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CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES | 3 Months Ended
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Sep. 30, 2020
Restructuring and Related Activities [Abstract] |
CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES | 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 |
(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. 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 |  | $ | 2 |  |  | $ | — |  |  | $ | 13 |  |  | $ | 3 |  |  | $ | 18 |
Included in the above table, cumulative PCBA Program restructuring initiatives approved by the Company through September 30, 2020 by major cost type were:
(In millions) |  | Employee- Related Costs |  | Asset- Related Costs |  | Contract Terminations |  | Other Exit Costs |  | Total
Restructuring Charges Approved |  |  |  |  |  |  |  |  |  |
Three months ended September 30, 2020 |  | $ | 12 |  |  | $ | 1 |  |  | $ | — |  |  | $ | — |  |  | $ | 13 |
Specific actions taken since the PCBA Program inception include: •Optimize Distribution Network – To help restore profitability to pre-COVID-19 pandemic levels and, as part of a broader initiative to be completed in phases, the Company has approved initiatives to close a number of underperforming freestanding stores and counters, mainly in the United Kingdom and certain affiliates in Europe, the Middle East & Africa. These anticipated closures reflect changing consumer behavior including higher demand for online and omnichannel capabilities. These activities will result in product returns, inventory write-offs, reduction of workforce, and termination of contracts. •Optimize Digital Organization – The Company approved initiatives to enhance its go-to-market support structures and align more resources to support online and digital activities. These initiatives are primarily intended to shift certain areas of focus from traditional brick-and-mortar to social and digital strategies to provide enhanced consumer experience, as well as to support expanded omnichannel opportunities. These actions will result in a net reduction of the workforce, which includes position eliminations, the re-leveling of certain positions and an investment in new capabilities. PCBA Program Restructuring and Other Charges Restructuring charges are comprised of the following: Employee-Related Costs – Employee-related costs are primarily comprised of severance and other post-employment benefit costs, calculated based on salary levels, prior service and other statutory minimum benefits, if applicable. Asset-Related Costs – Asset-related costs primarily consist of asset write-offs or accelerated depreciation related to long-lived assets (including 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 employee outplacement for separated employees. Other charges associated with restructuring activities are comprised of the following: Sales Returns and Cost of Sales – Product returns (offset by the related cost of sales) and inventory write-offs or write-downs as a direct result of an approved restructuring initiative to exit certain businesses or locations will be recorded as a component of Net sales and/or Cost of sales when estimable and reasonably assured. Other Charges – The Company approved other charges relate to the design and implementation of approved initiatives, which are charged to Operating Expenses as incurred and primarily include the following: •Consulting and other professional services for organizational design of the future structures and processes as well as the implementation thereof, •Temporary labor backfill, •Costs to establish and maintain a Project Management Office (“PMO”) for the duration of the PCBA Program, including internal costs for employees dedicated solely to project management activities, and other PMO-related expenses incremental to the Company’s ongoing operations (e.g., rent and utilities), and •Recruitment and training costs for new and reskilled employees to acquire and apply the capabilities needed to perform responsibilities as a direct result of an approved restructuring initiative. The Company records approved charges associated with restructuring and other activities once the relevant accounting criteria have been met. Total cumulative charges recorded associated with restructuring and other activities for the PCBA Program were:
|  | Sales Returns (included in Net Sales) |  | Cost of Sales |  | Operating Expenses |  | Total
(In millions) |  |  |  | Restructuring Charges |  | Other Charges |
Total Charges |  |  |  |  |  |  |  |  |  |
Cumulative through September 30, 2020 |  | $ | — |  |  | $ | — |  |  | $ | 12 |  |  | $ | — |  |  | $ | 12 |
(In millions) |  | Employee- Related Costs |  | Asset- Related Costs |  | Contract Terminations |  | Other Exit Costs |  | Total
Restructuring Charges |  |  |  |  |  |  |  |  |  |
Cumulative through September 30, 2020 |  | $ | 12 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 12 |
Accrued restructuring charges at September 30, 2020 relating to the PCBA Program are expected to result in cash expenditures funded from cash provided by operations of approximately $9 million, $2 million and $1 million for the remainder of fiscal 2021 and for fiscal 2022 and 2023, respectively.

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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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