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CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES

12 Months Ended

Jun. 30, 2021

Restructuring and Related Activities [Abstract]

CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES

During fiscal 2021, the Company incurred charges associated with restructuring activities as follows:


	Sales Returns (included in Net Sales)		Cost of Sales		Operating Expenses				Total
(In millions)					Restructuring Charges		Other Charges
Leading Beauty Forward Program	$	—	$	8	$	(15)	$	14	$	7
Post-COVID Business Acceleration Program	14		2		201		4		221
Total	$	14	$	10	$	186	$	18	$	228

During fiscal 2020 and 2019, 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

The types of activities included in restructuring and other charges, and the related accounting criteria, are described below.

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.

Leading Beauty Forward Program

In May 2016, the Company announced a multi-year initiative (“Leading Beauty Forward” 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. The LBF Program was designed to enhance the Company’s go-to-market capabilities, reinforce its leadership in global prestige beauty and continue creating sustainable value. Restructuring actions taken over the duration of the LBF Program 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 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 has substantially completed those initiatives through fiscal 2021.

The Company estimated a net reduction over the duration of the LBF Program in the range of approximately 1,300 to 1,600 positions globally, excluding point-of-sale positions. As of June 30, 2021 the net reduction over the duration of the LBF Program was approximately 1,300 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 2020, the Company recognized $18 million of asset-related costs, approved under the LBF Program, 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 the LBF Program prior to fiscal 2020 as contract terminations related to continuing lease payments to landlords after exiting the location. The LBF Program 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 (Adjustments) Approved
Cumulative through June 30, 2020	$	13	$	85	$	511	$	358	$	967
Fiscal 2021	1		(12)		(25)		(19)		(55)
Cumulative through June 30, 2021	$	14	$	73	$	486	$	339	$	912

Included in the above table, cumulative LBF Program restructuring initiatives approved by the Company by major cost type were:


(In millions)	Employee- Related Costs		Asset-Related Costs		Contract Terminations		Other Exit Costs		Total
Restructuring Charges (Adjustments) Approved
Cumulative through June 30, 2020	$	460	$	28	$	7	$	16	$	511
Fiscal 2021	(27)		3		4		(5)		(25)
Cumulative through June 30, 2021	$	433	$	31	$	11	$	11	$	486

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 resulted in a net reduction of the workforce, which included 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”), which primarily consisted of internal and external resources that further drove 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 resulted 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 resulted in a net reduction of the workforce, which included 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 primarily shifted 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 resulted in a net reduction of the workforce, which included 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 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 the LBF Program progressed through implementation, the Company 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 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 the LBF Program were:


	Sales Returns				Operating Expenses
(In millions)	(included in Net Sales)		Cost of Sales		Restructuring Charges		Other Charges		Total
Total Charges (Adjustments)
Cumulative through June 30, 2018	$	11	$	33	$	324	$	182	$	550
Fiscal 2019	3		22		133		83		241
Fiscal 2020	—		10		34		39		83
Fiscal 2021	—		8		(15)		14		7
Cumulative through June 30, 2021	$	14	$	73	$	476	$	318	$	881

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
Restructuring Charges (Adjustments)
Cumulative through June 30, 2018	$	314	$	4	$	3	$	3	$	324
Fiscal 2019	131		—		—		2		133
Fiscal 2020	6		23		3		2		34
Fiscal 2021	(18)		—		1		2		(15)
Cumulative through June 30, 2021	$	433	$	27	$	7	$	9	$	476

Accrued restructuring charges from the LBF Program inception through June 30, 2021 were:


(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total
Charges	$	74	$	1	$	—	$	—	$	75
Non-cash 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)
Non-cash asset write-offs	—		(2)		—		—		(2)
Balance at June 30, 2017	150		—		—		—		150

Charges	124		1		1		1		127
Cash payments	(92)		—		—		(1)		(93)
Non-cash 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

Charges (adjustments)	(18)		—		1		2		(15)
Cash payments	(65)		—		(1)		(2)		(68)
Translation adjustment	—		—		—		1		1
Balance at June 30, 2021	$	29	$	—	$	—	$	1	$	30

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, 2021 relating to the LBF Program are expected to result in cash expenditures funded from cash provided by operations of approximately $23 million and $7 million in fiscal 2022 and 2023, respectively.

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 realign the Company's business to address 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.

The Company previously estimated a net reduction over the duration of the PCBA Program in the range of approximately 1,500 to 2,000 positions globally, including temporary and part-time employees. The Company has revised these estimates based on the review of the PCBA Program. At this time, the Company estimates a net reduction over the duration of the PCBA Program in the range of 2,000 to 2,500 positions globally, 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 over the duration of the PCBA Program 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

The PCBA Program cumulative charges (adjustments) approved by the Company through June 30, 2021 were:


	Sales Returns (included in Net Sales)		Cost of Sales		Operating Expenses				Total
(In millions)					Restructuring Charges		Other Charges
Total Charges (Adjustments) Approved
Fiscal 2021	$	42	$	(6)	$	257	$	21	$	314

Included in the above table, cumulative PCBA Program restructuring initiatives approved by the Company through June 30, 2021 by major cost type were:


(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total
Restructuring Charges Approved
Fiscal 2021	$	132	$	108	$	13	$	4	$	257

Specific actions taken since the PCBA Program inception include:

•Optimize Distribution Network – To help restore profitability to pre-COVID-19 pandemic levels in certain areas of its distribution network 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, counters and other retail locations, mainly in certain affiliates across all geographic regions, including the Company's travel retail network. These anticipated closures reflect changing consumer behaviors including higher demand for online and omnichannel capabilities. These activities will result in a net reduction in workforce, inventory and other asset write-offs, product returns, and termination of contracts.

•Optimize Digital Organization and Other Go-To-Market Organizations – The Company approved initiatives to enhance its go-to-market capabilities and shift more resources to support online growth. 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.

•Optimize Select Marketing, Brand and Global Functions – The Company has started to reduce its corporate office footprint and is moving toward the future of work in a post-COVID environment, by restructuring where and how its employees work and collaborate. These actions will result primarily in lease termination fees.

•Exit of the Global Distribution of BECCA Products – In reviewing the Company's brand portfolio to improve efficiency and to ensure the sustainability of long-term investments, the decision was made to exit the global distribution of BECCA products due to its limited distribution, the ongoing decline in product demand and the challenging environment caused by the COVID-19 pandemic. These activities resulted in charges for the impairment of goodwill and other intangible assets, product returns, termination of contracts, and employee severance. The Company expects to substantially complete these initiatives during fiscal 2022.

PCBA Program Restructuring and Other Charges

Restructuring charges are comprised of the following:

Asset-Related Costs – Asset-related costs primarily consist of asset write-offs or accelerated depreciation related to long-lived assets in certain freestanding stores (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. These costs also include goodwill and other intangible asset impairment charges relating to the exit of the global distribution of BECCA products.

Other charges associated with restructuring activities are comprised of the following:

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 and processes as well as the implementation thereof,

•Temporary labor backfill,

•Costs to establish and maintain a 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.


	Sales Returns (included in Net Sales)		Cost of Sales		Operating Expenses				Total
(In millions)					Restructuring Charges		Other Charges
Total Charges
Fiscal 2021	$	14	$	2	$	201	$	4	$	221


(In millions)	Employee- Related Costs		Asset- Related Costs(1)		Contract Terminations		Other Exit Costs		Total
Restructuring Charges
Fiscal 2021	$	119	$	75	$	6	$	1	$	201

(1)Asset-related costs include goodwill and other intangible asset impairment charges of $13 million and $34 million, respectively, relating to the exit of the global distribution of BECCA products.

Changes in accrued restructuring charges for the fiscal year ended June 30, 2021 relating to the PCBA Program were:


(In millions)	Employee- Related Costs		Asset- Related Costs		Contract Terminations		Other Exit Costs		Total
Charges	$	119	$	75	$	6	$	1	$	201
Cash payments	(18)		—		(6)		(1)		(25)
Non-cash asset write-offs	—		(75)		—		—		(75)
Balance at June 30, 2021	$	101	$	—	$	—	$	—	$	101

Accrued restructuring charges at June 30, 2021 relating to the PCBA Program are expected to result in cash expenditures funded from cash provided by operations of approximately $79 million, $20 million, and $2 million for each of fiscal 2022, 2023 and 2024, respectively.