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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended
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Mar. 31, 2021
Accounting Policies [Abstract] |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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 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, 2020. Certain amounts in the consolidated financial statements of prior years 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, 2020. 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, including those related to the impacts of the COVID-19 pandemic, 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 $(143) million and $(173) million, net of tax, during the three months ended March 31, 2021 and 2020, respectively, and $175 million and $(170) million, net of tax, during the nine months ended March 31, 2021 and 2020, respectively. For the Company’s subsidiaries operating in highly inflationary economies, the U.S. dollar is the functional currency. Remeasurement adjustments in financial statements in a highly inflationary economy and other transactional gains and losses are reflected in earnings (loss). These subsidiaries are not material to the Company’s consolidated financial statements or liquidity. 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 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 6 – 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 (losses) on foreign currency transactions of $(3) million and $15 million during the three months ended March 31, 2021 and 2020, respectively, and $(5) million and $40 million during the nine months ended March 31, 2021 and 2020, respectively. Concentration of Credit Risk The Company is a worldwide manufacturer, marketer and distributor of skin care, makeup, fragrance and hair care products. The Company’s sales subject to credit risk are made primarily to department stores, perfumeries, specialty multi-brand retailers and retailers in its travel retail business. The Company grants credit to qualified customers. As a result of the COVID-19 pandemic, the Company has enhanced its assessment of its customers' abilities to pay with a greater focus on factors affecting their liquidity and less on historical payment performance. While the Company does not believe it is exposed significantly to any undue concentration of credit risk at this time, it continues to monitor the extent of the impact of the COVID-19 pandemic on its customers' abilities, individually and collectively, to make timely payments. The Company’s largest customer during the three and nine months ended March 31, 2021 sells products primarily in China travel retail. This customer accounted for $690 million or 18%, and $143 million or 4% for the three months ended March 31, 2021 and 2020, respectively, and $1,898 million or 15% and $608 million or 5% for the nine months ended March 31, 2021 and 2020, respectively, of the Company's consolidated net sales. This customer accounted for $366 million, or 21%, and $297 million, or 24%, of the Company's accounts receivable at March 31, 2021 and June 30, 2020, respectively. Another major customer of the Company during the quarter sells products primarily within the United States and accounted for $179 million, or 10%, and $87 million, or 7%, of the Company’s accounts receivable at March 31, 2021 and June 30, 2020, respectively. This customer accounted for $167 million, or 4%, and $149 million, or 4%, for the three months ended March 31, 2021 and 2020, respectively, and $510 million or 4% and $589 million or 5% for the nine months ended March 31, 2021 and 2020, respectively, of the Company’s consolidated net sales. Inventory and Promotional Merchandise Inventory and promotional merchandise consists of the following:
(In millions) |  | March 31 2021 |  | June 30 2020
Raw materials |  | $ | 551 |  |  | $ | 542 |
Work in process |  | 282 |  |  | 305 |
Finished goods |  | 1,078 |  |  | 995 |
Promotional merchandise |  | 223 |  |  | 220 |
|  | $ | 2,134 |  |  | $ | 2,062 |
Property, Plant and Equipment Property, plant and equipment consists of the following:
(In millions) |  | March 31 2021 |  | June 30 2020
Assets (Useful Life) |  |  |  |
Land |  | $ | 56 |  |  | $ | 33 |
Buildings and improvements (10 to 40 years) |  | 467 |  |  | 400 |
Machinery and equipment (3 to 10 years) |  | 946 |  |  | 865 |
Computer hardware and software (4 to 10 years) |  | 1,374 |  |  | 1,335 |
Furniture and fixtures (5 to 10 years) |  | 121 |  |  | 120 |
Leasehold improvements |  | 2,397 |  |  | 2,381 |
|  | 5,361 |  |  | 5,134 |
Less accumulated depreciation and amortization |  | (3,255) |  |  | (3,079) |
|  | $ | 2,106 |  |  | $ | 2,055 |
The cost of assets related to projects in progress of $581 million and $501 million as of March 31, 2021 and June 30, 2020, respectively, is included in their respective asset categories above. Depreciation and amortization of property, plant and equipment was $129 million and $131 million during the three months ended March 31, 2021 and 2020, respectively, and $380 million and $383 million during the nine months ended March 31, 2021 and 2020, 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). Leases The Company recognized $33 million and $13 million of long-lived asset impairments, included in Impairments of other intangible and long-lived assets, in the accompanying consolidated statements of earnings (loss) for the three and nine months ended March 31, 2021 and 2020, respectively. The fiscal 2021 impairments related to other assets (i.e. rights associated with commercial operating leases), operating lease right-of-use assets and the related property, plant and equipment in certain freestanding stores primarily in Europe, and the fiscal 2020 impairments related to operating lease right-of-use assets and the related property, plant and equipment in certain freestanding stores primarily in North America. In both periods, the impairments were due to the negative impacts of the COVID-19 pandemic. Income Taxes The effective rate for income taxes for the three and nine months ended March 31, 2021 and 2020 are as follows:
| Three Months Ended March 31 |  | Nine Months Ended March 31
| 2021 |  | 2020 |  | 2021 |  | 2020
Effective rate for income taxes | 21.0 | % |  | 105.0 | % |  | 18.5 | % |  | 30.0 | %
Basis-point change from the prior-year period | (8,400) |  |  |  |  | (1,150) |  |  |
For the three and nine months ended March 31, 2021, the decrease in the effective tax rate was primarily attributable to the impact of nondeductible goodwill charges recognized in the three and nine months ended March 31, 2020 and a lower effective tax rate on the Company's foreign operations. The lower amount of earnings before income taxes for the three and nine months ended March 31, 2020 increased the impact of the nondeductible charges. The effective tax rate for the three and nine months ended March 31, 2021 included the impact of the U.S. government issuance of final global intangible low-taxed income (“GILTI”) tax regulations in July 2020 under the Tax Cuts and Jobs Act that provide for a high-tax exception to the GILTI tax. These regulations are retroactive to the original enactment of the GILTI tax provision, which includes the Company's 2019 and 2020 fiscal years. The Company has elected to apply the GILTI high-tax exception to fiscal 2021, 2020 and 2019. The election for fiscal 2021 resulted in reductions of 100 basis points and 110 basis points to the effective tax rates for the three and nine months ended March 31, 2021, respectively. The impact of the elections with respect to fiscal 2020 and 2019 was recognized as a discrete item in the provision for income taxes in the second and third quarters of fiscal 2021 and resulted in reductions of 30 basis points and 220 basis points to the effective tax rates for the three and nine months ended March 31, 2021, respectively. As of March 31, 2021 and June 30, 2020, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $72 million and $70 million, respectively. The total amount of unrecognized tax benefits at March 31, 2021 that, if recognized, would affect the effective tax rate was $57 million. The total gross interest and penalties accrued related to unrecognized tax benefits during the three and nine months ended March 31, 2021 in the accompanying consolidated statements of earnings (loss) was $2 million and $3 million, respectively. The total gross accrued interest and penalties in the accompanying consolidated balance sheets at March 31, 2021 and June 30, 2020, was $16 million and $13 million, respectively. On the basis of the information available as of March 31, 2021, the Company does not expect significant changes to the total amount of unrecognized tax benefits within the next twelve months. Other Accrued Liabilities Other accrued liabilities consist of the following:
(In millions) |  | March 31 2021 |  | June 30 2020
Advertising, merchandising and sampling |  | $ | 299 |  |  | $ | 256 |
Employee compensation |  | 534 |  |  | 424 |
Deferred revenue |  | 310 |  |  | 222 |
Payroll and other taxes |  | 287 |  |  | 250 |
Accrued income taxes |  | 327 |  |  | 208 |
Sales return accrual |  | 270 |  |  | 212 |
Other |  | 1,050 |  |  | 833 |
|  | $ | 3,077 |  |  | $ | 2,405 |
Recently Adopted Accounting Standards Measurement of Credit Losses on Financial Instruments (ASC Topic 326 – Financial Instruments – Credit Losses) (“ASC 326”) In June 2016, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that requires companies to utilize an impairment model for most financial assets measured at amortized cost and certain other financial instruments, which include trade and other receivables, loans and held-to-maturity debt securities, to record an allowance for credit risk based on expected losses rather than incurred losses. In addition, this guidance changes the recognition method for credit losses on available-for-sale debt securities, which can occur as a result of market and credit risk, and requires additional disclosures. In general, modified retrospective adoption will be required for all outstanding instruments that fall under this guidance. In November 2019, the FASB issued authoritative guidance (ASU 2019-11 – Codification Improvements to Topic 326, Financial Instruments – Credit Losses) that amends ASC Topic 326 to clarify, improve and amend certain aspects of this guidance, such as disclosures related to accrued interest receivables and the estimation of credit losses associated with financial assets secured by collateral. In February 2020, the FASB issued authoritative guidance (ASU 2020-02 – Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842)) that amends and clarifies Topic 326 and Topic 842. For Topic 326, the codification was updated to include the Securities and Exchange Commission staff interpretations associated with registrants engaged in lending activities. Effective for the Company – Fiscal 2021 first quarter. Impact on consolidated financial statements – On July 1, 2020, the Company adopted ASC 326. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. See Note 8 – Revenue Recognition for further discussion. Goodwill and Other – Internal-Use Software (ASU 2018-15 – Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract) In August 2018, the FASB issued authoritative guidance that permits companies to capitalize the costs incurred for setting up business systems that operate on cloud technology. The new guidance aligns the requirement for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance does not affect the accounting for the service element of a hosting arrangement that is a service contract. Capitalized costs associated with a hosting arrangement that is a service contract must be amortized over the term of the hosting arrangement to the same line item in the income statement as the expense for fees for the hosting arrangement. Effective for the Company – Fiscal 2021 first quarter, with early adoption permitted in any interim period. This guidance can be adopted either retrospectively, or prospectively to all implementation costs incurred after the date of adoption. Impact on consolidated financial statements – On July 1, 2020, the Company adopted this guidance prospectively to all implementation costs incurred after the date of adoption. The adoption of this standard did not have a material impact on the Company's consolidated financial statements. Recently Issued Accounting Standards Reference Rate Reform (ASC Topic 848) In March 2020, the FASB issued authoritative guidance to provide optional relief for companies preparing for the discontinuation of interest rates such as the London Interbank Offered Rate (“LIBOR”), which is expected to be phased out at the end of calendar 2021, and applies to lease contracts, hedging instruments, held-to-maturity debt securities and debt arrangements that have LIBOR as the benchmark rate. In January 2021, the FASB issued authoritative guidance that makes amendments to the new rules on accounting for reference rate reform. The amendments clarify that for all derivative instruments affected by the changes to interest rates used for discounting, margining or contract price alignment, regardless of whether they reference LIBOR or another rate expected to be discontinued as a result of reference rate reform, an entity may apply certain practical expedients in ASC Topic 848. Effective for the Company – This guidance can be applied for a limited time through December 31, 2022. The guidance will no longer be available to apply after December 31, 2022. Impact on consolidated financial statements – The Company is currently assessing the impact of applying this guidance on its existing derivative contracts, leases and other arrangements, as well as when to adopt this guidance. Income Taxes (ASU 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes) In December 2019, the FASB issued authoritative guidance that simplifies the accounting for income taxes by removing certain exceptions and making simplifications in other areas. Effective for the Company – Fiscal 2022 first quarter, with early adoption permitted in any interim period. If adopted early, the Company must adopt all the amendments in the same period. The amendments have differing adoption methods including retrospectively, prospectively and/or modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption, depending on the specific change. Impact on consolidated financial statements – The Company is in the process of finalizing its evaluation and currently expects to record a cumulative adjustment of approximately $120 million as an increase to its fiscal 2022 opening retained earnings balance for deferred taxes related to a previously held equity method investment that became a foreign subsidiary. No other recently issued accounting pronouncements are expected to have a material impact on the Company’s consolidated financial statements.

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- Definition The entire disclosure for the general note to the financial statements for the reporting entity which may include, descriptions of the basis of presentation, business description, significant accounting policies, consolidations, reclassifications, new pronouncements not yet adopted and changes in accounting principles. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 810 -URI http://asc.fasb.org/topic&trid=2197479 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 275 -URI http://asc.fasb.org/topic&trid=2134479 Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 250 -URI http://asc.fasb.org/topic&trid=2122394 Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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