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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 3 Months Ended
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Sep. 30, 2024
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 normal and recurring 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, 2024. Certain prior year amounts in the notes to the consolidated financial statements 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, 2024. 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 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 $115 million and $(143) million, net of tax, during the three months ended September 30, 2024 and 2023, respectively. For the Company’s subsidiaries operating in highly inflationary economies, the U.S. dollar is the functional currency, and these subsidiaries are not material to the Company's consolidated financial statements or liquidity. Remeasurement adjustments in financial statements in a highly inflationary economy and other transactional gains and losses are reflected in earnings. 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 uses cross-currency swap contracts to hedge the impact of foreign currency changes on certain intercompany foreign currency denominated debt. Additionally, the Company 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 4 – 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 on foreign currency transactions of $19 million and $16 million during the three months ended September 30, 2024 and 2023, respectively. Concentration of Credit Risk The Company is a worldwide manufacturer, marketer and seller of skin care, makeup, fragrance and hair care products. The Company’s sales subject to credit risk are made primarily to retailers in its travel retail business, department stores, specialty multi-brand retailers and perfumeries. The Company grants credit to qualified customers. While the Company does not believe it is exposed significantly to any undue concentration of credit risk at this time, it continues to monitor its customers' abilities, individually and collectively, to make timely payments. The Company’s largest customer during the first quarter of fiscal 2025 sells products primarily within the United States and accounted for $200 million, or 10%, and $78 million, or 4%, of the Company's accounts receivable at September 30, 2024 and June 30, 2024, respectively. Inventory and Promotional Merchandise Inventory and promotional merchandise consists of the following:
(In millions) |  | September 30, 2024 |  | June 30, 2024
Raw materials |  | $ | 673 |  |  | $ | 696 |
Work in process |  | 272 |  |  | 308 |
Finished goods |  | 1,025 |  |  | 903 |
Promotional merchandise |  | 285 |  |  | 268 |
|  | $ | 2,255 |  |  | $ | 2,175 |
Property, Plant and Equipment Property, plant and equipment consists of the following:
(In millions) |  | September 30, 2024 |  | June 30, 2024
Assets (Useful Life) |  |  |  |
Land and improvements(1) |  | $ | 76 |  |  | $ | 68 |
Buildings and improvements (10 to 40 years) |  | 1,028 |  |  | 929 |
Machinery and equipment (3 to 20 years) |  | 1,339 |  |  | 1,253 |
Computer hardware and software (4 to 10 years) |  | 1,932 |  |  | 1,861 |
Furniture and fixtures (5 to 10 years) |  | 141 |  |  | 137 |
Leasehold improvements |  | 2,504 |  |  | 2,418 |
Construction in progress |  | 470 |  |  | 500 |
|  | 7,490 |  |  | 7,166 |
Less accumulated depreciation and amortization |  | (4,257) |  |  | (4,030) |
|  | $ | 3,233 |  |  | $ | 3,136 |
(1)Land improvements are depreciated over a 10 year useful life. Depreciation and amortization of property, plant and equipment was $168 million and $162 million during the three months ended September 30, 2024 and 2023, 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). Income Taxes The effective rate for income taxes was 13.3% and 21.7% for the three months ended September 30, 2024 and 2023, respectively. The decrease in the effective tax rate of 840 basis points was primarily attributable to the impact of the discrete treatment of the charge associated with the talcum litigation settlement agreements (See Note 8 - Commitments and Contingencies for further discussion) and charges associated with restructuring and other activities recorded in the first quarter of fiscal 2025. The loss before income taxes in the first quarter of fiscal 2025 increased the impact of these discrete items on the effective tax rate. On August 16, 2022, the U.S. federal government enacted the Inflation Reduction Act, including a tax provision implementing a 15% corporate alternative minimum tax based on global adjusted financial statement income. The corporate alternative minimum tax did not have an impact on the Company's consolidated financial statements for the three months ended September 30, 2024 and 2023. On August 26, 2024, the U.S. Tax Court issued a decision in Varian Medical Systems, Inc. v. Commissioner. The decision related to the Tax Cuts and Jobs Act deduction for certain deemed foreign dividends otherwise subject to the Transition Tax on unrepatriated earnings of applicable foreign subsidiaries. Based on the Company's evaluation of the technical merits of this decision, the Company intends to timely file a protective refund claim with the U.S. Internal Revenue Service in fiscal 2025 claiming a Transition Tax payable reduction of approximately $73 million. Although the Company has accrued the $73 million estimated tax benefit in the provision for income taxes and reduced the Transition Tax payable in the fiscal 2025 first quarter by $73 million, at this time the Company believes it is more-likely-than-not that the intended Transition Tax payable reduction claim will not be sustained. As such, in the fiscal 2025 first quarter the Company has correspondingly increased the provision for income taxes for the estimated $73 million tax benefit to establish an uncertain tax position reserve accrual for the estimated $73 million Transition Tax at issue. As a result, there was no net impact from this development in the provision for income taxes and accompanying consolidated statement of earnings (loss) for the three months ended September 30, 2024. In the accompanying consolidated balance sheet as of September 30, 2024, the $73 million Transition Tax payable reduction and offsetting $73 million uncertain tax position reserve accrual are included in Other noncurrent liabilities. In December 2021, the Organization for Economic Cooperation and Development issued "Pillar Two" Global Anti-Base Erosion model rules for countries to enact into domestic law that would establish a 15% global minimum tax applied on a country-by-country basis for multinational companies. In certain countries that have enacted legislation incorporating the global minimum tax, it became effective for the Company at the beginning of fiscal 2025. The estimated tax impact of such legislation has been included in the provision for income taxes for the three months ended September 30, 2024 and was not material. We are continuing to monitor and evaluate the potential impact of newly enacted legislation incorporating the global minimum tax in additional countries. As of September 30, 2024 and June 30, 2024, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $138 million and $65 million, respectively. The total amount of unrecognized tax benefits at September 30, 2024 that, if recognized, would affect the effective tax rate was $128 million. The significant increase in the gross amount of unrecognized tax benefits as of September 30, 2024 as compared to June 30, 2024 was attributable to having established an uncertain tax position reserve accrual for the Transition Tax payable reduction position determined in the fiscal 2025 first quarter based on the August 26, 2024 U.S. Tax Court decision in Varian Medical Systems v. Commissioner, as discussed above. The total gross interest and penalties accrued related to unrecognized tax benefits during the three months ended September 30, 2024 in the accompanying consolidated statements of earnings (loss) was $2 million. The total gross accrued interest and penalties in the accompanying consolidated balance sheets at September 30, 2024 and June 30, 2024, was $19 million and $17 million, respectively. On the basis of the information available as of September 30, 2024, the Company does not expect significant changes to the total amount of unrecognized tax benefits within the next twelve months. At September 30, 2024 and June 30, 2024, total Other assets of $1,527 million and $1,460 million included $1,107 million and $1,018 million of deferred tax assets, respectively. Supplier Finance Programs Under the Company's supplier finance programs, the Company agrees to pay the banks the stated amount of confirmed invoices from its designated suppliers on the due dates of the invoices. The Company may terminate the agreements upon written notice (with notice periods ranging from 30 to 60 days) or immediately upon a breach. The supplier invoices that have been confirmed as valid under the programs require payment in full within 90 days of the invoice date. Outstanding obligations confirmed as valid totaling $58 million as of September 30, 2024 and June 30, 2024, are included in Accounts payable in the accompanying consolidated balance sheets. Other Accrued Liabilities Other accrued liabilities consist of the following:
(In millions) |  | September 30, 2024 |  | June 30, 2024
Advertising, merchandising and sampling |  | $ | 298 |  |  | $ | 276 |
Employee compensation |  | 442 |  |  | 576 |
Accrued sales incentives |  | 397 |  |  | 426 |
Deferred revenue |  | 338 |  |  | 327 |
Payroll and other non-income taxes |  | 356 |  |  | 333 |
Accrued income taxes |  | 182 |  |  | 335 |
Other |  | 1,441 |  |  | 1,131 |
|  | $ | 3,454 |  |  | $ | 3,404 |
Recently Adopted Accounting Standards FASB ASU No. 2022-04 – Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations In September 2022, the FASB issued authoritative guidance which is intended to enhance the transparency surrounding the use of supplier finance programs. The guidance requires companies that use supplier finance programs to make annual disclosures about the program’s key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period and associated rollforward information. Only the amount outstanding at the end of the period must be disclosed in interim periods. The guidance does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. Effective for the Company – The guidance became effective for the Company’s first quarter fiscal 2024 and has been applied on a retrospective basis, except for the requirement to disclose rollforward information annually which is effective prospectively for the Company beginning in fiscal 2025. Impact on consolidated financial statements – The Company has supplier financing arrangements and applied the disclosure requirements as required by the amendments. Such information is included in Supplier Finance Programs above within Note 1 – Summary of Significant Accounting Policies. Recently Issued Accounting Standards FASB ASU No. 2023-07 – Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures In November 2023, the FASB issued authoritative guidance to improve reportable segment disclosure requirements. Companies are required to disclose significant segment expenses by reportable segment if they are regularly provided to the chief operating decision maker (CODM). Companies are also required to disclose other segment items by reportable segment. The guidance clarifies that companies may disclose more than one measure of segment profit or loss used by the CODM, provided that at least one of the reported measures includes the segment profit or loss measure that is most consistent with U.S. GAAP measurement principles. All existing annual disclosures about segment profit or loss, as well as the new requirements, must now be provided on an interim basis. Additionally, on an annual basis, the CODM’s title and position is required, as well as an explanation of how the CODM uses the reported measure(s) and other disclosures. The guidance does not change how companies identify their operating segments, aggregate those operating segments, or apply the quantitative thresholds to determine their reportable segments. Effective for the Company – The guidance is effective for the Company’s fiscal year ending June 30, 2025 Form 10-K and then in interim periods beginning in the Company’s first quarter of fiscal 2026. Early adoption is permitted. The guidance should be applied retrospectively unless impracticable. Impact on consolidated financial statement s – The Company is currently evaluating the impact that this guidance will have on its financial statement disclosures. FASB ASU No. 2023-09 – Income Taxes (Topic 740): Improvements to Income Tax Disclosures In December 2023, the FASB issued authoritative guidance to amend and enhance existing annual in come tax disclosures primarily focusing on two reporting areas: (1) greater disaggregation of information in the effective tax rate reconciliations and (2) disclosure of income taxes paid, disaggregated by applicable jurisdiction. Companies are required to use specific categories to prepare and disclose a tabular rate reconciliation (using both percentages and reporting currency amounts) of: •the reported income tax expense (or benefit) from continuing operations and the product of the income (or loss) from continuing operations before income taxes and the applicable statutory federal income tax rate of the jurisdiction of domicile; and •reconciling items within certain categories that are equal to or greater than a specified quantitative threshold, including the nature, effect, and underlying causes of the reconciling items and the judgment used in categorizing the reconciling items. The guidance also requires companies to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign jurisdictions including individual jurisdictions with amounts paid equal to or greater than a specified quantitative threshold. The guidance also codifies existing SEC rules that require companies to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign as well as income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign jurisdictions. Effective for the Company – The guidance is effective for the Company’s fiscal year ending June 30, 2026 Form 10-K. Early adoption is permitted. The guidance should be applied on a prospective basis with the option to apply the standard retrospectively. Impact on consolidated financial statement s – The Company is currently evaluating the impact that this guidance will have on its financial statement disclosures. SEC Final Rule Release No. 33-11275 – The Enhancement and Standardization of Climate-Related Disclosures for Investors In March 2024, the SEC adopted rules intended to enhance and standardize climate-related disclosures in registration statements and annual reports. The rules require significant effects of severe weather events and other natural conditions, amounts related to carbon offsets and renewable energy credits or certificates, as well as material impacts on financial estimates and assumptions that are due to severe weather events and other natural conditions or disclosed climate-related targets or transition plans to be disclosed in the annual financial statements in certain circumstances. Effective for the Company – On April 4, 2024, the SEC issued an order staying the final rule on climate-related disclosures pending certain legal challenges. Under the rule as currently issued, the disclosure requirements related to the annual financial statements are expected to be effective for the Company's fiscal year ending June 30, 2026 Form 10-K. The Company is not required to provide comparative information in the year of adoption. Impact on consolidated financial statement s – The Company is currently evaluating the impact that this guidance will have on its annual financial statement disclosures.

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