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REVENUE RECOGNITION | 12 Months Ended
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Jun. 30, 2021
Revenue from Contract with Customer [Abstract] |
REVENUE RECOGNITION | REVENUE RECOGNITION For further information on the Company's policies relating to revenue recognition see Note 2 – Summary of Significant Accounting Policies. Performance Obligations The Company recognizes revenue at a point in time when it satisfies a performance obligation by transferring control over a product and other promised goods and services to a customer. The Company sells wholesale to customers in distribution channels that include department stores, travel retail, specialty-multi retailers, perfumeries, salons/spas and through various online sites operated by authorized retailers. The primary performance obligation related to these channels of distribution is product sales where revenue is recognized as control of the product transfers to the customer. In the Americas region, revenue is generally recognized at the time the product is made available and provided to the customer’s carrier at the Company’s location, and in the Europe, the Middle East & Africa and Asia/Pacific regions, revenue is generally recognized based upon the customer’s receipt. The Company also sells direct to consumers at Company-operated freestanding stores and online through Company-owned and operated e-commerce and m-commerce sites and through third-party online malls. At Company-operated freestanding stores, revenue is recognized when control of the product is transferred at the point of sale. Revenue from online sales is recognized when control of the product is transferred, generally based upon the consumer’s receipt. In connection with the sale of product, the Company may provide other promised goods and services that are deemed to be performance obligations. These are comprised of customer loyalty program obligations, gift with purchase and purchase with purchase promotions, gift cards and other promotional goods including samples and testers. The Company offers a number of different loyalty programs to its customers across regions, brands and distribution channels including points-based programs, tier-based programs and other programs. Revenue is allocated between the saleable product revenue and the material right loyalty obligations based on relative standalone selling prices when the consumer purchases the products that are earning them the right to the future benefits. Deferred revenue related to the Company’s loyalty programs is estimated based on the standalone selling price and is adjusted for an estimated breakage factor. Standalone selling price is determined primarily using the observable market price of the good or service benefit if it is sold by the Company or a cost plus margin approach for goods/services not directly sold by the Company. Breakage rates consider historical patterns of redemption and/or expiration. Revenue is recognized when the benefits are redeemed or expire. The Company provides gift with purchase promotional products to certain customers generally without additional charge and also provides purchase with purchase promotional products to certain customers at a discount in relation to prices charged for saleable product. Revenue is allocated between saleable product, gift with purchase product and purchase with purchase product based on the estimated relative standalone selling prices. Revenue is deferred and ultimately recognized based on the timing differences, if any, between when control of promotional goods and control of the related saleable products transfer to the Company’s customer (e.g., a third-party retailer), which is calculated based on the weighted-average number of days between promotional periods. The estimated standalone selling price allocated to promotional goods is based on a cost plus margin approach. In situations where promotional products are provided by the Company to its customers at the same time as the related saleable product, such as shipments of samples and testers, the cost of these promotional products are recognized as a cost of sales at the same time as the related revenue is recognized and no deferral of revenue is required. The Company also offers gift cards through Company-operated freestanding stores and Company-owned websites. The related deferred revenue is estimated based on expected breakage that considers historical patterns of redemption taking into consideration escheatment laws as applicable. Product Returns, Sales Incentives and Other Forms of Variable Consideration In measuring revenue and determining the consideration the Company is entitled to as part of a contract with a customer, the Company takes into account the related elements of variable consideration. Such elements of variable consideration include product returns and sales incentives, such as volume rebates and discounts, markdowns, margin adjustments and early-payment discounts. We also enter into arrangements containing other forms of variable consideration, including certain demonstration arrangements, for which the Company does not receive a distinct good or service or for which the Company cannot reasonably estimate the fair value of the good or service. For these types of arrangements, the adjustments to revenue are recorded at the later of when (i) the Company recognizes revenue for the transfer of the related goods or services to the customer, or (ii) the Company pays, or promises to pay, the consideration. For the sale of goods with a right of return, the Company only recognizes revenue for the consideration it expects to be entitled to (considering the products to be returned) and records a sales return accrual within Other accrued liabilities for the amount it expects to credit back its customers. In addition, the Company recognizes an asset included in Inventory and promotional merchandise and a corresponding adjustment to Cost of sales for the right to recover goods from customers associated with the estimated returns. The sales return accrual and corresponding asset include estimates that directly impact reported net sales. These estimates are calculated based on a history of actual returns, estimated future returns and information provided by retailers regarding their inventory levels. Consideration of these factors results in an estimate for anticipated sales returns that reflects increases or decreases related to seasonal fluctuations. In addition, as necessary, sales return accruals and the related assets may be established for significant future known or anticipated events. The types of known or anticipated events that are considered, and will continue to be considered, include the financial condition of the Company’s customers, store closings by retailers, changes in the retail environment and the Company’s decision to continue to support new and existing products. The Company estimates sales incentives and other variable consideration using the most likely amount method and records accruals within Other accrued liabilities when control of the related product is transferred to the customer. Under this method, certain forms of variable consideration are based on expected sell-through results, which requires subjective estimates. These estimates are supported by historical results as well as specific facts and circumstances related to the current period. The Company also enters into transactions and makes payments to certain of its customers related to demonstration, advertising and counter construction, some of which involve cooperative relationships with customers. These activities may be arranged either with unrelated third parties or in conjunction with the customer. To the extent the Company receives a distinct good or service in exchange for consideration and the fair value of the benefit can be reasonably estimated, the Company’s share of the counter depreciation and the other costs of these transactions (regardless of to whom they were paid) are reflected in Selling, general and administrative expenses in the accompanying consolidated statements of earnings. Accounts Receivable For further information on the Company's policies relating to accounts receivable see Note 2 – Summary of Significant Accounting Policies. Accounts receivable, net is stated net of the allowance for doubtful accounts and customer deductions totaling $40 million and $63 million as of June 30, 2021 and June 30, 2020, 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) |  |
Balance at June 30, 2020 |  | $ | 36 |
ASC 326 cumulative effect adjustment (pre-tax) |  | 4 |
Adjustment for expected credit losses |  | (8) |
Write-offs, net & other |  | (12) |
Balance at June 30, 2021 |  | $ | 20 |
As a result of the adoption of ASC 326, the Company recorded a cumulative adjustment of approximately $3 million, net of tax, as a reduction to its fiscal 2021 opening balance of retained earnings relating to its trade receivables. The remaining balance of the allowance for doubtful accounts of $20 million, as of June 30, 2021, relates to non-credit losses, which are primarily due to customer deductions. Deferred Revenue Changes in deferred revenue are as follows:
|  | June 30
(In millions) |  | 2021 |  | 2020
Balance at the beginning of the year |  | $ | 279 |  |  | $ | 361 |
Revenue recognized that was included in the deferred revenue balance at the beginning of the period |  | (201) |  |  | (271) |
Revenue deferred during the period |  | 294 |  |  | 189 |
Other |  | (1) |  |  | — |
Balance at the end of the year |  | $ | 371 |  |  | $ | 279 |
Transaction Price Allocated to the Remaining Performance Obligations At June 30, 2021, the combined estimated revenue expected to be recognized in the next twelve months related to performance obligations for customer loyalty programs, gift with purchase promotions, purchase with purchase promotions and gift card liabilities that are unsatisfied (or partially unsatisfied) is $322 million. The remaining balance of deferred revenue at June 30, 2021 will be recognized beyond the next twelve months. The following tables summarize impacts of the adoption of ASC 606 on the Company's fiscal 2019 consolidated financial statements:
Consolidated Statement of Earnings |  |  |  |  |
|  | June 30, 2019
(In millions, except per share data) |  | As Reported |  | Impact |  | Prior to the adoption of ASC 606
Net sales |  | $ | 14,863 |  |  | $ | 49 |  |  | $ | 14,912 |
Cost of sales |  | 3,387 |  |  | (300) |  |  | 3,087 |
Gross profit |  | 11,476 |  |  | 349 |  |  | 11,825 |
Selling, general and administrative |  | 8,857 |  |  | 370 |  |  | 9,227 |
Operating income |  | 2,313 |  |  | (21) |  |  | 2,292 |
Provision for income taxes |  | 513 |  |  | (5) |  |  | 508 |
Net earnings attributable to The Estée Lauder Companies Inc. |  | 1,785 |  |  | (16) |  |  | 1,769 |
Net earnings attributable to The Estée Lauder Companies Inc. per common share |  |  |  |  |  |
Basic |  | $ | 4.91 |  |  | $ | (.04) |  |  | $ | 4.87 |
Diluted |  | $ | 4.82 |  |  | $ | (.04) |  |  | $ | 4.78 |
Consolidated Balance Sheet |  |  |  |  |
|  | June 30, 2019
(In millions) |  | As Reported |  | Impact |  | Prior to the adoption of ASC 606
Accounts receivable, net |  | $ | 1,831 |  |  | $ | (202) |  |  | $ | 1,629 |
Inventory and promotional merchandise, net |  | 2,006 |  |  | (21) |  |  | 1,985 |
Other assets |  | 805 |  |  | (65) |  |  | 740 |
Total assets |  | 13,156 |  |  | (288) |  |  | 12,868 |
Other accrued liabilities |  | 2,599 |  |  | (452) |  |  | 2,147 |
Other noncurrent liabilities |  | 1,244 |  |  | (47) |  |  | 1,197 |
Total liabilities |  | 8,745 |  |  | (499) |  |  | 8,246 |
Retained earnings |  | 9,984 |  |  | 213 |  |  | 10,197 |
Accumulated other comprehensive loss |  | (563) |  |  | (2) |  |  | (565) |
Total stockholders' equity - The Estée Lauder Companies Inc. |  | 4,386 |  |  | 211 |  |  | 4,597 |
Consolidated Statement of Cash Flows |  |  |  |  |
|  | June 30, 2019
(In millions) |  | As Reported |  | Impact |  | Prior to the adoption of ASC 606
Net earnings |  | $ | 1,794 |  |  | $ | (16) |  |  | $ | 1,778 |
Changes in operating assets and liabilities |  |  |  |  |  |
Increase in accounts receivable, net |  | (169) |  |  | 5 |  |  | (164) |
Increase in inventory and promotional merchandise, net |  | (375) |  |  | (6) |  |  | (381) |
Increase in other assets, net |  | (62) |  |  | (5) |  |  | (67) |
Increase in other accrued and noncurrent liabilities |  | 285 |  |  | 22 |  |  | 307 |
Net cash flows provided by operating activities |  | 2,517 |  |  | — |  |  | 2,517 |

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- Definition The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI http://asc.fasb.org/topic&trid=49130388 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=123351226&loc=SL49130551-203045 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 13 -Subparagraph (b)(2) -URI http://asc.fasb.org/extlink&oid=123351226&loc=SL49130556-203045 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=123351226&loc=SL49130554-203045 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=123351226&loc=SL49130550-203045 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (e) -URI http://asc.fasb.org/extlink&oid=123351226&loc=SL49130554-203045 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=123351226&loc=SL49130554-203045 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (d) -URI http://asc.fasb.org/extlink&oid=123351226&loc=SL49130554-203045 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=123351226&loc=SL49130558-203045 Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (c) -URI http://asc.fasb.org/extlink&oid=123351226&loc=SL49130554-203045 + Details
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