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FAIR VALUE MEASUREMENTS

12 Months Ended

Jun. 30, 2023

The Company records certain of its financial assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. The accounting for fair value measurements must be applied to nonfinancial assets and nonfinancial liabilities that require initial measurement or remeasurement at fair value, which principally consist of assets and liabilities acquired through business combinations and goodwill, indefinite-lived intangible assets and long-lived assets for the purposes of calculating potential impairment. The Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are as follows:

Level 1: Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date.

Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.

The following table presents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2023:


(In millions)	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	3,241	$	—	$	—	$	3,241
Foreign currency forward contracts	—		76		—		76

Cross-currency swap contracts	—		22		—		22
Total	$	3,241	$	98	$	—	$	3,339

Liabilities:

Foreign currency forward contracts	$	—	$	49	$	—	$	49
Interest rate-related derivatives	—		150		—		150
DECIEM stock options	—		—		99		99

Total	$	—	$	199	$	99	$	298

The following table presents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2022:


(In millions)	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	961	$	—	$	—	$	961
Foreign currency forward contracts	—		191		—		191
Interest rate-related derivatives	—		24		—		24
Total	$	961	$	215	$	—	$	1,176

Liabilities:
Foreign currency forward contracts	$	—	$	105	$	—	$	105
Interest rate-related derivatives	—		115		—		115
DECIEM stock options	—		—		74		74
Total	$	—	$	220	$	74	$	294

The estimated fair values of the Company’s financial instruments are as follows:


	June 30
	2023				2022
(In millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Nonderivatives
Cash and cash equivalents	$	4,029	$	4,029	$	3,957	$	3,957
Current and long-term debt	8,114		7,665		5,412		5,139


DECIEM stock options	99		99		74		74
Deferred consideration payable	341		338		38		38

Derivatives
Cross-currency swap contracts - asset, net	22		22		—		—
Foreign currency forward contracts – asset, net	27		27		86		86
Interest rate-related derivatives – liability, net	(150)		(150)		(91)		(91)

The following table presents the Company’s impairment charges for certain of its nonfinancial assets measured at fair value on a nonrecurring basis, classified as Level 3, during fiscal 2023, 2022 and 2021:

Fiscal 2023


(In millions)	Impairment charges		Date of Fair Value Measurement	Fair Value(1)
Other intangible assets, net (trademarks)
Dr.Jart+	$	100	November 30, 2022	$	325
Too Faced	86		November 30, 2022	186
Smashbox	21		December 31, 2022	—
Total	$	207		$	511

(1)See Note 6 – Goodwill and Other Intangible Assets for discussion of the valuation techniques used to measure fair value, the description of the inputs and information used to develop those inputs.

Fiscal 2022


(In millions)	Impairment charges		Date of Fair Value Measurement	Fair Value(1)



Other intangible assets, net (trademarks)
GLAMGLOW	$	11	March 31, 2022	$	—
Dr.Jart+	230		February 28, 2022 April 1, 2022	428
Total	$	241		$	428

Fiscal 2021


(In millions)	Impairment Charges		Date of Fair Value Measurement	Fair Value(1)
Goodwill
GLAMGLOW	$	54	November 30, 2020	$	—
BECCA(2)	13		February 28, 2021	—

Other	4		June 30, 2021	—
Total	71			—

Other intangible assets, net (trademark and customer lists)
GLAMGLOW	52		November 30, 2020 April 1, 2021	11
BECCA(2)	34		February 28, 2021	—
Smashbox	11		April 1, 2021	21
Total	97			32

Long-lived assets	71		March 31, 2021 June 30, 2021	66
Total	$	239		$	98

(2)See Note 8 – Charges Associated with Restructuring and Other Activities for further information relating to goodwill and other intangible asset impairment charges recorded in connection with the exit of the global distribution of BECCA products.

The following methods and assumptions were used to estimate the fair value of the Company’s financial instruments for which it is practicable to estimate that value:

Cash and cash equivalents – Cash and all highly-liquid securities with original maturities of three months or less are classified as cash and cash equivalents, primarily consisting of cash deposits in interest bearing accounts, time deposits and money market funds (classified within Level 1 of the valuation hierarchy). Cash deposits in interest bearing accounts and time deposits are carried at cost, which approximates fair value, due to the short maturity of cash equivalent instruments.

Foreign currency forward contracts – The fair values of the Company’s foreign currency forward contracts were determined using an industry-standard valuation model, which is based on an income approach. The significant observable inputs to the model, such as swap yield curves and currency spot and forward rates, were obtained from an independent pricing service. To determine the fair value of contracts under the model, the difference between the contract price and the current forward rate was discounted using LIBOR for contracts with maturities up to 12 months, and swap yield curves for contracts with maturities greater than 12 months.

Cross-currency swap contracts - The fair value of the Company’s cross-currency swap contracts were determined using an industry-standard valuation model, which is based on the income approach. The significant observable inputs to the model, such as yield curves and currency spot and forward rates, were obtained from independent pricing services.

Interest rate-related derivatives – The fair values of the Company’s interest rate contracts were determined using an industry-standard valuation model, which is based on the income approach. The significant observable inputs to the model, such as treasury yield curves, swap yield curves and LIBOR forward rates, were obtained from independent pricing services.

Current and long-term debt – The fair value of the Company’s debt was estimated based on the current rates offered to the Company for debt with the same remaining maturities. To a lesser extent, debt also includes finance lease obligations for which the carrying amount approximates the fair value. The Company’s debt is classified within Level 2 of the valuation hierarchy.

Deferred consideration payable – The deferred consideration payable as of June 30, 2023 consists primarily of deferred payments associated with the TOM FORD Acquisition. The fair value of the payments treated as deferred consideration payable are calculated based on the net present value of cash payments using an estimated borrowing rate based on quoted prices for a similar liability. The Company’s deferred consideration payable is classified within Level 2 of the valuation hierarchy. Refer to Note 5 – Business and Asset Acquisitions for additional information associated with the TOM FORD Acquisition.

DECIEM stock options – The stock option liability represents the employee stock options issued by DECIEM in replacement and exchange for certain vested and unvested DECIEM employee stock options previously issued by DECIEM, in connection with the Company's acquisition of DECIEM. The DECIEM stock options are subject to the terms and conditions of DECIEM's 2021 Stock Option Plan. The DECIEM stock option liability is measured using the Monte Carlo Method, which requires certain assumptions. Significant changes in the projected future operating results would result in a higher or lower fair value measurement. Changes to the discount rates or volatilities would have a lesser effect. These inputs are categorized as Level 3 of the valuation hierarchy. The DECIEM stock options are remeasured to fair value at each reporting date through the period when the options are exercised or repurchased (i.e., when they are settled), with an offsetting entry to compensation expense. See Note 5 – Business and Asset Acquisitions and Note 18 – Stock Programs for discussion.

Changes in the DECIEM stock option liability for the year ended June 30, 2023 are included in Selling, general and administrative expenses in the accompanying consolidated statements of earnings and were as follows:


(In millions)	Fair Value
DECIEM stock option liability as of June 30, 2022	$	74
Changes in fair value, net of foreign currency remeasurements(1)	22
Translation adjustments and other, net	3
DECIEM stock option liability as of June 30, 2023	$	99

(1)Amount includes expense attributable to graded vesting of stock options which is not material for the year ended June 30, 2023.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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