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CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES | 12 Months Ended
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Jun. 30, 2020
Restructuring and Related Activities [Abstract] |
CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES | CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES During fiscal 2020, 2019 and 2018, the Company incurred charges associated with restructuring and other activities in connection with its Leading Beauty Forward initiative as follows:
|  |  |  |  |  | Operating Expenses |  |  |  |
(In millions) |  | Sales Returns (included in Net Sales) |  | Cost of Sales |  | Restructuring Charges |  | Other Charges |  | Total
Fiscal 2020 |  | $ | — |  |  | $ | 10 |  |  | $ | 34 |  |  | $ | 39 |  |  | $ | 83 |
Fiscal 2019 |  | $ | 3 |  |  | $ | 22 |  |  | $ | 133 |  |  | $ | 83 |  |  | $ | 241 |
Fiscal 2018 |  | $ | 8 |  |  | $ | 18 |  |  | $ | 127 |  |  | $ | 104 |  |  | $ | 257 |
The types of activities included in restructuring and other charges, and the related accounting criteria, are described below. Background In May 2016, the Company announced a multi-year initiative (“Leading Beauty Forward,” “LBF” or the “LBF Program”) to build on its strengths and better leverage its cost structure to free resources for investment to continue its growth momentum. LBF is designed to enhance the Company’s go-to-market capabilities, reinforce its leadership in global prestige beauty and continue creating sustainable value. Restructuring actions to be taken over the duration of LBF involve the redesigning, resizing and reorganization of select corporate functions and go-to-market structures to improve effectiveness and create cost efficiencies in support of increased investment in growth drivers. As the Company continues to grow, it is important to more efficiently support its diverse portfolio of brands, channels and geographies in the rapidly evolving prestige beauty environment. The Company also believes that decision-making in key areas of innovation, marketing and digital communications should be moved closer to the consumer to increase speed and local relevance. As of June 30, 2019, the Company concluded the approvals of all major initiatives under LBF 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. The Company previously estimated a net reduction over the duration of LBF in the range of approximately 1,800 to 2,000 positions globally. The Company revised these estimates based on the review of the LBF Program noted above. At this time, the Company estimates a net reduction over the duration of LBF in the range of 1,300 to 1,600 positions globally, excluding point-of-sale positions. This reduction takes into account the elimination of certain positions, inclusive of positions that are unfilled, as well as retraining and redeployment of certain employees and investment in new positions in key areas. LBF Program Approvals For the year ended June 30, 2020, the Company recognized $18 million of asset-related costs, approved under LBF, due to the impairment of operating lease ROU assets as a result of closed freestanding retail stores, whereby the ability to sublease the locations was negatively impacted by the COVID-19 pandemic. These charges were initially approved under LBF prior to fiscal 2020 as contract terminations related to continuing lease payments to landlords after exiting the location. The approved restructuring and other charges expected to be incurred were:
|  | Sales Returns |  |  |  | Operating Expenses |  |  |  |
(In millions) |  | (included in Net Sales) |  | Cost of Sales |  | Restructuring Charges |  | Other Charges |  | Total
Total Charges Approved |  |  |  |  |  |  |  |  |  |
Cumulative through June 30, 2019 |  | $ | 14 |  |  | $ | 88 |  |  | $ | 507 |  |  | $ | 358 |  |  | $ | 967 |
Fiscal 2020 |  | (1) |  |  | (3) |  |  | 4 |  |  | — |  |  | — |
Cumulative through June 30, 2020 |  | $ | 13 |  |  | $ | 85 |  |  | $ | 511 |  |  | $ | 358 |  |  | $ | 967 |
(In millions) |  | Employee- Related Costs |  | Asset-Related Costs |  | Contract Terminations |  | Other Exit Costs |  | Total
Restructuring Charges Approved |  |  |  |  |  |  |  |  |  |
Cumulative through June 30, 2019 |  | $ | 461 |  |  | $ | 7 |  |  | $ | 25 |  |  | $ | 14 |  |  | $ | 507 |
Fiscal 2020 |  | (1) |  |  | 21 |  |  | (18) |  |  | 2 |  |  | 4 |
Cumulative through June 30, 2020 |  | $ | 460 |  |  | $ | 28 |  |  | $ | 7 |  |  | $ | 16 |  |  | $ | 511 |
Specific actions approved under the LBF Program include: •Optimize Select Corporate Functions – The Company approved initiatives to realign and optimize its organization to better leverage scale, improve productivity, reduce complexity and achieve cost savings across various functions, including finance, information technology, research and development, and human resources. Such approvals included consulting and other professional services for the design, project management, implementation and integration of new processes and technologies and, to a lesser extent, costs for temporary labor backfill, training and recruiting related to new capabilities, as well as similar expenses for certain other corporate functions. These actions are resulting in a net reduction of the workforce, which includes position eliminations, the re-leveling of certain positions and an investment in new capabilities. The Company also approved other charges to support the LBF Project Management Office (“PMO”), primarily consisting of internal and external resources that are intended to further drive project integration, organizational design capabilities and change management throughout the organization. The design of certain corporate functions included the creation of a shared-services structure, either using Company resources or through external service providers. As part of the service delivery model, the Company approved the organizational design of the management and governance platform of a shared-services structure using Company resources, as well as the transition of select transactional activities to an external service provider, which is resulting in other charges for implementation, project and consulting costs. •Optimize Supply Chain –The Company approved certain activities related to initiatives to centralize the Company’s supply chain management, redesign certain supply chain planning and transportation management activities, improve the organizational design of manufacturing and engineering processes related to certain product lines, and enable distribution capabilities and generate efficiencies through an external service provider. Collectively, these actions are resulting in a net reduction of the workforce, which includes position eliminations, the re-leveling of certain positions and an investment in new capabilities, as well as consulting fees, implementation costs and temporary labor backfill. •Optimize Corporate and Region Market Support Structures – The Company approved initiatives to enhance its go-to-market support structures and achieve synergies across certain geographic regions, brands and channels. These initiatives are primarily intended to shift certain areas of focus from traditional to social and digital marketing strategies to provide enhanced consumer experience, as well as to support expanded omnichannel opportunities. These actions are resulting in a net reduction of the workforce, which includes position eliminations, the re-leveling of certain positions and an investment in new capabilities. The Company also approved consulting and other professional services related to the design of future structures, processes and technologies and, to a lesser extent, other costs for recruitment and training related to new capabilities. In addition, the Company approved initiatives to enhance consumer engagement strategies across certain channels in Europe, which resulted in product returns. •Exit Underperforming Businesses – To further improve profitability in certain areas of the Company’s brands and regions, the Company approved initiatives to exit certain businesses in select markets and channels of distribution. The Company has also decided to close a number of underperforming freestanding retail stores and exit mid-tier department stores for certain brands in the United States to redirect resources to other retail locations and channels with potential for greater profitability. These activities resulted in product returns, inventory write-offs, reduction of workforce, accelerated depreciation and termination of contracts. As initiatives under LBF progress through implementation, the Company has identified certain costs that were initially approved but will not be incurred, as well as other changes to the prior estimates. These adjustments are included in their respective period presented above, and were primarily related to estimated employee-related costs for certain employees who either resigned or transferred to other existing positions within the Company. LBF Program-to-Date Restructuring and Other Charges Restructuring charges are comprised of the following: Employee-Related Costs – Employee-related costs are primarily comprised of severance and other post-employment benefit costs, calculated based on salary levels, prior service and other statutory minimum benefits, if applicable. Employee-related costs are expensed when specific employees have been identified and when payment is probable and estimable, which generally occurs upon approval of the related initiative by management with authority delegated from the Company’s Board of Directors. Asset-Related Costs – Asset-related costs primarily consist of asset write-offs or accelerated depreciation related to long-lived assets that will be taken out of service prior to their existing useful life as a direct result of a restructuring initiative. The accelerated portion of depreciation expense will be expensed on a straight-line basis and be classified as restructuring charges, while the portion relating to the previous existing useful life will continue to be reported in Selling, general and administrative expenses. 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. These may include continuing operating lease payments (less estimated sublease payments) to a landlord after exiting a location prior to the lease-end date as a direct result of an approved restructuring initiative. Contract terminations also include minimum payments or fees related to the early termination of license or other personal service contracts. Costs related to contract terminations are expensed upon the cease-use date of a leased property or upon the notification date to the third party in the event of a license or personal service contract termination. Other Exit Costs – Other exit costs related to restructuring activities generally include costs to relocate facilities or employees, recruiting to fill positions as a result of relocation of operations, and employee outplacement for separated employees. Other exit costs are charged to expense as incurred. Other charges associated with restructuring activities are comprised of the following: Sales Returns and Cost of Sales – Product returns (offset by the related cost of sales) and inventory write-offs or write-downs as a direct result of an approved restructuring initiative to exit certain businesses or locations will be recorded as a component of Net sales and/or Cost of sales when estimable and reasonably assured. Consulting, other professional services and temporary labor backfill, primarily related to the design and implementation of supply chain activities, are expensed in Cost of sales as incurred. Other Charges – The Company approved other charges related to the design and implementation of approved initiatives, which are charged to Operating Expenses as incurred and primarily include the following: •Consulting and other professional services for organizational design of the future structures, processes and technologies, and implementation thereof, •Temporary labor backfill, •Costs to establish and maintain a PMO for the duration of Leading Beauty Forward, including internal costs for employees dedicated solely to project management activities, and other PMO-related expenses incremental to the Company’s ongoing operations (e.g., rent and utilities), and •Recruitment and training costs for new and reskilled employees to acquire and apply the capabilities needed to perform responsibilities as a direct result of an approved restructuring initiative. The Company records approved charges associated with restructuring and other activities once the relevant accounting criteria have been met. Total cumulative charges recorded associated with restructuring and other activities for LBF were:
|  | Sales Returns |  |  |  | Operating Expenses |  |  |  |
(In millions) |  | (included in Net Sales) |  | Cost of Sales |  | Restructuring Charges |  | Other Charges |  | Total
Cumulative through June 30, 2017 |  | $ | 3 |  |  | $ | 15 |  |  | $ | 197 |  |  | $ | 78 |  |  | $ | 293 |
Fiscal 2018 |  | 8 |  |  | 18 |  |  | 127 |  |  | 104 |  |  | 257 |
Fiscal 2019 |  | 3 |  |  | 22 |  |  | 133 |  |  | 83 |  |  | 241 |
Fiscal 2020 |  | — |  |  | 10 |  |  | 34 |  |  | 39 |  |  | 83 |
Cumulative through June 30, 2020 |  | $ | 14 |  |  | $ | 65 |  |  | $ | 491 |  |  | $ | 304 |  |  | $ | 874 |
The major cost types related to the cumulative restructuring charges set forth above were:
(In millions) |  | Employee- Related Costs |  | Asset- Related Costs |  | Contract Terminations |  | Other Exit Costs |  | Total
Cumulative through June 30, 2017 |  | $ | 190 |  |  | $ | 3 |  |  | $ | 2 |  |  | $ | 2 |  |  | $ | 197 |
Fiscal 2018 |  | 124 |  |  | 1 |  |  | 1 |  |  | 1 |  |  | 127 |
Fiscal 2019 |  | 131 |  |  | — |  | — |  | 2 |  |  | 133 |
Fiscal 2020 |  | 6 |  |  | 23 |  |  | 3 |  |  | 2 |  |  | 34 |
Cumulative through June 30, 2020 |  | $ | 451 |  |  | $ | 27 |  |  | $ | 6 |  |  | $ | 7 |  |  | $ | 491 |
Accrued restructuring charges from the LBF Program inception through June 30, 2020 were:
(In millions) |  | Employee- Related Costs |  | Asset- Related Costs |  | Contract Terminations |  | Other Exit Costs |  | Total
Charges |  | $ | 74 |  |  | $ | 1 |  |  | $ | — |  |  | $ | — |  |  | $ | 75 |
Noncash asset write-offs |  | — |  |  | (1) |  |  | — |  |  | — |  |  | (1) |
Translation adjustments |  | (1) |  |  | — |  |  | — |  |  | — |  |  | (1) |
Balance at June 30, 2016 |  | 73 |  |  | — |  |  | — |  |  | — |  |  | 73 |
Charges |  | 116 |  |  | 2 |  |  | 2 |  |  | 2 |  |  | 122 |
Cash payments |  | (39) |  |  | — |  |  | (2) |  |  | (2) |  |  | (43) |
Noncash asset write-offs |  | — |  |  | (2) |  |  | — |  |  | — |  |  | (2) |
Balance at June 30, 2017 |  | 150 |  |  | — |  |  | — |  |  | — |  |  | 150 |
Charges |  | 124 |  |  | 1 |  |  | 1 |  |  | 1 |  |  | 127 |
Cash payments |  | (92) |  |  | — |  |  | — |  |  | (1) |  |  | (93) |
Noncash asset write-offs |  | — |  |  | (1) |  |  | — |  |  | — |  |  | (1) |
Translation adjustments |  | (2) |  |  | — |  |  | — |  |  | — |  |  | (2) |
Balance at June 30, 2018 |  | 180 |  |  | — |  |  | 1 |  |  | — |  |  | 181 |
Charges |  | 131 |  |  | — |  |  | — |  |  | 2 |  |  | 133 |
Cash payments |  | (107) |  |  | — |  |  | (1) |  |  | (1) |  |  | (109) |
Translation and other adjustments |  | (2) |  |  | — |  |  | — |  |  | — |  |  | (2) |
Balance at June 30, 2019 |  | 202 |  |  | — |  |  | — |  |  | 1 |  |  | 203 |
Charges |  | 6 |  |  | 23 |  |  | 3 |  |  | 2 |  |  | 34 |
Cash payments |  | (94) |  |  | — |  |  | (3) |  |  | (3) |  |  | (100) |
Translation adjustment |  | (2) |  |  | — |  |  | — |  |  | — |  |  | (2) |
Non-cash write-offs |  | — |  |  | (23) |  |  | — |  |  | — |  |  | (23) |
Balance at June 30, 2020 |  | $ | 112 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 112 |
Restructuring charges for employee-related costs are net of adjustments to the accrual estimate for certain employees who either resigned or transferred to other existing positions within the Company. These adjustments were not material for all periods presented. Accrued restructuring charges at June 30, 2020 are expected to result in cash expenditures funded from cash provided by operations of approximately $78 million, $29 million and $5 million for each of fiscal 2021, 2022, and 2023, respectively. See Note 24 – Subsequent Events for information relating to the new restructuring program announced subsequent to June 30, 2020.

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- Definition The entire disclosure for restructuring and related activities. Description of restructuring activities such as exit and disposal activities, include facts and circumstances leading to the plan, the expected plan completion date, the major types of costs associated with the plan activities, total expected costs, the accrual balance at the end of the period, and the periods over which the remaining accrual will be settled. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 420 -URI http://asc.fasb.org/topic&trid=2175745 + Details
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