the Restructuring Program through fiscal 2026. The Company expects that the Restructuring Program will result in restructuring and other charges totaling between $500 million and $700 million, before taxes, consisting of employee-related costs, contract terminations, asset write-offs and other costs associated with implementing these initiatives.

Restructuring Program Approvals

The Restructuring Program cumulative charges for initiatives approved by the Company during the three months ended September 30, 2024 and through October 25, 2024, were:


	Sales Returns (included in Net Sales)		Cost of Sales		Operating Expenses				Total
(In millions)					Restructuring Charges		Other Charges
Total Charges Approved
Cumulative charges through June 30, 2024	$	—	$	—	$	109	$	78	$	187
Three months ended September 30, 2024	1		9		83		20		113
October 1, 2024 - October 25, 2024	—		—		56		1		57
Cumulative charges through October 25, 2024	$	1	$	9	$	248	$	99	$	357

Included in the above table, Restructuring Program cumulative restructuring charges for initiatives approved by the Company during the three months ended September 30, 2024 and through October 25, 2024, by major cost type were:


(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total
Restructuring Charges Approved
Cumulative charges through June 30, 2024	$	93	$	7	$	—	$	9	$	109
Three months ended September 30, 2024	81		—		—		2		83
October 1, 2024 - October 25, 2024	55		—		—		1		56
Cumulative charges through October 25, 2024	$	229	$	7	$	—	$	12	$	248

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Specific actions taken since the Restructuring Program inception to reorganize and right-size certain areas of the Company to drive future sales growth and productivity to rebuild gross and operating margin profitability include:

•Value Chain Optimization – The Company approved initiatives to reduce spans and layers and right-size organizational capability within its supply chain and research and development functions. These actions will primarily result in employee severance through a net reduction in workforce, as well as costs to decommission and relocate activities, and asset write-offs.

•Enabling Function Re-Invention - The Company approved initiatives to reorganize and right-size its go-to market structure, including across various corporate functions. These activities will primarily result in employee severance through a net reduction in workforce.

•Future of Brand-led Model – The Company approved initiatives to focus on spans and layers to begin to develop a leaner, faster, and more agile marketing and creative organization. These activities will primarily result in employee severance through a net reduction in workforce.

•Go-to-Market Operating Model Acceleration – The Company approved initiatives to exit unprofitable brands from specific markets and distribution channels. These activities will result in inventory write-offs, employee severance through a net reduction in workforce, as well as costs associated with sales returns.

•Digital Organization Transformation – The Company approved initiatives to begin to reorganize and right-size its technology functions, which support its internal enterprise and commercial capabilities, to create a leaner, faster, more effective and more agile technology organization. These activities will primarily result in employee severance through a net reduction in workforce.

Restructuring Program Restructuring and Other Charges

The Company classifies restructuring charges as follows:

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 (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.

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 outplacement for separated employees.

The Company classifies other charges associated with restructuring activities as follows:

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

Other Charges – 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;

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

•Costs to establish and maintain a Project Management Office for the duration of the Restructuring Program, including internal costs for employees dedicated solely to project management activities, and consulting services to assist with business case development; 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 Restructuring Program were:


	Sales Returns (included in Net Sales)		Cost of Sales		Operating Expenses				Total
(In millions)					Restructuring Charges		Other Charges
Total Charges
Cumulative charges through June 30, 2024	$	—	$	—	$	92	$	23	$	115
Three months ended September 30, 2024	—		9		85		12		106
Cumulative charges through September 30, 2024	$	—	$	9	$	177	$	35	$	221


(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total
Restructuring Charges
Cumulative charges through June 30, 2024	$	90	$	2	$	—	$	—	$	92
Three months ended September 30, 2024	82		2		—		1		85
Cumulative charges through September 30, 2024	$	172	$	4	$	—	$	1	$	177

Changes in accrued restructuring charges from the Restructuring Program for the three months ended September 30, 2024 were:


(In millions)	Employee- Related Costs	Asset- Related Costs	Contract Terminations		Other Exit Costs		Total




Balance at June 30, 2024	88	—	—		—		88

Charges	82	2	—		1		85
Cash payments	(7)	—	—		(1)		(8)
Non-cash asset write-offs	—	(2)	—		—		(2)
Translation and other adjustments	(2)	—	—		—		(2)
Balance at September 30, 2024	161	—	$	—	$	—	$	161

Accrued restructuring charges at September 30, 2024 relating to the Restructuring Program are expected to result in cash expenditures funded from cash provided by operations of approximately $92 million, $53 million, $15 million and $1 million for the remainder of fiscal 2025 and for fiscal 2026, 2027 and 2028, respectively.

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.

Post-COVID Business Acceleration Program

The Company approved specific initiatives under the Post-COVID Business Acceleration Program (the “PCBA Program”) through fiscal 2022 and has substantially completed those initiatives. Additional information about the PCBA 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, 2024.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – 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 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. At September 30, 2024, the notional amount of derivatives not designated as hedging instruments was $4,026 million.

Fair Value Hedges

The Company enters into interest rate derivative contracts to manage the exposure to interest rate fluctuations on its funded indebtedness. At September 30, 2024, the Company has interest rate swap agreements, with notional amounts totaling $700 million and $300 million to effectively convert the fixed rate interest on its 2030 Senior Notes and 2031 Senior Notes, respectively, to variable interest rates based on the three-month fallback Secured Overnight Financing Rate ("SOFR") 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.

The Company enters into cross-currency swap contracts to manage the exposure of foreign exchange rate fluctuations on its intercompany foreign currency denominated debt. At September 30, 2024, the Company has cross-currency swap contracts with notional amounts totaling $491 million, to hedge the impact of foreign currency changes on certain intercompany foreign currency denominated debt. The cross-currency swap contracts are designated as fair value hedges of the related intercompany debt, and the gains and losses representing hedge components included in the assessment of effectiveness are presented in the same income statement line item as the earnings effect of the hedged transaction. Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis. The earnings recognition of excluded components is presented in the same income statement line item as the earnings effect of the hedged transaction. Any difference between the changes in the fair value of the excluded components and amounts recognized in earnings will be recognized in Accumulated Other Comprehensive Loss ("AOCI").

The estimated net gain on the Company’s derivative instruments designated as fair value hedges as of September 30, 2024 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $14 million. The accumulated net gain (loss) on derivative instruments designated as fair value hedges in AOCI was $5 million and $(7) million as of September 30, 2024 and June 30, 2024, respectively.

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 June 2026. Hedge effectiveness of the foreign currency forward contracts is based on the forward method, which includes time value in the effectiveness assessment. At September 30, 2024, the Company had cash flow hedges outstanding with a notional amount totaling $1,927 million.

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 Net sales when the underlying forecasted transaction occurs. If it is probable that the forecasted transaction will no longer occur, then any gains or losses in AOCI are reclassified to current-period Net sales. As of September 30, 2024, the Company’s foreign currency cash flow hedges were highly effective.

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.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The estimated net loss on the Company’s derivative instruments designated as cash flow hedges as of September 30, 2024 that is expected to be reclassified from AOCI into earnings, net of tax, within the next twelve months is $12 million. The accumulated net gain on derivative instruments designated as cash flow hedges in AOCI was $19 million and $75 million as of September 30, 2024 and June 30, 2024, respectively.

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. 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 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 September 2025. Hedge effectiveness of the net investment hedge contracts is based on the spot method. At September 30, 2024, the Company had net investment hedges outstanding with a notional amount totaling $1,351 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 two nationally recognized rating agencies. The counterparties to these contracts are major financial institutions. Exposure to credit risk in the event of nonperformance by any of the counterparties is limited to the gross fair value of contracts in asset positions, which totaled $64 million at September 30, 2024. To manage this risk, the Company has strict counterparty credit guidelines that are continually monitored. Accordingly, management believes risk of loss under these hedging contracts is remote.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


	Asset Derivatives					Liability Derivatives
		Fair Value (1)					Fair Value (1)
(In millions)	Balance Sheet Location	September 30, 2024		June 30, 2024		Balance Sheet Location	September 30, 2024		June 30, 2024
Derivatives Designated as Hedging Instruments:
Foreign currency cash flow hedges(2)	Prepaid expenses and other current assets; Other assets	$	5	$	34	Other accrued liabilities	$	31	$	4
Cross-currency swap contracts(3)	Prepaid expenses and other current assets; Other assets	39		80		Other accrued liabilities	—		—
Net investment hedges	Prepaid expenses and other current assets	1		15		Other accrued liabilities	30		—
Interest rate-related derivatives	Prepaid expenses and other current assets	—		—		Other accrued liabilities	104		145
Total Derivatives Designated as Hedging Instruments		45		129			165		149
Derivatives Not Designated as Hedging Instruments:
Foreign currency forward contracts	Prepaid expenses and other current assets	19		19		Other accrued liabilities	23		17
Total derivatives		$	64	$	148		$	188	$	166

(1)See Note 5 – Fair Value Measurements for further information about how the fair value of derivative assets and liabilities are determined.

(2)Included in the asset derivatives for the foreign currency cash flow hedges at September 30, 2024 and June 30, 2024 is less than $1 million and $2 million, respectively, classified within Other assets in the accompanying consolidated balance sheets.

(3)Included in the asset derivatives for the cross-currency swap contracts at September 30, 2024 and June 30, 2024 is approximately $26 million and $70 million, respectively, classified within Other assets in the accompanying consolidated balance sheets.

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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 Reclassified from AOCI into Earnings(1)
	Three Months Ended September 30					Three Months Ended September 30
(In millions)	2024		2023			2024		2023
Derivatives in Cash Flow Hedging Relationships:

Foreign currency forward contracts	$	(47)	$	28	Net sales	$	10	$	9
Interest rate-related derivatives	—		—		Interest expense	—		—
	(47)		28			10		9
Derivatives in Net Investment Hedging Relationships(2):
Foreign currency forward contracts(3)	(64)		30			—		—
Total derivatives	$	(111)	$	58		$	10	$	9

(1)There is no amount reclassified into earnings as a result of the discontinuance of cash flow hedges because it is probable that forecasted transactions will not occur by the end of the original time period.

(2)During the three months ended September 30, 2024 and 2023, the gain recognized in earnings from net investment hedges related to the amount excluded from effectiveness testing was $7 million and $5 million, respectively.

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


			Amount of Gain (Loss) Recognized in Earnings on Derivatives
	Location of Gain (Loss) Recognized in Earnings on Derivatives
		Three Months Ended September 30
(In millions)			2024		2023
Derivatives in Fair Value Hedging Relationships:


Cross-currency swap contracts (1)	Selling, general and administrative		$	(53)	$	13
Interest rate swap contracts (2)	Interest expense		$	41	$	(29)

(1)Changes in the fair value representing hedge components included in the assessment of effectiveness of the cross-currency swap contracts are exactly offset by the change in the fair value of the underlying intercompany foreign currency denominated debt. The gain recognized in earnings from cross-currency swap contracts related to the amount excluded from effectiveness testing during the three months ended September 30, 2024 and 2023 was $4 million and $5 million, respectively.

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

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


(In millions)
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, 2024		September 30, 2024

Long-term debt	$	890	$	(104)
Intercompany debt	$	—	$	34

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended September 30

2024

2023

(In millions)

Net Sales

Selling, General and Administrative

Interest
Expense

Net Sales

Selling, General and Administrative

Interest
Expense

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

3,361

2,298

3,518

2,349

The effects of fair value and cash flow hedging relationships:

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

Hedged item

N/A

(41)

N/A

Derivatives designated as hedging instruments

N/A

(29)

Gain (loss) on fair value hedge relationships – cross-currency swap contracts:

Hedged item

N/A

(13)

N/A

Derivatives designated as hedging instruments

N/A

(53)

N/A

Loss on cash flow hedge relationships – interest rate contracts:

Amount of loss reclassified from AOCI into earnings

N/A

—

N/A

—

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

Amount of gain reclassified from AOCI into earnings

N/A

N/A (Not applicable)

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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
	Location of Gain (Loss) Recognized in Earnings on Derivatives	Three Months Ended September 30
(In millions)			2024		2023
Derivatives Not Designated as Hedging Instruments:

Foreign currency forward contracts	Selling, general and administrative		$	(50)	$	5

The Company's derivative instruments are subject to enforceable master netting agreements. These agreements permit the net settlement of these contracts on a per-institution basis; however, the Company records the fair value on a gross basis on its consolidated balance sheets based on maturity dates, including those subject to master netting arrangements. The following table provides information as if the Company had elected to offset the asset and liability balances of derivative instruments, netted in accordance with various criteria in the event of default or termination as stipulated by the terms of netting arrangements with each of the counterparties:




	As of September 30, 2024						As of June 30, 2024
(In millions)	Gross Amounts of Assets / (Liabilities) Presented in Balance Sheet		Contracts Subject to Netting		Net Amounts of Assets / (Liabilities)		Gross Amounts of Assets / (Liabilities) Presented in Balance Sheet		Contracts Subject to Netting		Net Amounts of Assets / (Liabilities)
Derivative Financial Contracts


Derivative assets	$	64	$	(40)	$	24	$	148	$	(49)	$	99
Derivative liabilities	(188)		40		(148)		(166)		49		(117)
Total	$	(124)	$	—	$	(124)	$	(18)	$	—	$	(18)

NOTE 5 – 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.

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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 September 30, 2024:


(In millions)	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	640	$	—	$	—	$	640
Foreign currency forward contracts	—		25		—		25
Cross-currency swap contracts	—		39		—		39
Total	$	640	$	64	$	—	$	704

Liabilities:

Foreign currency forward contracts	$	—	$	84	$	—	$	84
Interest rate-related derivatives	—		104		—		104

Total	$	—	$	188	$	—	$	188

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, 2024:


(In millions)	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	1,507	$	—	$	—	$	1,507
Foreign currency forward contracts	—		68		—		68
Cross-currency swap contracts	—		80		—		80

Total	$	1,507	$	148	$	—	$	1,655

Liabilities:
Foreign currency forward contracts	$	—	$	21	$	—	$	21
Interest rate-related derivatives	—		145		—		145

Total	$	—	$	166	$	—	$	166

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


	September 30, 2024				June 30, 2024
(In millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Nonderivatives
Cash and cash equivalents	$	2,350	$	2,350	$	3,395	$	3,395
Current and long-term debt	7,815		7,561		7,771		7,174

Deferred consideration payable	344		347		341		340

Derivatives
Cross-currency swap contracts - asset	39		39		80		80
Foreign currency forward contracts – asset (liability), net	(59)		(59)		47		47
Interest rate-related derivatives – liability	(104)		(104)		(145)		(145)

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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 SOFR forward curves.

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

Interest rate-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 SOFR forward curves, 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.

Deferred consideration payable – The deferred consideration payable consists primarily of deferred payments associated with the fiscal 2023 fourth quarter acquisition of TOM FORD. The fair value of the payments treated as deferred consideration payable are calculated based on the net present value of cash payments using an estimated borrowing rate based on quoted prices for a similar liability. The Company’s deferred consideration payable is classified within Level 2 of the valuation hierarchy.

NOTE 6 – REVENUE RECOGNITION

Accounts Receivable

Accounts receivable, net is stated net of the allowance for doubtful accounts, including credit losses, and customer deductions totaling $31 million and $26 million as of September 30, 2024 and June 30, 2024, respectively. Payment terms are short-term in nature and are generally less than one year.

Changes in the allowance for credit losses are as follows:


(In millions)	September 30, 2024
Balance at June 30, 2024	$	14

Provision for expected credit losses	4
Write-offs, net & other	—
Balance at September 30, 2024	$	18

The remaining balance of the allowance for doubtful accounts and customer deductions of $13 million and $12 million as of September 30, 2024 and June 30, 2024, respectively, relates to non-credit losses, which are primarily due to customer deductions.

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THE ESTÉE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred Revenue

Changes in deferred revenue during the period are as follows:


	Three Months Ended September 30
(In millions)		2024		2023
Deferred revenue, beginning of period		$	560	$	572
Revenue recognized that was included in the deferred revenue balance at the beginning of the period		(148)		(152)
Revenue deferred during the period		154		168
Other		1		(7)
Deferred revenue, end of period		$	567	$	581

Transaction Price Allocated to the Remaining Performance Obligations

At September 30, 2024, 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, gift card liabilities and the Marcolin license arrangement related to TOM FORD that are unsatisfied (or partially unsatisfied) is $338 million. The remaining balance of deferred revenue at September 30, 2024 will be recognized beyond the next twelve months, of which $220 million relates to the non-refundable upfront payment received as part of the Marcolin licensing arrangement that is being recognized on a straight-line basis over the estimated economic life of the license, which is 20 years.

Royalty Revenue – License Arrangements

The Company’s contractually guaranteed minimum royalty amounts due during future periods under its existing license arrangements is disclosed in the notes to consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2024.

NOTE 7 – 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, 2024.

The components of net periodic benefit cost for the three months ended September 30, 2024 and 2023 consisted of the following:


	Pension Plans								Other than Pension Plans
	U.S.				International				Post-retirement
(In millions)	2024		2023		2024		2023		2024		2023
Service cost	$	9	$	9	$	7	$	6	$	—	$	—
Interest cost	13		12		5		5		2		2
Expected return on plan assets	(13)		(14)		(7)		(6)		—		—
Amortization of:
Actuarial loss (gain)	5		1		(1)		(2)		—		—
Prior service cost	—		—		—		—		(2)		—


Net periodic benefit cost	$	14	$	8