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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to
Commission file number 1-14064
The Estée Lauder Companies Inc.
(Exact name of registrant as specified in its charter)
Delaware
11-2408943
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
767 Fifth Avenue, New York, New York
10153
(Address of principal executive offices)
(Zip Code)
212-572-4200
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock, $.01 par value
EL
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No 
At April 24, 2020, 224,763,197 shares of the registrant’s Class A Common Stock, $.01 par value, and 135,235,429 shares of the registrant’s Class B Common Stock, $.01 par value, were outstanding.



Table of Contents
THE ESTÉE LAUDER COMPANIES INC.
INDEX
Page
Consolidated Statements of Earnings (Loss) Three and Nine Months Ended March 31, 2020 and 2019
Consolidated Statements of Comprehensive Income (Loss) — Three and Nine Months Ended March 31, 2020 and 2019
Consolidated Statements of Cash Flows — Nine Months Ended March 31, 2020 and 2019



Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
THE ESTÉE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(Unaudited)
Three Months Ended
March 31
Nine Months Ended
March 31
(In millions, except per share data)
2020201920202019
Net sales
$3,345  $3,744  $11,864  $11,273  
Cost of sales
836  819  2,785  2,552  
Gross profit
2,509  2,925  9,079  8,721  
Operating expenses
Selling, general and administrative
2,030  2,170  6,753  6,435  
Restructuring and other charges
24  29  54  99  
Goodwill impairment
275  48  786  68  
Impairments of other intangible and long-lived assets71  4  337  22  
Total operating expenses
2,400  2,251  7,930  6,624  
Operating income
109  674  1,149  2,097  
Interest expense
42  32  112  101  
Interest income and investment income, net
14  15  41  42  
Other components of net periodic benefit cost
1  1  3  1  
Other income, net  71  576  71  
Earnings before income taxes
80  727  1,651  2,108  
Provision for income taxes
84  170  496  472  
Net earnings (loss)(4) 557  1,155  1,636  
Net earnings attributable to noncontrolling interests
(2) (2) (9) (8) 
Net earnings (loss) attributable to The Estée Lauder Companies Inc.$(6) $555  $1,146  $1,628  
Net earnings (loss) attributable to The Estée Lauder Companies Inc. per common share
Basic
$(.02) $1.53  $3.18  $4.47  
Diluted
$(.02) $1.51  $3.12  $4.39  
Weighted-average common shares outstanding
Basic
360.2  361.9  360.6  364.0  
Diluted
360.2  368.3  367.1  370.9  
See notes to consolidated financial statements.
2

Table of Contents
THE ESTÉE LAUDER COMPANIES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months Ended
March 31
Nine Months Ended
March 31
(In millions)
2020201920202019
Net earnings (loss)$(4) $557  $1,155  $1,636  
Other comprehensive income (loss):
Net unrealized investment gain  9    14  
Net cash flow hedge gain (loss)34  (7) 10  2  
Amounts included in net periodic benefit cost6  3  16  10  
Translation adjustments(185) (72) (191) (87) 
Benefit (provision) for deferred income taxes on components of other comprehensive income2  (1) 15  (4) 
Total other comprehensive loss(143) (68) (150) (65) 
Comprehensive income (loss)(147) 489  1,005  1,571  
Comprehensive income attributable to noncontrolling interests:
Net earnings
(2) (2) (9) (8) 
Translation adjustments
    1  1  
(2) (2) (8) (7) 
Comprehensive income (loss) attributable to The Estée Lauder Companies Inc.$(149) $487  $997  $1,564  
See notes to consolidated financial statements.
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THE ESTÉE LAUDER COMPANIES INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
March 31
2020
June 30
2019
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents
$4,876  $2,987  
Accounts receivable, net
1,846  1,831  
Inventory and promotional merchandise
2,087  2,006  
Prepaid expenses and other current assets
424  388  
Total current assets
9,233  7,212  
Property, plant and equipment, net
2,092  2,068  
Other assets
Operating lease right-of-use assets
2,446  —  
Goodwill
1,633  1,868  
Other intangible assets, net
2,190  1,203  
Other assets
769  805  
Total other assets
7,038  3,876  
Total assets
$18,363  $13,156  
LIABILITIES AND EQUITY
Current liabilities
Current debt
$1,527  $516  
Accounts payable
1,162  1,490  
Operating lease liabilities
371  —  
Other accrued liabilities
2,621  2,599  
Total current liabilities
5,681  4,605  
Noncurrent liabilities
Long-term debt
4,674  2,896  
Long-term operating lease liabilities
2,288  —  
Other noncurrent liabilities
1,362  1,244  
Total noncurrent liabilities
8,324  4,140  
Contingencies


Equity
Common stock, $.01 par value; Class A shares authorized: 1,300,000,000 at March 31, 2020 and June 30, 2019; shares issued: 451,339,096 at March 31, 2020 and 443,685,124 at June 30, 2019; Class B shares authorized: 304,000,000 at March 31, 2020 and June 30, 2019; shares issued and outstanding: 135,235,429 at March 31, 2020 and 139,537,814 at June 30, 2019
6  6  
Paid-in capital
4,760  4,403  
Retained earnings
10,595  9,984  
Accumulated other comprehensive loss
(712) (563) 
14,649  13,830  
Less: Treasury stock, at cost; 226,588,577 Class A shares at March 31, 2020 and 222,120,630 Class A shares at June 30, 2019
(10,320) (9,444) 
Total stockholders’ equity – The Estée Lauder Companies Inc.
4,329  4,386  
Noncontrolling interests
29  25  
Total equity
4,358  4,411  
Total liabilities and equity
$18,363  $13,156  
See notes to consolidated financial statements.
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THE ESTÉE LAUDER COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31
(In millions)
20202019
Cash flows from operating activities
Net earnings$1,155  $1,636  
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization447  404  
Deferred income taxes(65) (46) 
Non-cash stock-based compensation210  201  
Net loss on disposal of property, plant and equipment6  6  
Non-cash restructuring and other charges19    
Pension and post-retirement benefit expense62  53  
Pension and post-retirement benefit contributions(54) (23) 
Goodwill, other intangible and long-lived asset impairments1,123  90  
Changes in fair value of contingent consideration(9) (18) 
Gain on liquidation of an investment in a foreign subsidiary, net  (71) 
Gain on previously held equity method investment(553)   
Other non-cash items(11) (17) 
Changes in operating assets and liabilities:
Increase in accounts receivable, net(48) (377) 
Increase in inventory and promotional merchandise(41) (184) 
Increase in other assets, net(63) (73) 
Decrease in accounts payable(317) (105) 
Increase in other accrued and noncurrent liabilities62  280  
Increase in operating lease assets and liabilities, net22  —  
Net cash flows provided by operating activities1,945  1,756  
Cash flows from investing activities
Capital expenditures(468) (441) 
Payments for acquired businesses, net of cash acquired(1,047)   
Proceeds from the disposition of investments  1,229  
Purchases of investments(5) (14) 
Settlement of net investment hedges(37)   
Net cash flows provided by (used for) investing activities(1,557) 774  
Cash flows from financing activities
Proceeds (repayments) of current debt, net1,514  (167) 
Proceeds from issuance of long-term debt, net1,783    
Debt issuance costs(14)   
Repayments and redemptions of long-term debt(511) (1) 
Net proceeds from stock-based compensation transactions148  154  
Payments to acquire treasury stock(883) (1,344) 
Payments of contingent consideration(3)   
Dividends paid to stockholders(502) (453) 
Payments to noncontrolling interest holders for dividends(7) (3) 
Net cash flows provided by (used for) financing activities1,525  (1,814) 
Effect of exchange rate changes on Cash and cash equivalents(24) 5  
Net increase in Cash and cash equivalents1,889  721  
Cash and cash equivalents at beginning of period2,987  2,181  
Cash and cash equivalents at end of period$4,876  $2,902  
See notes to consolidated financial statements.
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THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – 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. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. 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, 2019.
Certain amounts in the consolidated financial statements of prior years have been reclassified to conform to current year presentation.

COVID-19 Business Update

During the third quarter of fiscal 2020, the outbreak and global spread of COVID-19 caused a significant disruption in the Company’s operating environment. Accordingly, the Company modified a number of its business practices, in part due to legislation, executive orders and guidance from government entities and healthcare authorities. These include the temporary closing of businesses deemed “non-essential,” travel bans and restrictions, social distancing and quarantines. The Company will continue to monitor the impact of COVID-19 on its consolidated financial statements.

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, 2019. 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 weighted-average rates of exchange for the period. Unrealized translation gains (losses), net of tax, reported as cumulative translation adjustments through other comprehensive income (loss) (“OCI”) attributable to The Estée Lauder Companies Inc. were $(173) million and $2 million, net of tax, during the three months ended March 31, 2020 and 2019, respectively, and $(170) million and $(11) million, net of tax, during the nine months ended March 31, 2020 and 2019, 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. These subsidiaries are not material to the Company’s consolidated financial statements or liquidity.

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THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In fiscal 2019, the Company had an investment in a foreign subsidiary that owned the Company’s available-for-sale securities.
During the three months ended March 31, 2019, the Company sold its available-for-sale securities, which liquidated this investment in the foreign subsidiary. As a result, the Company recorded a realized foreign currency gain on liquidation of $77 million and a gross loss on the sale of available-for-sale securities of $6 million, both of which were reclassified from accumulated OCI (“AOCI”) to Other income, net in the accompanying consolidated statements of earnings (loss).
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. Beginning in the first quarter of fiscal 2020, the Company entered 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 7 – 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 $15 million and $73 million during the three months ended March 31, 2020 and 2019, respectively, and $40 million and $52 million during the nine months ended March 31, 2020 and 2019, 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 COVID-19, 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 COVID-19 on its customers' abilities, individually and collectively, to make timely payments.
Inventory and Promotional Merchandise
Inventory and promotional merchandise consists of:
(In millions)
March 31
2020
June 30
2019
Raw materials
$540  $541  
Work in process
261  268  
Finished goods
1,106  981  
Promotional merchandise
180  216  
$2,087  $2,006  
Property, Plant and Equipment
(In millions)
March 31
2020
June 30
2019
Assets (Useful Life)
Land
$33  $29  
Buildings and improvements (10 to 40 years)
385  337  
Machinery and equipment (3 to 10 years)
840  811  
Computer hardware and software (4 to 10 years)
1,297  1,264  
Furniture and fixtures (5 to 10 years)
117  116  
Leasehold improvements
2,370  2,274  
5,042  4,831  
Less accumulated depreciation and amortization
(2,950) (2,763) 
$2,092  $2,068  

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THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The cost of assets related to projects in progress of $509 million and $474 million as of March 31, 2020 and June 30, 2019, respectively, is included in their respective asset categories above. Depreciation and amortization of property, plant and equipment was $131 million and $121 million during the three months ended March 31, 2020 and 2019, respectively, and $383 million and $358 million during the nine months ended March 31, 2020 and 2019, 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 105.0% and 23.4% for the three months ended March 31, 2020 and 2019, respectively, and 30.0% and 22.4% for the nine months ended March 31, 2020 and 2019, respectively. The increase in the effective tax rate in both periods was primarily attributable to the impact of nondeductible goodwill impairment charges associated with the Company’s Too Faced, BECCA and Smashbox reporting units, a higher effective tax rate on the Company’s foreign operations and the lower amount of earnings before income taxes, which increases the impact of the nondeductible charges.
As of March 31, 2020 and June 30, 2019, the gross amount of unrecognized tax benefits, exclusive of interest and penalties, totaled $69 million and $67 million, respectively. The total amount of unrecognized tax benefits at March 31, 2020 that, if recognized, would affect the effective tax rate was $52 million. The total gross interest and penalties accrued related to unrecognized tax benefits during the three and nine months ended March 31, 2020 in the accompanying consolidated statements of earnings (loss) was $1 million and $3 million, respectively. At March 31, 2020 and June 30, 2019, the total gross accrued interest and penalties in the accompanying consolidated balance sheets was $13 million and $12 million, respectively. On the basis of the information available as of March 31, 2020, 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
2020
June 30
2019
Advertising, merchandising and sampling
$405  $352  
Employee compensation
379  574  
Deferred revenue
306  314  
Other
1,531  1,359  
$2,621  $2,599  
Recently Adopted Accounting Standards
Leases (Accounting Standards Codification (“ASC”) Topic 842 – Leases (“ASC 842”))
In February 2016, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that requires lessees to account for most leases on their balance sheets with the liability being equal to the present value of the lease payments. The right-of-use asset is based on the lease liability adjusted for certain costs such as initial direct costs, prepaid lease payments and lease incentives received. Lease expense is recognized similar to previous accounting guidance with operating leases resulting in a straight-line expense, and finance leases resulting in a front-loaded expense similar to the previous accounting for capital leases.
In July 2018, the FASB amended this guidance to clarify certain narrow aspects of the new lease accounting standard that may have been incorrectly or inconsistently applied, and did not add new guidance. Also, in July 2018, the FASB issued authoritative guidance that allows companies to elect to adopt the new standard using a modified retrospective transition approach with a cumulative-effect adjustment to retained earnings in the period of adoption. Companies that elect the new adoption method were not required to restate the prior comparative periods in the financial statements.
Effective for the Company – Fiscal 2020 first quarter. An entity is permitted to apply the foregoing guidance using either of the modified retrospective transition approaches described in the standard, with certain practical expedients.
Impact on consolidated financial statements – On July 1, 2019, the Company adopted ASC 842, see Note 4 – Leases for further discussion.
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THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recently Issued Accounting Standards

FASB Staff Question-and-Answer Document (Q&A): ASC Topic 842 and ASC Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic
In April 2020, the FASB issued a Staff Q&A that focuses on the application of the lease guidance for lease concessions related solely to the effects of COVID-19. The FASB issued the guidelines to reduce the burden and complexity for companies to account for such lease concessions (e.g., rent abatements or other economic incentives) under current lease accounting rules due to COVID-19 by providing certain practical expedients that can be used.

Effective for the Company – The Company can immediately apply the optional accounting for lease concessions related to the effects of COVID-19 as of April 2020.

Impact on consolidated financial statements – The Company is currently assessing the impact of applying this guidance on its lease arrangements and expects to adopt this guidance in the fiscal 2020 fourth quarter.

Reference Rate Reform (ASC Topic 848) (Accounting Standards Update (“ASU”) 2020-04 - Facilitation of the Effects of Reference Rate Reform on Financial Reporting)
In March 2020, the FASB issued authoritative guidance to provide optional relief for companies preparing for the discontinuation of interest rates such as 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.

Effective for the Company – This guidance can be applied for a limited time, as of the beginning of the interim period that includes March 12, 2020 or any date thereafter, 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.
Measurement of Credit Losses on Financial Instruments (ASC Topic 326 – Financial Instruments – Credit Losses)
In June 2016, the 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 – The Company is currently evaluating the impact of applying this guidance on its financial instruments, such as accounts receivable. While the Company’s evaluation is ongoing, we are also assessing the impact that COVID-19 will have on the adoption of this standard on its consolidated financial statements.

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THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 – The Company has determined that it will adopt this guidance on a prospective basis to all implementation costs incurred after the date of adoption and is currently evaluating the impact of applying this guidance to its business systems that operate on cloud technology. While the Company’s evaluation is ongoing, the adoption of this standard is not expected to have a material impact on its consolidated financial statements.
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 currently evaluating the impact of applying this guidance and believes that it has transactions that may fall under the scope.
No other recently issued accounting pronouncements are expected to have a material impact on the Company’s consolidated financial statements.
NOTE 2 – ACQUISITION OF BUSINESS

On December 18, 2019, the Company acquired the remaining 66.66% equity interest in Have&Be Co. Ltd. (“Have & Be”), the global skin care company behind Dr. Jart+ and men’s grooming brand Do The Right Thing, for $1,268 million in cash. This acquisition is expected to further strengthen the Company’s leadership position in skin care and expand its consumer reach in Asia/Pacific, North America, the United Kingdom and travel retail. We originally acquired a minority interest in Have & Be in December 2015, and that investment structure included a formula-based call option for the remaining equity interest. The original minority interest was accounted for as an equity method investment, which had a carrying value of $133 million at the acquisition date. The acquisition of the remaining equity interest in Have & Be was considered a step acquisition, whereby the Company remeasured the previously held equity method investment to its fair value of $682 million, resulting in the recognition of a gain of $549 million. The acquisition of the remaining equity interest also resulted in the recognition of a previously unrealized foreign currency gain of $4 million, which was reclassified from accumulated OCI. The total gain on the Company’s previously held equity method investment of $553 million is included in Other income, net in the accompanying consolidated statements of earnings (loss) for the nine months ended March 31, 2020. The fair value of the previously held equity method investment was determined based upon a valuation of the acquired business, as of the date of acquisition, using an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies. As of March 31, 2020, the accounting for the Have & Be business combination is provisional pending the calculation of the final purchase price, finalization of the opening balance sheet (working capital adjustments), the final valuation report, and allocation of the total consideration transferred.

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THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amount paid at closing was funded by cash on hand including the proceeds from the issuance of debt. In anticipation of the closing, the Company transferred cash to a foreign subsidiary for purposes of making the closing payment. As a result, the Company recognized a foreign currency gain of $23 million, which is also included in Other income, net in the accompanying consolidated statements of earnings (loss) for the nine months ended March 31, 2020.
The Company recorded a preliminary allocation of the total consideration transferred, which includes the cash paid at closing and the fair value of its previously held equity method investment, to the tangible and identifiable intangible assets acquired and liabilities assumed based on their fair value at the acquisition date. The excess of the total consideration transferred over the fair value of the net tangible and intangible assets acquired was recorded as goodwill. The preliminary allocation of the total consideration transferred, including immaterial measurement period adjustments as of March 31, 2020, has been recorded as follows:
(In millions, unaudited)
Cash
$228  
Accounts receivable
13  
Inventory
91  
Other current assets
5  
Property, plant and equipment
3  
Right-of-use assets
3  
Intangible assets
1,427  
Goodwill
573  
Other long-term assets
4  
Total assets acquired
2,347  
Accounts payable
15  
Other accrued liabilities
25  
Deferred income taxes
352  
Lease liability
1  
Total liabilities assumed
393  
Total consideration transferred
$1,954  
The results of operations of Have & Be are reported on a one-month lag to facilitate consolidated reporting. For the three and nine months ended March 31, 2020, the Company's consolidated statements of earnings (loss) included approximately $67 million of net sales and $11 million net of tax, of net loss, inclusive of acquisition-related costs, related to Have & Be. Acquisition-related costs, which primarily include financial advisory, accounting and legal fees, in the amount of $1 million and $7 million are included in Selling, general and administrative expenses in the accompanying consolidated statements of earnings (loss) for the three and nine months ended March 31, 2020, respectively. Pro forma results of operations reflecting the acquisition of Have & Be are not presented, as the impact on the Company’s consolidated financial results would not have been material.
NOTE 3 – GOODWILL AND OTHER INTANGIBLE ASSETS
As previously discussed in Note 2 – Acquisition of Business, in December 2019, the Company acquired Have & Be, which included the addition of goodwill of $573 million, amortizable intangible assets (customer lists) of $842 million with amortization periods of 7.5 years to 17.5 years, and non-amortizable intangible assets (trademarks) of $585 million. Goodwill associated with the acquisition is primarily attributable to the future revenue growth opportunities associated with additional share in the skin care category, as well as the value associated with assembled workforce. As such, the goodwill has been allocated to the Company’s skin care product category. The goodwill recorded in connection with this acquisition is not expected to be deductible for tax purposes. As of March 31, 2020, the accounting for the Have & Be business combination is provisional pending the calculation of the final purchase price, finalization of the opening balance sheet (working capital adjustments), the final valuation report, and allocation of the total consideration transferred.
During the nine months ended March 31, 2020, the Company recognized $10 million of goodwill associated with the continuing earn-out obligations related to the acquisition of the Bobbi Brown brand.
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THE ESTÉE LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The intangible assets acquired in connection with the acquisition of Have & Be are classified as level 3 in the fair value hierarchy. The estimate of the fair values of the acquired amortizable intangible assets were determined using a multi-period excess earnings income approach by discounting the incremental after-tax cash flows over multiple periods. Fair value was determined under this approach by estimating future cash flows over multiple periods, as well as a terminal value, and discounting such cash flows at a rate of return that reflects the relative risk of the cash flows. The estimate of the fair values of the acquired intangible assets not subject to amortization were determined using an income approach, specifically the relief-from-royalty method. This method assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to obtain the rights to use the comparable asset.
The following table presents goodwill by product category and the related change in the carrying amount:
(In millions)
Skin Care
Makeup
Fragrance
Hair Care
Total
Balance as of June 30, 2019
Goodwill
$185  $1,199  $254  $390  $2,028  
Accumulated impairments
(36) (68) (22) (34) (160) 
149  1,131  232  356  1,868  
Goodwill acquired during the period
573  10      583  
Impairment charges
(52) (734)     (786) 
Translation adjustments, goodwill
(30)   (2) (2) (34) 
Translation adjustments, accumulated impairments
1      1  2