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Press Release: The Estée Lauder Companies Reports -5-

· 02/05/2021 06:45
expense margin 55.8% 71.8% 56.3% 64.9% ------------------ ------ ------ ----- ----- ------ ------ ----- ----- Operating income 1,063 261 100+ 1,768 1,040 70 ------------------ ------ ------ ----- ---- ------ ------ ----- ----- Operating income margin 21.9% 5.6% 21.0% 12.2% Interest expense 43 38 13 88 70 26 Interest income and investment income, net 17 13 31 31 27 15 Other components of net periodic benefit cost 7 1 100+ 10 2 100+ Other income(D) -- 576 (100) -- 576 (100) ------------------ ------ ------ ----- ---- ------ ------ ----- ---- Earnings before income taxes 1,030 811 27 1,701 1,571 8 ------------------ ------ ------ ----- ----- ------ ------ ----- ----- Provision for income taxes 153 250 (39) 299 412 (27) ------------------ ------ ------ ----- ---- ------ ------ ----- ---- Net earnings 877 561 56 1,402 1,159 21 ------------------ ------ ------ ----- ----- ------ ------ ----- ----- Net earnings attributable to noncontrolling interests (4) (4) -- (6) (7) 14 ------------------ ------ ------ ----- ----- ------ ------ ----- ----- Net earnings attributable to The Estée Lauder Companies Inc. $ 873 $ 557 57% $1,396 $1,152 21% ------------------ ----- ----- ----- ---- ----- ----- ----- ---- Net earnings attributable to The Estée Lauder Companies Inc. per common share ------------------ Basic $ 2.40 $ 1.55 56% $ 3.84 $ 3.19 20% Diluted $ 2.37 $ 1.52 56% $ 3.79 $ 3.13 21% Weighted-average common shares outstanding Basic 363.0 360.2 363.4 360.8 Diluted 368.0 366.7 368.5 367.7 ------ ------ ----- ----- ------ ------ ----- ----- (A) The Company recorded $2 million (gross and net of tax) of income within selling, general and administrative expenses for the three and six months ended December 31, 2020 to reflect changes in the fair value of its contingent consideration related to its fiscal 2016 acquisition. During the three and six months ended December 31, 2019, the Company recorded $7 million ($6 million, net of tax) of income to reflect changes in the fair value of its contingent consideration related to certain of its fiscal 2015 and 2016 acquisitions. (B) In May 2016, the Company announced a multi-year initiative ("Leading Beauty Forward") to build on its strengths and better leverage its cost structure to free resources for investment to continue its growth momentum. Leading Beauty Forward is designed to enhance the Company's go-to-market capabilities, reinforce its leadership in global prestige beauty and continue creating sustainable value. As of June 30, 2019, the Company concluded the approvals of all major initiatives under Leading Beauty Forward 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 expects to substantially complete those initiatives through fiscal 2021. Inclusive of approvals from inception through June 30, 2019, the Company estimates that Leading Beauty Forward may result in related restructuring and other charges totaling between $950 million and $990 million, before taxes, consisting of employee-related costs, asset write-offs and other costs to implement these initiatives. After its full implementation, the Company expects Leading Beauty Forward to yield annual net benefits, primarily in Selling, general and administrative expenses and, to a lesser extent, Cost of sales, of between $425 million and $475 million, before taxes. These savings can be used to improve margin, mitigate risk and invest in future growth initiatives. In August 2020, the Company announced a two-year restructuring program, Post-COVID Business Acceleration Program (the "PCBA Program"), designed to resize its business against the dramatic shifts to its distribution landscape and consumer behaviors in the wake of the COVID-19 pandemic. The PCBA Program will help improve efficiency and effectiveness by rebalancing resources to growth areas of prestige beauty. It will 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 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. (C) During November 2020, given the actual and the estimate of the potential future impacts relating to the uncertainty of the duration and severity of COVID-19 impacting the Company and lower than expected results from geographic expansion, the Company made further revisions to the internal forecasts relating to its GLAMGLOW reporting unit, triggering a need for an interim impairment review. As a result of this review, the Company recorded $81 million ($63 million, net of tax) of goodwill and other intangible asset impairments, with an impact of $.17 per common share for the three and six months ended December 31, 2020. During December 2019, given the continuing declines in prestige makeup, generally in North America, and the ongoing competitive activity, the Company's Too Faced, BECCA and Smashbox reporting units made revisions to their internal forecasts concurrent with the Company's brand strategy review process, triggering a need for an interim impairment review. As a result of this review, the Company recorded $777 million ($663 million, net of tax) of goodwill and other intangible asset impairments, with an impact of $1.81 and $1.80 per common share for the three and six months ended December 31, 2019, respectively. (D) In conjunction with the acquisition of the remaining equity interest in Have&Be Co. Ltd., the Company recorded a gain on its previously held equity method investment of $553 million (inclusive of the recognition of a previously unrealized foreign currency gain of $4 million, which was reclassified from accumulated other comprehensive income). The Company also recorded a $23 million foreign currency gain as a result of cash transferred to a foreign subsidiary for the purposes of making the closing payment. The total gain of $576 million had an impact of $1.23 and $1.22 per common share for the three and six months ended December 31, 2019, respectively. Returns and Charges Associated With Restructuring and Other Activities and Other Adjustments (Unaudited) Three Months Ended December 31, 2020 --------------------------------------------------------------------------------------- Sales Cost of After Diluted Returns Sales Operating Expenses Total Tax EPS ------------ ------- ----------------------------------- ----- ------- ----------- (In millions, except per Restructuring Other Charges/ share data) Charges Adjustments -------------- ---- ----- --- ------------------ --------------- --- ---- Leading Beauty Forward $ -- $ 2 $ (2) $ 3 $ 3 $ 2 $ .01 PCBA Program -- -- 34 -- 34 24 .07 Changes in fair value of contingent consideration -- -- -- (2) (2) (2) (.01) Goodwill and other intangible asset impairments -- -- -- 81 81 63 .17 -------------- ----------- ------- ---------- ------ ------- ------ ---- --- -------- Total $ -- $ 2 $ 32 $ 82 $116 $87 $ .24 -------------- ---- ------ --- --- ----- ------ --- ------ --- ---- Six Months Ended December 31, 2020 --------------------------------------------------------------------------------------- Sales Cost of After Diluted

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February 05, 2021 06:45 ET (11:45 GMT)