The Estée Lauder Companies Inc. (EL, NYSE)
Industry: Household & Personal Products
Annual report, fiscal year 2012


## The Estée Lauder
Companies Inc.

2012 Annual Report



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## contents

2 Executive Chairman’s Letter
6 President and Chief Executive Officer’s Letter
12 In Memoriam: Mrs. Evelyn H. Lauder
14 Sustaining Our Profitable Growth
77 Outlook
80 Portfolio of Brands
90 Board of Directors
92 Executive Officers
93 Financial Highlights
97 Financial Section
164 Management’s Report on Internal Control Over Financial Reporting
165 Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
166 Report of Independent Registered Public Accounting Firm
167 Stockholder Information




Executive
Chairman's Letter
William P. Lauder



Dear Fellow Stockholders,

Fiscal 2012 was another record year for The Estée Lauder Companies. Thanks to our focused growth strategy and strong business model, we achieved sales gains in all regions and major product categories, illustrating the broad strength of our Company and the power of our brand portfolio.

For over 60 years, The Estée Lauder Companies has been committed to working together, with all of our stakeholders, with uncompromising ethics and integrity.

Our strong performance is a tribute to the commitment and hard work of our employees, the exceptional quality of our products and services, the vision and outstanding leadership of my partner and our President and Chief Executive Officer, Fabrizio Freda, and the entire management team.

This year’s performance built upon our prior success, and we achieved a number of milestones, which enabled us to increase total stockholder return. In the process, our Board authorized a two-for-one stock split and raised the dividend by 40 percent. We grew net sales at double the rate of prestige beauty worldwide and gained global share against the competition. Overall, we grew profitably in many of our most strategic areas, including our largest brands and product categories, as well as in key markets and distribution channels, such as China, travel retail and United States department stores. We continued to exercise strong financial discipline, allowing us to invest in new capabilities to support our strategy for the long term and advance our Strategic Modernization Initiative (SMI). We are also pleased with the progress of the newest additions to our brand portfolio, Smashbox and Ermenegildo Zegna. We believe that both of these brands hold great potential for us and we look forward to growing their businesses globally.

As I reflect on our many successes of the year, it is with a heavy heart that I look back on the loss of a woman who embodied the heart and soul of The Estée Lauder Companies—my mother, Mrs. Evelyn H. Lauder. She carried the torch of our Company’s heritage and deep family values. Over the course of her more than 50 years with our Company, she fostered in us a great appreciation for the value of relationships and the importance of giving back to our world at large. This year, as we celebrate the 20th Anniversary of



The Estée Lauder Companies’ Breast Cancer Awareness (BCA) Campaign, a campaign my mother founded, we give special tribute in celebrating her extraordinary and inspiring life. More than anything, it was her recognition of the critical need to fight breast cancer through medical research—an emblem of her dedication to people and to philanthropy—that has become one of the pillars of our Company’s commitment to corporate responsibility.

That commitment—toward our world, our communities and our people—is especially meaningful to me, and I am pleased with the progress we continue to make as responsible corporate citizens. From our Company’s BCA Campaign to M·A·C’s incredibly successful VIVA GLAM campaign, and through many more initiatives across the organization, our employees and brands have raised critical awareness and support for key social issues in the priority areas of women’s health, women’s empowerment, education, health and human services, and global emergency disaster relief. We remain focused on environmental stewardship efforts, including water security, sustainable ingredient sourcing, renewable energy and sustainable packaging. We look forward to releasing our most comprehensive Corporate Responsibility Report later this year, which highlights the positive strides we are making as a Company and serves as a record for measuring our progress.

One of the joys of my role as Executive Chairman is spending more time focused on relationship building. Fiscal 2012 made it more evident than ever that the social and political boundaries of our world are changing. To sustain the success of our business, particularly in increasingly regulated environments, relationships are critical—with our

Despite the global
economic and political
uncertainties that marked
fiscal 2012, we enter the
fourth year of our strategic
journey having achieved
a number of record highs.

employees, our consumers, our customers and our communities at large. Visiting local markets and operations to meet with employees, industry leaders and consumers is an important part of my role and one that I value deeply. For over 60 years, The Estée Lauder Companies has been committed to working together, with all of our stakeholders, with uncompromising ethics and integrity. I am personally dedicated to strengthening that commitment, ensuring good governance and continuing to enhance our corporate reputation around the world.



As I reflect on our excellent performance in fiscal 2012, I would like to express my deep appreciation for all of the people who have contributed to our success. Despite the global economic and political uncertainties that marked fiscal 2012, we enter the fourth year of our strategic journey having achieved a number of record highs. This is a testament to the strength of our business model and the outstanding leadership of Fabrizio Freda. His vision, thoughtful management and disciplined focus have positioned The Estée Lauder Companies for what I believe will be a bright future. I am also grateful to my father, Leonard Lauder, whose strength and devotion to our Company continues to inspire us all. I extend my deepest thanks to our Board of Directors and our Executive Leadership Team—we are fortunate to have some of the world's best talent helping to guide our organization. To our consumers, our suppliers, our retailers and our stockholders, thank you for your ongoing loyalty and support. And most importantly, I would like to thank our employees around the world for their extraordinary efforts and contributions.

I look toward the next phase in our evolution with confidence and optimism. The Estée Lauder Companies has always been a unique organization with a rich heritage, and the steps we have taken over the past three years have made us stronger than ever. We finished fiscal 2012 in an enviable position, bolstered by exceptional talent and leadership, unsurpassed creativity, a strong balance sheet, and a winning strategy that enables us to take advantage of our biggest global opportunities and to ensure the sustainable, profitable growth of our business for the foreseeable future.

Sincerely,



William P. Lauder

Executive Chairman




President and
Chief Executive
Officer's Letter

Fabrizio Freda



Dear Fellow Stockholders,

Thanks to the incredible focus and hard work of our employees last year, The Estée Lauder Companies continued its powerful momentum, outperforming the global prestige beauty industry for the third year in a row and surpassing many of our strategic targets. In all, our year was marked by outstanding achievements across our brands, regions and product categories. Such success demonstrated, yet again, that our disciplined strategy and the outstanding equity of our brands have created a sustainable, winning formula that has helped us deliver another great year of record performance.

This formula—our combination of innovative products, High-Touch services, strategic vision and operating excellence—resulted in impressive fiscal 2012 sales growth of 10 percent. For the second consecutive year, we saw double-digit sales increases in our largest product categories and most important geographies. We had another outstanding year in North America, for example, where we accelerated growth in our key channels and strengthened our leadership position in prestige skin care. In the travel retail channel, we gained share overall, secured the number one position in prestige skin care and became the leading company in prestige makeup. Simultaneously, we continued to expand our beauty leadership in China, where two of our brands, Estée Lauder and La Mer, significantly outpaced the market.

These meaningful accomplishments resulted from the contributions of our more than 38,000 full-time employees, each of whom plays an important role in making this Company extraordinary. To them—and to the talented senior management team whose excellent leadership, sound judgment and increased discipline have been critical to our sustained growth—I am extremely grateful. Additionally, I extend my deepest appreciation for the ongoing support and partnership of William Lauder, the wisdom and guidance of Leonard Lauder, and the sage counsel provided by our Board of Directors throughout the year.

Amidst an exceptionally bright year, our Company suffered a terrible loss—that of our beloved Evelyn H. Lauder. During her more than 50 years with this Company, she was a guiding force, contributing invaluable insights through her many positions and helping to develop some of our most successful fragrances. She was perhaps best known for her tireless advocacy for breast cancer awareness through The Breast Cancer Research Foundation \( ^{®} \)  and The Estée Lauder Companies' Breast Cancer Awareness (BCA) Campaign, both of which she founded. As we celebrate The Estée



Our successes over the past year reinforce our belief that our strategy is working and that we have a clear path to future growth.
Lauder Companies’ BCA Campaign’s 20th anniversary this year, we also celebrate Evelyn’s life and enduring legacy. I was privileged to have known her personally and I am dedicated to honoring her spirit and remembering the many gifts she gave to our Company, its family culture and the beauty industry at large. Her strength, generosity and compassion will continue to inspire us for many years to come.

As my colleagues here at The Estée Lauder Companies know, I am passionate about sailing and am fond of drawing analogies between the business world and the sport. Both require intense focus, high-level strategy, teamwork and agility. I like to say that when our Company began its strategic journey three years ago, we looked for the winds of growth and ways to improve our performance. With fast winds at our back, we were able to swiftly leverage our greatest opportunities across product categories and geographies. We have continued to successfully navigate these winds, while at the same time building the necessary capabilities to support our journey. The result is an organization more nimble and flexible than ever, and by substantially reducing non-value added costs, we have generated more profitable growth and reinvested to further improve our strengths.

During the year, we added to our strategic plan a high-level, directional growth map designed to help us prioritize the greatest long-term opportunities for our Company and corresponding benchmarks against which we will measure our success. This plan acts as a compass, guiding us toward what we believe will be sustainable, profitable growth for the long term. Our successes over the past year reinforce our belief that our strategy is working and that we have a clear path to future growth.

In fiscal 2012, prestige beauty grew faster than mass in key markets around the world and our Company was well equipped to take advantage of that momentum. Thanks to our superior products and exceptional services, we were poised to meet the increased global demand for luxury. We delivered breakthrough innovations—Estée Lauder’s Idealist Even Skintone Illuminator and Cooling Eye Illuminator, Clinique’s Moisture Surge Intense Skin Fortifying Hydrator, M·A·C’s Matchmaster SPF 15 Foundation, Aveda’s Invati three-step system for thinning hair, and Origins’ Mega-Bright Skin tone correcting serum, to name a few—which, along with our High-Touch services, delighted our loyal consumers and enticed newcomers to prestige beauty. To support



these new products, we evolved our “pull” model, using even more creative and effective advertising and digital strategies to drive consumers to our stores, counters, retailers and online sites.

As we expand our business around the world, our focus on becoming even more locally relevant continues to pay off. The beauty industry is profoundly different across the globe, and we are deftly managing our brand and product portfolio accordingly—innovating more closely to where our consumers live and shop and adjusting our services and communications appropriately. We are more attuned to our consumers around the globe, especially those in emerging markets like China, Brazil, Russia and the Middle East. As a result, we find that we are better able to capitalize on the most promising opportunities with these consumers, whether they are shopping near where they live or where they travel.

We also expanded our leadership in global prestige beauty through new and existing stores in such locations as China, Dubai and Canada. Relationships are a key pillar of our business, and in fiscal 2012 we continued to build on our relationships with some of our most important retailers in the most promising areas for the Company and our brands. Additionally, our Company-operated stores represent a unique opportunity for us to demonstrate the essence of our brands and tap into the aspirations of our consumers. We will continue to thoughtfully expand our retail footprint where appropriate.

Another strong contributor to our success has been the realignment of our organization to improve efficiency and better support our global strategy. For example, our Program Management Team (PMT), which has helped us drive cost savings through two dozen global initiatives, has helped us realize savings of $708 million since the beginning of the program in fiscal 2010—$145 million in fiscal 2012 alone. These savings provide important resources that allow us to make focused investments—from strengthening our strong consumer relationship management (CRM) to boosting our expertise in digital—and provide important platforms for growth. Similarly, we continue to invest in our greatest asset, our people. Last year, we rolled out new global leadership and talent management programs that reinforce our high performance learning culture, which allows creativity and innovation to flourish. Combined, these efforts are driving unprecedented levels of global success for our Company.

In sum, our many achievements have led us to more clearly identify the opportunities ahead of us, market by market and region by region, and have prompted us to improve our winning business model and adapt our strategies accordingly. While our overall business is performing very well, we know the world will never be predictable.



We continue to see ongoing global economic uncertainties and volatility in certain markets. Despite these challenges, we have seen that ours is an industry of great resilience and our consumers' quest for beauty remains steadfast. It is that quest—for luxury, for excellence, for unparalleled service—that should maintain strong long-term demand for our products. And we, through each of our unique brands, remain that we will continue to achieve significant success, as we have in the past, by honoring our values. We believe the qualities that make this Company unique will translate into unmistakable competitive advantages and long-term profitable growth for our Company and all of our stakeholders.

Sincerely,

Fabrizio Freda

President and Chief Executive Officer

Today, we are more committed than ever to accelerating the expansion of our winning business model to all product categories and regions.

committed to fulfilling our consumers' desires, wherever in the world they happen to be.

We believe there is still substantial room for growth. Over the past 60 years, The Estée Lauder Companies has built an unmatched brand portfolio that continues to meet and exceed the aspirations of consumers around the world. Today, we are more committed than ever to accelerating the expansion of our winning business model to all product categories and regions. We will remain focused on investing in our industry-leading portfolio and adjusting our strategy to take advantage of the "fastest winds" fueling global prestige beauty. For this next phase of our journey, I am confident



## Fiscal 2012 Record Results \( ^{1} \)  Include:

• Net sales of $9.7 billion

• Gross margin of 79.5%

• Operating margin of 14.2%

• Net earnings of $901.0 million

• Diluted earnings per share of $2.27

• Cash flow from operations of more than $1.1 billion

• Annual dividend of $.525 per common share, a 40% increase

## Three Year Key Financial \( ^{1} \)  Achievements:

• Net sales growth CAGR 9.8%, more than two times as fast as global prestige beauty

• Improved gross margin by 500 basis points

• Cut expenses by $708 million through cost savings initiatives

• Increased marketing spending by 220 basis points, fueling growth momentum

• Improved operating margin by 720 basis points

• Net earnings growth CAGR 48%

• Diluted earnings per share growth CAGR 47%

• Outstanding stockholder value created

– Total stockholder return of 241.7%

– Increased market capitalization by $14.6 billion

– Increased annual dividend 91%, cash dividends totaled $461 million

– Returned cash to stockholders through the Company’s share repurchase program, acquiring 30.6 million common shares for approximately $1.2 billion







# In Memoriam
Mrs. Evelyn H. Lauder
1936-2011

We pay special tribute in this year’s Annual Report to the loving memory of Evelyn H. Lauder, Senior Corporate Vice President and Head of Fragrance Development Worldwide for our Company and Founder of The Breast Cancer Research Foundation \( ^{®} \)  (BCRF) and The Breast Cancer Awareness (BCA) Campaign.

During her more than 50 years with our Company, Evelyn Lauder held many positions while contributing her invaluable insights about fashion trends, consumers' changing needs and new approaches to the development of innovative skin care, makeup and fragrance products. One of her earliest contributions to our Company was the creation of our brand training programs. As Head of Fragrance Development Worldwide, she led the development of the Company's most globally successful fragrances, including the Estée Lauder brand's best-selling Beautiful and pleasures.

Mrs. Lauder was perhaps best known for her work in bringing global awareness to the importance of breast health and raising funds to find a cure. In 1992, she co-created with Alexandra Penney of SELF magazine the Pink Ribbon, recognized today as the worldwide symbol of breast health. That same year, Mrs. Lauder launched The Estée Lauder Companies' Breast Cancer Awareness Campaign (www.bcacampaign.com). Each year, The BCA Campaign raises awareness and funds through its brands, employees and retail partners around the world to support lifesaving medical research. From 1993 through October 2012, more than $35 million in contributions to The BCRF will have been raised by The Estée Lauder Companies' brands and employees, along with more than $20 million in contributions through fundraising initiatives with our retail partners.

Mrs. Lauder was a philanthropic leader in New York City on a variety of other important fronts, as well. She served on the Board of Overseers at Memorial Sloan-Kettering Cancer Center and on the boards of the Central Park Conservancy and the Leonard and Evelyn Lauder Foundation. The Evelyn H. Lauder Breast Center at Memorial Sloan-Kettering Cancer Center in New York City, which opened in 1993 and expanded in 2009, is the first breast and diagnostic center providing the most up-to-date breast cancer prevention, diagnosis and outpatient treatment services. Other organizations that benefited from Mrs. Lauder’s thoughtful guidance and renowned generosity include nonprofits devoted to health and human services, education and inner-city schools, the environment, women’s causes, and the arts.

A visionary, true leader, activist, accomplished photographer, wife, mother, grandmother and dear friend to many, Mrs. Lauder will be forever missed by everyone at The Estée Lauder Companies. Her extraordinary life and passion will continue to inspire us to maintain our deep commitment to our family culture and our world at large for many years to come.







## sustaining
our
profitable
growth

Fiscal 2012 was another terrific year for The Estée Lauder Companies. Our continued success and record achievements further validate that we have a sustainable, winning formula. We are playing to our strengths by focusing on our biggest brands, leveraging our biggest product launches, evolving our High-Touch services and maximizing our high-growth product categories around the world. We supported new products with a dynamic and engaging mix of advertising, and social and digital strategies, pulling in new and returning consumers to our counters, stores, retailers, and e- and m-commerce sites, and driving sales across our product lines.

This year, the luxury sector remained strong, and consumers worldwide spent more on coveted brands that offer exceptional value—a trend that resulted in increased sales for many of our product lines. At the same time, we took additional steps to sustain our strong momentum. We closely










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examined opportunities on a market-by-market basis and adapted our strategy to focus on those with the highest growth potential. Accordingly, our Company grew faster than prestige beauty overall, and, despite economic and political uncertainty in many parts of the world, our growth spanned all regions and nearly all brands.

Our continued outstanding performance underscores our confidence in the soundness of our long-term strategy, and we remain sharply focused on our vision. Our more integrated organization allows us to better anticipate consumer desires and deliver innovative products to our consumers, wherever they live, travel or shop. We now stand as an even more formidable global competitor and believe we will continue to generate excellent value for our stockholders.

## EVOLVING OUR STRATEGY

Our ability to create tomorrow’s breakthrough products, execute with excellence and creativity, and provide superb High-Touch services continues to position us as the global leader in prestige beauty. And, while we believe we have a solid blueprint that serves as the foundation for our successful strategy, we also have the flexibility to quickly adapt to the fast-changing dynamics of the global marketplace, giving us a strong competitive edge.






‘Best dramatic performance by an eye pencil.’

New Quickliner For Eyes Intense. Allergy Tested. 100% Fragrance Free.







This past year, prestige beauty grew faster than mass in many key markets around the world. In developed economies, this acceleration was driven by the conversion of more consumers from mass to prestige products. In rapidly growing economies, rising incomes and the expansion of the middle class were significant contributors. Meanwhile, as consumers maintained their willingness to spend on beauty, the global purchasing power of women continued to improve. By paying close attention to these changing dynamics, we successfully tapped into the aspirations of our consumers, allowing our Company to exceed many of our objectives in fiscal 2012.

CONSUMER-INSPIRED INNOVATION
We are a creativity-driven, consumer-inspired Company. Our belief that there are growth opportunities within many of our product lines and geographies drives us to better understand, serve and delight our consumers everywhere. We continue to identify emerging consumer groups and deepen our insights to better innovate products for them. In fiscal 2012, we made significant progress in this area, attracting existing and new consumers through powerful consumer-inspired product innovations.

The beauty concerns of our most demanding consumers inspired some of our year’s most successful innovations. For example, Estée Lauder



We continue to identify emerging consumer groups and deepen our insights to better innovate products for them.



extended the success of its Idealist Even Skintone Illuminator with its new Idealist Cooling Eye Illuminator treatment to reduce the appearance of dark circles and puffiness under the eye. Clinique's Moisture Surge Intense Skin Fortifying Hydrator, which provides moisture barrier protection and repair in the form of a cream-gel, became a global hit. In hair care, the Aveda Invati Collection, which tackles the global concern about thinning hair, was an unprecedented success for the brand and contributed significantly to the overall sales growth of this product category. M·A·C leveraged new "Shade Intelligence Technology" for its Matchmaster SPF 15 Foundation, which uses patent-pending translucent pigments to more precisely match individual skin tone and enable a fully personalized finish. And Origins extended the success of its award-winning Dr. Andrew Weil for Origins \( ^{™} \)  franchise by introducing Mega-Bright, a new serum that addresses uneven skin tone by leveraging innovative brightening technology with high-performance ingredients from nature.

## WINNING IN SKIN CARE
AND MAKEUP

Our true power has always been, and will remain, the priceless equity of our brands, which are some of the world’s best known and most beloved in beauty. Our biggest brands, Estée Lauder, Clinique and M·A·C, are winning in our Company’s key pillars of strength—global prestige skin care and global prestige makeup—and their continued growth is an essential component of our future success. Thanks to our cutting-edge product
The beauty concerns of our most demanding consumers inspired some of our year's most successful innovations.

RIGHT: Clinique’s “Power Couple” of Even Better Clinical Dark Spot Corrector and Even Better Makeup SPF 15 together to tame dark spots



launches, a strong emphasis on high-performance skin care and engaging new television advertising, both the Estée Lauder and Clinique brands experienced another great year of profitable growth. During 2011, our Estée Lauder brand became the largest prestige beauty brand in the world. In fiscal 2012, the brand grew in nearly every region, while Clinique continued to enhance its position as the number one overall beauty brand in the United States.














Our true power has always been, and will remain, the priceless equity of our brands.

In addition to maintaining its position as the number one prestige makeup brand in more than 10 countries, including those in North America, M·A·C became number one in prestige beauty in Brazil. Simultaneously, our Bobbi Brown, La Mer and Jo Malone brands enjoyed double-digit growth in virtually every region. La Mer achieved tremendous gains in China, outpacing the prestige skin care category, while Bobbi Brown made great strides in building on its makeup artist authority to become the ultimate New York-chic lifestyle brand for consumers worldwide. Overall, our achievements in these product categories reinforce our lead in the global marketplace and provide exciting benchmarks for future success.







As in recent years, we focused on fewer, bigger launches mapped to those opportunities with the greatest potential.

## GROWING OUR BRANDS

Our robust innovation pipeline combined with continued marketing support for existing products fueled gains in our regions and for many of our biggest brands. As in recent years, we focused on fewer, bigger launches mapped to those opportunities with the greatest potential. We increased advertising spending across television, digital and print in select countries, focusing on the most powerful medium to best emphasize each brand’s strengths. We were particularly pleased with our strong performance in North America, where we accelerated growth in certain key channels, and in Western Europe, where we grew our business despite sluggish economic conditions.



We increased advertising spending across television, digital and print in select countries, focusing on the most powerful medium to best emphasize each brand's strengths.
The Estée Lauder brand was a noteworthy standout in fiscal 2012. The North American launch of Idealist Even Skintone Illuminator and Idealist Cooling Eye Illuminator, supported by a captivating 360-degree marketing campaign, brought many new consumers to the brand's counters. In fact, nearly half of those purchases were made by first-time Estée Lauder consumers, and more than one quarter of those consumers had not previously shopped for beauty products in a department store, the brand's primary distribution channel in North America.

Another exciting development of the past year was the progress made by the La Mer brand. In previous years, La Mer uniquely relied on the power of its storytelling to capture consumers. This year, with increased investment in advertising, the brand successfully promoted its core of super-potent moisturizing products to a wider global audience eager to experience the “miracle” of La Mer. In China, in particular, the brand experienced tremendous growth fueled by a strong mix of communications that reinforced its unparalleled reputation as the ultimate in luxury skin care.



## The New Miracle

CREME SOYEUSE DE LA MERTM

LA MER

the moisturizing soft cream
la crème soyeuse régeneration intense

Introducing the Moisturizing Soft Cream, which delivers miraculous benefits. Its luxurious formula penetrates deeply to replenish moisture and strengthen skin. Renewed and energized, skin looks youthful radiant.



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@MoneyMichelle Thanks for spreading the love, as usual.

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have no doubts that you



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## Bridal Beauty School

Bobbi Brown / Aug 29, 2012



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## Happenings

Bobbi Brown / Aug 23, 2012



The "Year of Healthy Giving" just keeps on, well... giving! As part of Bobbi's gift of health to everyone on her staff we had a surprise visit from another familiar face from the blog, Dr. Alison...

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We had excellent results in prestige makeup, as well. Sales in U.S. prestige department and specialty stores were strong, and our ongoing strategic collaboration with North American department stores to reinvigorate the beauty floor continued to pay off. Clinique, the second-largest prestige makeup brand in the United States, aired its first-ever television makeup ad to support Clinique's Even Better Makeup SPF 15 foundation. This campaign built upon the major global television campaign for its companion skin care product, Even Better Clinical Dark Spot Corrector. The ad helped lift foundation sales alongside sales of the brand's entire makeup category, demonstrating the true power of our creative advertising. Clinique's latest television ad for its Chubby Stick Moisturizing Lip Colour balm is also showing strong results in the U.S., particularly among younger consumers.

M·A·C, with its roots in professional makeup artistry and its fashion-forward, pop-culture appeal, continued to generate powerful growth in prestige makeup for our Company. Today, M·A·C is available in more than 1,700 doors worldwide, selling one M·A·C lipstick and one M·A·C eye shadow every two seconds. The brand participates in 850 fashion shows each year and, in fiscal 2012, it leveraged a powerful, integrated marketing campaign to drive consumers to its digital fashion week content. Our other great makeup artist brand, Bobbi Brown, continued to perform well in Asia, where Bobbi's style resonates strongly with the aspirations of our



consumers. And thanks to increased digital pull efforts, the brand gained share in makeup in the United States. Through its “Everything Bobbi” blog, Bobbi Brown is interacting directly with consumers in a more meaningful way. Not only is the blog a hit with consumers—the average post receives tens of thousands of views—but it provides us with a powerful listening tool. As we learn more about our consumers’ desires in real time, we are able to translate those insights directly into dynamic new content across multiple platforms.
In the more traditional advertising realm, Tom Ford Beauty and Smashbox successfully used print ads this year to great success, generating further sales growth for some of our most exciting new product lines. For Smashbox, the powerful visuals communicate the essence of the brand’s Los Angeles photo studio heritage and DNA, while speaking to individuals who aspire to a “moment in the spotlight.” Likewise, the new Tom Ford Beauty advertisements exude desire, sending a bold and provocative message about the collection’s “wardrobe” of luxurious, sensuous makeup and high-performance skin treatments.







Ad for Estée Lauder Beautiful fragrance



## BEAUTIFUL
ESTÉE LAUDER






Bumble and bumble.

brings you

ColorMINDED

new ways to

keep all tones true



In fiscal 2012, our biggest brands worked closely with key retailers to improve navigation and merchandising.

## STRENGTHENING
OUR DISTRIBUTION

Selective distribution varies significantly by country, and we are leveraging those differences to accelerate our growth. That is especially true in the fastest-growing channels globally—e- and m-commerce and specialty multi-brand retail. In North America, we successfully strengthened our distribution through Sephora and other specialty multi-brand retailers while we continued to grow in our core department store channel. Our biggest brands worked closely with key retailers to improve navigation and merchandising while enhancing the shopping experience for consumers. Bumble and bumble, Origins, Smashbox and Bobbi Brown were especially successful in specialty multi-brand retailers by creating attention-grabbing and authoritative displays that helped establish these brands as product-category anchors in the channel.






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We continued to enhance our relationship with Europe’s largest cosmetics and fragrance retailer, Parfumerie Douglas. In Germany, GoodSkin Labs, which offers a range of targeted skin care products, currently represents four of the top 10 selling products in this important retailer. With Douglas, we have improved our position as a leader in skin care across the continent, adding momentum to our overall European business.

Driven in part by multi-brand e-commerce sites, online is becoming the fastest-growing channel globally for beauty. In China, where online sales account for an estimated 50 percent of beauty purchases, we stepped up our efforts to reach new consumers in areas where traditional distribution is limited. Last year, our online business globally grew by 24 percent, and today we have over 340 marketing and e-commerce sites across more than 50 countries. We will continue to accelerate development of our capabilities to keep winning in this important channel.
Company-operated stores represent a compelling growth opportunity for us. During fiscal 2012, we continued to develop and implement our retail store strategy on a global basis in the most promising countries for our brands and our business. These stores will continue to be a key opportunity for growth in the luxury space, especially in those markets without established and robust prestige distribution. Because we can design and own the entire in-store experience, these stores enable us to express our brands' equity in the most meaningful ways, establishing a stronger and more direct connection with consumers.



Company-operated
stores represent
a compelling growth
opportunity for us.

Currently, we have approximately 800 Company-operated stores globally. We opened more than 50 M·A·C, Bobbi Brown and Jo Malone stores in fiscal 2012, primarily across Europe and the Middle East. Bobbi Brown’s wildly popular Paris shop in the Marais, where “Le Smokey Eye” is one of the most requested looks, is a prime example of the opportunities we see in the channel. The new Jo Malone boutique in Covent Garden, London, has been a smashing success, leveraging the brand’s exciting new global look and helping make King Street a top destination in London for contemporary luxury. When it opens later in fiscal 2013 in the heart of Europe’s fashion capital—on the Avenue des Champs-Élysées in Paris—we believe that the newest M·A·C flagship store will be a favorite among the brand’s makeup “passionistas.”










In addition to Company-operated stores, we are working hard to maximize other distribution opportunities within each market. Driven partly by expanding distribution, La Mer has become the fastest-growing prestige skin care brand in Europe. In Japan, Clinique, Estée Lauder and Bobbi Brown all launched successfully this year in Isetan's Mirror, a specialty multi-brand beauty concept store. Since our founding, selective distribution has been a hallmark of our strategy. We are confident in our ability to sustain our growth and generate incremental sales by maintaining that focus on selective distribution as we expand in key markets around the world.

EXPANDING IN EMERGING MARKETS
Rapidly expanding economies continue to represent an enormous growth opportunity for us. Emerging markets, where the burgeoning middle class is increasingly seeking luxury products, are expected to account for 17 percent of the world beauty market by 2022. As the global leader in prestige beauty, we are well positioned to meet the needs and define the aspirations of these newly affluent consumers.

We continue to see great potential in China, which is one of the fastest-growing beauty markets in the world. Despite some economic slowing, we expect China to continue to experience double-digit growth in prestige beauty. Many Chinese consumers covet Western luxury brands, and a youthful, beauty-driven consumer demographic is fueling demand for skin care products. Headlining strong performance in Chinese markets, Estée Lauder, La Mer and Origins experienced outstanding gains, driven by their skin care innovations and renowned High-Touch services. Nearly a third of La Mer's business is coming from Chinese consumers around the world, a sign that we are successfully tapping



Dr. Andrew
WEIL for Origins \( ^{™} \) 
Mega-Bright

Skin tone
correcting serum




Rapidly expanding
economies continue
to represent an
enormous growth
opportunity for us.

into these consumers' desires for high-performance, luxury skin care. Our makeup offerings are successfully resonating with these consumers as well—Bobbi Brown experienced strong double-digit growth and M·A·C grew faster than the prestige makeup category. To build on our momentum in China, we opened almost 70 new doors and entered 20 new cities, bringing our footprint to 58 Chinese cities. And our e-commerce operations now reach consumers in approximately 350 cities throughout the country.

Despite some volatility and uncertainty in Latin America, our Company made good progress in several countries. Brazil was one of our fastest-growing markets during the fiscal year, driven largely by M·A·C, which is expanding its presence, advertising mix and promotional activities in the country. We also revised our distribution model and opened seven new M·A·C stores to help the brand reaffirm its number one position in prestige makeup. Our Donna Karan and Tommy Hilfiger fragrance brands also made good progress in Brazil, and we



## sweet
DELICIOUS

three new limited edition fragrances for women

DKNY

DONNA KARAN NEW YORK



## BOBBIBROWN
بوبي براون






recently launched Ermenegildo Zegna luxury fragrances. We are pleased to report that our total Company sales in Brazil grew at three times the rate of the country’s overall beauty market. Elsewhere in Latin America, The Estée Lauder Companies added Mexico—alongside Venezuela and Peru—to the roster of countries where we are the number one prestige beauty company.

We made excellent headway as well in other important emerging markets. Clinique became the number one prestige skin care treatment brand in Russia, a country where our fragrance brands have historically done well. In the Middle East—the second-largest emerging market for prestige beauty—Jo Malone and Bobbi Brown opened exciting new stores. We continue to believe that the Middle Eastern consumers' affinity for luxury products and experiences promises significant growth potential in the future.







## EXPANDING TRAVEL RETAIL

Travel retail remains one of the largest global growth opportunities for prestige beauty. With the rapid development of enhanced airport environments, this channel has evolved into a critical way to build the equity of our brands while reaching consumers throughout their journeys. Our sales in travel retail have doubled in three years, bringing our Company to the number two position in beauty in the channel. Our biggest successes lie in the skin care category and with Chinese consumers who, fueled by rising incomes, are increasingly taking to the skies. They join Brazilians, Russians and Middle Easterners as part of an ever-growing traveling consumer base. As we better understand the patterns of each of these populations, we are better able to serve their needs and desires with tailored product innovations and service enhancements.

In travel retail, we have transformed what was once a simple transaction-based business into one that considers the entire journey of our consumer. This year, we more closely synchronized our product launches and communications on a global scale. Before the consumer even begins her trip, our



Travel retail has become a vital accelerator for many of our brands and products.
online messaging opens her eyes to purchasing opportunities that will greet her along the way. Once in the airport, our outstanding High-Touch services and special events—such as pop-up stores, makeup demonstrations and multilingual digital displays—facilitate conversation and enhance the experience. At New York’s John F. Kennedy International Airport, our advertising efforts shift in language as the day progresses—from English to Chinese to French—catering to consumers we know are likely passing through the international terminal.



As a result, travel retail has become a vital accelerator for many of our brands and products, helping to build strong brand awareness. For example, Estée Lauder, Clinique, and Bobbi Brown BB creams, all of which originally launched in travel retail, have spurred sales growth for these brands as we continue their rollouts around the world. Already, we touch millions of passengers around the world each year, and by 2022, we believe the travel retail channel will approach the size of the Western European market, the largest for prestige beauty—an opportunity we intend to maximize.

## BECOMING MORE
LOCALLY RELEVANT

The beauty market varies profoundly around the world. As we expand into new countries and territories, we maintain our focus on delighting consumers at a local level. From Shanghai to Cape Town to Chicago, each consumer has different needs and aspirations. We continue to look for ways



As we expand into new
countries and territories,
we maintain our focus
on delighting consumers
at a local level.

to adapt our diverse brand portfolio, product offerings and execution strategies to the specific tastes of each market.

For example, we developed Estée Lauder’s Revitalizing Supreme Global Anti-Aging Creme with the European consumer in mind. Our enhanced insights revealed many European women are highly sophisticated and particularly interested in moisturizing cremes. They like multiple benefits in one product and appreciate high-performance solutions. Therefore, the brand focused on a single product with multiple benefits—Revitalizing Supreme. This global anti-aging creme boasts 10 worldwide patents and has IntuiGen Technology \( ^{™} \) , inspired by the discovery of a “master switch” that turns on multiple anti-aging pathways within the skin. We conducted an unprecedented amount of texture and scent testing with over 1,000 women in Europe to ensure the right “sensorial” elements—another important factor to our consumers there. Already, Revitalizing Supreme Global Anti-Aging Creme has been enormously successful, bringing many new consumers to the Estée Lauder brand and making it the number one skin care product in several European countries.

In the Middle East, where affluent consumers have strong preferences for local fragrances, several of our brands have launched or plan to launch new prestige fragrances with notes and packaging inspired by the culture and history of the region. Estée Lauder’s Wood Mystique, an intense, luxurious fragrance, has exceeded our expectations. We have high hopes for Tom Ford Sahara Noir, Aramis Perfume Calligraphy and Coach Signature Rose D’Or, which are all slated to launch in fiscal 2013. In Mexico, M·A·C introduced its Zoom Waterfast Lash, a dramatic waterproof mascara that responds to the active, yet glamorous, lifestyle needs of our Latin American consumers. And in South Africa,



# PERFUME CALLIGRAPHY
BY ARAMIS



PERFUME CALLIGRAPHY
BY ARAMIS



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Clinique’s Shades for Africa foundation program showcased the brand’s extensive shade range, highlighting local consumers’ varied skin tones and beauty needs. A similar program was successfully executed in the Middle East, called Shades for Arabia. By understanding the key drivers of our consumers’ desires and aspirations—whether it is an affinity for afternoons at the beach or for local scents—we are able to create products they could not have imagined today and cannot imagine living without tomorrow.

In addition to developing an increasing number of locally relevant products, we tailor our communications to local languages and tastes to ensure our signature High-Touch services are respectful of each market’s specific cultural norms. M·A·C’s makeup stations in the Middle East enable consumers to try our products in the privacy of special rooms, and Bobbi Brown counters in China utilize a “Skin Care Apothecary” concept attuned to the navigation and browsing preferences of local consumers.
Across the world, we are thrilled with the growing cultural and ethnic diversity of our consumers and continue to develop our brands with their specific needs in mind. Region by region, market by market, we are working to reach new consumers. Of course, as we continue to adjust our global product offerings to be even more locally relevant, we remain committed to preserving the integrity of our brands' equity while continuing to deliver cost efficiencies.

## EVOLVING HIGH-TOUCH

Our commitment to delivering outstanding, personalized High-Touch service is unwavering. High-Touch defines our philosophy toward our consumer and is fundamental to our business model. For more than 60 years, our unparalleled High-Touch services have distinguished us from our competitors. Connecting with the consumer in an intensely personal way that exceeds her expectations is essential to our future as we continue to draw consumers to prestige beauty and our brands.



## TOM FORD SAHARA NOIR



In fiscal 2012, we renewed our commitment to strengthening our connection with consumers by increasing our service delivery efforts. It has been exhilarating to imagine new ways to evolve this experience, integrating novel ideas and technology into our stores and online points of sale. Across the globe, we improved counter design, merchandising and navigation, incorporating digital technology and better refining retail experiences to match our consumers' shopping preferences.

Clinique has employed this concept with tremendous success. Launched officially last year in stores, the new Clinique Apple iPad \( ^{®} \)  Skin Care Diagnostic app allows consumers to identify their specific skin care concerns and recommends optimal product combinations designed for each individual. The app offers more than 180,000 product combinations and encourages return visits with personalized printouts and follow-up emails. This year, it was introduced in Germany and Holland, bringing individualized skin care advice to more consumers.

In Europe, Darphin enhanced its selling navigation system in the pharmacy channel, enabling new and existing Darphin consumers to more easily identify and try products that target specific skin concerns. And in the United Kingdom, the combination of smarter sampling, better High-Touch experiences and effective consumer relationship management programs is resulting in accelerated growth for La Mer.
For more than 60 years,
our unparalleled High-Touch
services have distinguished us
from our competitors.






Last year, our online business globally grew by 24 percent, and today we have over 340 marketing and e-commerce sites across more than 50 countries.

M·A·C’s Magic Mirror interactive makeup station is one of the brand’s most innovative High-Touch service initiatives. Developed for the traveling consumer, it acts as a support tool for the makeup artist to offer a more personalized experience. The “mirror” provides product descriptions in several languages and, when used in conjunction with a makeup session, sends consumers on their journey with an emailed digital photograph of their new look and a customized list of products.

## WINNING IN DIGITAL

We took our High-Touch approach to new digital heights in fiscal 2012. In fact, a recent benchmarking report named The Estée Lauder Companies the most competitive beauty company in the digital space. We increasingly see our online e- and m-commerce sites as digital “flagship” stores that offer unique opportunities for engaging and customizing consumer experiences. Pulling consumers to these sites and to our retailers is an integral part of our strategy.




Giambattista Valli, Paris Haute Couture Fashion Week

Alexis Mabille, Paris Haute Couture Fashion Week



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In fiscal 2012, we tapped deeper into technology to better communicate and connect with our consumers across many of our brands.



LEFT: The Estée Lauder Guest Blogger site features curated content by Emily Schuman of Cupcakes and Cashmere RIGHT: Smashbox's Finish at Flawless Dark Spot Correcting app
In fiscal 2012, we tapped deeper into technology to better communicate and connect with our consumers across many of our brands. We accelerated our social media activity, engaging more consumers through blogs, Tweets and Facebook postings. Estée Lauder, a flagship of the beauty landscape for more than 60 years, partnered with Guest Blogger Emily Schuman of Cupcakes and Cashmere to bring a fresh voice to the brand, particularly among younger women. As a result, hundreds of thousands of consumers were introduced to Estée Lauder products for the first time.







To fuel our success in fragrance, we continue to optimize a strategy that complements our culture and maximizes our brand portfolio.

The High-Touch On-line Skin Care Guide developed for Origins.com is another excellent example of how we have translated our signature experiences for the online world. The interactive tool offers consumers personalized recommendations and feedback based on individual skin care concerns. We introduced similar digital tools on JoMalone.com, which now features interactive fragrance-combining consultations. At Smashbox, the “Lights, Camera, BB!” Facebook app educated consumers on the benefits of one of the brand’s newest innovations while allowing them to put themselves into their very own BB Cream commercial.

These digital High-Touch elements are just a few examples of the great power of innovation—not with new serums or ingredients, but at the level of consumer engagement. As our marketing techniques evolve and adapt to a rapidly shifting and increasingly social-digital marketplace, we are able to engage consumers in more dynamic and personalized ways than ever before, and in more locations than ever before. Through these means, we can reduce promotional spending while improving the shopping experience—creating more magic both at the counter and online.

## BUILDING FRAGRANCE AND
HAIR CARE

The fragrance category is a significant pillar of global prestige beauty, particularly in Europe, and we have succeeded in improving the profitability of this product category for our Company in recent years. We believe prestige fragrance is poised to become an engine of growth for us. To fuel our success in fragrance, we continue to optimize a strategy that complements our culture and maximizes our brand portfolio, focusing on luxury and classics as we introduce fewer, better-supported products at a carefully measured pace.

To increase the potential for success of our new products, we approach each region market by market to identify the best opportunities,




supporting launches with dynamic and continuous communications that stay close to each fragrance brand’s core DNA. In Latin America, increasingly locally relevant and more impactful communications have helped fuel growth for both our Tommy Hilfiger and Donna Karan franchises, while in North America, dynamic social networking gives consumers the chance to rediscover our Donna Karan and DKNY fragrances again and again. As a result, our Aramis and Designer Fragrances (ADF) division continues to increase its profitability and is further expanding its presence by filling in gaps in under-represented areas, such as fragrances for men and high-end luxury. In fiscal 2012, we announced exciting licensing agreements for fragrances with American luxury sportswear brand Tory Burch and Milan-based fashion company Marni. These strategic additions strengthen our ADF brand portfolio and build on our global fragrance business in the high-end segment.

In hair care, we have been pleased with the results of Bumble and bumble, whose expansion last year in U.S. specialty multi-branded retail environments was tremendously successful. By bringing an esteemed, professional hair styling brand to the channel, we secured a place for prestige hair care alongside makeup, skin care and fragrance in this unique environment. This strategy is one we are excited to expand across a range of products and countries, including the United Kingdom and other parts of Europe. We are committed to working hand-in-hand with retailers to build the prestige hair care pillar, providing credibility through established salon networks, professional authority and deep experience.

As with those in our other product categories, our successes in hair care this year were partly the result of breakthrough innovations. Aveda called upon its strong heritage to introduce its newest hair care system, Invati—Sanskrit for invigorate—which is



Bumble and bumble.

Bb.
Straight
BLOW DRY

Make short work of daily smoothing and frizz-fighting rituals with this heat-activated styling balm (and a brush).

5 FL OZ/ OZ LIQ  \( \frac{1}{2} \)  fl oz



We are building the
capabilities and modernizing
the systems that should
allow us to leverage our
greatest growth opportunities
for the long term.

97 percent naturally derived and helps reduce hair loss due to breakage by 33 percent after 12 weeks. Supported by the brand’s first-ever television campaign, Aveda’s Invati collection had a terrific reception and contributed to a lift in our overall hair care sales.

Bumble and bumble’s new award-winning Bb.Straight product line combined consumer insight and exclusive technology to bring custom straightening without formaldehyde, cysteine or lye to the market. The launch was one of the most successful in the brand’s history. Combining creativity and innovation with further expansion in both the professional and retail arenas, we are confident that Bumble and bumble will maintain, and grow, its status as a global styling authority.
Ojon has also helped redefine hair care through a strong emphasis on innovation in repair. With its Rare Blend Oil, the brand brings the quality and high-performance of age-defying serums and premium skin care products to the hair care arena. Two years ago, we focused the Ojon brand on treatment-oriented hair care. This year, we worked to build brand awareness and expand the consumer base, leveraging print and digital advertising with a breakthrough marketing technique for hair care—the digital “send-a-sample” app—to allow consumers access to try the brand’s products for free.











## STRENGTHENING OUR CAPABILITIES AND BECOMING MORE AGILE

As we move forward with our winning strategy, we are building the capabilities and modernizing the systems that should allow us to leverage our greatest growth opportunities for the long term. While preserving the unique culture of our Company and strengthening the powerful equity of our brands, we continued to align our organization to our strategy. Our revitalized organizational design is working well, and we are more integrated and agile than ever before. The work that has gone into our organizational alignment since we began our strategic journey is the result of strong leadership and spirited collaboration, and we are pleased with the improvements we have made in service delivery and in driving coordinated efforts across the organization. We believe we can always be better and we are committed to seeking ways to improve our Company on an ongoing basis.

Successful operation on a global scale requires communication and transparency at all levels, and we continue to make important organizational enhancements to improve the way our business runs. Through our Strategic Modernization Initiative (SMI), we are leveraging people, processes and technology to increase visibility and standardization






We continue to make
important organizational
enhancements to
improve the way our
business runs.

across the organization, which should yield reduced costs and new efficiencies. The past two years have seen a global expansion of SMI and, as a result, an increase in our agility as we continue to roll out the Initiative. For instance, following SMI deployment in Korea, customer ordering accuracy improved four-fold, and at Smashbox we significantly decreased the average time from retail order to delivery. Because of SMI, we are becoming better equipped to manage worldwide inventories so that global brands are sure to have adequate supplies of products in markets where and when demand is strong. Driving non-value added costs and activities out of the system frees up resources for key margin-building and marketing programs, such as breakthrough advertising that pulls consumers to our retail counters, as well as improved merchandising and service when they arrive. We are confident that SMI will help us achieve many of our strategic goals while generating the next wave of cost savings.



# Pure Color

Incredibly Long-Lasting Nail Lacquer
New Colors by Tom Pecheux



ESTÉE LAUDER



A Scent for a New Day

Ermenegildo Zegna



Enabled in part by SMI, we continue to make strategic enhancements to our global supply chain with a focus on improved customer service, safety and quality to better support our profitable growth strategy for the long term. With the removal of structural roadblocks, regional and global centers are becoming better able to quickly respond to shifting markets and demand, optimizing distribution into one efficient network. We continue to consolidate our supplier base to focus on relationship building with fewer, more strategic suppliers, which is resulting in better collaboration and a shared sense of success. We closed seven distribution centers in fiscal 2012, consolidating certain operations with no business interruption, and we continue to seek opportunities for making even greater improvements.

We also have made significant strides in building our digital and consumer insights capabilities across the organization. With each passing year, we find our consumers are increasingly mobile, diverse and accessible. They frequent not only traditional High-Touch department store counters, but also our growing number of stand-alone retail formats. And, from their home or mobile device, they can access
With increased insights and improved consumer relationship management capabilities today, we will be able to better tailor our products and services to our global consumers tomorrow.



the vast online marketplace, which continues to redefine what it means to browse and shop. With increased insights and improved consumer relationship management capabilities today, we will be able to better tailor our products and services to our global consumers tomorrow.

## FOSTERING LEADERSHIP
AND CREATIVITY

At the heart of our Company’s success is the commitment of our talented employees. They are key to executing our strategy and providing us with a sustainable competitive advantage. Our unique culture nurtures talent and diversity, develops leaders and fosters innovation. This begins with attracting and retaining the most inspired, talented and passionate people in our industry, cultivating a climate of creativity and innovation and, importantly, developing leadership at every level of our global organization—or, as we say, “from every chair.”

At the heart of our Company’s success is the commitment of our talented employees.
Our global talent development philosophy is built on the understanding that great ideas can come from anywhere. We have made it a priority to promote leadership at all levels of the organization and we support our employees in developing the







## SMASHBOX
PHOTO OP
EYE SHADOW

VELVETY SMOOTH. HI-RES HUES.
CREATED. TESTED. PHOTOGRAPHED. AT SMASHBOX STUDIOS L.A.




Our global talent development philosophy is built on the understanding that great ideas can come from anywhere.

skills and expertise to build a successful and fulfilling career. We believe each employee brings unique talent and diverse experiences that propel creativity and innovation, a hallmark of our success. Inclusion is a natural extension of how we work together and we encourage all our employees to create, to innovate, to be entrepreneurs and to contribute their viewpoints, both within and beyond the framework of their roles and responsibilities.

We are working to bring an even greater diversity of perspectives to our workforce, evolving our global human resources function to attract talent from all corners of the globe. By leveraging the skills, experiences and unique perspectives of a diverse and inclusive employee base, we are better able to recognize opportunities across the global marketplace and meet the differing needs of our consumers. By fostering an organization that develops and leverages the individual strengths of our people, we have an even greater ability to adapt and win in a changing beauty landscape.







## outlook

The Estée Lauder Companies is the global leader in prestige beauty, and our focus on being a well-diversified, brand-building powerhouse of unrivaled creativity and innovation is unwavering. As our continued success during a year of global economic challenges and volatility demonstrates, we have developed a winning business model and believe we are well positioned for future success. As we accelerate the expansion of our model to all product categories and regions, we will continue to maintain our steadfast commitment to prestige beauty, a resilient market segment that offers attractive long-term growth potential. To sustain our results, we will continue to draw on the strengths that distinguish us from the competition and keep us in the lead—brand by brand, region by region, and market by market. At the same time, we continue to monitor risks that may impact our business, such as challenging macroeconomic conditions, changes in where and how consumers shop for our products, the activities of competitors and our ability to execute and achieve our corporate strategy.

We are committed to growing our profitability by advancing our leadership in prestige skin care, the biggest and fastest-growing global beauty category with excellent global growth potential. To do so, we are honing in on the most promising opportunities, using insights to unlock innovation and attract new consumers to our brands. New channel dynamics are enabling us to accelerate our capabilities in key countries across the globe. The outstanding quality of our products and unsurpassed High-Touch services will continue to play a key role for us in these channels as we become more competitive.

As we deepen our understanding of consumer behaviors around the world, we are focusing our creativity on reaching consumers in new and different ways. The consumer in China, for example, is young and discerning. We can engage her with a holistic experience, conforming the traditional store format and shopping environment to her tastes, whether at home or while traveling. In Europe, on the other hand, where the level of sophistication in the pharmacy channel is unique, we are working hard to revitalize the experience in these environments. We continue to develop a suite of online services—multilingual websites, virtual makeup consultations, dynamic social content, digital diagnostic tools, intelligent and inventive apps—to satisfy a growing digital channel. In all our efforts, we will maintain a steady eye on our



consumers’ shifting preferences and passions, opening new avenues of communication from the sales floor to the digital marketplace by becoming increasingly locally relevant.

We continue to believe in the potential of emerging market consumers and are evolving our strategy to target new cities for growth. Strengthening the connection with these consumers beyond their local markets—whether in China, Brazil, Russia or the Middle East—will remain an important component of our strategy. We see travel retail increasingly becoming a destination for purchasing beauty. Thus, we will further strengthen the connections between local markets and our travel retail channel by identifying the unique “traveling profiles” of different populations and improving the way we engage these consumers throughout their journeys. We are also creating greater launch synergies between multiple markets and travel retail, leveraging online platforms and advertising to speak to consumers before, during and after their journeys.

As we continue to broaden our expertise and evolve our organization, we are excited by the potential we see for retail expansion. Our Company-operated stores express our brands' equity in the most meaningful way, enabling us to establish a direct and lasting connection with our consumers. Sales have continued to grow through these stores and specialty multi-brand retailers, and we believe that
Our path to sustainable, profitable growth relies on building on the pioneering aspects of yesterday's accomplishments, the realities of today and the inspirational hopes of tomorrow.
thoughtfully and strategically pushing the bounds of retail will allow us to further this growth in the future.

By preserving our family culture and rich brand heritage even as we embrace rapid change, we are building a growth model that we believe will stand the test of time. We have an unparalleled portfolio of brands that has met the aspirational demands of consumers for more than 60 years, and we believe we are poised to delight consumers around the world for the many years to come. As we look forward, we are thrilled at the prospects of our growing cadre of global leaders. Inspired, creative and driven, our employees bring a wealth of knowledge from diverse backgrounds and cultures, and we are dedicated to retaining and expanding their talents. Our path to sustainable, profitable growth relies on building on the pioneering aspects of yesterday's accomplishments, the realities of today and the inspirational hopes of tomorrow.







portfolio
of
brands



## ESTÉE LAUDER

Estée Lauder was launched in 1946 and is the flagship brand of The Estée Lauder Companies Inc. Estée Lauder products are sold in more than 155 countries and territories. They are technologically advanced, high-performance products with a reputation for innovation, sophistication and superior quality. Estée Lauder has produced some of the most iconic skin care, makeup and fragrance products, including Advanced Night Repair Synchronized Recovery Complex, Idealist Even Skintone Illuminator, Double Wear and Pure Color, and has two out of the top 10 fragrances in the United States, Beautiful and pleasures.



## CLINIQUE

Clinique was founded in 1968 as the first dermatologist-created, prestige cosmetic brand. Sold in more than 150 countries and territories, Clinique’s mission today remains what it was from the beginning: to provide the highest quality and most effective products to enhance every skin type and concern. The brand’s customized approach and quality products—all meticulously tested and carefully formulated with the latest science—have made Clinique one of the leading skin care authorities in the world. Every treatment and every formula is Allergy Tested and 100% Fragrance Free.



## ARAMIS

Introduced in 1964, Aramis was the first prestige men’s fragrance to be sold in department stores. It is sold in more than 130 countries and territories worldwide. Aramis pioneered prestige men’s grooming with its “master plan” that introduced 20 unique products. Today, it remains successful through its strong brand identity and continues as a symbol of classic masculinity and sophistication.







## PRESCRIPTIVES

Prescriptives was introduced in 1979 featuring custom color for women. In the third quarter of fiscal 2010, we closed the global wholesale distribution of the brand. Select Prescriptives makeup and skin care products remain available for sale at prescriptives.com.

## LAB SERIES SKINCARE FOR MEN

Lab Series Skincare for Men was introduced by Aramis in 1987. It is sold in more than 35 countries and territories worldwide. The brand’s team of scientists, researchers and skin care specialists use modern technology, advanced ingredients and the latest research on men’s physiological and lifestyle needs to develop products with proven results that specifically target the skin care concerns of modern men.





## ORIGINS

Origins was introduced in 1990 as the first department store wellness brand. Sold in more than 20 countries and territories, Origins products strive to be earth- and animal-friendly and are manufactured using a combination of renewable resources, wind energy and earth-friendly practices. The mission at Origins is to create high-performance natural skin care products that are “Powered by Nature. Proven by Science.” Origins products use potent plants, organic ingredients and 100 percent natural essential oils.



## TOMMY HILFIGER

Tommy Hilfiger joined The Estée Lauder Companies Inc. family of brands when the exclusive global license agreement was signed in 1993. Sold in more than 120 countries and territories, Tommy Hilfiger produces fragrances and body products that reflect the classic American cool of designer Tommy Hilfiger.



## KITON

Kiton, a prestigious Italian tailoring company that combines the traditions of fine Italian tailoring with a reverence for luxury and elegance, joined The Estée Lauder Companies Inc. portfolio when the exclusive global fragrance license agreement was signed in 1995. Sold in more than 20 countries and territories, Kiton’s signature scent embodies the very essence of fashion, elegance and sophisticated masculinity.



## M·A·C COSMETICS

M·A·C (Make-up Art Cosmetics), a leading brand of professional cosmetics, was created in Toronto, Canada, in 1984 and before joining The Estée Lauder Companies Inc. family of brands. The brand’s popularity has grown through a tradition of word-of-mouth endorsement from makeup artists, models, photographers and journalists around the world. M·A·C is sold in over 75 countries worldwide. M·A·C is for all ages, all races, all sexes.







## BOBB BROWN

The Estée Lauder Companies Inc. acquired Bobbi Brown in 1995. The brand is sold worldwide in select retailers and freestanding stores in 60 countries and territories. An exclusive beauty line developed by celebrated makeup artist Bobbi Brown, the brand focuses on service and teaching women how to look and feel like themselves, only prettier and more confident. This professional line includes color cosmetics, skin care, professional makeup brushes and tools, accessories and fragrance.



## LA MER

La Mer joined our family of brands in 1995 and is sold in more than 60 countries and territories. La Mer represents supreme luxury and serious skin care treatment. The brand’s legendary product, Crème de la Mer, continues to be one of the most innovative and coveted moisturizers. Since its original conception by Dr. Max Huber, an aerospace physicist, the iconic best-selling Crème de la Mer has expanded into a complete range of skin care that continues to capture a devoted following.



## DONNA KARAN

Donna Karan New York and DKNY joined The Estée Lauder Companies Inc. when the exclusive global license agreement was signed in 1997. Sold in more than 120 countries and territories, the collection consists of luxury fragrance, bath and body collections that reflect the quality, style and innovation identified with designer Donna Karan.



## AVEDA

Aveda joined The Estée Lauder Companies Inc. family of brands in 1997 and it is currently sold in 35 countries and territories around the world. Aveda produces innovative plant-based professional and consumer hair care, skin care, body care, spa, aroma, makeup and lifestyle products as well as professional hair color. The line of high-performing botanical products fulfills the brand’s mission of environmental and community leadership and responsibility.



## BUMBLE AND BUMBLE

The Estée Lauder Companies Inc. acquired its initial interest in Bumble and bumble in 2000 and the brand was fully integrated in 2006. It is sold in over 20 countries and territories. The New York-based hair care and education company creates high-quality hair care and styling products distributed through top-tier salons and select prestige retailers. Products are salon and stylist tested and found backstage at fashion shows, photo shoots, and TV and film sets.



## JO MALONE

The Estée Lauder Companies Inc. acquired Jo Malone in 1999 and it is available today in over 25 countries and territories. The British lifestyle brand is known for its unique fragrance portfolio and luxury products for the bath, body and home. Rewriting the rules of perfumery by mixing unexpected combinations of ingredients and providing elegant yet playful concepts where scent is used with abandon, the world of Jo Malone continues to inspire a loyal following.







## MICHAEL KORS

Michael Kors joined The Estée Lauder Companies Inc. when the exclusive global license agreement was signed in 2003. With products that are sold in more than 20 countries and territories, the brand’s fragrances embody the jet set lifestyle positioning of Michael Kors. The designer’s signature scent, Michael Kors, is a modern interpretation of the classic Tuberose.

## DARPHIN

Acquired by The Estée Lauder Companies Inc. in 2003, Darpin is a Parisian high-end skin care brand, now sold in 60 countries. Following Pierre Darpin's professional expertise, creator of the first serums in 1958 in his Parisian Institute, the brand has stayed true to his legacy and created innovative products through a unique pharmacy approach, professional expertise and by offering visible results and a unique sensory experience.





## AMERICAN BEAUTY

American Beauty is a luxurious cosmetics, skin care and fragrance brand that celebrates the approachable beauty of American style. American Beauty was established in 2004 and is available exclusively in the United States at Kohl's Department Stores and Kohls.com.



FLIRT!

FLIRT!, a fresh, fun, flirty makeup collection, is everything you need to get noticed. Playful and informative “color bars” and color-matched packaging ensure shopping is as delightful as the products themselves. FLIRT! was established in 2004 and is available exclusively in the United States at Kohl’s Department Stores and Kohls.com.



## GRASSROOTS RESEARCH LABS

Grassroots Research Labs is a truly sensorial skin care experience that combines nature’s powerful ingredients with advanced science to deliver extraordinary results. Grassroots Research Labs was introduced in 2008 and is available exclusively in the United States at Kohl’s Department Stores and Kohls.com.



## GOODSKIN LABS

GoodSkin Labs is a targeted problem/solution, clinically proven skin care brand committed to offering real results instantly and for the long term. With star products including Tri-Aktiline Instant Deep Wrinkle Filler and Eyliplex-2 Eye Lift + Circle Reducer, the brand sells its products in retailers globally, including Parfumerie Douglas and Sephora China. Since its introduction in 2007, GoodSkin Labs is now sold in more than 15 countries worldwide and is available exclusively in the United States at Kohl’s Department Stores and Kohls.com.







## COACH

Coach, Inc., a leading brand of modern classic American accessories joined The Estée Lauder Companies Inc. in 2006. It is now under an exclusive global license. The collection of fragrance and ancillary beauty products embodies the timelessly chic American style. The collection is available in department stores, Coach stores in the United States, retail stores in Asia/Pacific and online at coach.com.



## TOM FORD BEAUTY

Founded in 2005, Tom Ford Beauty is sold in more than 40 countries and includes upscale fragrances such as Tom Ford Black Orchid and Tom Ford Private Blend Collection. In 2011, Tom Ford Beauty entered the color category with the Tom Ford Private Blend Lip Color Collection and today continues to redefine luxury and taste for global prestige beauty.



## OJON

The Estée Lauder Companies Inc. acquired Ojon in 2007. Ojon creates highly efficacious, sensual and natural beauty treatments. At the heart of each formula is the brand’s exclusive golden elixir—Ojon Oil. A rare, powerful, transformative 500-year-old beauty secret, the oil is renowned for its ability to repair damaged hair. Ojon is committed to traditional, sustainable harvesting practices that protect the purity and potency of the brand’s naturally derived ingredients and respect the welfare of the land and surrounding communities.



## SMASHBOX

Acquired in 2010, Smashbox was born out of Smashbox Studios, the modern-day image factory photo studio in Los Angeles, CA. After founding the photo studios, brothers Dean and Davis Factor—great-grandsons of makeup legend Max Factor—were inspired to create a line that would meet the demanding needs of a professional photo shoot. Smashbox Cosmetics puts the behind-the-scenes know-how of camera ready beauty into the hands of consumers worldwide.





## ERMENEGILDO ZEGNA

Founded in 1910 in Trivero, in the Biella Alps, by the young entrepreneur Ermenegildo Zegna, The Estée Lauder Companies Inc. entered into an exclusive worldwide license for the global luxury brand’s fragrance and grooming business in 2011. Ermenegildo Zegna fragrances are sold in markets across North America, Europe and Asia/Pacific, as well as in Ermenegildo Zegna boutiques worldwide.



ROSE MARIE BRAVO, CBE \( ^{2,4} \) 
Retail and Marketing Consultant

PAUL J. FRIBOURG \( ^{1,2,4} \) 
Chairman
Chief Executive Officer
Continental Grain Company

FABRIZIO FREDA
President and Chief Executive Officer
The Estée Lauder Companies Inc.
RICHARD D. PARSONS \( ^{2,3} \) 
Senior Advisor
Providence Equity Group



JANE LAUDER
Global President
General Manager
Origins and Ojon

BARRY S. STERNLICHT \( ^{2,4} \) 
President
Chief Executive Officer
Starwood Capital Group

AERIN LAUDER
Creative Director and Chairman
Aerin LLC



# board of directors

WILLIAM P. LAUDER \( ^{3} \) 
Executive Chairman
The Estée Lauder Companies Inc.
WEI SUN CHRISTIANSON \( ^{3} \) 
Managing Director and Co-Chief
Executive Officer of Asia Pacific and
Chief Executive Officer of China
Morgan Stanley China
CHARLENE BARSHEFSKY \( ^{3} \) 
Senior International Partner
WilmerHale
RICHARD F. ZANNINO \( ^{1} \) 
Managing Director
CCMP Capital Advisors, LLC



LYNN FORESTER DE ROTHSCHILD \( ^{3} \) 
Chief Executive
EL Rothschild LLC
LEONARD A. LAUDER
Chairman Emeritus
The Estée Lauder Companies Inc.
MELLODY HOBSON \( ^{1} \) 
President
Ariel Investments, LLC
IRVINE O. HOCKADAY, JR. \( ^{1} \) 
Retired President and
Chief Executive Officer
Hallmark Cards, Inc.



LEONARD A. LAUDER
Chairman Emeritus

RONALD S. LAUDER
Chairman
Clinique Laboratories, LLC

WILLIAM P. LAUDER
Executive Chairman

executive officers

SARA E. MOSS
Executive Vice President
General Counsel

GREGORY F. POLCER
Executive Vice President
Global Supply Chain

JOHN DEMSEY
Group President

CEDRIC PROUVÉ
Group President
International

AMY DIGESO
Executive Vice President
Global Human Resources

TRACEY T. TRAVIS
Executive Vice President
Chief Financial Officer
(as of August 20, 2012)

FABRIZIO FREDA
President and
Chief Executive Officer

ALEXANDRA C. TROWER
Executive Vice President
Global Communications

CARL HANEY
Executive Vice President
Global Research and Development
Corporate Product Innovation
Package Development

RICHARD W. KUNES
Executive Vice President
Chief Financial Officer
(until August 20, 2012)



## financial
highlights

## Financial Overview

<table><tr><td>FISCAL YEAR ENDED OR AT JUNE 30</td><td>2012</td><td>2011</td><td>Change</td></tr><tr><td>(Dollars in millions, except per share data)</td><td></td><td></td><td></td></tr><tr><td>Net Sales</td><td>$9,713.6</td><td>$8,810.0</td><td>10%</td></tr><tr><td>Operating Income</td><td>1,311.7</td><td>1,089.4</td><td>20%</td></tr><tr><td>Net Earnings*</td><td>856.9</td><td>700.8</td><td>22%</td></tr><tr><td>Net Earnings Per Common Share—Diluted*</td><td>2.16</td><td>1.74</td><td>24%</td></tr><tr><td>Total Assets</td><td>6,593.0</td><td>6,273.9</td><td>5%</td></tr><tr><td>Stockholders’ Equity*</td><td>2,733.2</td><td>2,629.4</td><td>4%</td></tr></table>

## Global Net Sales

<table><tr><td>2008</td><td>59%</td><td>41%</td></tr><tr><td>$7.91 billion</td><td>INTERNATIONAL</td><td>U.S.</td></tr><tr><td></td><td>$4.63 BILLION</td><td>$3.28 BILLION</td></tr><tr><td>2012</td><td>63%</td><td>37%</td></tr><tr><td>$9.71 billion</td><td>INTERNATIONAL</td><td>U.S.</td></tr><tr><td></td><td>$6.13 BILLION</td><td>$3.58 BILLION</td></tr></table>



## Historical Net Sales Growth



Net Sales
(In billions)

$9.71 Billion

Operating Income
(In millions)
$1,311.7 Million








Net Earnings \( ^{*} \) 
(In millions)

$856.9 Million

Diluted Net Earnings
Per Common Share \( ^{*} \) 

$2.16

Operating Working Capital \( ^{\dagger} \) 
Accounts Receivable Plus Inventory
Less Accounts Payable
(As a percentage of net sales)

16.0%










Free Cash Flow \( ^{†} \) 
Net Cash Flow From Operations
Less Capital Expenditures
Compound Annual
Growth Rate 20.7%
(In millions)

$706.0 Million



2012 Net Sales
By Distribution
Channel






financial section



## financial
contents

99 Selected Financial Data

100 Management’s Discussion and Analysis of Financial Condition and Results of Operations

123 Consolidated Statements of Earnings

124 Consolidated Balance Sheets

125 Consolidated Statements of Equity

126 Consolidated Statements of Comprehensive Income (Loss)

127 Consolidated Statements of Cash Flows

128 Notes to Consolidated Financial Statements

164 Management’s Report on Internal Control over Financial Reporting

165 Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

166 Report of Independent Registered Public Accounting Firm

167 Stockholder Information



The table below summarizes selected financial information. For further information, refer to the audited consolidated financial statements and the notes thereto beginning on page 123 of this report.

<table><tr><td>YEAR ENDED OR AT JUNE 30</td><td>2012(a)</td><td>2011(a)</td><td>2010(a)</td><td>2009(a)</td><td>2008</td></tr><tr><td>(In millions, except per share data)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>STATEMENT OF EARNINGS DATA:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net sales</td><td>$9,713.6</td><td>$8,810.0</td><td>$7,795.8</td><td>$7,323.8</td><td>$7,910.8</td></tr><tr><td>Gross profit</td><td>7,717.8</td><td>6,873.1</td><td>5,966.4</td><td>5,442.2</td><td>5,914.0</td></tr><tr><td>Operating income</td><td>1,311.7</td><td>1,089.4</td><td>789.9</td><td>418.4</td><td>810.7</td></tr><tr><td>Interest expense, net(b)</td><td>61.1</td><td>63.9</td><td>74.3</td><td>75.7</td><td>66.8</td></tr><tr><td>Interest expense on debt extinguishment(c)</td><td>—</td><td>—</td><td>27.3</td><td>—</td><td>—</td></tr><tr><td>Other income(d)</td><td>10.5</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Earnings before income taxes</td><td>1,261.1</td><td>1,025.5</td><td>688.3</td><td>342.7</td><td>743.9</td></tr><tr><td>Provision for income taxes</td><td>400.6</td><td>321.7</td><td>205.9</td><td>115.9</td><td>259.9</td></tr><tr><td>Net earnings</td><td>860.5</td><td>703.8</td><td>482.4</td><td>226.8</td><td>484.0</td></tr><tr><td>Net earnings attributable to noncontrolling interests</td><td>(3.6)</td><td>(3.0)</td><td>(4.1)</td><td>(8.4)</td><td>(10.2)</td></tr><tr><td>Net earnings attributable to The Estée Lauder Companies Inc.</td><td>856.9</td><td>700.8</td><td>478.3</td><td>218.4</td><td>473.8</td></tr><tr><td>CASH FLOW DATA:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net cash flows provided by operating activities</td><td>$1,126.7</td><td>$1,027.0</td><td>$ 956.7</td><td>$ 696.0</td><td>$ 690.1</td></tr><tr><td>Net cash flows used for investing activities</td><td>(428.3)</td><td>(606.9)</td><td>(281.4)</td><td>(339.5)</td><td>(478.5)</td></tr><tr><td>Net cash flows provided by (used for) financing activities</td><td>(585.1)</td><td>(313.1)</td><td>(406.1)</td><td>125.8</td><td>(78.1)</td></tr><tr><td>PER SHARE DATA:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net earnings attributable to The Estée Lauder Companies Inc. per common share:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Basic</td><td>$ 2.20</td><td>$ 1.78</td><td>$ 1.21</td><td>$ 0.56</td><td>$ 1.22</td></tr><tr><td>Diluted</td><td>$ 2.16</td><td>$ 1.74</td><td>$ 1.19</td><td>$ 0.55</td><td>$ 1.20</td></tr><tr><td>Weighted-average common shares outstanding:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Basic</td><td>388.7</td><td>394.0</td><td>395.4</td><td>392.6</td><td>387.8</td></tr><tr><td>Diluted</td><td>397.0</td><td>402.4</td><td>401.5</td><td>395.5</td><td>394.2</td></tr><tr><td>Cash dividends declared per common share</td><td>$ .525</td><td>$ .375</td><td>$ .275</td><td>$ .275</td><td>$ .275</td></tr><tr><td>BALANCE SHEET DATA:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Working capital</td><td>$1,729.3</td><td>$1,743.2</td><td>$1,548.8</td><td>$1,453.3</td><td>$1,088.0</td></tr><tr><td>Total assets</td><td>6,593.0</td><td>6,273.9</td><td>5,335.6</td><td>5,176.6</td><td>5,011.2</td></tr><tr><td>Total debt(b)(c)</td><td>1,288.1</td><td>1,218.1</td><td>1,228.4</td><td>1,421.4</td><td>1,196.9</td></tr><tr><td>Stockholders&#x27; equity—The Estée Lauder Companies Inc.</td><td>2,733.2</td><td>2,629.4</td><td>1,948.4</td><td>1,640.0</td><td>1,653.2</td></tr></table>

(a) Fiscal 2012 results included $44.1 million, after tax, or $1.1 per diluted share related to charges associated with restructuring activities. Fiscal 2011 results included $41.7 million, after tax, or $0.10 per diluted share related to total charges associated with restructuring activities. Fiscal 2010 results included $55.9 million, after tax, or $1.4 per diluted share related to total charges associated with restructuring activities. Fiscal 2009 results included $61.7 million, after tax, or $1.6 per diluted share related to total charges associated with restructuring activities.

(b) In November 2008, we issued and sold $300.0 million of 7.75% Senior Notes due November 1, 2013 in a public offering. We used the net proceeds of this offering to repay then-outstanding commercial paper balances upon their maturity.

(c) On May 24, 2010, we completed a cash tender offer for $130.0 million principal amount of our 2012 Senior Notes at a price of 108.500% of the principal amount and for $69.9 million principal amount of our 2013 Senior Notes at a tender price of 118.813% of the principal amount. During the fourth quarter of fiscal 2010, we recorded a pre-tax expense on the extinguishment of debt of $27.3 million representing the tender premium, the pro-rata write-off of unamortized terminated interest rate swap, issuance costs and debt discount, and tender offer costs associated with both series of notes.

(d) In November 2011, we settled a commercial dispute with third parties that was outside our normal operations. In connection therewith, we received a $10.5 million cash payment, which has been classified as other income in our consolidated statement of earnings.



## CRITICAL ACCOUNTING POLICIES
AND ESTIMATES

The discussion and analysis of our financial condition at June 30, 2012 and our results of operations for the three fiscal years ended June 30, 2012 are based upon our consolidated financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in those financial statements. These estimates and assumptions can be subjective and complex and, consequently, actual results could differ from those estimates. Our most critical accounting policies relate to revenue recognition, inventory, pension and other post-retirement benefit costs, goodwill, other intangible assets and long-lived assets, income taxes and derivatives.

Management of the Company has discussed the selection of significant accounting policies and the effect of estimates with the Audit Committee of the Company’s Board of Directors.

## REVENUE RECOGNITION

Revenues from product sales are recognized upon transfer of ownership, including passage of title to the customer and transfer of the risk of loss related to those goods. In the Americas region, sales are generally recognized at the time the product is shipped to the customer and in the Europe, the Middle East & Africa and Asia/Pacific regions, sales are generally recognized based upon the customer's receipt. In certain circumstances, transfer of title takes place at the point of sale, for example, at our retail stores.

Revenues are reported on a net sales basis, which is computed by deducting from gross sales the amount of actual product returns received, discounts, incentive arrangements with retailers and an amount established for anticipated product returns. Our practice is to accept product returns from retailers only if properly requested, authorized and approved. In accepting returns, we typically provide a credit to the retailer against accounts receivable from that retailer. As a percentage of gross sales, returns were 3.5% in fiscal 2012 and 2011 and 4.3% in fiscal 2010. The improvement from fiscal 2010 reflects efforts to work with our customers to improve their forecasting and product mix to better address their inventory requirements.

Our sales return accrual is a subjective critical estimate that has a direct impact on reported net sales. This accrual is calculated based on a history of actual returns, estimated future returns and information provided by retailers regarding their inventory levels. Consideration of these factors results in an accrual for anticipated sales returns that reflects increases or decreases related to seasonal fluctuations. Experience has shown a relationship between retailer inventory levels and sales returns in the subsequent period, as well as a consistent pattern of returns due to the seasonal nature of our business. In addition, as necessary, specific accruals may be established for significant future known or anticipated events. The types of known or anticipated events that we have considered, and will continue to consider, include, but are not limited to, the financial condition of our customers, store closings by retailers, changes in the retail environment and our decision to continue to support new and existing products.

In the ordinary course of business, we have established an allowance for doubtful accounts and customer deductions based upon the evaluation of accounts receivable aging, specific exposures and historical trends. Our allowance for doubtful accounts and customer deductions is a subjective critical estimate that has a direct impact on reported net earnings. The allowance for doubtful accounts was $31.1 million and $33.9 million as of June 30, 2012 and 2011, respectively. The allowance for doubtful accounts was reduced by $13.8 million, $9.9 million and $15.8 million for customer deductions and write-offs in fiscal 2012, 2011 and 2010, respectively, and increased by $11.0 million, $9.5 million and $8.7 million for additional provisions in fiscal 2012, 2011 and 2010, respectively.

## INVENTORY

We state our inventory at the lower of cost or fair-market value, with cost being based on standard cost which approximates actual cost on the first-in, first-out (FIFO) method. We believe this method most closely matches the flow of our products from manufacture through sale. The reported net value of our inventory includes saleable products, promotional products, raw materials and componentry and work in process that will be sold or used in future periods. Inventory cost includes raw materials, direct labor and overhead, as well as inbound freight. Manufacturing overhead is allocated to the cost of inventory based on the normal production capacity. Unallocated overhead during periods of abnormally low production levels are recognized as cost of sales in the period in which they are incurred.

We also record an inventory obsolescence reserve, which represents the difference between the cost of the inventory and its estimated realizable value, based on various product sales projections. This reserve is



calculated using an estimated obsolescence percentage applied to the inventory based on age, historical trends and requirements to support forecasted sales. In addition, and as necessary, we may establish specific reserves for future known or anticipated events.

## PENSION AND OTHER POST-RETIREMENT
BENEFIT COSTS

We offer the following benefits to some or all of our employees: a domestic trust-based noncontributory qualified defined benefit pension plan (“U.S. Qualified Plan”) and an unfunded, non-qualified domestic noncontributory pension plan to provide benefits in excess of statutory limitations (collectively with the U.S. Qualified Plan, the “Domestic Plans”); a domestic contributory defined contribution plan; international pension plans, which vary by country, consisting of both defined benefit and defined contribution pension plans; deferred compensation arrangements; and certain other post-retirement benefit plans.

The amounts needed to fund future payouts under these plans are subject to numerous assumptions and variables. Certain significant variables require us to make assumptions that are within our control such as an anticipated discount rate, expected rate of return on plan assets and future compensation levels. We evaluate these assumptions with our actuarial advisors and select assumptions that we believe reflect the economics underlying our pension and post-retirement obligations. While we believe these assumptions are within accepted industry ranges, an increase or decrease in the assumptions or economic events outside our control could have a direct impact on reported net earnings.

The discount rate for each plan used for determining future net periodic benefit cost is based on a review of highly rated long-term bonds. For fiscal 2012, we used a discount rate for our Domestic Plans of 5.40% and varying rates on our international plans of between 1.25% and 8.25%. The discount rate for our Domestic Plans is based on a bond portfolio that includes only long-term bonds with an Aa rating, or equivalent, from a major rating agency. We believe the timing and amount of cash flows related to the bonds included in this portfolio is expected to match the estimated defined benefit payment streams of our Domestic Plans. For fiscal 2012, we used an expected return on plan assets of 7.75% for our U.S. Qualified Plan and varying rates of between 2.00% and 8.25% for our international plans. In determining the long-term rate of return for a plan, we consider the historical rates of return, the nature of the plan’s investments and an expectation for the plan’s investment strategies. See “Note 13—Pension, Deferred Compensation and Post-retirement Benefit Plans” of Notes to Consolidated Financial Statements for details regarding the nature of our pension and post-retirement plan investments. The difference between actual and expected return on plan assets is reported as a component of accumulated other comprehensive income. Those gains/losses that are subject to amortization over future periods will be recognized as a component of the net periodic benefit cost in such future periods. For fiscal 2012, our pension plans had actual return on assets of approximately $76 million as compared with expected return on assets of approximately $60 million, which resulted in a net deferred gain of approximately $16 million, substantially all of which is currently subject to be amortized over periods ranging from approximately 6 to 22 years. The actual return on plan assets was primarily related to the strong performance of the fixed income investments during the past fiscal year.

A 25 basis-point change in the discount rate or the expected rate of return on plan assets would have had the following effect on fiscal 2012 pension expense:

<table><tr><td></td><td>25 Basis-Point Increase</td><td>25 Basis-Point Decrease</td></tr><tr><td>(In millions)</td><td></td><td></td></tr><tr><td>Discount rate</td><td>$ (3.4)</td><td>$ 3.3</td></tr><tr><td>Expected return on assets</td><td>$ (2.2)</td><td>$ 2.2</td></tr></table>

Our post-retirement plans are comprised of health care plans that could be impacted by health care cost trend rates, which may have a significant effect on the amounts reported. A one-percentage-point change in assumed health care cost trend rates for fiscal 2012 would have had the following effects:

<table><tr><td></td><td>One-Percentage-Point Increase</td><td>One-Percentage-Point Decrease</td></tr><tr><td>(In millions)</td><td></td><td></td></tr><tr><td>Effect on total service and interest costs</td><td>$ 1.2</td><td>$ (1.0)</td></tr><tr><td>Effect on post-retirement benefit obligations</td><td>$13.9</td><td>$(12.6)</td></tr></table>

For fiscal 2013, we are using a discount rate for the Domestic Plans of 3.90% and varying rates for our international plans of between 1.00% and 7.00%. We are using an expected return on plan assets of 7.50% for the U.S. Qualified Plan and varying rates for our international pension plans of between 2.25% and 7.00%. The net change in these assumptions from those used in fiscal 2012 will result in an increase in pension expense of approximately $19 million in fiscal 2013. We will continue to monitor the market conditions relative to these assumptions and adjust them accordingly.



## GOODWILL, OTHER INTANGIBLE ASSETS AND LONG-LIVED ASSETS

Goodwill is calculated as the excess of the cost of purchased businesses over the fair value of their underlying net assets. Other indefinite-lived intangible assets principally consist of trademarks. Goodwill and other indefinite-lived intangible assets are not amortized.

We assess goodwill and other indefinite-lived intangibles at least annually for impairment as of the beginning of the fiscal fourth quarter, or more frequently if certain events or circumstances exist. We test goodwill for impairment at the reporting unit level, which is one level below our operating segments. We identify our reporting units by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available and management of each reporting unit regularly reviews the operating results of those components. We make certain judgments and assumptions in allocating assets and liabilities to determine carrying values for our reporting units. Impairment testing is performed in two steps: (i) we determine if an indication of impairment exists by comparing the fair value of a reporting unit with its carrying value, and (ii) if there is an impairment, we measure the amount of impairment loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill. The impairment test for indefinite-lived intangible assets encompasses calculating a fair value of an indefinite-lived intangible asset and comparing the fair value to its carrying value. If the carrying value exceeds the fair value an impairment charge is recorded.

Testing goodwill for impairment requires us to estimate fair values of reporting units using significant estimates and assumptions. The assumptions made will impact the outcome and ultimate results of the testing. We use industry accepted valuation models and set criteria that are reviewed and approved by various levels of management and, in certain instances, we engage third-party valuation specialists for advice. To determine fair value of the reporting unit, we generally use an equal weighting of the income and market approaches. In certain circumstances, equal weighting will not be applied if one of these methods may be less applicable (e.g., only the income approach would be used for reporting units with existing negative margins). We believe both approaches are equally relevant and the most reliable indications of fair value because the fair value of product or service companies is more dependent on the ability to generate earnings than on the value of the assets used in the production process.
Under the income approach, we determine fair value using a discounted cash flow method, projecting future cash flows of each reporting unit, 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. Under the market approach, we utilize information from comparable publicly traded companies with similar operating and investment characteristics as the reporting units, which creates valuation multiples that are applied to the operating performance of the reporting unit being tested, to value the reporting unit.

The key estimates and factors used in these two approaches include, but are not limited to, revenue growth rates and profit margins based on internal forecasts, terminal value, the weighted-average cost of capital used to discount future cash flows and comparable market multiples. The fiscal 2012 compound annual growth rate of sales for the first five to eight years of our projections, as considered appropriate for the individual reporting units, ranged between 5% and 18% with the higher growth rates in those reporting units that start with the smallest base in fiscal 2012. The fiscal 2011 compound annual growth rate of sales for the first five to eight years of our projections ranged between 3% and 19% with the higher growth rates in those reporting units that start with the smallest base in fiscal 2011. For reporting units with positive earnings, growth in the corresponding earnings before interest and taxes ranged from 7% to 47% in fiscal 2012 as compared with 6% to 109% in fiscal 2011. The terminal growth rates were projected at 3% after five to eight years in fiscal 2012 and fiscal 2011, which reflects our estimate of long term market and gross domestic product growth. The weighted-average cost of capital used to discount future cash flows ranged from 8% to 16% in fiscal 2012 as compared with 7.5% to 16% in fiscal 2011. The range of market multiples used in our fiscal 2012 impairment testing was from 1.7 to 3.3 times trailing-twelve-month sales and 10.0 to 12.5 times trailing-twelve-month earnings before interest, taxes and depreciation and amortization. The range of market multiples used in our fiscal 2011 impairment testing was from 1.5 to 3 times trailing-twelve-month sales and between 11 to 12 times trailing-twelve-month earnings before interest, taxes and depreciation and amortization. Future changes in these estimates and assumptions could materially affect the results of our reviews for impairment of goodwill. However, a decrease of 100 basis points in our terminal growth rate or an increase of 100 basis points in our weighted-average cost of capital would still result in a fair value calculation exceeding our book value for each of our reporting units, except for the Darphin reporting unit,



for which a decrease of 75 basis points in our terminal growth rate would still result in a fair value calculation exceeding its book value. Changes in the valuation assumptions from those used in the prior year primarily reflect the impact of the current economic environment on the reporting units and their projected future results of operations.

To determine fair value of other indefinite-lived intangible assets, we use an income approach, 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. Other indefinite-lived intangible assets' fair values require significant judgments in determining both the assets' estimated cash flows as well as the appropriate discount and royalty rates applied to those cash flows to determine fair value. Changes in such estimates or the application of alternative assumptions could produce significantly different results. The fiscal 2012 and 2011 terminal growth rate applied to future cash flows was 3% and the fiscal 2012 and 2011 discount rates ranged from 10% to 18%. The fiscal 2012 and 2011 royalty rates ranged from 0.5% to 12%.

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When such events or changes in circumstances occur, a recoverability test is performed comparing projected undiscounted cash flows from the use and eventual disposition of an asset or asset group to its carrying value. If the projected undiscounted cash flows are less than the carrying value, an impairment would be recorded for the excess of the carrying value over the fair value, which is determined by discounting future cash flows.

## INCOME TAXES

We account for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. As of June 30, 2012, we have current net deferred tax assets of $247.8 million and non-current net deferred tax assets of $103.1 million. The net deferred tax assets assume sufficient future earnings for their realization, as well as the continued application of currently anticipated tax rates. Included in net deferred tax assets is a valuation allowance of $73.2 million for deferred tax assets, where management believes it is more-likely-than-not that the deferred tax assets will not be realized in the relevant jurisdiction. Based on our assessments, no additional valuation allowance is required. If we determine that a deferred tax asset will not be realizable, an adjustment to the deferred tax asset will result in a reduction of net earnings at that time.

We provide tax reserves for U.S. federal, state, local and foreign exposures relating to periods subject to audit. The development of reserves for these exposures requires judgments about tax issues, potential outcomes and timing, and is a subjective critical estimate. We assess our tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting dates. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon settlement with a tax authority that has full knowledge of all relevant information. For those tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit has been recognized in the consolidated financial statements. We classify applicable interest and penalties as a component of the provision for income taxes. Although the outcome relating to these exposures is uncertain, in management’s opinion adequate provisions for income taxes have been made for estimable potential liabilities emanating from these exposures. If actual outcomes differ materially from these estimates, they could have a material impact on our consolidated results of operations.

## DERIVATIVES

We address certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments. We enter into foreign currency forward contracts and may enter into option contracts to reduce the effects of fluctuating foreign currency exchange rates and interest rate derivatives to manage the effects of interest rate movements on our aggregate liability portfolio. We also enter into foreign currency forward contracts and may use option contracts, not designated as hedging instruments, to mitigate the change in fair value of specific assets and liabilities on the balance sheet. We do not utilize derivative financial instruments for trading or speculative purposes. Hedge effectiveness is documented, assessed and monitored by employees who are qualified to make such assessments and monitor the instruments. Variables that are external to us such as social, political and economic risks may have an impact on our hedging program and the results thereof.



Our derivative financial instruments are recorded as either assets or liabilities on the balance sheet and measured at fair value. All derivatives outstanding as of June 30, 2012 are (i) designated as a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair-value” hedge), (ii) designated as a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“foreign currency cash-flow” hedge), or (iii) not designated as a hedging instrument. Changes in the fair value of a derivative that is designated and qualifies as a fair-value hedge that is highly effective are recorded in current-period earnings, along with the loss or gain on the hedged asset or liability that is attributable to the hedged risk (including losses or gains on unrecognized firm commitments). Changes in the fair value of a derivative that is designated and qualifies as a foreign currency cash-flow hedge of a foreign-currency-denominated forecasted transaction that is highly effective are recorded in other comprehensive income (loss) (“OCI”). Gains and losses deferred in OCI are then recognized in current-period earnings when earnings are affected by the variability of cash flows of the hedged foreign-currency-denominated forecasted transaction (e.g., when periodic settlements on a variable-rate asset or liability are recorded in earnings). Changes in the fair value of derivative instruments not designated as hedging instruments are reported in current-period earnings.

For a discussion on the quantitative impact of market risks related to our derivative financial instruments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Market Risk.”

## QUANTITATIVE ANALYSIS

During the three-year period ended June 30, 2012 there have not been material changes in the assumptions underlying these critical accounting policies, nor to the related significant estimates. The results of our business underlying these assumptions have not differed significantly from our expectations.

While we believe that the estimates that we have made are proper and the related results of operations for the period are presented fairly in all material respects, other assumptions could reasonably be justified that would change the amount of reported net sales, cost of sales, operating expenses or our provision for income taxes as they relate to the provisions for anticipated sales returns, allowance for doubtful accounts, inventory obsolescence reserve and income taxes. For fiscal 2012, had these estimates been changed simultaneously by 2.5% in either direction, our reported gross profit would have increased or decreased by approximately $4.8 million, operating expenses would have changed by approximately $0.8 million and the provision for income taxes would have remained unchanged. The collective impact of these changes on operating income, net earnings attributable to The Estée Lauder Companies Inc., and net earnings attributable to The Estée Lauder Companies Inc. per diluted common share would be an increase or decrease of approximately $5.6 million, $5.6 million and $0.01, respectively.

## RESULTS OF OPERATIONS

We manufacture, market and sell beauty products including those in the skin care, makeup, fragrance and hair care categories which are distributed in over 150 countries and territories. The following table is a comparative summary of operating results from continuing operations for fiscal 2012, 2011 and 2010 and reflects the basis of presentation described in “Note 2—Summary of Significant Accounting Policies and Note 20—Segment Data and Related Information” of Notes to Consolidated Financial Statements for all periods presented. Products and services that do not meet our definition of skin care, makeup, fragrance and hair care have been included in the “other” category.



<table><tr><td>YEAR ENDED JUNE 30</td><td>2012</td><td>2011</td><td>2010</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>NET SALES</td><td></td><td></td><td></td></tr><tr><td>By Region:</td><td></td><td></td><td></td></tr><tr><td>The Americas</td><td>$4,101.1</td><td>$3,796.3</td><td>$3,442.1</td></tr><tr><td>Europe, the Middle East &amp; Africa</td><td>3,603.2</td><td>3,257.6</td><td>2,859.3</td></tr><tr><td>Asia/Pacific</td><td>2,011.4</td><td>1,760.7</td><td>1,510.1</td></tr><tr><td></td><td>9,715.7</td><td>8,814.6</td><td>7,811.5</td></tr><tr><td>Returns associated with restructuring activities</td><td>(2.1)</td><td>(4.6)</td><td>(15.7)</td></tr><tr><td>Net Sales</td><td>$9,713.6</td><td>$8,810.0</td><td>$7,795.8</td></tr><tr><td>By Product Category:</td><td></td><td></td><td></td></tr><tr><td>Skin Care</td><td>$4,225.2</td><td>$3,718.6</td><td>$3,227.1</td></tr><tr><td>Makeup</td><td>3,696.8</td><td>3,370.8</td><td>2,978.2</td></tr><tr><td>Fragrance</td><td>1,271.0</td><td>1,236.0</td><td>1,136.9</td></tr><tr><td>Hair Care</td><td>462.4</td><td>432.3</td><td>413.9</td></tr><tr><td>Other</td><td>60.3</td><td>56.9</td><td>55.4</td></tr><tr><td></td><td>9,715.7</td><td>8,814.6</td><td>7,811.5</td></tr><tr><td>Returns associated with restructuring activities</td><td>(2.1)</td><td>(4.6)</td><td>(15.7)</td></tr><tr><td>Net Sales</td><td>$9,713.6</td><td>$8,810.0</td><td>$7,795.8</td></tr><tr><td>OPERATING INCOME (LOSS)</td><td></td><td></td><td></td></tr><tr><td>By Region:</td><td></td><td></td><td></td></tr><tr><td>The Americas</td><td>$ 288.4</td><td>$ 244.9</td><td>$ 161.5</td></tr><tr><td>Europe, the Middle East &amp; Africa</td><td>746.3</td><td>651.9</td><td>500.8</td></tr><tr><td>Asia/Pacific</td><td>340.2</td><td>252.0</td><td>212.3</td></tr><tr><td></td><td>1,374.9</td><td>1,148.8</td><td>874.6</td></tr><tr><td>Total charges associated with restructuring activities</td><td>(63.2)</td><td>(59.4)</td><td>(84.7)</td></tr><tr><td>Operating Income</td><td>$1,311.7</td><td>$1,089.4</td><td>$ 789.9</td></tr><tr><td>By Product Category:</td><td></td><td></td><td></td></tr><tr><td>Skin Care</td><td>$ 746.7</td><td>$ 595.1</td><td>$ 434.3</td></tr><tr><td>Makeup</td><td>538.0</td><td>493.8</td><td>416.8</td></tr><tr><td>Fragrance</td><td>100.1</td><td>80.7</td><td>26.3</td></tr><tr><td>Hair Care</td><td>12.2</td><td>(9.1)</td><td>(6.2)</td></tr><tr><td>Other</td><td>(22.1)</td><td>(11.7)</td><td>3.4</td></tr><tr><td></td><td>1,374.9</td><td>1,148.8</td><td>874.6</td></tr><tr><td>Total charges associated with restructuring activities</td><td>(63.2)</td><td>(59.4)</td><td>(84.7)</td></tr><tr><td>Operating Income</td><td>$1,311.7</td><td>$1,089.4</td><td>$ 789.9</td></tr></table>

The following table presents certain consolidated earnings data as a percentage of net sales:

<table><tr><td>YEAR ENDED JUNE 30</td><td>2012</td><td>2011</td><td>2010</td></tr><tr><td>Net sales</td><td>100.0%</td><td>100.0%</td><td>100.0%</td></tr><tr><td>Cost of sales</td><td>20.5</td><td>22.0</td><td>23.5</td></tr><tr><td>Gross profit</td><td>79.5</td><td>78.0</td><td>76.5</td></tr><tr><td>Operating expenses:</td><td></td><td></td><td></td></tr><tr><td>Selling, general and administrative</td><td>65.1</td><td>64.7</td><td>65.0</td></tr><tr><td>Restructuring and other charges</td><td>0.7</td><td>0.5</td><td>0.8</td></tr><tr><td>Goodwill impairment</td><td>—</td><td>0.3</td><td>0.2</td></tr><tr><td>Impairment of other intangible and long-lived assets</td><td>0.2</td><td>0.1</td><td>0.4</td></tr><tr><td></td><td>66.0</td><td>65.6</td><td>66.4</td></tr><tr><td>Operating income</td><td>13.5</td><td>12.4</td><td>10.1</td></tr><tr><td>Interest expense, net</td><td>0.6</td><td>0.7</td><td>1.0</td></tr><tr><td>Interest expense on debt extinguishment</td><td>—</td><td>—</td><td>0.3</td></tr><tr><td>Other income</td><td>0.1</td><td>—</td><td>—</td></tr><tr><td>Earnings before income taxes</td><td>13.0</td><td>11.7</td><td>8.8</td></tr><tr><td>Provision for income taxes</td><td>4.1</td><td>3.7</td><td>2.6</td></tr><tr><td>Net earnings</td><td>8.9</td><td>8.0</td><td>6.2</td></tr><tr><td>Net earnings attributable to noncontrolling interests</td><td>—</td><td>—</td><td>(0.1)</td></tr><tr><td>Net earnings attributable to The Estée Lauder Companies Inc.</td><td>8.9%</td><td>8.0%</td><td>6.1%</td></tr></table>



In order to meet the demands of consumers, we continually introduce new products, support new and established products through advertising, merchandising and sampling and phase out existing products that no longer meet the needs of our consumers. The economics of developing, producing, launching, supporting and discontinuing products impact our sales and operating performance each period. The introduction of new products may have some cannibalizing effect on sales of existing products, which we take into account in our business planning.

We operate on a global basis, with the majority of our net sales generated outside the United States. Accordingly, fluctuations in foreign currency exchange rates can affect our results of operations. Therefore, we present certain net sales information excluding the effect of foreign currency rate fluctuations to provide a framework for assessing the performance of our underlying business outside the United States. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. We calculate constant currency information by translating current year results using prior year weighted-average foreign currency exchange rates.

## OVERVIEW

We believe that the best way to continue to increase stockholder value is to provide our customers and consumers with the products and services that they have come to expect from us in the most efficient and profitable manner while recognizing consumers' changing shopping habits. To be the global leader in prestige beauty, we continued to implement a long-term strategy that is guiding us through fiscal 2015. The strategy has numerous initiatives across geographic regions, product categories, brands and functions that are designed to leverage our strengths, make us more productive and grow our sales.

We believe we have a strong, diverse brand portfolio with global reach and potential, and we plan to continue building upon and leveraging our history of outstanding creativity, innovation and entrepreneurship. We have succeeded in expanding our “High-Touch” service model and will continue to look for ways to expand it in newer channels and within geographic regions. As an example, we are developing capabilities to deliver superior retailing experiences, particularly in Company-operated retail stores. We are expanding our efforts to evolve our e-commerce-based online strategy into a multi-pronged digital strategy encompassing e-commerce, m-commerce, as well as digital and social media. We are leveraging our regional organization in an effort to assure that we are locally relevant with our products, services, marketing and visual merchandising.
As part of our strategy, we are continuing to shift our category mix towards higher margin categories with greater global growth potential. Skin care, our most profitable product category, is a strategic priority for our innovation and investment spending, particularly in the Asia/Pacific region. We also focused our attention on luxury consumers across all categories and have seen an improvement in the net sales of many of our higher-end prestige products, due to an improvement in the luxury retail environment. We will also continue to build our makeup category through the introduction of new product offerings, continue expanding our hair care brands both in the salon and in other retail channels and focus our efforts to strengthen our fragrance business model.

We are strengthening our geographic presence by seeking share growth in large, image-building cities within core markets such as the United States, the United Kingdom, France, Italy and Japan. In addition, we continue to prioritize efforts to expand our presence and accelerate share growth in emerging markets such as China, Russia, the Middle East, Eastern Europe and Brazil and focus on these consumers who either buy in the travel retail channel, in stores at their destinations or when they return to their homes. We continue to expand our digital presence, which has resulted in growth in net sales of our products sold online. In North America, we continue to recognize the need to drive profitable growth in our traditional department store channel and see many benefits from the changes we have previously implemented and continue to reshape our organization to meet the needs of the changing retail landscape. At the same time, we are also expanding our presence in other channels, such as specialty retailers, Company-operated stores and online. Internationally, we continue to take actions to grow profitability in European perfumeries and pharmacies and in department stores in Asia, while emphasizing our skin care and makeup initiatives to boost our travel retail business and continuing efforts to grow our online, specialty retailer and prestige salon businesses. The travel retail business continues to be a source of sales growth and profitability. Our business in this channel is benefiting from the implementation of programs we designed to enhance consumers’ “High-Touch” experiences and convert travelers into purchasers.

We plan to continue to invest in the significant modernization of our global information systems, which includes the Strategic Modernization Initiative (“SMI”) as well as other initiatives, and continue to shift our focus from gift with purchase activities to advertising, merchandising and sampling initiatives. These initiatives should over time enable overall profitability improvements by



enhancing gross margin and supporting efficiencies in select operating expenses, while increasing our strategic investment spending.

Looking ahead to fiscal 2013, we plan to continue building on our strengths. We have a strong, diverse and highly valuable brand portfolio with global reach and potential, as well as a track record of outstanding creativity, innovation, entrepreneurship and healthy growth. We plan on continuing to bring highly innovative products to consumers and elevating our personalized “High-Touch” service model. We are dedicated to investing in select areas to improve our capabilities. Our main focuses are digital, as it is becoming an integral part of our everyday business, research and development, product innovation, consumer insight and local relevance. While our overall business is performing well, we continue to see increased weakness due to ongoing global economic uncertainties and volatility in financial markets, particularly in certain Western European countries, Korea and Australia. We believe we have and will continue to offset to some extent the impact of these events as a result of our strategy to mitigate weaknesses we find in certain areas with strengths in others. However, if adverse economic conditions or the degree of uncertainty or volatility worsen or are further prolonged, then we expect there to be a negative effect on ongoing consumer confidence, demand and spending and, as a result, our business. We will continue to monitor these and other risks that may affect our business.

## RETURNS AND CHARGES ASSOCIATED WITH RESTRUCTURING ACTIVITIES

In an effort to drive down costs and achieve synergies within our organization, in February 2009, we announced the implementation of a multi-faceted cost savings program (the "Program") to position the Company to achieve long-term profitable growth. We anticipate the Program will result in related restructuring and other charges, inclusive of cumulative charges recorded to date and through the remainder of the Program, totaling between $350 million and $450 million before taxes. While we will continue to seek cost savings opportunities, our current plans are to identify and approve specific initiatives under the Program through calendar 2012 and execute those initiatives through fiscal 2013. The total amount of charges (pre-tax) associated with the Program recorded, plus other initiatives approved through June 30, 2012, is approximately $361 million to $366 million, of which approximately $251 million to $253 million relates to restructuring charges, approximately $50 million of other costs to implement the initiatives, approximately $42 million to $45 million in sales returns and approximately $18 million in inventory write-offs. The restructuring charges are comprised of approximately $188 million to $190 million of employee-related costs, approximately $40 million of other exit costs and contract terminations (substantially all of which have resulted in or will result in cash expenditures), and approximately $23 million in non-cash asset write-offs. The total amount of cumulative charges (pretax) associated with the Program recorded from inception through June 30, 2012 was $302.6 million.

We expect that the implementation of this Program, combined with other on-going cost savings efforts, will result in savings of approximately $760 million to $785 million (Program inception through the end of fiscal 2012 is approximately $710 million) including the reduction of certain costs relative to an assumed normalized spending pattern. Our long-range forecast for operating margin reflects these anticipated savings, net of strategic reinvestments.

The Program focuses on a redesign of our organizational structure in order to integrate the Company in a more cohesive way and operate more globally across brands and functions. The principal aspect of the Program was the reduction of the workforce by approximately 2,000 employees. Specific actions taken since Program inception included:

• Resize and Reorganize the Organization—We continued the realignment and optimization of our organization to better leverage scale, improve productivity, reduce complexity and achieve cost savings in each region and across various functions. This included reduction of the workforce which occurred through the consolidation of certain functions, which we achieved through a combination of normal attrition and job eliminations, and the closure and consolidation of certain distribution and office facilities.

• Turnaround or Exit Unprofitable Operations—To improve the profitability in certain of our brands and regions, we have selectively exited certain channels of distribution, categories and markets, and have made changes to turnaround others. This included the exit from the global wholesale distribution of our Prescriptives brand, the reformulation of Ojon brand products and the exit from the global distribution of Sean John products. In connection with these activities, we incurred charges for product returns, inventory write-offs, reduction of workforce and termination of contracts.

• Outsourcing—In order to balance the growing need for information technology support with our efforts to provide the most efficient and cost effective solutions, we continued the outsourcing of certain information technology processes. We incurred costs to transition services to outsource providers and employee-related termination costs.



## Restructuring Charges

The following table presents aggregate restructuring charges related to the Program:

<table><tr><td></td><td>Employee-Related Costs</td><td>Asset Write-offs</td><td>Contract Terminations</td><td>Other Exit Costs</td><td>Total</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Fiscal 2009</td><td>$ 60.9</td><td>$ 4.2</td><td>$ 3.4</td><td>$ 1.8</td><td>$ 70.3</td></tr><tr><td>Fiscal 2010</td><td>29.3</td><td>11.0</td><td>2.3</td><td>6.2</td><td>48.8</td></tr><tr><td>Fiscal 2011</td><td>34.6</td><td>2.4</td><td>3.0</td><td>1.1</td><td>41.1</td></tr><tr><td>Fiscal 2012</td><td>37.1</td><td>1.7</td><td>12.6</td><td>2.2</td><td>53.6</td></tr><tr><td>Charges recorded through June 30, 2012</td><td>$161.9</td><td>$19.3</td><td>$21.3</td><td>$11.3</td><td>$213.8</td></tr></table>

The following table presents accrued restructuring charges and the related activities under the Program:

<table><tr><td></td><td>Employee-Related Costs</td><td>Asset Write-offs</td><td>Contract Terminations</td><td>Other Exit Costs</td><td>Total</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Charges</td><td>$ 60.9</td><td>$ 4.2</td><td>$ 3.4</td><td>$ 1.8</td><td>$ 70.3</td></tr><tr><td>Cash payments</td><td>(7.5)</td><td>—</td><td>(0.5)</td><td>(1.6)</td><td>(9.6)</td></tr><tr><td>Non-cash write-offs</td><td>—</td><td>(4.2)</td><td>—</td><td>—</td><td>(4.2)</td></tr><tr><td>Translation adjustments</td><td>0.6</td><td>—</td><td>—</td><td>—</td><td>0.6</td></tr><tr><td>Other adjustments</td><td>(2.4)</td><td>—</td><td>—</td><td>—</td><td>(2.4)</td></tr><tr><td>Balance at June 30, 2009</td><td>51.6</td><td>—</td><td>2.9</td><td>0.2</td><td>54.7</td></tr><tr><td>Charges</td><td>29.3</td><td>11.0</td><td>2.3</td><td>6.2</td><td>48.8</td></tr><tr><td>Cash payments</td><td>(49.5)</td><td>—</td><td>(5.1)</td><td>(6.0)</td><td>(60.6)</td></tr><tr><td>Non-cash write-offs</td><td>—</td><td>(11.0)</td><td>—</td><td>—</td><td>(11.0)</td></tr><tr><td>Translation adjustments</td><td>(0.8)</td><td>—</td><td>—</td><td>—</td><td>(0.8)</td></tr><tr><td>Balance at June 30, 2010</td><td>30.6</td><td>—</td><td>0.1</td><td>0.4</td><td>31.1</td></tr><tr><td>Charges</td><td>34.6</td><td>2.4</td><td>3.0</td><td>1.1</td><td>41.1</td></tr><tr><td>Cash payments</td><td>(30.6)</td><td>—</td><td>(2.4)</td><td>(1.4)</td><td>(34.4)</td></tr><tr><td>Non-cash write-offs</td><td>—</td><td>(2.4)</td><td>—</td><td>—</td><td>(2.4)</td></tr><tr><td>Translation adjustments</td><td>1.2</td><td>—</td><td>(0.1)</td><td>0.1</td><td>1.2</td></tr><tr><td>Balance at June 30, 2011</td><td>35.8</td><td>—</td><td>0.6</td><td>0.2</td><td>36.6</td></tr><tr><td>Charges</td><td>37.1</td><td>1.7</td><td>12.6</td><td>2.2</td><td>53.6</td></tr><tr><td>Cash payments</td><td>(23.6)</td><td>—</td><td>(12.4)</td><td>(2.0)</td><td>(38.0)</td></tr><tr><td>Non-cash write-offs</td><td>—</td><td>(1.7)</td><td>—</td><td>—</td><td>(1.7)</td></tr><tr><td>Translation adjustments</td><td>(1.4)</td><td>—</td><td>—</td><td>0.1</td><td>(1.3)</td></tr><tr><td>Balance at June 30, 2012</td><td>$ 47.9</td><td>$ —</td><td>$ 0.8</td><td>$ 0.5</td><td>$ 49.2</td></tr></table>

Accrued restructuring charges at June 30, 2012 are expected to result in cash expenditures funded from cash provided by operations of approximately $35 million, $12 million and $2 million in fiscal 2013, 2014 and 2015, respectively.

## Total Returns and Other Charges Associated with Restructuring Activities

The following table presents total charges associated with restructuring and other activities related to the Program:

<table><tr><td>YEAR ENDED JUNE 30</td><td>2012</td><td>2011</td><td>2010</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Sales returns (included in Net Sales)</td><td>$ 2.1</td><td>$ 4.6</td><td>$15.7</td></tr><tr><td>Cost of sales</td><td>1.5</td><td>5.8</td><td>7.9</td></tr><tr><td>Restructuring charges</td><td>53.6</td><td>41.1</td><td>48.8</td></tr><tr><td>Other charges</td><td>6.0</td><td>7.9</td><td>12.3</td></tr><tr><td>Total returns and charges associated with restructuring activities</td><td>$63.2</td><td>$59.4</td><td>$84.7</td></tr></table>

During fiscal 2012, we recorded $2.1 million reflecting sales returns (less related cost of sales of $0.3 million) and a write-off of inventory of $1.8 million associated with exiting unprofitable operations.

During fiscal 2011, we recorded $4.6 million reflecting sales returns (less related cost of sales of $1.2 million) and a write-off of inventory of $7.0 million associated with turnaround operations, primarily related to the reformulation of Ojon brand products.

During fiscal 2010, we recorded $15.7 million reflecting sales returns (less related cost of sales of $2.5 million) and $10.4 million for the write-off of inventory associated with exiting unprofitable operations, primarily related to the exit from the global wholesale distribution of the Prescriptives brand.



## GOODWILL AND OTHER INTANGIBLE
ASSET IMPAIRMENTS

During the second quarter of fiscal 2012, the Ojon reporting unit identified a potential decline in its projected results of operations, primarily resulting from a softness in the direct response television channel, which caused us to review and revise Ojon's long-term forecast. We concluded that these changes in the business of the Ojon reporting unit triggered the need for an interim impairment test of its trademarks as of December 31, 2011. These changes in circumstances were also an indicator that the carrying amount of the customer list may not be recoverable. We performed an interim impairment test for the trademarks and a recoverability test for the customer list as of December 31, 2011. For the trademarks, we concluded that the carrying value exceeded its estimated fair value, which was based on the use of a royalty rate to determine discounted projected future cash flows (“relief-from-royalty method”). As a result, we recognized an impairment charge of $6.7 million. This charge was reflected in the hair care product category and in the Americas region. We concluded that the carrying value of the customer list was recoverable.

As of our annual step-one goodwill impairment test on April 1, 2012, all reporting units' fair values substantially exceeded their respective carrying values and the fair values of all other indefinite-lived intangible assets substantially exceeded their respective carrying values, except as noted below. We determined that the carrying value of the Ojon brand trademark exceeded its estimated fair value, which was based on the relief-from-royalty method. As a result, we recognized an impairment charge of $3.3 million for the remaining carrying value of the related trademark. We also determined that the future cash flows associated with the Ojon brand customer list were less than its carrying value. As the remaining carrying value of the customer list is not recoverable, we recognized an impairment charge of $11.7 million. These impairment charges were reflected in the hair care product category and in the Americas region.

During the fourth quarter of fiscal 2012, the Darphin reporting unit experienced an unanticipated deterioration in its results of operations due to softness in its European business, which is its primary market. Based on a qualitative analysis, we reviewed and revised Darphin's long-term forecast. We concluded that these changes in circumstances triggered the need for an impairment test of the reporting unit's trademark and goodwill as of June 30, 2012. We determined that the trademark was not impaired, with the estimated fair value exceeding the carrying value by less than 2%. As of June 30, 2012, the carrying value of the trademark was $7.9 million. The estimated fair value of the trademark was based upon the relief-from-royalty method. The key assumptions that were used to determine the estimated fair value of the trademark were based on the expectation that the economic uncertainties in Europe would be temporary and not permanent in nature. If the decline in this market is more severe than we have anticipated, or other business disruptions arise, a resulting change in the key assumptions could have a negative impact on the estimated fair value of this trademark and it is possible we could recognize an impairment charge in the future. After completing the interim impairment test on the trademark, we completed step one of the impairment test for goodwill and concluded that the fair value of the Darphin reporting unit was substantially in excess of its carrying value including goodwill.

Although our consolidated financial performance exceeded our expectations for fiscal 2012, we expect global economic conditions, uncertainties and volatility to impact our business. As the duration and magnitude of the volatility of the current economic conditions remain uncertain, we will continue to monitor and evaluate the potential impact on our business and on our annual impairment testing. Accordingly, it is possible that we would recognize an impairment charge in the future with respect to goodwill, other intangible assets and/or long-lived assets.

## FISCAL 2012 AS COMPARED WITH FISCAL 2011
NET SALES

Net sales increased 10%, or $903.6 million, to $9,713.6 million, reflecting growth in all of our major product categories within each geographic region. The impact of foreign currency translation on net sales was de minimis.

The following discussions of Net Sales by Product Categories and Geographic Regions exclude the impact of returns associated with restructuring activities of $2.1 million and $4.6 million recorded during fiscal 2012 and fiscal 2011, respectively. We believe the following analysis of net sales better reflects the manner in which we conduct and view our business. In the fiscal 2012 third quarter, we established a provision for then-anticipated returns of approximately $16 million as a result of repositioning certain products due to changes in regulations related to sunscreen products in the United States. These regulations were subsequently deferred and, accordingly, we reversed this provision in the fiscal 2012 fourth quarter. As the identified products are expected to be sold in the ordinary course of business, we do not expect any significant financial impact due to these regulations.



## Product Categories

Skin Care Net sales of skin care products increased 14%, or $506.6 million, to $4,225.2 million, primarily reflecting the continued success of our strategic focus on growing this category. The recent launches of Turnaround Overnight Radiance Moisturizer, Moisture Surge Intense and Repairwear Uplifting Firming Cream from Clinique and Revitalizing Supreme Global Anti-Aging Creme from Estée Lauder contributed incremental sales of approximately $78 million, combined. Higher sales of Idealist Even Skintone Illuminator, Advanced Night Repair Synchronized Recovery Complex and Idealist Cooling Eye Illuminator from Estée Lauder and various products from La Mer and Origins contributed approximately $237 million, combined, to the increase. The relaunch of the reformulated Resilience Lift and Nutritious Vita-Mineral lines of products from Estée Lauder contributed incremental sales of approximately $187 million, combined. This growth was partially offset by approximately $112 million of lower sales from the existing line of Resilience Lift Extreme products from Estée Lauder and Cyber White EX from Clinique. Excluding the impact of foreign currency translation, skin care net sales increased 13%.

Makeup Makeup net sales increased 10%, or $326.0 million, to $3,696.8 million, primarily reflecting an increase in net sales from our makeup artist brands of approximately $218 million, combined. The recent launches of Repairwear Laser Focus All-Smooth Makeup and Lid Smoothie Antioxidant 8-Hour Eye Colour from Clinique and Doublewear Stay-In-Place Makeup from Estée Lauder contributed approximately $85 million, combined, to the increase. Higher sales of Even Better Makeup and Chubbystick Moisturizing Lip Colour balm from Clinique contributed approximately $41 million to the increase. This growth was partially offset by lower sales of Doublewear Powder Makeup and Doublewear Stay-in-Place Flawless Wear Concealer from Estée Lauder and Repairwear Anti-Aging Makeup from Clinique of approximately $34 million, combined. The impact of foreign currency translation on makeup net sales was de minimis.

Fragrance Net sales of fragrance products increased 3%, or $35.0 million, to $1,271.0 million. Incremental sales from the recent launches of Estée Lauder Sensuous Nude and DKNY Golden Delicious contributed approximately $58 million, combined, to the category. Higher sales from Jo Malone and Tom Ford fragrances contributed approximately $37 million to the increase. Partially offsetting these increases were approximately $68 million, combined, of lower sales of DKNY Be Delicious, Estée Lauder Sensuous, pureDKNY and Estée Lauder pleasures bloom. The impact of foreign currency translation on fragrance net sales was de minimis.

Hair Care Hair care net sales increased 7%, or $30.1 million, to $462.4 million, reflecting an increase in sales generated from expanded global distribution. The category also benefited from new launches including the Invati line of products from Aveda and Concen-Straight from Bumble and bumble. Partially offsetting these increases were lower net sales of Ojon brand products due, in part, to softness in our business in the direct response television channel. The impact of foreign currency translation on hair care net sales was de minimis.

## Geographic Regions

Net sales in the Americas increased 8%, or $304.8 million, to $4,101.1 million. The increase during the current year was primarily attributable to growth in the United States of approximately $257 million, primarily due to new product offerings from our heritage and makeup artist brands, as well as an increase in sales of our higher-end prestige skin care products. These increases reflect, in part, our ongoing efforts to work with retailers in the U.S. department store channel on strengthening the “High-Touch” concepts used to help market our products. Net sales in Latin America increased approximately $30 million, primarily reflecting growth in Brazil and Chile. Net sales in Canada increased approximately $19 million, primarily reflecting increased sales from our heritage and makeup artist brands. The impact of foreign currency translation on net sales in the Americas was de minimis.

In Europe, the Middle East & Africa, net sales increased 11%, or $345.6 million, to $3,603.2 million, due to growth in each major product category reflecting our strategy to strengthen our geographic presence and continue to succeed in the travel retail channel. Due to the economic uncertainties in Europe, our business in some countries experienced slower than anticipated net sales growth. Accordingly, we remain cautious in the near term. Net sales increases of approximately $313 million were driven by our travel retail business, the United Kingdom, the Middle East, Germany and Italy. The net sales improvement in our travel retail business reflected an increase in global airline passenger traffic, new points of distribution and benefits of programs designed to enhance consumers’ “High-Touch” experiences and convert travelers into purchasers. The growth in the United Kingdom, Germany and Italy was primarily attributable to successful launches of skin care and makeup products from certain of our heritage brands, as well as higher combined sales from our makeup artist brands. Net sales in the Middle East benefited from a new fragrance launch designed



specifically for consumers there, in line with our strategy to be locally relevant. These increases were partially offset by lower net sales in Russia, Spain and the Balkans of approximately $25 million, combined. The lower net sales in Russia primarily reflected destocking associated with ongoing challenges with a certain customer. Net sales in Spain and the Balkans declined primarily due to difficult economic environments. Excluding the impact of foreign currency translation, net sales in Europe, the Middle East & Africa increased 12%.

Net sales in Asia/Pacific increased 14%, or $250.7 million, to $2,011.4 million, reflecting growth in each major product category and from most countries in the region, several of which had a significant favorable impact of foreign currency translation. Net sales of approximately $193 million were driven by China, Hong Kong and Thailand, combined, primarily reflecting strong sales of skin care and makeup products. While we gained share in the prestige business in China, we are cautious that macroeconomic factors may temper the future growth trend of the Chinese economy. Our businesses in Japan, Korea and Australia continued to be challenged due to difficult economic conditions, but we reported net sales gains of approximately $37 million, combined, which for both Japan and Australia were generated predominantly from the strengthening of their respective currencies. Excluding the impact of foreign currency translation, Asia/Pacific net sales increased 11%.

We strategically stagger our new product launches by geographic market, which may account for differences in regional sales growth.

## COST OF SALES

Cost of sales as a percentage of total net sales decreased to 20.5% as compared with 22.0% in the prior year. This improvement primarily reflected our efforts in connection with the Program, including strategic changes in the mix of our business and pricing of approximately 140 basis points, favorable manufacturing variances of approximately 10 basis points and the favorable effect of exchange rates of approximately 10 basis points. These improvements were partially offset by an increase in obsolescence charges of approximately 10 basis points.

Since certain promotional activities are a component of sales or cost of sales and the timing and level of promotions vary with our promotional calendar, we have experienced, and expect to continue to experience, fluctuations in the cost of sales percentage. In addition, future cost of sales mix may be impacted by the inclusion of potential new brands or channels of distribution that have margin and product cost structures different from those of our current mix of business.

## OPERATING EXPENSES

Operating expenses as a percentage of net sales increased to 66.0% as compared with 65.6% in the prior year. This change reflected increased spending in advertising, merchandising and sampling costs in line with our strategy of approximately 80 basis points, higher costs related to stock-based compensation of approximately 20 basis points, an increase in general and administrative costs of approximately 10 basis points and higher charges associated with restructuring activities of approximately 10 basis points. Partially offsetting these changes were lower selling and shipping costs as a percentage of net sales of approximately 50 basis points, lower charges associated with goodwill and other intangible asset impairments of approximately 20 basis points and a favorable change in foreign exchange transactions of approximately 10 basis points.

Changes in advertising, merchandising and sampling spending result from the type, timing and level of activities related to product launches and rollouts, as well as the markets being emphasized. We anticipate higher investment spending on global advertising, merchandising and sampling to support major launches and existing franchises for fiscal 2013.

## OPERATING RESULTS

Operating income increased 20%, or $222.3 million, to $1,311.7 million. Operating margin increased to 13.5% of net sales as compared with 12.4% in the prior year, reflecting our higher gross margin, partially offset by the increase in our operating expense margin, as previously discussed. The following discussions of Operating Results by Product Categories and Geographic Regions exclude the impact of total returns and charges associated with restructuring activities of $63.2 million, or 0.7% of net sales, in fiscal 2012 and $59.4 million, or 0.7% of net sales, in fiscal 2011. We believe the following analysis of operating results better reflects the manner in which we conduct and view our business. In the fiscal 2012 third quarter, we established a provision for then-anticipated returns of approximately $16 million as a result of repositioning certain products due to changes in regulations related to sunscreen products in the United States. These regulations were subsequently deferred and, accordingly, we reversed this provision in the fiscal 2012 fourth quarter. As the identified products are expected to be sold in the ordinary course of business, we do not expect any significant financial impact due to these regulations.



## Product Categories

Skin care operating income increased 25%, or $151.6 million, to $746.7 million, primarily reflecting improved results from higher-margin product launches from certain of our heritage brands, as well as increased results from higher-end prestige skin care products. Makeup operating income increased 9%, or $44.2 million, to $538.0 million, primarily reflecting improved results from our makeup artist brands. Both our skin care and makeup categories were impacted by higher investment spending on global advertising, merchandising and sampling to support major launches and existing franchises in line with our strategy. Fragrance operating income increased 24%, or $19.4 million, to $100.1 million, primarily reflecting improved cost of goods and a more strategically focused approach to spending from our heritage brands as part of our strategy to improve profitability. Hair care operating results increased over 100%, or $21.3 million, to $12.2 million, primarily reflecting expanded global distribution, improved results driven by new product launches, as well as a favorable comparison to the prior year which was impacted by higher goodwill and other intangible asset impairment charges of $15 million.

## Geographic Regions

Operating income in the Americas increased 18%, or $43.5 million, to $288.4 million, primarily reflecting improved results from our heritage and makeup artist brands that were driven by improved category mix, as well as a favorable comparison to the prior year which was impacted by higher goodwill and other intangible asset impairment charges of $16 million. Partially offsetting these improvements was the level of strategic investment spending in the current year.

In Europe, the Middle East & Africa, operating income increased 14%, or $94.4 million, to $746.3 million. Higher results from our travel retail business and the Middle East totaled approximately $109 million, combined. Partially offsetting these improvements were lower results in Russia and France of approximately $28 million, combined. The lower results in Russia primarily reflected strategic investment spending to support this emerging market, coupled with a decrease in sales as a result of destocking associated with ongoing challenges with a certain customer. The lower results in France primarily reflected strategic investment spending.

In Asia/Pacific, operating income increased 35%, or $88.2 million, to $340.2 million. Most countries in the region reported higher operating results, led by approximately $70 million in Hong Kong, China, Japan and Korea, combined.

## INTEREST EXPENSE, NET

Net interest expense was $61.1 million as compared with $63.9 million in the prior year. Interest expense decreased due to the replacement of our 6.00% Senior Notes in January 2012 with commercial paper.

## PROVISION FOR INCOME TAXES

The provision for income taxes represents U.S. federal, foreign, state and local income taxes. The effective rate differs from the federal statutory rate primarily due to the effect of state and local income taxes, the taxation of foreign income and income tax reserve adjustments, which represent changes in our net liability for unrecognized tax benefits including tax settlements and lapses of the applicable statutes of limitations. Our effective tax rate will change from year to year based on recurring and non-recurring factors including, but not limited to, the geographical mix of earnings, enacted tax legislation, state and local income taxes, tax reserve adjustments, the ultimate disposition of deferred tax assets relating to stock-based compensation and the interaction of various global tax strategies.

The effective income tax rate for fiscal 2012 was 31.8% as compared with 31.4% in the prior year. The increase in the effective income tax rate of 40 basis points was principally due to a decrease in favorable tax reserve adjustments as compared with the prior year partially offset by a lower effective tax rate related to our foreign operations.

## NET EARNINGS ATTRIBUTABLE TO

## THE ESTÉE LAUDER COMPANIES INC.

Net earnings attributable to The Estée Lauder Companies Inc. as compared with fiscal 2011 increased 22%, or $156.1 million, to $856.9 million and diluted net earnings per common share increased 24% from $1.74 to $2.16. The results in the current year include the impact of total returns and charges associated with restructuring activities of $44.1 million, after tax, or $1.11 per diluted common share. The results in fiscal 2011 include the impact of total returns and charges associated with restructuring activities of $41.7 million, after tax, or $0.10 per diluted common share.

## FISCAL 2011 AS COMPARED WITH FISCAL 2010

## NET SALES

Net sales increased 13%, or $1,014.2 million, to $8,810.0 million, reflecting increases in all geographic regions and product categories. Excluding the impact of foreign currency translation, net sales increased 12%. During fiscal 2010, we undertook an initiative to identify certain underperforming stock keeping units (“SKUs”) for the purposes



of evaluating their relevance to our long-term perfumery strategy in the Europe, the Middle East & Africa region. Based on this evaluation, we decided to discontinue certain of these products in perfumeries and recorded a charge of approximately $31 million to reflect the anticipated returns of products from participating retailers. This resulted in a favorable comparison with fiscal 2010.

The following discussions of Net Sales by Product Categories and Geographic Regions exclude the impact of returns associated with restructuring activities of $4.6 million and $15.7 million recorded during fiscal 2011 and fiscal 2010, respectively. We believe the following analysis of net sales better reflects the manner in which we conduct and view our business.

## Product Categories

Skin Care Net sales of skin care products increased 15%, or $491.5 million, to $3,718.6 million, reflecting the success of our strategic focus on growing this category. The fiscal 2011 launches of the Re-Nutriv Ultimate Lift Age-Correcting and Hydrationist Collections, Idealist Even Skintone Illuminator and Idealist Cooling Eye Illuminator from Estée Lauder contributed incremental sales of approximately $102 million, combined. Also contributing incremental sales to the category were the fiscal 2011 launches of Repairwear Laser Focus Wrinkle & UV Damage Corrector from Clinique and the Plantscription line of products from Origins of approximately $88 million, combined. The fiscal 2011 launches of The Eye Balm Intense and The Radiant Serum from La Mer contributed additional sales of approximately $25 million, combined. Increased sales of Advanced Night Repair Eye Synchronized Complex from Estée Lauder and Even Better Clinical Dark Spot Corrector from Clinique, which were launched in fiscal 2010, contributed approximately $232 million to the net sales growth. Higher sales of the Time Zone line of products from Estée Lauder, Derma White Clinical from Clinique and The Regenerating Serum from La Mer contributed approximately $48 million to the increase. These increases were partially offset by approximately $108 million of lower sales from existing products in the Advanced Night Repair line from Estée Lauder and Cyber White EX from Clinique. Excluding the impact of foreign currency translation, skin care net sales increased 13%.

Makeup Makeup net sales increased 13%, or $392.6 million, to $3,370.8 million. The increase in makeup net sales primarily reflected higher net sales from our makeup artist brands and the inclusion of Smashbox of approximately $322 million, combined. The fiscal 2011 launches of Pure Color eyeshadow products and Pure Color Long Lasting Lipstick from Estée Lauder and Redness Solutions Makeup from Clinique contributed approximately $57 million, to the increase. The higher results also reflected the favorable comparison to fiscal 2010 which included a charge related to our long-term perfumery strategy, as previously discussed, of approximately $27 million. These increases were partially offset by lower sales of Prescriptives products due to the exit from the global wholesale distribution of the brand in fiscal 2010, as well as lower sales of Superfit Makeup from Clinique and Resilience Lift Extreme Makeup from Estée Lauder of approximately $45 million, combined. Excluding the impact of foreign currency translation, makeup net sales increased 12%.

Fragrance Net sales of fragrance products increased 9%, or $99.1 million, to $1,236.0 million. Incremental sales from the fiscal 2011 launches of Estée Lauder pleasures bloom and Hilfiger Loud for Her contributed approximately $34 million to the category. Higher sales of Coach Poppy, pureDKNY and various Jo Malone and Tom Ford fragrances contributed approximately $63 million to the increase. Partially offsetting these increases were lower sales of DKNY Delicious Candy Apples, Estée Lauder Sensuous and I Am King Sean John of approximately $18 million, combined. While results in fiscal 2011 reflected the implementation of our long-term strategy for the category, we continue to expect challenges due to competitive dynamics. Excluding the impact of foreign currency translation, fragrance net sales increased 8%.

Hair Care Hair care net sales increased 4%, or $18.4 million, to $432.3 million, primarily reflecting the fiscal 2011 launches of Be Curly Style-Prep and Control Force from Aveda. The category also benefited from net sales generated from expanded global distribution. These increases were partially offset by the reformulation of Ojon brand products, which was relaunched in the fourth quarter of fiscal 2011. The impact of foreign currency translation on hair care net sales was de minimis.

## Geographic Regions

Net sales in the Americas increased 10%, or $354.2 million, to $3,796.3 million. The increase in fiscal 2011 was primarily attributable to growth in the United States and Canada from our heritage and makeup artist brands, which benefited from an improved retail environment, new skin care and makeup product offerings and an increase in sales of higher-end prestige skin care products. Net sales also reflected the addition of the Smashbox brand to our portfolio. While partially offset by the exit from the global wholesale distribution of the Prescriptives brand and the fiscal 2011 reformulation of Ojon brand products, all of these factors contributed to higher net sales in the United States and Canada of



approximately $328 million. We continued to work with retailers in the U.S. department store channel on strengthening the “High-Touch” concepts used to help market our products. Net sales in Latin America increased approximately $26 million, reflecting growth in emerging markets such as Brazil. The growth in this region was partially offset by the impact of unfavorable exchange rates in Venezuela. The impact of foreign currency translation on the Americas net sales was de minimis.

In Europe, the Middle East & Africa, net sales increased 14%, or $398.3 million, to $3,257.6 million, due to growth from our travel retail business and from most countries in the region and from each product category. This reflected our strategy to strengthen our geographic presence and to succeed in the travel retail channel. Approximately $306 million of the increased net sales came from our travel retail business, the United Kingdom, Russia, the Middle East, South Africa and France. This was attributable to improved retail environments, successful launches of skin care products and higher combined sales from our makeup artist brands. The net sales improvement in our travel retail business also reflected an increase in global airline passenger traffic, new points of distribution and benefits of programs designed to enhance consumers' "High-Touch" experiences and convert travelers into purchasers. The higher results also reflect the favorable comparison to fiscal 2010 which included a charge related to our long-term perfumery strategy of approximately $31 million, as previously discussed. Partially offsetting these increases were lower net sales of approximately $13 million in the Balkans and Spain, primarily reflecting the economic situation in those markets. The impact of foreign currency translation on Europe, the Middle East & Africa net sales was de minimis.

Net sales in Asia/Pacific increased 17%, or $250.6 million, to $1,760.7 million, reflecting growth from all countries in the region and each product category. This reflected our strategy to strengthen and expand our geographic presence in Asia, particularly in China. Approximately $181 million of this increase was generated in China, Hong Kong, Korea and Taiwan primarily reflecting strong sales of skin care products. Our businesses in Japan and Australia continued to be challenged due to difficult economic conditions, but they reported net sales gains of approximately $33 million, which were generated from the strengthening of their respective currencies. The region also benefited from the favorable impact of foreign currency translation. Excluding the impact of foreign currency translation, Asia/Pacific net sales increased 10%.
We strategically stagger our new product launches by geographic market, which may account for differences in regional sales growth.

## COST OF SALES

Cost of sales as a percentage of total net sales decreased to 22.0% as compared with 23.5% in fiscal 2010. This improvement primarily reflected our efforts in connection with the Program, including favorable changes in the mix of our business of approximately 70 basis points and favorable manufacturing variances of 30 basis points. Also contributing to the improvements of cost of sales margin was the favorable effect of exchange rates of 30 basis points and a decrease in obsolescence charges of approximately 20 basis points.

## OPERATING EXPENSES

Operating expenses as a percentage of net sales decreased to 65.6% as compared with 66.4% in fiscal 2010, and reflects the impact of the strong growth in net sales during fiscal 2011. This improvement primarily reflected lower selling and shipping costs as a percentage of net sales of approximately 120 basis points due to various cost containment efforts implemented as part of the Program and a strategically focused approach to spending. Also contributing to the improvement were a decrease in general and administrative costs as a percentage of net sales of 40 basis points, lower charges associated with restructuring activities of 20 basis points, lower charges associated with intangible asset impairments of 20 basis points and lower net losses from foreign exchange transactions of 10 basis points. Partially offsetting these improvements were increased spending in advertising, merchandising and sampling costs in line with our strategy of 120 basis points and higher costs related to stock-based compensation of approximately 30 basis points.

Changes in advertising, merchandising and sampling spending result from the type, timing and level of activities related to product launches and rollouts, as well as the markets being emphasized.

## OPERATING RESULTS

Operating income increased 38%, or $299.5 million, to $1,089.4 million. Operating margin improved to 12.4% of net sales as compared with 10.1% in fiscal 2010, reflecting our higher gross margin and the decrease in our operating expense margin, as previously discussed. The following discussions of Operating Results by Product Categories and Geographic Regions exclude the impact of total returns and charges associated with restructuring



activities of $59.4 million, or 0.7% of net sales, in fiscal 2011 and $84.7 million, or 1.1% of net sales, in fiscal 2010. We believe the following analysis of operating results better reflects the manner in which we conduct and view our business.

## Product Categories

All product categories benefited from initiatives we implemented as part of the Program including a more strategically focused approach to spending. Skin care operating income increased 37%, or $160.8 million, to $595.1 million, primarily reflecting improved results from all of our heritage brands driven by increased net sales from higher-margin product launches. Makeup operating income increased 18%, or $77.0 million, to $493.8 million, primarily reflecting improved results from our makeup artist brands and from our larger heritage brands. The higher results also reflected the favorable comparison to fiscal 2010 which included a charge to the category related to our long-term perfumery strategy, as previously discussed, of approximately $30 million. Fragrance operating income increased over 100%, or $54.4 million, to $80.7 million, primarily reflecting higher net sales from Estée Lauder and designer fragrances driven by fiscal 2011 product launches, improved cost of goods and a more strategically focused approach to spending as part of our strategy to improve profitability. Hair care operating results decreased 47%, or $2.9 million, reflecting the reformulation and relaunch of Ojon brand products in the fourth quarter of fiscal 2011. This decrease was partially offset by higher results from Aveda. The category also reflected goodwill and other intangible asset impairment charges of $33 million as compared with $36 million in fiscal 2010.

## Geographic Regions

Operating results in each of our geographic regions benefited from the initiatives we implemented as part of the Program and a more strategically focused approach to spending, as well as significant improvement in cost of sales from favorable product mix and enhanced inventory management, resulting in significant improvements in their operating income.

Operating income in the Americas increased 52%, or $83.4 million, to $244.9 million, reflecting strong sales from our heritage and makeup artist brands, partially offset by incremental spending in line with our strategy.

In Europe, the Middle East & Africa, operating income increased 30%, or $151.1 million, to $651.9 million, reflecting higher results from our travel retail business, Russia, the United Kingdom and the Middle East of approximately $94 million, combined. Partially offsetting these improvements were lower results in the Balkans and Spain of approximately $9 million, combined. The higher results also reflected a favorable comparison to fiscal 2010 which included a charge related to our long-term perfumery strategy, as previously discussed, of approximately $34 million.

In Asia/Pacific, operating income increased 19%, or $39.7 million, to $252.0 million. Virtually all countries in the region reported higher operating results, led by approximately $46 million in China, Hong Kong, Taiwan and Malaysia, combined. Partially offsetting these increases were lower operating results of approximately $7 million in Japan and Australia.

## INTEREST EXPENSE, NET

Net interest expense was $63.9 million as compared with $74.3 million in fiscal 2010. Interest expense decreased primarily due to a reduction of debt balances that resulted from the $200 million debt tender offer we completed in the fourth quarter of fiscal 2010.

## INTEREST EXPENSE ON DEBT EXTINGUISHMENT

During the fourth quarter of fiscal 2010, we completed a cash tender offer for $130.0 million principal amount of our 2012 Senior Notes at a price of 108.500% of the principal amount and for $69.9 million principal amount of our 2013 Senior Notes at a tender price of 118.813% of the principal amount. We recorded a pre-tax expense on the extinguishment of debt of $27.3 million representing the tender premium of $24.2 million, the pro-rata write-off of $2.4 million of unamortized terminated interest rate swap, issuance costs and debt discount, and $0.7 million in tender offer costs associated with both series of notes.

## PROVISION FOR INCOME TAXES

The provision for income taxes represents U.S. federal, foreign, state and local income taxes. The effective rate differs from the federal statutory rate primarily due to the effect of state and local income taxes, the taxation of foreign income and income tax reserve adjustments, which represent changes in our net liability for unrecognized tax benefits including tax settlements and lapses of the applicable statutes of limitations. Our effective tax rate will change from year to year based on recurring and non-recurring factors including, but not limited to, the geographical mix of earnings, enacted tax legislation, state and local income taxes, tax reserve adjustments, the ultimate disposition of deferred tax assets relating to stock-based compensation and the interaction of various global tax strategies.

The effective income tax rate for fiscal 2011 was 31.4% as compared with 29.9% in fiscal 2010. The increase in



the effective income tax rate of 150 basis points was principally due to a decrease in favorable tax reserve adjustments as compared with fiscal 2010.

## NET EARNINGS ATTRIBUTABLE TO

## THE ESTÉE LAUDER COMPANIES INC.

Net earnings attributable to The Estée Lauder Companies Inc. as compared with fiscal 2010 increased 47%, or $222.5 million, to $700.8 million and diluted net earnings per common share increased 46% from $1.19 to $1.74. The results in fiscal 2011 included the impact of total returns and charges associated with restructuring activities of $41.7 million, after tax, or $0.10 per diluted common share. The results in fiscal 2010 included the impact of total returns and charges associated with restructuring activities of $55.9 million, after tax, or $0.14 per diluted common share and interest expense on debt extinguishment of $17.5 million, after tax, or $0.04 per diluted common share.

## FINANCIAL CONDITION

## LIQUIDITY AND CAPITAL RESOURCES

## Overview

Our principal sources of funds historically have been cash flows from operations, borrowings pursuant to our commercial paper program, borrowings from the issuance of long-term debt and committed and uncommitted credit lines provided by banks and other lenders in the United States and abroad. At June 30, 2012, we had cash and cash equivalents of $1,347.7 million compared with $1,253.0 million at June 30, 2011. Our cash and cash equivalents are maintained at a number of financial institutions. As of June 30, 2012, approximately 17% of the total balance was insured by governmental agencies. To mitigate the risk of uninsured balances, we select financial institutions based on their credit ratings and financial strength and perform ongoing evaluations of these institutions to limit our concentration risk exposure.

Our business is seasonal in nature and, accordingly, our working capital needs vary. From time to time, we may enter into investing and financing transactions that require additional funding. To the extent that these needs exceed cash from operations, we could, subject to market conditions, issue commercial paper, issue long-term debt securities or borrow under our revolving credit facilities.

Based on past performance and current expectations, we believe that cash on hand, cash generated from operations, available credit lines and access to credit markets will be adequate to support currently planned business operations, information systems enhancements, capital expenditures, potential stock repurchases, commitments and other contractual obligations on both a near-term and long-term basis. Our cash and cash equivalents balance at June 30, 2012 includes approximately $708 million of cash in offshore jurisdictions associated with our permanent reinvestment strategy. We do not believe that the indefinite reinvestment of these funds offshore impairs our ability to meet our domestic debt or working capital obligations. If these indefinitely reinvested earnings were repatriated into the United States as dividends, we would be subject to additional taxes.

The effects of inflation have not been significant to our overall operating results in recent years. Generally, we have been able to introduce new products at higher prices, increase prices and implement other operating efficiencies to sufficiently offset cost increases, which have been moderate.

## Credit Ratings

Changes in our credit ratings will likely result in changes in our borrowing costs. Our credit ratings also impact the cost of our revolving credit facility as discussed below. Downgrades in our credit ratings may reduce our ability to issue commercial paper and/or long-term debt and would likely increase the relative costs of borrowing. A credit rating is not a recommendation to buy, sell, or hold securities, is subject to revision or withdrawal at any time by the assigning rating organization, and should be evaluated independently of any other rating. As of August 13, 2012, our commercial paper is rated A-1 by Standard & Poor’s and P-1 by Moody’s and our long-term debt is rated A with a stable outlook by Standard & Poor’s and A2 with a stable outlook by Moody’s.



## Debt

At June 30, 2012, our outstanding borrowings were as follows:

<table><tr><td></td><td>Long-term Debt</td><td>Current Debt</td><td>Total Debt</td></tr><tr><td>(\( in millions)</td><td></td><td></td><td></td></tr><tr><td>6.00% Senior Notes, due May 15, 2037 (“2037 Senior Notes”)(1)(4)</td><td>$ 296.4</td><td>$ —</td><td>$ 296.4</td></tr><tr><td>5.75% Senior Notes, due October 15, 2033 (“2033 Senior Notes”)(2)</td><td>197.7</td><td>—</td><td>197.7</td></tr><tr><td>5.55% Senior Notes, due May 15, 2017 (“2017 Senior Notes”)(3)(4)</td><td>334.9</td><td>—</td><td>334.9</td></tr><tr><td>7.75% Senior Notes, due November 1, 2013 (“2013 Senior Notes”)(4)</td><td>230.1</td><td>—</td><td>230.1</td></tr><tr><td>Commercial paper maturing through July 2012 (0.18% average interest rate)</td><td>—</td><td>200.0</td><td>200.0</td></tr><tr><td>Other borrowings</td><td>10.0</td><td>19.0</td><td>29.0</td></tr><tr><td></td><td>$1,069.1</td><td>$219.0</td><td>$1,288.1</td></tr></table>

(1) Consists of $300.0 million principal and unamortized debt discount of $3.6 million.

(2) Consists of $200.0 million principal and unamortized debt discount of $2.3 million.

(3) Consists of $300.0 million principal, unamortized debt discount of $0.2 million and a $35.1 million adjustment to reflect the fair value of terminated interest rate swaps.

(4) As of June 30, 2012, we were in compliance with all restrictive covenants, including limitations on indebtedness and liens, and expect continued compliance.

In August 2012, we issued $250.0 million of 2.35% Senior Notes due August 15, 2022 (“2022 Senior Notes”) and $250.0 million of 3.70% Senior Notes due August 15, 2042 (“2042 Senior Notes”) in a public offering. The 2022 Senior Notes were priced at 99.911% with a yield of 2.360%. The 2042 Senior Notes were priced at 99.567% with a yield of 3.724%. Interest payments on both notes are required to be made semi-annually on February 15 and August 15, commencing February 15, 2013. On August 2, 2012, we called for redemption all of the outstanding 2013 Senior Notes on September 4, 2012. We intend to use approximately $250 million of the net proceeds of the offering for the redemption, of which approximately $18 million to $20 million represents debt extinguishment costs, and to use the remaining amounts for general corporate purposes.

We have a $750.0 million commercial paper program under which we may issue commercial paper in the United States. At June 30, 2012, we had $200.0 million of commercial paper outstanding, which we may refinance on a periodic basis as it matures at then-prevailing market interest rates. At August 13, 2012, we had $200.0 million of commercial paper outstanding. We also have $164.9 million in additional uncommitted credit facilities, of which $7.1 million was used as of June 30, 2012. We do not anticipate difficulties in securing this form of working capital financing.

We have a $1.0 billion senior unsecured revolving credit facility that expires on July 14, 2015 (the “Facility”). The Facility may be used to provide credit support for our commercial paper program and for general corporate purposes. Up to the equivalent of $250 million of the Facility is available for multi-currency loans. The interest rate on borrowings under the Facility is based on LIBOR or on the higher of prime, which is the rate of interest publicly announced by the administrative agent, or 1½% plus the Federal funds rate. We incurred costs of approximately $1 million to establish the Facility which are being amortized over the term of the Facility. The Facility has an annual fee of $0.7 million, payable quarterly, based on our current credit ratings. The Facility also contains a cross-default provision whereby a failure to pay other material financial obligations in excess of $100.0 million (after grace periods and absent a waiver from the lenders) would result in an event of default and the acceleration of the maturity of any outstanding debt under this facility. At June 30, 2012, no borrowings were outstanding under this agreement.

We have a fixed rate promissory note agreement with a financial institution pursuant to which we may borrow up to $150.0 million in the form of loan participation notes through one of our subsidiaries in Europe. The interest rate on borrowings under this agreement is at an all-in fixed rate determined by the lender and agreed to by us at the date of each borrowing. At June 30, 2012, no borrowings were outstanding under this agreement. Debt issuance costs incurred related to this agreement were de minimis.

We have an overdraft borrowing agreement with a financial institution pursuant to which our subsidiary in Turkey may be credited to satisfy outstanding negative daily balances arising from its business operations. In June 2012, we reduced the maximum total available balance outstanding of the overdraft borrowing agreement from 40.0 million Turkish lira ($22.0 million at the exchange rate at June 30, 2012) to 25.0 million Turkish lira ($13.8 million at the exchange rate at June 30, 2012). The interest



rate applicable to each such credit shall be up to a maximum of 175 basis points per annum above the spot rate charged by the lender or the lender's floating call rate agreed to by us at each borrowing. There were no debt issuance costs incurred related to this agreement. The outstanding balance at June 30, 2012 was 12.9 million Turkish lira ($7.1 million at the exchange rate at June 30, 2012) and is classified as short-term debt in our consolidated balance sheet.

Total debt as a percent of total capitalization (excluding noncontrolling interests) was 32% at June 30, 2012 and June 30, 2011.

## Cash Flows

Net cash provided by operating activities was $1,126.7 million, $1,027.0 million and $956.7 million in fiscal 2012, 2011 and 2010, respectively. The increase in cash flows from operating activities as compared with fiscal 2011 was primarily driven by an increase in net earnings, favorable levels of accounts payable, primarily due to the timing of payments, and a decrease in the levels of inventory. These improvements were partially offset by the change in other liabilities, primarily due to the timing of payments and costs related to employee compensation, advertising, merchandising and sampling, and payroll and other taxes, as well as an increase in accounts receivable balances primarily due to the timing of shipments. Cash flows from operating activities increased in fiscal 2011 as compared with fiscal 2010, primarily reflecting the increase in net earnings and the timing and level of accrued income taxes. This increase was partially offset by an increase in accounts receivable balances due to timing of collections, as well as lower levels of accounts payable due to the timing of payments and an increase in inventory in line with forecasted sales activity and to ensure acceptable levels of service.

Net cash used for investing activities was $428.3 million, $606.9 million and $281.4 million in fiscal 2012, 2011 and 2010, respectively. The decrease in cash flows used for investing activities as compared with fiscal 2011 primarily reflected a favorable comparison with the fiscal 2011 acquisition of Smashbox Cosmetics, partially offset by an increase in capital expenditures for counters and leasehold improvements. The increase in cash flows used for investing activities during fiscal 2011 as compared with fiscal 2010 primarily reflected the fiscal 2011 acquisition of Smashbox Cosmetics, as well as higher cash payments for counters and computer hardware and software.

Net cash used for financing activities was $585.1 million, $313.1 million and $406.1 million in fiscal 2012, 2011 and 2010, respectively. The change in net cash used for financing activities as compared with fiscal 2011 primarily reflected an increase in treasury stock purchases, lower net proceeds from employee stock transactions and an increase in the payment of dividends during the current year as a result of an increase in the annual dividend rate. The repayment of the 2012 Senior Notes during the current year was offset by proceeds from the issuance of short-term commercial paper. Subsequent to June 30, 2012, we purchased approximately 2.0 million additional shares of Class A Common Stock for $104.2 million pursuant to our share repurchase program. The decrease in net cash flows used for financing activities in fiscal 2011 reflected a favorable comparison with fiscal 2010 which included the partial redemption of the 2012 and 2013 Senior Notes. This favorable comparison was offset by an increase in treasury stock purchases and an increase in the common stock dividends during fiscal 2011.

## Dividends

On November 3, 2011, our Board of Directors declared a two-for-one stock split on our Class A and Class B Common Stock to be effected in the form of a stock dividend. As a result of this action, one additional share was issued on January 20, 2012 for each share held by stockholders of record at the close of business on January 4, 2012. The stock split did not have an impact on our consolidated financial position or results of operations. Share and per share amounts have been restated for the stock split.

During the current year, we paid dividends on Class A and Class B Common Stock of $5.525 per share (or an aggregate of $204.0 million) as compared with $3.375 per share (or an aggregate of $148.0 million) in the prior year.

## Pension and Post-retirement Plan Funding

Several factors influence the annual funding requirements for our pension plans. For the U.S. Qualified Plan, our funding policy consists of annual contributions at a rate that provides for future plan benefits and maintains appropriate funded percentages. Such contribution is not less than the minimum required by the Employee Retirement Income Security Act of 1974, as amended, (“ERISA”) and subsequent pension legislation, and is not more than the maximum amount deductible for income tax purposes. For each international plan, our funding policies are determined by local laws and regulations. In addition, amounts necessary to fund future obligations under these plans could vary depending on estimated assumptions as detailed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.” The effect of our pension plan funding on future operating results will depend on economic conditions, employee demographics, mortality rates, the number of participants electing to take lump-sum distributions, investment performance and funding decisions.



For the U.S. Qualified Plan, we maintain an investment strategy of matching the duration of a substantial portion of the plan assets with the duration of the underlying plan liabilities. This strategy assisted in maintaining a funded ratio of more than 100% as of June 30, 2012. For fiscal 2012 and 2011, we met or exceeded all minimum contributions required by ERISA for the U.S. Qualified Plan. These cash contributions to the U.S. Qualified Plan totaled $75.6 million and $35.6 million during fiscal 2012 and 2011, respectively. We made discretionary cash contributions to our post-retirement medical plan in the United States of $9.4 million and $8.4 million during fiscal 2012 and 2011, respectively. As we continue to monitor the performance of our plan assets, we may decide to make discretionary cash contributions to the U.S. Qualified Plan or our post-retirement plan in the United States during fiscal 2013, but do not have plans to do so at this time.

For fiscal 2012 and 2011, we made benefit payments under our non-qualified domestic noncontributory pension plan of $6.6 million and $8.8 million, respectively. We expect to make benefit payments under this plan during fiscal 2013 of approximately $10.8 million. For fiscal 2012 and 2011, we made cash contributions to our international defined benefit pension plans of $29.7 million and $34.1 million, respectively. We expect to make contributions under these plans during fiscal 2013 of approximately $24.7 million.

## Commitments and Contingencies

Certain of our business acquisition agreements include “earn-out” provisions. These provisions generally require that we pay to the seller or sellers of the business additional amounts based on the performance of the acquired business. Since the size of each payment depends upon performance of the acquired business, we do not expect that such payments will have a material adverse impact on our future results of operations or financial condition.

For additional contingencies refer to “Note 14—Commitments and Contingencies” of Notes to Consolidated Financial Statements.

## Contractual Obligations

The following table summarizes scheduled maturities of our contractual obligations for which cash flows are fixed and determinable as of June 30, 2012:

<table><tr><td rowspan="2"></td><td rowspan="2">Total</td><td colspan="5">Payments Due in Fiscal</td><td rowspan="2">Thereafter</td></tr><tr><td>2013</td><td>2014</td><td>2015</td><td>2016</td><td>2017</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Debt service \( ^{(1)} \)</td><td>$2,066.7</td><td>$ 286.2</td><td>$291.6</td><td>$ 46.6</td><td>$ 46.4</td><td>$346.3</td><td>$1,049.6</td></tr><tr><td>Operating lease commitments \( ^{(2)} \)</td><td>1,537.9</td><td>266.6</td><td>243.5</td><td>209.3</td><td>182.8</td><td>153.5</td><td>482.2</td></tr><tr><td>Unconditional purchase obligations \( ^{(3)} \)</td><td>2,178.6</td><td>1,130.0</td><td>213.1</td><td>197.5</td><td>185.0</td><td>114.5</td><td>338.5</td></tr><tr><td>Gross unrecognized tax benefits and interest—current \( ^{(4)} \)</td><td>0.9</td><td>0.9</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Total contractual obligations</td><td>$5,784.1</td><td>$1,683.7</td><td>$748.2</td><td>$453.4</td><td>$414.2</td><td>$614.3</td><td>$1,870.3</td></tr></table>

(1) Includes long-term and short-term debt and the related projected interest costs, and to a lesser extent, capital lease commitments. Interest costs on long-term and short-term debt are projected to be $64.4 million in fiscal 2013, $55.1 million in fiscal 2014, $46.2 million in each of the years from fiscal 2015 through fiscal 2017 and $549.8 million thereafter. Projected interest costs on variable rate instruments were calculated using market rates at June 30, 2012. Including the 2022 Senior Notes and 2042 Senior Notes and redemption of the 2013 Senior Notes, debt service costs are projected to increase $247.2 million in fiscal 2013, decrease $223.9 million in fiscal 2014, increase $15.1 million in each of the years from fiscal 2015 through fiscal 2017, and increase $768.2 million thereafter. Refer to “Note 10—Debt” of Notes to Consolidated Financial Statements.

(2) Minimum operating lease commitments only include base rent. Certain leases provide for contingent rents that are not measurable at inception and primarily include rents based on a percentage of sales in excess of stipulated levels, as well as common area maintenance. These amounts are excluded from minimum operating lease commitments and are included in the determination of total rent expense when it is probable that the expense has been incurred and the amount is reasonably measurable.

(3) Unconditional purchase obligations primarily include inventory commitments, estimated future earn-out payments, estimated royalty payments pursuant to license agreements, advertising commitments, capital improvement commitments, planned funding of pension and other post-retirement benefit obligations, commitments pursuant to executive compensation arrangements, obligations related to our cost savings initiatives and acquisitions. Future earn-out payments and future royalty and advertising commitments were estimated based on planned future sales for the term that was in effect at June 30, 2012, without consideration for potential renewal periods.

(4) Refer to “Note 8—Income Taxes” of Notes to Consolidated Financial Statements for information regarding unrecognized tax benefits. As of June 30, 2012, the noncurrent portion of our unrecognized tax benefits, including related accrued interest and penalties was $106.2 million. At this time, the settlement period for the noncurrent portion of the unrecognized tax benefits, including related accrued interest and penalties, cannot be determined and therefore was not included.



## Derivative Financial Instruments and Hedging Activities

We address certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments. We enter into foreign currency forward contracts and may enter into option contracts to reduce the effects of fluctuating foreign currency exchange rates and interest rate derivatives to manage the effects of interest rate movements on our aggregate liability portfolio. We also enter into foreign currency forward contracts and may use option contracts, not designated as hedging instruments, to mitigate the change in fair value of specific assets and liabilities on the balance sheet. We do not utilize derivative financial instruments for trading or speculative purposes. Costs associated with entering into these derivative financial instruments have not been material to our consolidated financial results.

For each derivative contract entered into where we look to obtain special hedge accounting treatment, we formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking the hedge transaction, the nature of the risk being hedged, how the hedging instruments' effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method of measuring ineffectiveness. This process includes linking all derivatives to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. We also formally assess, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. If it is determined that a derivative is not highly effective, or that it has ceased to be a highly effective hedge, we will be required to discontinue hedge accounting with respect to that derivative prospectively.

## Foreign Exchange Risk Management

We enter into foreign currency forward contracts to hedge anticipated transactions, as well as receivables and payables denominated in foreign currencies, for periods consistent with our identified exposures. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on costs and on the cash flows that we receive from foreign subsidiaries. The majority of foreign currency forward contracts are denominated in currencies of major industrial countries. We may also enter into foreign currency option contracts to hedge anticipated transactions. The foreign currency forward contracts entered into to hedge anticipated transactions have been designated as foreign currency cash-flow hedges and have varying maturities through the end of March 2014. Hedge effectiveness of foreign currency forward contracts is based on a hypothetical derivative methodology and excludes the portion of fair value attributable to the spot-forward difference which is recorded in current-period earnings. The ineffective portion of foreign currency forward contracts is recorded in current-period earnings. For hedge contracts that are no longer deemed highly effective, hedge accounting is discontinued and gains and losses accumulated in other comprehensive income (loss) are reclassified to earnings when the underlying forecasted transaction occurs. If it is probable that the forecasted transaction will no longer occur, then any gains or losses in accumulated other comprehensive income (loss) are reclassified to current-period earnings. As of June 30, 2012, these foreign currency cash-flow hedges were highly effective in all material respects.

At June 30, 2012, we had foreign currency forward contracts in the amount of $1,476.0 million. The foreign currencies included in foreign currency forward contracts (notional value stated in U.S. dollars) are principally the British pound ($376.7 million), Euro ($223.4 million), Canadian dollar ($184.0 million), Swiss franc ($129.9 million), Australian dollar ($106.5 million), Korean won ($75.1 million) and Thailand baht ($51.3 million).

## Credit Risk

As a matter of policy, we only enter into derivative contracts with counterparties that have a long-term credit rating of at least A- or higher by at least two nationally recognized rating agencies. The counterparties to these contracts are major financial institutions. Exposure to credit risk in the event of nonperformance by any of the counterparties is limited to the gross fair value of contracts in asset positions, which totaled $17.7 million at June 30, 2012. To manage this risk, we have established counterparty credit guidelines that are continually monitored. Accordingly, management believes risk of loss under these hedging contracts is remote.

Certain of our derivative financial instruments contain credit-risk-related contingent features. At June 30, 2012, we were in a net asset position for certain derivative contracts that contain such features with two counterparties. The fair value of those contracts as of June 30, 2012 was approximately $2.8 million. As of June 30, 2012, we were in compliance with such credit-risk-related contingent features.

## Market Risk

We use a value-at-risk model to assess the market risk of our derivative financial instruments. Value-at-risk repre-



sents the potential losses for an instrument or portfolio from adverse changes in market factors for a specified time period and confidence level. We estimate value-at-risk across all of our derivative financial instruments using a model with historical volatilities and correlations calculated over the past 250-day period. The high, low and average measured value-at-risk during fiscal 2012 related to our foreign exchange contracts is as follows:

<table><tr><td rowspan="2">(In millions)</td><td colspan="3">YEAR ENDED JUNE 30, 2012</td></tr><tr><td>High</td><td>Low</td><td>Average</td></tr><tr><td>Foreign exchange contracts</td><td>$47.1</td><td>$9.0</td><td>$24.7</td></tr></table>

The model estimates were made assuming normal market conditions and a 95 percent confidence level. We used a statistical simulation model that valued our derivative financial instruments against one thousand randomly generated market price paths. Our calculated value-at-risk exposure represents an estimate of reasonably possible net losses that would be recognized on our portfolio of derivative financial instruments assuming hypothetical movements in future market rates and is not necessarily indicative of actual results, which may or may not occur. It does not represent the maximum possible loss or any expected loss that may occur, since actual future gains and losses will differ from those estimated, based upon actual fluctuations in market rates, operating exposures, and the timing thereof, and changes in our portfolio of derivative financial instruments during the year.

We believe, however, that any such loss incurred would be offset by the effects of market rate movements on the respective underlying transactions for which the derivative financial instrument was intended.

## OFF-BALANCE SHEET ARRANGEMENTS

We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities, other than operating leases, that would be expected to have a material current or future effect upon our financial condition or results of operations.

## RECENTLY ISSUED ACCOUNTING STANDARDS

Refer to “Note 2—Summary of Significant Accounting Policies” of Notes to Consolidated Financial Statements for discussion regarding the impact of accounting standards that were recently issued but not yet effective, on our consolidated financial statements.

## FORWARD-LOOKING INFORMATION

We and our representatives from time to time make written or oral forward-looking statements, including statements contained in this and other filings with the Securities and Exchange Commission, in our press releases and in our reports to stockholders. The words and phrases “will likely result,” “expect,” “believe,” “planned,” “may,” “should,” “could,” “anticipate,” “estimate,” “project,” “intend,” “forecast” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, without limitation, our expectations regarding sales, earnings or other future financial performance and liquidity, product introductions, entry into new geographic regions, information systems initiatives, new methods of sale, our long-term strategy, restructuring and other charges and resulting cost savings, and future operations or operating results. Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations, actual results may differ materially from our expectations. Factors that could cause actual results to differ from expectations include, without limitation:

(1) increased competitive activity from companies in the skin care, makeup, fragrance and hair care businesses, some of which have greater resources than we do;

(2) our ability to develop, produce and market new products on which future operating results may depend and to successfully address challenges in our business;

(3) consolidations, restructurings, bankruptcies and reorganizations in the retail industry causing a decrease in the number of stores that sell our products, an increase in the ownership concentration within the retail industry, ownership of retailers by our competitors or ownership of competitors by our customers that are retailers and our inability to collect receivables;

(4) destocking and tighter working capital management by retailers;

(5) the success, or changes in timing or scope, of new product launches and the success, or changes in the timing or the scope, of advertising, sampling and merchandising programs;

(6) shifts in the preferences of consumers as to where and how they shop for the types of products and services we sell;



(7) social, political and economic risks to our foreign or domestic manufacturing, distribution and retail operations, including changes in foreign investment and trade policies and regulations of the host countries and of the United States;

(8) changes in the laws, regulations and policies (including the interpretations and enforcement thereof) that affect, or will affect, our business, including those relating to our products or distribution networks, changes in accounting standards, tax laws and regulations, environmental or climate change laws, regulations or accords, trade rules and customs regulations, and the outcome and expense of legal or regulatory proceedings, and any action we may take as a result;

(9) foreign currency fluctuations affecting our results of operations and the value of our foreign assets, the relative prices at which we and our foreign competitors sell products in the same markets and our operating and manufacturing costs outside of the United States;

(10) changes in global or local conditions, including those due to the volatility in the global credit and equity markets, natural or man-made disasters, real or perceived epidemics, or energy costs, that could affect consumer purchasing, the willingness or ability of consumers to travel and/or purchase our products while traveling, the financial strength of our customers, suppliers or other contract counterparties, our operations, the cost and availability of capital which we may need for new equipment, facilities or acquisitions, the returns that we are able to generate on our pension assets and the resulting impact on funding obligations, the cost and availability of raw materials and the assumptions underlying our critical accounting estimates;

(11) shipment delays, commodity pricing, depletion of inventory and increased production costs resulting from disruptions of operations at any of the facilities that manufacture nearly all of our supply of a particular type of product (i.e. focus factories) or at our distribution or inventory centers, including disruptions that may be caused by the implementation of SAP as part of our Strategic Modernization Initiative or by restructurings;

(12) real estate rates and availability, which may affect our ability to increase or maintain the number of retail locations at which we sell our products and the costs associated with our other facilities;

(13) changes in product mix to products which are less profitable;
(14) our ability to acquire, develop or implement new information and distribution technologies and initiatives on a timely basis and within our cost estimates and our ability to maintain continuous operations of such systems and the security of data and other information that may be stored in such systems or other systems or media;

(15) our ability to capitalize on opportunities for improved efficiency, such as publicly-announced strategies and restructuring and cost-savings initiatives, and to integrate acquired businesses and realize value therefrom;

(16) consequences attributable to local or international conflicts around the world, as well as from any terrorist action, retaliation and the threat of further action or retaliation;

(17) the timing and impact of acquisitions and divestitures, which depend on willing sellers and buyers, respectively; and

(18) additional factors as described in our filings with the Securities and Exchange Commission, including this Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

We assume no responsibility to update forward-looking statements made herein or otherwise.



<table><tr><td>YEAR ENDED JUNE 30</td><td>2012</td><td>2011</td><td>2010</td></tr><tr><td>(In millions, except per share data)</td><td></td><td></td><td></td></tr><tr><td>Net Sales</td><td>$9,713.6</td><td>$8,810.0</td><td>$7,795.8</td></tr><tr><td>Cost of sales</td><td>1,995.8</td><td>1,936.9</td><td>1,829.4</td></tr><tr><td>Gross Profit</td><td>7,717.8</td><td>6,873.1</td><td>5,966.4</td></tr><tr><td>Operating expenses</td><td></td><td></td><td></td></tr><tr><td>Selling, general and administrative</td><td>6,324.8</td><td>5,696.7</td><td>5,067.0</td></tr><tr><td>Restructuring and other charges</td><td>59.6</td><td>49.0</td><td>61.1</td></tr><tr><td>Goodwill impairment</td><td>—</td><td>29.3</td><td>16.6</td></tr><tr><td>Impairment of other intangible and long-lived assets</td><td>21.7</td><td>8.7</td><td>31.8</td></tr><tr><td>Total operating expenses</td><td>6,406.1</td><td>5,783.7</td><td>5,176.5</td></tr><tr><td>Operating Income</td><td>1,311.7</td><td>1,089.4</td><td>789.9</td></tr><tr><td>Interest expense, net</td><td>61.1</td><td>63.9</td><td>74.3</td></tr><tr><td>Interest expense on debt extinguishment</td><td>—</td><td>—</td><td>27.3</td></tr><tr><td>Other income</td><td>10.5</td><td>—</td><td>—</td></tr><tr><td>Earnings before Income Taxes</td><td>1,261.1</td><td>1,025.5</td><td>688.3</td></tr><tr><td>Provision for income taxes</td><td>400.6</td><td>321.7</td><td>205.9</td></tr><tr><td>Net Earnings</td><td>860.5</td><td>703.8</td><td>482.4</td></tr><tr><td>Net earnings attributable to noncontrolling interests</td><td>(3.6)</td><td>(3.0)</td><td>(4.1)</td></tr><tr><td>Net Earnings Attributable to The Estée Lauder Companies Inc.</td><td>$ 856.9</td><td>$ 700.8</td><td>$ 478.3</td></tr><tr><td>Net earnings attributable to The Estée Lauder Companies Inc. per common share</td><td></td><td></td><td></td></tr><tr><td>Basic</td><td>$ 2.20</td><td>$ 1.78</td><td>$ 1.21</td></tr><tr><td>Diluted</td><td>$ 2.16</td><td>$ 1.74</td><td>$ 1.19</td></tr><tr><td>Weighted-average common shares outstanding</td><td></td><td></td><td></td></tr><tr><td>Basic</td><td>388.7</td><td>394.0</td><td>395.4</td></tr><tr><td>Diluted</td><td>397.0</td><td>402.4</td><td>401.5</td></tr><tr><td>Cash dividends declared per common share</td><td>$ .525</td><td>$ .375</td><td>$ .275</td></tr></table>

See notes to consolidated financial statements.



<table><tr><td>JUNE 30</td><td>2012</td><td>2011</td></tr><tr><td>(\( in millions)</td><td></td><td></td></tr><tr><td>ASSETS</td><td></td><td></td></tr><tr><td>Current Assets</td><td></td><td></td></tr><tr><td>Cash and cash equivalents</td><td>$ 1,347.7</td><td>$ 1,253.0</td></tr><tr><td>Accounts receivable, net</td><td>1,060.3</td><td>945.6</td></tr><tr><td>Inventory and promotional merchandise, net</td><td>983.6</td><td>995.6</td></tr><tr><td>Prepaid expenses and other current assets</td><td>463.5</td><td>492.3</td></tr><tr><td>Total current assets</td><td>3,855.1</td><td>3,686.5</td></tr><tr><td>Property, Plant and Equipment, net</td><td>1,231.8</td><td>1,143.1</td></tr><tr><td>Other Assets</td><td></td><td></td></tr><tr><td>Goodwill</td><td>882.6</td><td>877.3</td></tr><tr><td>Other intangible assets, net</td><td>190.1</td><td>227.5</td></tr><tr><td>Other assets</td><td>433.4</td><td>339.5</td></tr><tr><td>Total other assets</td><td>1,506.1</td><td>1,444.3</td></tr><tr><td>Total assets</td><td>$ 6,593.0</td><td>$ 6,273.9</td></tr><tr><td>LIABILITIES AND EQUITY</td><td></td><td></td></tr><tr><td>Current Liabilities</td><td></td><td></td></tr><tr><td>Current debt</td><td>$ 219.0</td><td>$ 138.0</td></tr><tr><td>Accounts payable</td><td>493.8</td><td>446.7</td></tr><tr><td>Accrued income taxes</td><td>97.2</td><td>62.3</td></tr><tr><td>Other accrued liabilities</td><td>1,315.8</td><td>1,296.3</td></tr><tr><td>Total current liabilities</td><td>2,125.8</td><td>1,943.3</td></tr><tr><td>Noncurrent Liabilities</td><td></td><td></td></tr><tr><td>Long-term debt</td><td>1,069.1</td><td>1,080.1</td></tr><tr><td>Accrued income taxes</td><td>106.3</td><td>130.0</td></tr><tr><td>Other noncurrent liabilities</td><td>544.3</td><td>473.5</td></tr><tr><td>Total noncurrent liabilities</td><td>1,719.7</td><td>1,683.6</td></tr><tr><td>Commitments and Contingencies</td><td></td><td></td></tr><tr><td>Equity</td><td></td><td></td></tr><tr><td>Common stock, $0.01 par value; 650,000,000 shares Class A authorized; shares issued: 399,491,292 at June 30, 2012 and 393,173,952 at June 30, 2011; 240,000,000 shares Class B authorized; shares issued and outstanding: 151,778,082 at June 30, 2012 and 151,964,082 at June 30, 2011</td><td>5.5</td><td>5.5</td></tr><tr><td>Paid-in capital</td><td>2,006.1</td><td>1,735.6</td></tr><tr><td>Retained earnings</td><td>4,764.9</td><td>4,113.7</td></tr><tr><td>Accumulated other comprehensive income (loss)</td><td>(212.9)</td><td>17.7</td></tr><tr><td>Less: Treasury stock, at cost; 162,371,840 Class A shares at June 30, 2012 and 150,575,090 Class A shares at June 30, 2011</td><td>6,563.6</td><td>5,872.5</td></tr><tr><td>Total stockholders&#x27; equity—The Estée Lauder Companies Inc.</td><td>(3,830.4)</td><td>(3,243.1)</td></tr><tr><td>Noncontrolling interests</td><td>2,733.2</td><td>2,629.4</td></tr><tr><td>Total equity</td><td>14.3</td><td>17.6</td></tr><tr><td>Total liabilities and equity</td><td>2,747.5</td><td>2,647.0</td></tr><tr><td></td><td>$ 6,593.0</td><td>$ 6,273.9</td></tr></table>

See notes to consolidated financial statements.



<table><tr><td>YEAR ENDED JUNE 30</td><td>2012</td><td>2011</td><td>2010</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Common stock, beginning of year</td><td>$ 5.5</td><td>$ 5.5</td><td>$ 5.3</td></tr><tr><td>Stock-based compensation</td><td>—</td><td>—</td><td>0.2</td></tr><tr><td>Common stock, end of year</td><td>5.5</td><td>5.5</td><td>5.5</td></tr><tr><td>Paid-in capital, beginning of year</td><td>1,735.6</td><td>1,428.7</td><td>1,145.6</td></tr><tr><td>Stock-based compensation</td><td>270.7</td><td>306.9</td><td>283.7</td></tr><tr><td>Purchase of noncontrolling interest</td><td>(0.2)</td><td>—</td><td>(0.6)</td></tr><tr><td>Paid-in capital, end of year</td><td>2,006.1</td><td>1,735.6</td><td>1,428.7</td></tr><tr><td>Retained earnings, beginning of year</td><td>4,113.7</td><td>3,561.2</td><td>3,192.3</td></tr><tr><td>Common stock dividends</td><td>(204.1)</td><td>(148.3)</td><td>(109.3)</td></tr><tr><td>Stock-based compensation</td><td>(1.6)</td><td>—</td><td>(0.1)</td></tr><tr><td>Net earnings attributable to The Estée Lauder Companies Inc.</td><td>856.9</td><td>700.8</td><td>478.3</td></tr><tr><td>Retained earnings, end of year</td><td>4,764.9</td><td>4,113.7</td><td>3,561.2</td></tr><tr><td>Accumulated other comprehensive income (loss), beginning of year</td><td>17.7</td><td>(196.7)</td><td>(117.1)</td></tr><tr><td>Other comprehensive income (loss)</td><td>(230.6)</td><td>214.4</td><td>(79.4)</td></tr><tr><td>Purchase of noncontrolling interest</td><td>—</td><td>—</td><td>(0.2)</td></tr><tr><td>Accumulated other comprehensive income (loss), end of year</td><td>(212.9)</td><td>17.7</td><td>(196.7)</td></tr><tr><td>Treasury stock, beginning of year</td><td>(3,243.1)</td><td>(2,850.3)</td><td>(2,586.1)</td></tr><tr><td>Acquisition of treasury stock</td><td>(555.2)</td><td>(376.9)</td><td>(257.8)</td></tr><tr><td>Stock-based compensation</td><td>(32.1)</td><td>(15.9)</td><td>(6.4)</td></tr><tr><td>Treasury stock, end of year</td><td>(3,830.4)</td><td>(3,243.1)</td><td>(2,850.3)</td></tr><tr><td>Total stockholders&#x27; equity—The Estée Lauder Companies Inc.</td><td>2,733.2</td><td>2,629.4</td><td>1,948.4</td></tr><tr><td>Noncontrolling interests, beginning of year</td><td>17.6</td><td>17.0</td><td>24.0</td></tr><tr><td>Net earnings attributable to noncontrolling interests</td><td>3.6</td><td>3.0</td><td>4.1</td></tr><tr><td>Distributions to noncontrolling interest holders</td><td>(3.9)</td><td>(5.6)</td><td>(7.7)</td></tr><tr><td>Purchase of noncontrolling interest</td><td>(0.4)</td><td>—</td><td>—</td></tr><tr><td>Other comprehensive income (loss)</td><td>(2.6)</td><td>3.2</td><td>(3.4)</td></tr><tr><td>Noncontrolling interests, end of year</td><td>14.3</td><td>17.6</td><td>17.0</td></tr><tr><td>Total equity</td><td>$ 2,747.5</td><td>$ 2,647.0</td><td>$ 1,965.4</td></tr></table>

See notes to consolidated financial statements.



<table><tr><td>YEAR ENDED JUNE 30</td><td>2012</td><td>2011</td><td>2010</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Net earnings</td><td>$860.5</td><td>$703.8</td><td>$482.4</td></tr><tr><td>Other comprehensive income (loss):</td><td></td><td></td><td></td></tr><tr><td>Net unrealized investment gain (loss), net of tax</td><td>—</td><td>0.3</td><td>0.4</td></tr><tr><td>Net derivative instrument gain (loss), net of tax</td><td>18.1</td><td>(15.0)</td><td>12.8</td></tr><tr><td>Net actuarial gain (loss), net of tax</td><td>(101.0)</td><td>25.9</td><td>(32.4)</td></tr><tr><td>Net prior service credit (cost), net of tax</td><td>6.5</td><td>(7.3)</td><td>5.5</td></tr><tr><td>Translation adjustments, net of tax</td><td>(156.8)</td><td>213.7</td><td>(69.3)</td></tr><tr><td></td><td>(233.2)</td><td>217.6</td><td>(83.0)</td></tr><tr><td>Comprehensive income (loss)</td><td>627.3</td><td>921.4</td><td>399.4</td></tr><tr><td>Comprehensive (income) loss attributable to noncontrolling interests:</td><td></td><td></td><td></td></tr><tr><td>Net earnings</td><td>(3.6)</td><td>(3.0)</td><td>(4.1)</td></tr><tr><td>Translation adjustments, net of tax</td><td>2.6</td><td>(3.2)</td><td>3.4</td></tr><tr><td></td><td>(1.0)</td><td>(6.2)</td><td>(0.7)</td></tr><tr><td>Comprehensive income (loss) attributable to The Estée Lauder Companies Inc.</td><td>$626.3</td><td>$915.2</td><td>$398.7</td></tr></table>

See notes to consolidated financial statements.



<table><tr><td>YEAR ENDED JUNE 30</td><td>2012</td><td>2011</td><td>2010</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Cash Flows from Operating Activities</td><td></td><td></td><td></td></tr><tr><td>Net earnings</td><td>$ 860.5</td><td>$ 703.8</td><td>$ 482.4</td></tr><tr><td>Adjustments to reconcile net earnings to net cash flows from operating activities:</td><td></td><td></td><td></td></tr><tr><td>Depreciation and amortization</td><td>295.8</td><td>294.4</td><td>263.7</td></tr><tr><td>Deferred income taxes</td><td>(22.1)</td><td>(24.5)</td><td>(24.7)</td></tr><tr><td>Non-cash stock-based compensation</td><td>124.7</td><td>94.8</td><td>57.0</td></tr><tr><td>Excess tax benefits from stock-based compensation arrangements</td><td>(57.8)</td><td>(49.7)</td><td>(10.8)</td></tr><tr><td>Loss on disposal of property, plant and equipment</td><td>12.7</td><td>7.7</td><td>23.0</td></tr><tr><td>Goodwill, other intangible asset and long-lived asset impairments</td><td>21.7</td><td>38.0</td><td>48.4</td></tr><tr><td>Non-cash charges associated with restructuring activities</td><td>3.5</td><td>9.4</td><td>21.4</td></tr><tr><td>Non-cash charge on debt extinguishment</td><td>—</td><td>—</td><td>2.4</td></tr><tr><td>Pension and post-retirement benefit expense</td><td>68.5</td><td>78.5</td><td>61.6</td></tr><tr><td>Pension and post-retirement benefit contributions</td><td>(126.9)</td><td>(92.4)</td><td>(125.7)</td></tr><tr><td>Other non-cash items</td><td>3.7</td><td>0.6</td><td>0.6</td></tr><tr><td>Changes in operating assets and liabilities:</td><td></td><td></td><td></td></tr><tr><td>Decrease (increase) in accounts receivable, net</td><td>(178.4)</td><td>(124.7)</td><td>79.2</td></tr><tr><td>Increase in inventory and promotional merchandise, net</td><td>(41.2)</td><td>(95.1)</td><td>(60.8)</td></tr><tr><td>Decrease (increase) in other assets, net</td><td>(63.1)</td><td>(52.5)</td><td>29.3</td></tr><tr><td>Increase (decrease) in accounts payable</td><td>68.3</td><td>(17.0)</td><td>103.6</td></tr><tr><td>Increase (decrease) in accrued income taxes</td><td>96.6</td><td>103.1</td><td>(78.8)</td></tr><tr><td>Increase in other liabilities</td><td>60.2</td><td>152.6</td><td>84.9</td></tr><tr><td>Net cash flows provided by operating activities</td><td>1,126.7</td><td>1,027.0</td><td>956.7</td></tr><tr><td>Cash Flows from Investing Activities</td><td></td><td></td><td></td></tr><tr><td>Capital expenditures</td><td>(420.7)</td><td>(351.0)</td><td>(270.6)</td></tr><tr><td>Acquisition of businesses and other intangible assets, net of cash acquired</td><td>(7.6)</td><td>(256.1)</td><td>(10.7)</td></tr><tr><td>Proceeds from the disposition of long-term investments</td><td>—</td><td>0.2</td><td>—</td></tr><tr><td>Purchases of long-term investments</td><td>—</td><td>—</td><td>(0.1)</td></tr><tr><td>Net cash flows used for investing activities</td><td>(428.3)</td><td>(606.9)</td><td>(281.4)</td></tr><tr><td>Cash Flows from Financing Activities</td><td></td><td></td><td></td></tr><tr><td>Borrowings (repayments) of current debt, net</td><td>197.4</td><td>0.4</td><td>(7.5)</td></tr><tr><td>Debt issuance costs</td><td>(1.1)</td><td>—</td><td>—</td></tr><tr><td>Repayments and redemptions of long-term debt</td><td>(128.8)</td><td>(16.5)</td><td>(227.2)</td></tr><tr><td>Net settlement of interest rate derivatives</td><td>—</td><td>47.4</td><td>—</td></tr><tr><td>Net proceeds from stock-based compensation transactions</td><td>90.8</td><td>156.1</td><td>205.0</td></tr><tr><td>Excess tax benefits from stock-based compensation arrangements</td><td>57.8</td><td>49.7</td><td>10.8</td></tr><tr><td>Payments to acquire treasury stock</td><td>(592.7)</td><td>(396.6)</td><td>(266.7)</td></tr><tr><td>Dividends paid to stockholders</td><td>(204.0)</td><td>(148.0)</td><td>(109.1)</td></tr><tr><td>Payments to noncontrolling interest holders</td><td>(4.5)</td><td>(5.6)</td><td>(11.4)</td></tr><tr><td>Net cash flows used for financing activities</td><td>(585.1)</td><td>(313.1)</td><td>(406.1)</td></tr><tr><td>Effect of Exchange Rate Changes on Cash and Cash Equivalents</td><td>(18.6)</td><td>25.3</td><td>(13.0)</td></tr><tr><td>Net Increase in Cash and Cash Equivalents</td><td>94.7</td><td>132.3</td><td>256.2</td></tr><tr><td>Cash and Cash Equivalents at Beginning of Year</td><td>1,253.0</td><td>1,120.7</td><td>864.5</td></tr><tr><td>Cash and Cash Equivalents at End of Year</td><td>$1,347.7</td><td>$1,253.0</td><td>$1,120.7</td></tr></table>

See notes to consolidated financial statements.



## NOTE 1 – DESCRIPTION OF BUSINESS

The Estée Lauder Companies Inc. manufactures, markets and sells skin care, makeup, fragrance and hair care products around the world. Products are marketed under various brand names including: Estée Lauder, Aramis, Clinique, Prescriptives, Lab Series, Origins, M·A·C, Bobbi Brown, La Mer, Aveda, Jo Malone, Bumble and bumble, Darphin, Flirt!, GoodSkin Labs, Ojon and Smashbox. Certain subsidiaries of The Estée Lauder Companies Inc. are also the global licensee of the Tommy Hilfiger, Kiton, Donna Karan, Michael Kors, Tom Ford, Coach and Ermenegildo Zegna brand names for fragrances and/or cosmetics.

## NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

## Principles of Consolidation

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.

Certain amounts in the consolidated financial statements of prior years have been reclassified to conform to current year presentation.

All share (except par value per share), earnings per common share and cash dividends declared per common share information for all prior years reflect the two-for-one stock split on the Company’s Class A and Class B Common Stock, which was effected in the form of a stock dividend for each share held by stockholders of record at the close of business on January 4, 2012. The number of shares of the Company’s Class A Common Stock issuable upon exercise of outstanding stock options and vesting of other stock-based awards were proportionately increased in accordance with the terms of the respective plans.

## Management Estimates

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“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. Certain significant accounting policies that contain subjective management estimates and assumptions include those related to revenue recognition, inventory, pension and other post-retirement benefit costs, goodwill, other intangible assets and long-lived assets, income taxes and derivatives. Management evaluates its 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 year-end rates of exchange, while revenue and expenses are translated at weighted-average rates of exchange for the period. Unrealized translation gains or losses are reported as cumulative translation adjustments through other comprehensive income (loss) (“OCI”). Such adjustments, attributable to The Estée Lauder Companies Inc., amounted to $ (154.2) $  million, $210.5 $  million and $65.9 $  million of unrealized translation gains (losses), net of tax, in fiscal 2012, 2011 and 2010, respectively. For the Company’s Venezuelan subsidiary operating in a highly inflationary economy, 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.

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. Accordingly, the Company categorizes these instruments as entered into for purposes other than trading.

The accompanying consolidated statements of earnings include net exchange losses on foreign currency transactions of $0.5 million, $18.6 million and $33.3 million in fiscal 2012, 2011 and 2010, respectively.

## Cash and Cash Equivalents

Cash and cash equivalents include $660.2 million and $242.5 million of short-term time deposits at June 30, 2012 and 2011, respectively. The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. As of June 30, 2012, approximately 24% and 20% of the Company’s cash and cash equivalents are held by two financial institutions.

## Accounts Receivable

Accounts receivable is stated net of the allowance for doubtful accounts and customer deductions totaling $31.1 million and $33.9 million as of June 30, 2012 and 2011, respectively. This reserve is based upon the evaluation of accounts receivable aging, specific exposures and historical trends.



## Inventory and Promotional Merchandise

Inventory and promotional merchandise only includes inventory considered saleable or usable in future periods, and is stated at the lower of cost or fair-market value, with cost being based on standard cost which approximates actual cost on the first-in, first-out method. Cost components include raw materials, componentry, direct labor and overhead (e.g., indirect labor, utilities, depreciation, purchasing, receiving, inspection and warehousing) as well as inbound freight. Manufacturing overhead is allocated to the cost of inventory based on the normal production capacity. Unallocated overhead during periods of abnormally low production levels are recognized as cost of sales in the period in which they are incurred. Promotional merchandise is charged to expense at the time the merchandise is shipped to the Company’s customers. Included in inventory and promotional merchandise is an inventory obsolescence reserve, which represents the difference between the cost of the inventory and its estimated realizable value, based on various product sales projections. This reserve is calculated using an estimated obsolescence percentage applied to the inventory based on age, historical trends and requirements to support forecasted sales. In addition, and as necessary, specific reserves for future known or anticipated events may be established.

## Derivative Financial Instruments

The Company’s derivative financial instruments are recorded as either assets or liabilities on the balance sheet and measured at fair value. All derivatives are (i) designated as a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair-value” hedge), (ii) designated as a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“foreign currency cash-flow” hedge), or (iii) not designated as a hedging instrument. Changes in the fair value of a derivative that is designated and qualifies as a fair-value hedge that is highly effective are recorded in current-period earnings, along with the loss or gain on the hedged asset or liability that is attributable to the hedged risk (including losses or gains on unrecognized firm commitments). Changes in the fair value of a derivative that is designated and qualifies as a foreign currency cash-flow hedge of a foreign-currency-denominated forecasted transaction that is highly effective are recorded in OCI. Gains and losses deferred in OCI are then recognized in current-period earnings when earnings are affected by the variability of cash flows of the hedged foreign-currency-denominated forecasted transaction (e.g., when periodic settlements on a variable-rate asset or liability are recorded in earnings). Changes in the fair value of derivative instruments not designated as hedging instruments are reported in current-period earnings.

## Property, Plant and Equipment

Property, plant and equipment, including leasehold and other improvements that extend an asset’s useful life or productive capabilities, are carried at cost less accumulated depreciation and amortization. Costs incurred for computer software developed or obtained for internal use are capitalized during the application development stage and expensed as incurred during the preliminary project and post-implementation stages. For financial statement purposes, depreciation is provided principally on the straight-line method over the estimated useful lives of the assets ranging from 3 to 40 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lives of the respective leases or the expected useful lives of those improvements.

## Goodwill and Other Indefinite-lived Intangible Assets

Goodwill is calculated as the excess of the cost of purchased businesses over the fair value of their underlying net assets. Other indefinite-lived intangible assets principally consist of trademarks. Goodwill and other indefinite-lived intangible assets are not amortized.

The Company assesses goodwill and other indefinite-lived intangible assets at least annually for impairment as of the beginning of the fiscal fourth quarter, or more frequently if certain events or circumstances exist. The Company tests goodwill for impairment at the reporting unit level, which is one level below the Company’s operating segments. The Company identifies its reporting units by assessing whether the components of its operating segments constitute businesses for which discrete financial information is available and management of each reporting unit regularly reviews the operating results of those components. The Company makes certain judgments and assumptions in allocating assets and liabilities to determine carrying values for its reporting units. Impairment testing is performed in two steps: (i) the Company determines impairment by comparing the fair value of a reporting unit with its carrying value, and (ii) if there is an impairment, the Company measures the amount of impairment loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill. The impairment test for indefinite-lived intangible assets encompasses calculating a fair value of an indefinite-lived intangible asset and comparing the fair value to its carrying value. If the carrying value exceeds the fair value, impairment is recorded.



Testing goodwill for impairment requires the Company to estimate fair values of reporting units using significant estimates and assumptions. The assumptions made will impact the outcome and ultimate results of the testing. The Company uses industry accepted valuation models and set criteria that are reviewed and approved by various levels of management and, in certain instances, the Company engages third-party valuation specialists for advice. To determine fair value of the reporting unit, the Company generally uses an equal weighting of the income and market approaches. In certain circumstances, equal weighting will not be applied if one of these methods may be less applicable (e.g., only the income approach would be used for reporting units with existing negative margins). The Company believes both approaches are equally relevant and the most reliable indications of fair value because the fair value of product or service companies is more dependent on the ability to generate earnings than on the value of the assets used in the production process.

Under the income approach, the Company determines fair value using a discounted cash flow method, projecting future cash flows of each reporting unit, 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. Under the market approach, the Company utilizes information from comparable publicly traded companies with similar operating and investment characteristics as the reporting units, which creates valuation multiples that are applied to the operating performance of the reporting unit being tested, to value the reporting unit. The key estimates and factors used in these two approaches include, but are not limited to, revenue growth rates and profit margins based on internal forecasts, terminal value, the weighted-average cost of capital used to discount future cash flows and comparable market multiples.

To determine fair value of other indefinite-lived intangible assets, the Company uses an income approach, 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. Other indefinite-lived intangible assets' fair values require significant judgments in determining both the assets' estimated cash flows as well as the appropriate discount and royalty rates applied to those cash flows to determine fair value. Changes in such estimates or the application of alternative assumptions could produce significantly different results.

## Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When such events or changes in circumstances occur, a recoverability test is performed comparing projected undiscounted cash flows from the use and eventual disposition of an asset or asset group to its carrying value. If the projected undiscounted cash flows are less than the carrying value, then an impairment charge would be recorded for the excess of the carrying value over the fair value, which is determined by discounting future cash flows.

## Concentration of Credit Risk

The Company is a worldwide manufacturer, marketer and distributor of skin care, makeup, fragrance and hair care products. Domestic and international sales are made primarily to department stores, perfumeries and specialty retailers. The Company grants credit to all qualified customers and does not believe it is exposed significantly to any undue concentration of credit risk.

The Company’s largest customer sells products primarily within the United States and accounted for $1,048.1 million, or 11%, $967.6 million, or 11%, and $876.3 million, or 11%, of the Company’s consolidated net sales in fiscal 2012, 2011 and 2010, respectively. This customer accounted for $110.2 million, or 10%, and $92.3 million, or 10%, of the Company’s accounts receivable at June 30, 2012 and 2011, respectively.

## Revenue Recognition

Revenues from product sales are recognized upon transfer of ownership, including passage of title to the customer and transfer of the risk of loss related to those goods. In the Americas region, sales are generally recognized at the time the product is shipped to the customer and in the Europe, the Middle East & Africa and Asia/Pacific regions, sales are generally recognized based upon the customer's receipt. In certain circumstances, transfer of title takes place at the point of sale, for example, at the Company's retail stores. The Company records revenues generated from purchase with purchase promotions in Net Sales and costs of its purchase with purchase and gift with purchase promotions in Cost of sales.

Revenues are reported on a net sales basis, which is computed by deducting from gross sales the amount of actual product returns received, discounts, incentive arrangements with retailers and an amount established for anticipated product returns. The Company’s practice is to accept product returns from retailers only if properly requested, authorized and approved. In accepting returns, the Company typically provides a credit to the retailer against accounts receivable from that retailer. As a percentage of gross sales, returns were 3.5% in fiscal 2012 and 2011 and 4.3% in fiscal 2010.



## Payments to Customers

Certain incentive arrangements require the payment of a fee to customers based on their attainment of pre-established sales levels. These fees have been recorded as a reduction of Net Sales in the accompanying consolidated statements of earnings and were not material to the results of operations in any period presented.

The Company enters into transactions related to advertising, product promotions and demonstrations, some of which involve cooperative relationships with customers. These activities may be arranged either with unrelated third parties or in conjunction with the customer. The Company’s share of the cost of these transactions (regardless of to whom they were paid) are reflected in Selling, general and administrative expenses in the accompanying consolidated statements of earnings and were approximately $1,343 million, $1,152 million and $1,070 million in fiscal 2012, 2011 and 2010, respectively.

## Advertising and Promotion

Global net expenses for advertising, merchandising, sampling, promotion and product development costs were $2,655.7 million, $2,345.8 million and $2,015.9 million in fiscal 2012, 2011 and 2010, respectively, and are expensed as incurred. Excluding the impact of purchase with purchase and gift with purchase promotions, advertising, merchandising, sampling and promotion expenses included in operating expenses were $2,458.9 million, $2,160.7 million and $1,818.5 million in fiscal 2012, 2011 and 2010, respectively.

## Research and Development

Research and development costs amounted to $96.5 million, $85.7 million and $79.5 million in fiscal 2012, 2011 and 2010, respectively. Research and development costs are expensed as incurred.

## Shipping and Handling

Shipping and handling expenses of $312.4 million, $289.7 million and $263.3 million in fiscal 2012, 2011 and 2010, respectively, are recorded in Selling, general and administrative expenses in the accompanying consolidated statements of earnings and include distribution center costs, third-party logistics costs and outbound freight.

## Operating Leases

The Company recognizes rent expense from operating leases with periods of free and scheduled rent increases on a straight-line basis over the applicable lease term. The Company considers lease renewals when such renewals are reasonably assured. From time to time, the Company may receive capital improvement funding from its lessors. These amounts are recorded as deferred liabilities and amortized over the remaining lease term as a reduction of rent expense.

## License Arrangements

The Company’s license agreements provide the Company with worldwide rights to manufacture, market and sell beauty and beauty-related products (or particular categories thereof) using the licensors’ trademarks. The licenses typically have an initial term of approximately 5 years to 11 years, and are renewable subject to the Company’s compliance with the license agreement provisions. The remaining terms, including the potential renewal periods, range from approximately 9 years to 29 years. Under each license, the Company is required to pay royalties to the licensor, at least annually, based on net sales to third parties.

Most of the Company’s licenses were entered into to create new business. In some cases, the Company acquired, or entered into, a license where the licensor or another licensee was operating a pre-existing beauty products business. In those cases, other intangible assets are capitalized and amortized over their useful lives.

Certain license agreements may require minimum royalty payments, incremental royalties based on net sales levels and minimum spending on advertising and promotional activities. Royalty expenses are accrued in the period in which net sales are recognized while advertising and promotional expenses are accrued at the time these costs are incurred.

## Stock-Based Compensation

The Company records stock-based compensation, measured at the fair value of the award, as an expense in the consolidated financial statements. Upon the exercise of stock options or the vesting of restricted stock units, performance share units and market share units, the resulting excess tax benefits, if any, are credited to additional paid-in capital. Any resulting tax deficiencies will first be offset against those cumulative credits to additional paid-in capital. If the cumulative credits to additional paid-in capital are exhausted, tax deficiencies will be recorded to the provision for income taxes. Excess tax benefits are required to be reflected as financing cash inflows in the accompanying consolidated statements of cash flows.

## Income Taxes

The Company accounts for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in its consolidated financial statements or tax returns. The net deferred tax assets assume sufficient future earnings for their realization, as well as the continued application of currently anticipated tax rates. Included in net deferred



tax assets is a valuation allowance for deferred tax assets, where management believes it is more-likely-than-not that the deferred tax assets will not be realized in the relevant jurisdiction. Based on the Company’s assessments, no additional valuation allowance is required. If the Company determines that a deferred tax asset will not be realizable, an adjustment to the deferred tax asset will result in a reduction of net earnings at that time.

The Company provides tax reserves for U.S. federal, state, local and foreign exposures relating to periods subject to audit. The development of reserves for these exposures requires judgments about tax issues, potential outcomes and timing, and is a subjective critical estimate. The Company assesses its tax positions and records tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting dates. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon settlement with a tax authority that has full knowledge of all relevant information. For those tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit has been recognized in the consolidated financial statements. The Company classifies applicable interest and penalties as a component of the provision for income taxes. Although the outcome relating to these exposures is uncertain, in management’s opinion adequate provisions for income taxes have been made for estimable potential liabilities emanating from these exposures. If actual outcomes differ materially from these estimates, they could have a material impact on the Company’s consolidated results of operations.

## Recently Adopted Accounting Standards

In September 2011, the Financial Accounting Standards Board (“FASB”) amended its authoritative guidance related to multiemployer benefit plans. This revised guidance is intended to provide enhanced qualitative and quantitative disclosures about an employer’s significant financial obligations to a multiemployer pension plan and, therefore, help financial statement users better understand the financial health of all significant plans in which the employer participates. To the extent the information required under the revised standard is not available in the public domain, as may be the case for some foreign plans, employers should include more qualitative information about the plan. This disclosure-only guidance became effective for the Company’s fiscal 2012, with full retrospective application required. One of the Company’s international affiliates participates in a multiemployer benefit plan, and the Company has concluded that its participation in this plan is not significant and did not require additional disclosure in the Company’s consolidated financial statements.

In May 2011, the FASB amended its authoritative guidance related to fair value measurements to provide a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial Reporting Standards (“IFRS”). This guidance clarifies the application of existing fair value measurement and expands the existing disclosure requirements. This guidance became effective for the Company’s fiscal 2012 third quarter and was applied prospectively. This guidance did not have an impact on the Company’s results of operations, financial position or cash flows. As a result of the adoption of this guidance, the Company did not change its valuation techniques but made additional disclosures included in Note 12—Fair Value Measurements.

In December 2010, the FASB amended its authoritative guidance related to Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more-likely-than-not that a goodwill impairment exists. In determining whether it is more-likely-than-not that a goodwill impairment exists, consideration should be made as to whether there are any adverse qualitative factors indicating that an impairment may exist. This guidance became effective for the Company’s fiscal 2012 first quarter. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.

In December 2010, the FASB amended its authoritative guidance related to business combinations entered into by an entity that are material on an individual or aggregate basis. These amendments clarify existing guidance that if an entity presents comparative financial statements that include a material business combination, the entity should disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. This guidance became effective prospectively for business combinations for which the acquisition date was on or after the first day of the Company’s fiscal 2012. The adoption of this disclosure-only guidance did not have an



impact on the Company’s results of operations, financial position or cash flows.

In January 2010, the FASB issued authoritative guidance that requires entities to make new disclosures about recurring or nonrecurring fair-value measurements of assets and liabilities. The Company adopted the new guidance in its fiscal 2010 third quarter, except for certain detailed recurring Level 3 disclosures, which became effective for the Company’s fiscal 2012 first quarter. The Company currently does not have any recurring Level 3 assets or liabilities.

## Recently Issued Accounting Standards

In July 2012, the FASB amended its authoritative guidance related to testing indefinite-lived intangible assets for impairment. Under the revised guidance, entities testing their indefinite-lived intangible assets for impairment have the option of performing a qualitative assessment before performing further impairment testing. If entities determine, on the basis of qualitative factors, that it is more-likely-than-not that the asset is impaired, a quantitative test is required. The guidance becomes effective in the beginning of the Company’s fiscal 2014, with early adoption permitted. The Company is currently evaluating the timing of adopting this guidance which is not expected to have an impact on the Company’s consolidated financial statements.

In December 2011, the FASB issued authoritative guidance that creates new disclosure requirements about the nature of an entity’s rights of offset and related arrangements associated with its financial instruments and derivative instruments. This revised guidance helps reconcile differences in the offsetting requirements under U.S. GAAP and IFRS. These requirements mandate that entities disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting arrangement. This disclosure-only guidance becomes effective for the Company’s fiscal 2013 third quarter, with retrospective application required. The Company currently does not hold any financial or derivative instruments that are subject to an enforceable master netting arrangement. However, the Company currently utilizes the right of offset when netting certain negative cash balances in its consolidated balance sheets. This guidance is not expected to have an impact on the Company’s results of operations, financial position or cash flows, but may require certain additional disclosures if such balances are material or if the Company enters into additional arrangements that fall under the provisions of this guidance.
In September 2011, the FASB amended its authoritative guidance related to testing goodwill for impairment. Under the revised guidance, entities testing goodwill for impairment have the option of performing a qualitative assessment before performing Step 1 of the goodwill impairment test. If entities determine, on the basis of qualitative factors, that the fair value of the reporting unit is more-likely-than-not less than the carrying amount, the two-step impairment test would be required. This guidance becomes effective in the beginning of the Company’s fiscal 2013, with early adoption permitted. The Company is not adopting this guidance early, and it does not expect the guidance to have an impact on the Company’s consolidated financial statements.

In June 2011, the FASB amended its authoritative guidance related to the presentation of comprehensive income, requiring entities to present items of net income and other comprehensive income either in one continuous statement or in two separate consecutive statements. This guidance also required entities to present reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income on the face of the financial statements. In December 2011, the FASB issued an update to this guidance deferring the requirement to present reclassification adjustments on the face of the financial statements. However, the Company is still required to present reclassification adjustments on either the face of the financial statement where comprehensive income is reported or disclose the reclassification adjustments in the notes to the financial statements. This guidance, including the deferral, becomes effective for the Company’s fiscal 2013 first quarter, with early adoption permitted and full retrospective application required. This guidance will result in changes in the presentation of the Company’s consolidated financial statements and will not have a material impact on the Company’s results of operations, financial position or cash flows.

## NOTE 3 – INVENTORY AND
PROMOTIONAL MERCHANT DISE

<table><tr><td>JUNE 30</td><td>2012</td><td>2011</td></tr><tr><td>(In millions)</td><td></td><td></td></tr><tr><td>Inventory and promotional merchandise, net consists of:</td><td></td><td></td></tr><tr><td>Raw materials</td><td>$220.7</td><td>$230.2</td></tr><tr><td>Work in process</td><td>98.0</td><td>93.6</td></tr><tr><td>Finished goods</td><td>473.9</td><td>475.4</td></tr><tr><td>Promotional merchandise</td><td>191.0</td><td>196.4</td></tr><tr><td></td><td>$983.6</td><td>$995.6</td></tr><tr><td></td><td></td><td></td></tr></table>



NOTE 4 – PROPERTY, PLANT AND EQUIPMENT

<table><tr><td>JUNE 30</td><td>2012</td><td>2011</td></tr><tr><td>(In millions)</td><td></td><td></td></tr><tr><td>Asset (Useful Life)</td><td></td><td></td></tr><tr><td>Land</td><td>$ 14.6</td><td>$ 15.0</td></tr><tr><td>Buildings and improvements (10 to 40 years)</td><td>188.8</td><td>195.5</td></tr><tr><td>Machinery and equipment (3 to 10 years)</td><td>647.1</td><td>654.9</td></tr><tr><td>Computer hardware and software (4 to 10 years)</td><td>824.2</td><td>707.1</td></tr><tr><td>Furniture and fixtures (5 to 10 years)</td><td>66.4</td><td>74.3</td></tr><tr><td>Leasehold improvements</td><td>1,227.3</td><td>1,215.3</td></tr><tr><td></td><td>2,968.4</td><td>2,862.1</td></tr><tr><td>Less accumulated depreciation and amortization</td><td>1,736.6</td><td>1,719.0</td></tr><tr><td></td><td>$1,231.8</td><td>$1,143.1</td></tr></table>

The cost of assets related to projects in progress of $231.6 million and $183.5 million as of June 30, 2012 and 2011, respectively, is included in their respective asset categories above. Depreciation and amortization of property, plant and equipment was $286.9 million, $283.5 million and $251.8 million in fiscal 2012, 2011 and 2010, 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.

## NOTE 5—GOODWILL AND OTHER INTANGIBLE ASSETS

## Goodwill

The Company assigns goodwill of a reporting unit to the product category in which that reporting unit predominantly operates at the time of acquisition. The following table presents goodwill by product category and the related change in the carrying amount:

<table><tr><td></td><td>Skin Care</td><td>Makeup</td><td>Fragrance</td><td>Hair Care</td><td>Total</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Balance as of June 30, 2010</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Goodwill</td><td>$ 67.9</td><td>$265.1</td><td>$54.8</td><td>$400.6</td><td>$788.4</td></tr><tr><td>Accumulated impairments</td><td>(20.9)</td><td>—</td><td>—</td><td>(15.0)</td><td>(35.9)</td></tr><tr><td></td><td>47.0</td><td>265.1</td><td>54.8</td><td>385.6</td><td>752.5</td></tr><tr><td>Goodwill acquired during the year</td><td>—</td><td>147.2</td><td>—</td><td>—</td><td>147.2</td></tr><tr><td>Impairment charges</td><td>(2.6)</td><td>—</td><td>—</td><td>(26.7)</td><td>(29.3)</td></tr><tr><td>Translation and other adjustments</td><td>1.6</td><td>0.3</td><td>0.2</td><td>4.8</td><td>6.9</td></tr><tr><td></td><td>(1.0)</td><td>147.5</td><td>0.2</td><td>(21.9)</td><td>124.8</td></tr><tr><td>Balance as of June 30, 2011</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Goodwill</td><td>70.4</td><td>412.6</td><td>55.0</td><td>406.9</td><td>944.9</td></tr><tr><td>Accumulated impairments</td><td>(24.4)</td><td>—</td><td>—</td><td>(43.2)</td><td>(67.6)</td></tr><tr><td></td><td>46.0</td><td>412.6</td><td>55.0</td><td>363.7</td><td>877.3</td></tr><tr><td>Goodwill acquired during the year</td><td>—</td><td>8.8</td><td>—</td><td>—</td><td>8.8</td></tr><tr><td>Translation and other adjustments</td><td>(1.5)</td><td>(0.3)</td><td>(0.2)</td><td>(1.5)</td><td>(3.5)</td></tr><tr><td></td><td>(1.5)</td><td>8.5</td><td>(0.2)</td><td>(1.5)</td><td>5.3</td></tr><tr><td>Balance as of June 30, 2012</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Goodwill</td><td>68.1</td><td>421.1</td><td>54.8</td><td>403.4</td><td>947.4</td></tr><tr><td>Accumulated impairments</td><td>(23.6)</td><td>—</td><td>—</td><td>(41.2)</td><td>(64.8)</td></tr><tr><td></td><td>$44.5</td><td>$421.1</td><td>$54.8</td><td>$362.2</td><td>$882.6</td></tr></table>



## Other Intangible Assets

Other intangible assets include trademarks and patents, as well as license agreements and other intangible assets resulting from or related to businesses and assets purchased by the Company. Indefinite-lived intangible assets (e.g., trademarks) are not subject to amortization and are assessed at least annually for impairment during the fiscal fourth quarter, or more frequently if certain events or circumstances exist. Other intangible assets (e.g., non-compete agreements, customer lists) are amortized on a straight-line basis over their expected period of benefit, approximately 2 years to 13 years. Intangible assets related to license agreements were amortized on a straight-line basis over their useful lives based on the terms of the respective agreements. The Company did not incur costs to extend or renew the term of acquired intangible assets during fiscal 2012.

Other intangible assets consist of the following:

<table><tr><td rowspan="2"></td><td colspan="3">JUNE 30, 2012</td><td colspan="3">JUNE 30, 2011</td></tr><tr><td>Gross Carrying Value</td><td>Accumulated Amortization</td><td>Total Net Book Value</td><td>Gross Carrying Value</td><td>Accumulated Amortization</td><td>Total Net Book Value</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Amortizable intangible assets:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Customer lists and other</td><td>$268.4</td><td>$191.9</td><td>$ 76.5</td><td>$270.9</td><td>$168.5</td><td>$102.4</td></tr><tr><td>License agreements</td><td>43.0</td><td>43.0</td><td>—</td><td>43.0</td><td>43.0</td><td>—</td></tr><tr><td></td><td>$311.4</td><td>$234.9</td><td>76.5</td><td>$313.9</td><td>$211.5</td><td>102.4</td></tr><tr><td>Non-amortizable intangible assets:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Trademarks and other</td><td></td><td></td><td>113.6</td><td></td><td></td><td>125.1</td></tr><tr><td>Total intangible assets</td><td></td><td></td><td>$190.1</td><td></td><td></td><td>$227.5</td></tr></table>

The aggregate amortization expense related to amortizable intangible assets for fiscal 2012, 2011 and 2010 was $13.9 million, $14.6 million and $9.1 million, respectively. The estimated aggregate amortization expense for each of the next five fiscal years is as follows:

<table><tr><td>FISCAL</td><td>2013</td><td>2014</td><td>2015</td><td>2016</td><td>2017</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Estimated aggregate amortization expense</td><td>$12.4</td><td>$12.3</td><td>$12.1</td><td>$12.0</td><td>$9.9</td></tr></table>

## Impairment Testing During Fiscal 2012

During the second quarter of fiscal 2012, the Ojon reporting unit identified a potential decline in its projected results of operations, primarily resulting from a softness in the direct response television channel, which caused the Company to review and revise Ojon's long-term forecast. The Company concluded that these changes in the business of the Ojon reporting unit triggered the need for an interim impairment test of its trademarks as of December 31, 2011. These changes in circumstances were also an indicator that the carrying amount of the customer list may not be recoverable. The Company performed an interim impairment test for the trademarks and a recoverability test for the customer list as of December 31, 2011. For the trademarks, the Company concluded that the carrying value exceeded its estimated fair value, which was based on the use of a royalty rate to determine discounted projected future cash flows (“relief-from-royalty method”). As a result, the Company recognized an impairment charge of $6.7 million. This charge was reflected in the hair care product category and in the Americas region. The Company concluded that the carrying value of the customer list was recoverable.

As of the Company’s annual indefinite-lived asset impairment test on April 1, 2012, the Company determined that the carrying value of the Ojon brand trademark exceeded its estimated fair value, which was based on the relief-from-royalty method. As a result, the Company recognized an impairment charge of $3.3 million for the remaining carrying value of the related trademark. The Company also determined that the future cash flows associated with the Ojon brand customer list were less than its carrying value. As the remaining carrying value of the customer list is not recoverable, the Company recognized an impairment charge of $11.7 million. These impairment charges were reflected in the hair care product category and in the Americas region.



## Impairment Testing During Fiscal 2011

During the third quarter of fiscal 2011, the Ojon reporting unit reassessed and subsequently altered the timing of new market initiatives, including the rollout of reformulated product lines and certain components of its future international expansion plans, resulting in revisions to its internal forecasts. The Company concluded that these changes in circumstances in the Ojon reporting unit triggered the need for an interim impairment review of its trademark and goodwill. Additionally, these changes in circumstances were also an indicator that the carrying amount of the customer list may not be recoverable. The Company performed an interim impairment test for the trademark and a recoverability test for the customer list as of February 28, 2011. For the customer list, the Company concluded that the carrying amount of this asset was recoverable. However, for the Ojon trademark, the Company concluded that the carrying value exceeded its estimated fair value, based on the relief-from-royalty method. As a result, the Company recognized an impairment charge of $7.0 million. After adjusting the carrying value of the trademark, the Company completed an interim impairment test for goodwill and recorded an impairment charge for the remaining goodwill related to the Ojon reporting unit of $29.3 million, at the exchange rate in effect at that time. The fair value of the reporting unit was based upon the income approach, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows. These impairment charges were reflected in the hair care and skin care product categories and in the Americas region.

As of the Company’s annual indefinite-lived asset impairment test on April 1, 2011, the Company determined, as a result of a planned discontinuation, that the carrying values of two brand trademarks exceeded their estimated fair values, which were based on the use of the relief-from-royalty method. As a result, the Company recognized an impairment charge of $1.7 million for the carrying values of the related trademarks. These impairment charges were reflected in the makeup and skin care product categories and in the Americas region.

## NOTE 6 – ACQUISITION OF BUSINESS

On July 1, 2010, the Company acquired Smashbox. The purchase price was funded by cash provided by operations. The results of operations are included in the accompanying consolidated financial statements commencing with the date it was acquired. The aggregate cost of this transaction, net of cash acquired, and continuing earn-out obligations incurred during fiscal 2011 related to the acquisition of the Bobbi Brown brand was $257.6 million. NOTE 7 – RETURNS AND CHARGES ASSOCIATED WITH RESTRUCTURING ACTIVITIES

In an effort to drive down costs and achieve synergies within the organization, in February 2009, the Company announced the implementation of a multi-faceted cost savings program (the "Program") to position itself to achieve long-term profitable growth. The Company anticipates the Program will result in related restructuring and other charges, inclusive of cumulative charges recorded to date and through the remainder of the Program, totaling between $350 million and $450 million before taxes. While the Company will continue to seek cost savings opportunities, the Company's current plans are to identify and approve specific initiatives under the Program through calendar 2012 and execute those initiatives through fiscal 2013. The total amount of charges (pre-tax) associated with the Program, recorded, plus other initiatives approved through June 30, 2012, is approximately $361 million to $366 million, of which approximately $251 million to $253 million relates to restructuring charges, approximately $50 million of other costs to implement the initiatives, approximately $42 million to $45 million in sales returns and approximately $18 million in inventory write-offs. The restructuring charges are comprised of approximately $188 million to $190 million of employee-related costs, approximately $40 million of other exit costs and contract terminations (substantially all of which have resulted in or will result in cash expenditures), and approximately $23 million in non-cash asset write-offs. The total amount of cumulative charges (pre-tax) associated with the Program recorded from inception through June 30, 2012 was $302.6 million.

The Program focuses on a redesign of the Company’s organizational structure in order to integrate it in a more cohesive way and operate more globally across brands and functions. The principal aspect of the Program was the reduction of the workforce by approximately 2,000 employees. Specific actions taken since the inception of the Program included:

• Resize and Reorganize the Organization—The Company continued the realignment and optimization of its organization to better leverage scale, improve productivity, reduce complexity and achieve cost savings in each region and across various functions. This included reduction of the workforce which occurred through the consolidation of certain functions, which the Company achieved through a combination of normal attrition and job eliminations, and the closure and consolidation of certain distribution and office facilities.



• Turnaround or Exit Unprofitable Operations—To improve the profitability in certain of the Company’s brands and regions, the Company has selectively exited certain channels of distribution, categories and markets, and has made changes to turnaround others. This included the exit from the global wholesale distribution of the Company’s Prescriptives brand, the reformulation of Ojon brand products and the exit from the global distribution of Sean John products. In connection with these activities, the Company incurred charges related to product returns, inventory write-offs, reduction of workforce and termination of contracts.

## Restructuring Charges

• Outsourcing—In order to balance the growing need for information technology support with the Company’s efforts to provide the most efficient and cost effective solutions, the Company continued the outsourcing of certain information technology processes. The Company incurred costs to transition services to outsource providers and employee-related termination costs.

The following table presents aggregate restructuring charges related to the Program:

<table><tr><td></td><td>Employee-Related Costs</td><td>Asset Write-offs</td><td>Contract Terminations</td><td>Other Exit Costs</td><td>Total</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Fiscal 2009</td><td>$ 60.9</td><td>$ 4.2</td><td>$ 3.4</td><td>$ 1.8</td><td>$ 70.3</td></tr><tr><td>Fiscal 2010</td><td>29.3</td><td>11.0</td><td>2.3</td><td>6.2</td><td>48.8</td></tr><tr><td>Fiscal 2011</td><td>34.6</td><td>2.4</td><td>3.0</td><td>1.1</td><td>41.1</td></tr><tr><td>Fiscal 2012</td><td>37.1</td><td>1.7</td><td>12.6</td><td>2.2</td><td>53.6</td></tr><tr><td>Charges recorded through June 30, 2012</td><td>$161.9</td><td>$19.3</td><td>$21.3</td><td>$11.3</td><td>$213.8</td></tr></table>

The following table presents accrued restructuring charges and the related activities under the Program:

<table><tr><td></td><td>Employee-Related Costs</td><td>Asset Write-offs</td><td>Contract Terminations</td><td>Other Exit Costs</td><td>Total</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Charges</td><td>$ 60.9</td><td>$ 4.2</td><td>$ 3.4</td><td>$ 1.8</td><td>$ 70.3</td></tr><tr><td>Cash payments</td><td>(7.5)</td><td>—</td><td>(0.5)</td><td>(1.6)</td><td>(9.6)</td></tr><tr><td>Non-cash write-offs</td><td>—</td><td>(4.2)</td><td>—</td><td>—</td><td>(4.2)</td></tr><tr><td>Translation adjustments</td><td>0.6</td><td>—</td><td>—</td><td>—</td><td>0.6</td></tr><tr><td>Other adjustments</td><td>(2.4)</td><td>—</td><td>—</td><td>—</td><td>(2.4)</td></tr><tr><td>Balance at June 30, 2009</td><td>51.6</td><td>—</td><td>2.9</td><td>0.2</td><td>54.7</td></tr><tr><td>Charges</td><td>29.3</td><td>11.0</td><td>2.3</td><td>6.2</td><td>48.8</td></tr><tr><td>Cash payments</td><td>(49.5)</td><td>—</td><td>(5.1)</td><td>(6.0)</td><td>(60.6)</td></tr><tr><td>Non-cash write-offs</td><td>—</td><td>(11.0)</td><td>—</td><td>—</td><td>(11.0)</td></tr><tr><td>Translation adjustments</td><td>(0.8)</td><td>—</td><td>—</td><td>—</td><td>(0.8)</td></tr><tr><td>Balance at June 30, 2010</td><td>30.6</td><td>—</td><td>0.1</td><td>0.4</td><td>31.1</td></tr><tr><td>Charges</td><td>34.6</td><td>2.4</td><td>3.0</td><td>1.1</td><td>41.1</td></tr><tr><td>Cash payments</td><td>(30.6)</td><td>—</td><td>(2.4)</td><td>(1.4)</td><td>(34.4)</td></tr><tr><td>Non-cash write-offs</td><td>—</td><td>(2.4)</td><td>—</td><td>—</td><td>(2.4)</td></tr><tr><td>Translation adjustments</td><td>1.2</td><td>—</td><td>(0.1)</td><td>0.1</td><td>1.2</td></tr><tr><td>Balance at June 30, 2011</td><td>35.8</td><td>—</td><td>0.6</td><td>0.2</td><td>36.6</td></tr><tr><td>Charges</td><td>37.1</td><td>1.7</td><td>12.6</td><td>2.2</td><td>53.6</td></tr><tr><td>Cash payments</td><td>(23.6)</td><td>—</td><td>(12.4)</td><td>(2.0)</td><td>(38.0)</td></tr><tr><td>Non-cash write-offs</td><td>—</td><td>(1.7)</td><td>—</td><td>—</td><td>(1.7)</td></tr><tr><td>Translation adjustments</td><td>(1.4)</td><td>—</td><td>—</td><td>0.1</td><td>(1.3)</td></tr><tr><td>Balance at June 30, 2012</td><td>$ 47.9</td><td>$ —</td><td>$ 0.8</td><td>$ 0.5</td><td>$ 49.2</td></tr></table>

Accrued restructuring charges at June 30, 2012 are expected to result in cash expenditures funded from cash provided by operations of approximately $35 million, $12 million and $2 million in fiscal 2013, 2014 and 2015, respectively.



## Total Returns and Other Charges Associated with Restructuring Activities

The following table presents total returns and charges associated with restructuring and other activities related to the Program:

<table><tr><td>YEAR ENDED JUNE 30</td><td>2012</td><td>2011</td><td>2010</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Sales returns (included in Net Sales)</td><td>$ 2.1</td><td>$ 4.6</td><td>$15.7</td></tr><tr><td>Cost of sales</td><td>1.5</td><td>5.8</td><td>7.9</td></tr><tr><td>Restructuring charges</td><td>53.6</td><td>41.1</td><td>48.8</td></tr><tr><td>Other charges</td><td>6.0</td><td>7.9</td><td>12.3</td></tr><tr><td>Total charges associated with restructuring activities</td><td>$63.2</td><td>$59.4</td><td>$84.7</td></tr></table>

During fiscal 2012, the Company recorded $2.1 million reflecting sales returns (less related cost of sales of $0.3 million) and a write-off of inventory of $1.8 million associated with exiting unprofitable operations.

During fiscal 2011, the Company recorded $4.6 million reflecting sales returns (less related cost of sales of $1.2 million) and a write-off of inventory of $7.0 million associated with turnaround operations, primarily related to the reformulation of Ojon brand products.

During fiscal 2010, the Company recorded $15.7 million reflecting sales returns (less related cost of sales of $2.5 million) and $10.4 million for the write-off of inventory associated with exiting unprofitable operations, primarily related to the exit from the global wholesale distribution of the Prescriptives brand.

Other charges in connection with the implementation of actions taken under this Program primarily relate to consulting and other professional services.

## NOTE 8 – INCOME TAXES

The provision for income taxes is comprised of the following:

<table><tr><td>YEAR ENDED JUNE 30</td><td>2012</td><td>2011</td><td>2010</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Current:</td><td></td><td></td><td></td></tr><tr><td>Federal</td><td>$154.5</td><td>$127.2</td><td>$ 16.0</td></tr><tr><td>Foreign</td><td>254.1</td><td>220.0</td><td>205.6</td></tr><tr><td>State and local</td><td>14.1</td><td>(1.0)</td><td>9.0</td></tr><tr><td></td><td>422.7</td><td>346.2</td><td>230.6</td></tr><tr><td>Deferred:</td><td></td><td></td><td></td></tr><tr><td>Federal</td><td>(13.8)</td><td>(27.8)</td><td>(16.4)</td></tr><tr><td>Foreign</td><td>(9.0)</td><td>2.6</td><td>(7.5)</td></tr><tr><td>State and local</td><td>0.7</td><td>0.7</td><td>(0.8)</td></tr><tr><td></td><td>(22.1)</td><td>(24.5)</td><td>(24.7)</td></tr><tr><td></td><td>$400.6</td><td>$321.7</td><td>$205.9</td></tr><tr><td></td><td></td><td></td><td></td></tr></table>

A reconciliation of the U.S. federal statutory income tax rate to our actual effective tax rate on earnings before income taxes is as follows:

<table><tr><td>YEAR ENDED JUNE 30</td><td>2012</td><td>2011</td><td>2010</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Provision for income taxes at statutory rate</td><td>35.0%</td><td>35.0%</td><td>35.0%</td></tr><tr><td>Increase (decrease) due to:</td><td></td><td></td><td></td></tr><tr><td>State and local income taxes, net of federal tax benefit</td><td>1.1</td><td>0.8</td><td>1.5</td></tr><tr><td>Taxation of foreign operations</td><td>(4.2)</td><td>(2.7)</td><td>(0.9)</td></tr><tr><td>Income tax reserve adjustments</td><td>(0.8)</td><td>(1.8)</td><td>(5.6)</td></tr><tr><td>Other, net</td><td>0.7</td><td>0.1</td><td>(0.1)</td></tr><tr><td>Effective tax rate</td><td>31.8%</td><td>31.4%</td><td>29.9%</td></tr></table>



Income tax reserve adjustments represent changes in the Company’s net liability for unrecognized tax benefits related to prior-year tax positions including tax settlements and lapses of the applicable statutes of limitations.

Federal income and foreign withholding taxes have not been provided on approximately $1,618 million of undistributed earnings of foreign subsidiaries at June 30, 2012. The Company intends to reinvest these earnings in its foreign operations indefinitely, except where it is able to repatriate these earnings to the United States without material incremental tax provision. As of June 30, 2011 and 2010, the Company had not provided federal income and foreign withholding taxes on approximately $1,208 million and $1,068 million, respectively, of undistributed earnings of foreign subsidiaries. The determination and estimation of the future income tax consequences in all relevant taxing jurisdictions involves the application of highly complex tax laws in the countries involved, particularly in the United States, and is based on the tax profile of the Company in the year of earnings repatriation. Accordingly, it is not practicable to determine the amount of tax associated with such undistributed earnings.

Significant components of the Company’s deferred income tax assets and liabilities were as follows:

<table><tr><td>JUNE 30</td><td>2012</td><td>2011</td></tr><tr><td>(in millions)</td><td></td><td></td></tr><tr><td>Deferred tax assets:</td><td></td><td></td></tr><tr><td>Compensation related expenses</td><td>$ 161.8</td><td>$ 146.5</td></tr><tr><td>Inventory obsolescence and other inventory related reserves</td><td>65.1</td><td>73.1</td></tr><tr><td>Retirement benefit obligations</td><td>112.8</td><td>78.9</td></tr><tr><td>Various accruals not currently deductible</td><td>176.3</td><td>163.0</td></tr><tr><td>Net operating loss, credit and other carryforwards</td><td>66.7</td><td>58.6</td></tr><tr><td>Unrecognized state tax benefits and accrued interest</td><td>22.8</td><td>29.3</td></tr><tr><td>Other differences between tax and financial statement values</td><td>89.4</td><td>81.2</td></tr><tr><td></td><td>694.9</td><td>630.6</td></tr><tr><td>Valuation allowance for deferred tax assets</td><td>(73.2)</td><td>(69.5)</td></tr><tr><td>Total deferred tax assets</td><td>621.7</td><td>561.1</td></tr><tr><td>Deferred tax liabilities:</td><td></td><td></td></tr><tr><td>Depreciation and amortization</td><td>(252.7)</td><td>(235.1)</td></tr><tr><td>Other differences between tax and financial statement values</td><td>(18.1)</td><td>(4.2)</td></tr><tr><td>Total deferred tax liabilities</td><td>(270.8)</td><td>(239.3)</td></tr><tr><td>Total net deferred tax assets</td><td>$ 350.9</td><td>$ 321.8</td></tr></table>

As of June 30, 2012 and 2011, the Company had current net deferred tax assets of $247.8 million and $260.7 million, respectively, substantially all of which are included in Prepaid expenses and other current assets in the accompanying consolidated balance sheets. In addition, the Company had noncurrent net deferred tax assets of $103.1 million and $61.1 million as of June 30, 2012 and 2011, respectively, substantially all of which are included in Other assets in the accompanying consolidated balance sheets.

As of June 30, 2012 and 2011, certain subsidiaries had net operating loss and other carryforwards for tax purposes of approximately $262 million and $216 million, respectively. With the exception of approximately $245 million of net operating loss and other carryforwards with an indefinite carryforward period as of June 30, 2012, these carryforwards expire at various dates through fiscal 2032. Deferred tax assets, net of valuation allowances, in the amount of $3.3 million and $0.4 million as of June 30, 2012 and 2011, respectively, have been recorded to reflect the tax benefits of the carryforwards not utilized to date.

A full valuation allowance has been provided for those deferred tax assets for which, in the opinion of management, it is more-likely-than-not that the deferred tax assets will not be realized.

Earnings before income taxes include amounts contributed by the Company’s foreign operations of approximately $1,172 million, $1,039 million and $819 million for fiscal 2012, 2011 and 2010, respectively. A portion of these earnings are taxed in the United States.

As of June 30, 2012 and 2011, the Company had gross unrecognized tax benefits of $78.5 million and $104.8 million, respectively. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $52.5 million.



The Company classifies applicable interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes. During fiscal 2012 and 2011, the Company recognized gross interest and penalty benefits of $6.8 million and $1.0 million, respectively, in the accompanying consolidated statements of earnings. The total gross accrued interest and penalties in the accompanying consolidated balance sheets at June 30, 2012 and 2011 were $28.6 million and $37.7 million, respectively. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

<table><tr><td>JUNE 30</td><td>2012</td><td>2011</td></tr><tr><td>(In millions)</td><td></td><td></td></tr><tr><td>Beginning of the year balance of gross unrecognized tax benefits</td><td>$104.8</td><td>$157.3</td></tr><tr><td>Gross amounts of increases as a result of tax positions taken during a prior period</td><td>16.4</td><td>21.9</td></tr><tr><td>Gross amounts of decreases as a result of tax positions taken during a prior period</td><td>(16.4)</td><td>(22.0)</td></tr><tr><td>Gross amounts of increases as a result of tax positions taken during the current period</td><td>5.5</td><td>7.0</td></tr><tr><td>Amounts of decreases in unrecognized tax benefits relating to settlements with taxing authorities</td><td>(12.2)</td><td>(42.0)</td></tr><tr><td>Reductions to unrecognized tax benefits as a result of a lapse of the applicable statutes of limitations</td><td>(19.6)</td><td>(17.4)</td></tr><tr><td>End of year balance of gross unrecognized tax benefits</td><td>$ 78.5</td><td>$104.8</td></tr></table>

Earnings from the Company’s global operations are subject to tax in various jurisdictions both within and outside the United States. During fiscal 2011, the Company commenced participation in the U.S. Internal Revenue Service (the “IRS”) Compliance Assurance Program (“CAP”). The objective of CAP is to reduce taxpayer burden and uncertainty while assuring the IRS of the accuracy of income tax returns prior to filing, thereby reducing or eliminating the need for post-filing examinations. As of June 30, 2012, the compliance process was ongoing with respect to fiscal 2011 and fiscal 2012.

During the second quarter of fiscal 2012, the Company formally concluded the IRS examination of fiscal years 2009 and 2010. The conclusion of this examination did not materially impact the Company’s consolidated financial statements.

During the second quarter of fiscal 2011, the Company reached a formal agreement with the IRS concerning the examination adjustments proposed for fiscal 2006 through 2008. As a result, the Company applied a prior cash payment of $20.5 million made to the U.S. Treasury as an advance deposit toward these agreed-to adjustments. As a result of the settlement, the Company recognized a tax and interest benefit of $11 million, net of tax.

The Company is currently undergoing income tax examinations and controversies in several state, local and foreign jurisdictions. These matters are in various stages of completion and involve complex multi-jurisdictional issues common among multinational enterprises, including transfer pricing, which may require an extended period of time for resolution.

The Company had been notified of a disallowance of tax deductions claimed by its subsidiary in Spain for fiscal years 1999 through 2002. An appeal against this reassessment was filed with the Chief Tax Inspector. On July 18, 2005, the final assessment made by the Chief Tax Inspector was received, confirming the reassessment made by the tax auditors. During fiscal 2006, an appeal against this final assessment was filed with the Madrid Regional Economic Administrative Tribunal (“TEAR”). In view of the TEAR’s silence, during fiscal 2007 the claim was presumed to be dismissed and an appeal was filed against it with the Central Economic-Administrative Tribunal (“TEAC”). During the fiscal 2008 fourth quarter, the TEAC dismissed the claim and, on June 10, 2008, the Company filed an appeal for judicial review with the National Appellate Court. During fiscal 2009, the Company completed the appeal proceedings with the National Appellate Court and, as of June 30, 2011, awaited the court’s decision. During the first quarter of fiscal 2012, the National Appellate Court notified the Company that the appeal was denied. The Company has been assessed corporate income tax and interest of $3.8 million, net of tax, at current exchange rates. In response, the Company filed an



appeal with the Spain Supreme Court. While no assurance can be given as to the outcome in respect of this assessment and pending appeal in the Spanish courts, based on the decision of the National Appellate Court, management believes it is not more-likely-than-not that the subsidiary will be successful in its appeal to the Spain Supreme Court. Accordingly, the Company established a reserve which resulted in an increase to the provision for income taxes equal to the $3.8 million exposure, net of tax. Separately, during fiscal 2012, the Company’s subsidiary in Spain made cash payments totaling $4.1 million, at current exchange rates, to the Spain tax authority as an advance deposit to limit the additional interest that would be due to the Spain tax authority should it receive an unfavorable decision from the Spain Supreme Court.

During fiscal 2012, the Company concluded various state, local and foreign income tax audits and examinations while several other matters, including those noted above, were initiated or remained pending. On the basis of the information available in this regard as of June 30, 2012, it is reasonably possible that the total amount of unrecognized tax benefits could decrease in a range of $20 million to $25 million within 12 months as a result of projected resolutions of global tax examinations and controversies and a potential lapse of the applicable statutes of limitations.

The tax years subject to examination vary depending on the tax jurisdiction. As of June 30, 2012, the following tax years remain subject to examination by the major tax jurisdictions indicated:

## NOTE 10 – DEBT

The Company’s current and long-term debt and available financing consist of the following:

<table><tr><td rowspan="2"></td><td colspan="2">Debt at June 30</td><td colspan="2">Available financing at June 30, 2012</td></tr><tr><td>2012</td><td>2011</td><td>Committed</td><td>Uncommitted</td></tr><tr><td>(\( in millions)</td><td></td><td></td><td></td><td></td></tr><tr><td>6.00% Senior Notes, due May 15, 2037 (“2037 Senior Notes”)</td><td>$ 296.4</td><td>$ 296.4</td><td>$ —</td><td>$ —</td></tr><tr><td>5.75% Senior Notes, due October 15, 2033 (“2033 Senior Notes”)</td><td>197.7</td><td>197.7</td><td>—</td><td>—</td></tr><tr><td>5.55% Senior Notes, due May 15, 2017 (“2017 Senior Notes”)</td><td>334.9</td><td>341.5</td><td>—</td><td>—</td></tr><tr><td>7.75% Senior Notes, due November 1, 2013 (“2013 Senior Notes”)</td><td>230.1</td><td>230.0</td><td>—</td><td>—</td></tr><tr><td>6.00% Senior Notes, due January 15, 2012 (“2012 Senior Notes”)</td><td>—</td><td>119.4</td><td>—</td><td>—</td></tr><tr><td>Commercial paper</td><td>200.0</td><td>—</td><td>—</td><td>550.0</td></tr><tr><td>Loan participation notes</td><td>—</td><td>—</td><td>—</td><td>150.0</td></tr><tr><td>Other long-term borrowings</td><td>10.0</td><td>14.5</td><td>—</td><td>—</td></tr><tr><td>Other current borrowings</td><td>19.0</td><td>18.6</td><td>—</td><td>157.8</td></tr><tr><td>Revolving credit facility</td><td>—</td><td>—</td><td>1,000.0</td><td>—</td></tr><tr><td></td><td>1,288.1</td><td>1,218.1</td><td>$1,000.0</td><td>$857.8</td></tr><tr><td>Less current debt including current maturities</td><td>(219.0)</td><td>(138.0)</td><td></td><td></td></tr><tr><td></td><td>$1,069.1</td><td>$1,080.1</td><td></td><td></td></tr></table>



As of June 30, 2012, the Company had outstanding $296.4 million of 2037 Senior Notes consisting of $300.0 million principal and unamortized debt discount of $3.6 million. The 2037 Senior Notes, when issued in May 2007, were priced at 98.722% with a yield of 6.093%. Interest payments are required to be made semi-annually on May 15 and November 15. In April 2007, in anticipation of the issuance of the 2037 Senior Notes, the Company entered into a series of forward-starting interest rate swap agreements on a notional amount totaling $210.0 million at a weighted-average all-in rate of 5.45%. The forward-starting interest rate swap agreements were settled upon the issuance of the new debt and the Company recognized a loss in other comprehensive income of $0.9 million that will be amortized to interest expense over the life of the 2037 Senior Notes. As a result of the forward-starting interest rate swap agreements, the debt discount and debt issuance costs, the effective interest rate on the 2037 Senior Notes will be 6.181% over the life of the debt.

As of June 30, 2012, the Company had outstanding $197.7 million of 2033 Senior Notes consisting of $200.0 million principal and unamortized debt discount of $2.3 million. The 2033 Senior Notes, when issued in September 2003, were priced at 98.645% with a yield of 5.846%. Interest payments are required to be made semi-annually on April 15 and October 15. In May 2003, in anticipation of the issuance of the 5.75% Senior Notes, the Company entered into a series of treasury lock agreements on a notional amount totaling $195.0 million at a weighted-average all-in rate of 4.53%. The treasury lock agreements were settled upon the issuance of the new debt and the Company received a payment of $15.0 million that will be amortized against interest expense over the life of the 2033 Senior Notes. As a result of the treasury lock agreements, the debt discount and debt issuance costs, the effective interest rate on the 2033 Senior Notes will be 5.395% over the life of the debt.

As of June 30, 2012, the Company had outstanding $334.9 million of 2017 Senior Notes consisting of $300.0 million principal, an unamortized debt discount of $0.2 million and a $35.1 million adjustment to reflect the remaining termination value of an interest rate swap. The 2017 Senior Notes, when issued in May 2007, were priced at 99.845% with a yield of 5.570%. Interest payments are required to be made semi-annually on May 15 and November 15. During fiscal 2011, the Company terminated its interest rate swap agreements with a notional amount totaling $250.0 million which had effectively converted the fixed rate interest on its outstanding 2017 Senior Notes to variable interest rates. The instrument, which was classified as an asset, had a fair value of $47.4 million at the date of cash settlement. This net settlement is classified as a financing activity on the consolidated statements of cash flows. Hedge accounting treatment was discontinued prospectively and the fair value adjustment to the carrying amount of the related debt is being amortized against interest expense over the remaining life of the debt.

As of June 30, 2012, the Company had outstanding $230.1 million principal of 2013 Senior Notes. The 2013 Senior Notes, when issued in November 2008, were priced at 99.932% with a yield of 7.767%. Interest payments are required to be made semi-annually on May 1 and November 1. As discussed below, the 2013 Senior Notes have been called for redemption on September 4, 2012.

On January 15, 2012, the Company repaid the outstanding principal of its 2012 Senior Notes with cash from operations.

In August 2012, the Company issued $250.0 million of 2.35% Senior Notes due August 15, 2022 (“2022 Senior Notes”) and $250.0 million of 3.70% Senior Notes due August 15, 2042 (“2042 Senior Notes”) in a public offering. The 2022 Senior Notes were priced at 99.911% with a yield of 2.360%. The 2042 Senior Notes were priced at 99.567% with a yield of 3.724%. Interest payments on both notes are required to be made semi-annually on February 15 and August 15, commencing February 15, 2013. On August 2, 2012, the Company called for redemption all of the outstanding 2013 Senior Notes on September 4, 2012. The Company intends to use approximately $250 million of the net proceeds of the offering for the redemption and to use the remaining amounts for general corporate purposes.

The Company has a $750.0 million commercial paper program under which it may issue commercial paper in the United States. At June 30, 2012, the Company had $200.0 million of short-term commercial paper outstanding, due at various dates through July 2012 at an average interest rate of 0.18%, which may be refinanced on a periodic basis as it matures at then-prevailing market interest rates.

As of June 30, 2012, the Company had an overdraft borrowing agreement with a financial institution pursuant to which its subsidiary in Turkey may be credited to satisfy outstanding negative daily balances arising from its business operations. The total balance outstanding at any time shall not exceed 25.0 million Turkish lira ($13.8 million at the exchange rate at June 30, 2012). The interest rate applicable to each such credit shall be up to a maximum



of 175 basis points per annum above the spot rate charged by the lender or the lender's floating call rate agreed to by the Company at each borrowing. There were no debt issuance costs incurred related to this agreement. The outstanding balance at June 30, 2012 was 12.9 million Turkish lira ($7.1 million at the exchange rate at June 30, 2012) and is classified as current debt on the Company's consolidated balance sheet.

As of June 30, 2012, the Company had a fixed rate promissory note agreement with a financial institution pursuant to which the Company may borrow up to $150.0 million in the form of loan participation notes through one of its subsidiaries in Europe. The interest rate on borrowings under this agreement is at an all-in fixed rate determined by the lender and agreed to by the Company at the date of each borrowing. At June 30, 2012, no borrowings were outstanding under this agreement. Debt issuance costs incurred related to this agreement were de minimis.

As of June 30, 2012, the Company had a $1.0 billion senior unsecured revolving credit facility that expires on July 14, 2015 (the “Facility”). The Facility may be used to provide credit support for the Company’s commercial paper program and for general corporate purposes. Up to the equivalent of $250 million of the Facility is available for multi-currency loans. The interest rate on borrowings under the Facility is based on LIBOR or on the higher of prime, which is the rate of interest publicly announced by the administrative agent, or 1½% plus the Federal funds rate. The Company incurred costs of approximately $1 million to establish the Facility which are being amortized over the term of the Facility. The Facility has an annual fee of $0.7 million, payable quarterly, based on the Company’s current credit ratings. The Facility also contains a cross-default provision whereby a failure to pay other material financial obligations in excess of $100.0 million (after grace periods and absent a waiver from the lenders) would result in an event of default and the acceleration of the maturity of any outstanding debt under this facility. At June 30, 2012, no borrowings were outstanding under this agreement.

The Company maintains uncommitted credit facilities in various regions throughout the world. Interest rate terms for these facilities vary by region and reflect prevailing market rates for companies with strong credit ratings. During fiscal 2012 and 2011, the monthly average amount outstanding was approximately $11.8 million and $16.3 million, respectively, and the annualized monthly weighted-average interest rate incurred was approximately 14.1% and 8.8%, respectively.
Refer to Note 14—Commitments and Contingencies for the Company’s projected debt service payments, as of June 30, 2012, over the next five fiscal years.

NOTE 11 – DERIVATIVE FINANCIAL INSTRUMENTS
The Company addresses certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments. The Company enters into foreign currency forward contracts and may enter into option contracts to reduce the effects of fluctuating foreign currency exchange rates and interest rate derivatives to manage the effects of interest rate movements on the Company’s aggregate liability portfolio. The Company also enters into foreign currency forward contracts and may use option contracts, not designated as hedging instruments, to mitigate the change in fair value of specific assets and liabilities on the balance sheet. The Company does not utilize derivative financial instruments for trading or speculative purposes. Costs associated with entering into these derivative financial instruments have not been material to the Company’s consolidated financial results.

For each derivative contract entered into where the Company looks to obtain hedge accounting treatment, the Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking the hedge transaction, the nature of the risk being hedged, how the hedging instruments’ effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method of measuring ineffectiveness. This process includes linking all derivatives to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. If it is determined that a derivative is not highly effective, or that it has ceased to be a highly effective hedge, the Company will be required to discontinue hedge accounting with respect to that derivative prospectively.



The fair values of the Company’s derivative financial instruments included in the consolidated balance sheets are presented as follows:

<table><tr><td rowspan="4"></td><td colspan="2">Asset Derivatives</td><td colspan="2">Liability Derivatives</td></tr><tr><td>Balance Sheet Location</td><td>Fair Value \( ^{(1)} \)</td><td>Balance Sheet Location</td><td>Fair Value \( ^{(1)} \)</td></tr><tr><td colspan="2">June 30</td><td colspan="2">June 30</td></tr><tr><td>2012</td><td>2011</td><td>2012</td><td>2011</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td></tr><tr><td>Derivatives Designated as Hedging Instruments:</td><td></td><td></td><td></td><td></td></tr><tr><td>Foreign currency forward contracts</td><td>Prepaid expenses and other current assets</td><td>$16.1</td><td>Other accrued liabilities</td><td>$4.9</td></tr><tr><td>Derivatives Not Designated as Hedging Instruments:</td><td></td><td></td><td></td><td></td></tr><tr><td>Foreign currency forward contracts</td><td>Prepaid expenses and other current assets</td><td>1.6</td><td>Other accrued liabilities</td><td>1.3</td></tr><tr><td>Total Derivatives</td><td></td><td>$17.7</td><td>$15.0</td><td>$6.2</td></tr><tr><td></td><td></td><td></td><td></td><td>$30.9</td></tr><tr><td colspan="5">(1) See Note 12—Fair Value Measurements for further information about how the fair value of derivative assets and liabilities are determined.</td></tr></table>

The amounts of the gains and losses related to the Company’s derivative financial instruments designated as hedging instruments are presented as follows:

<table><tr><td rowspan="3"></td><td colspan="2">Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)</td><td colspan="2">Location of Gain or (Loss) Reclassified from Accumulated OCI into Earnings (Effective Portion)</td><td colspan="2">Amount of Gain or (Loss) Reclassified from Accumulated OCI into Earnings (Effective Portion)(2)</td></tr><tr><td colspan="2">June 30</td><td colspan="2"></td><td colspan="2">June 30</td></tr><tr><td>2012</td><td>2011</td><td></td><td>2012</td><td>2011</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Derivatives in Cash Flow Hedging Relationships:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Foreign currency forward contracts</td><td>$40.2</td><td>(38.0)</td><td>Cost of sales</td><td></td><td>$ 4.6</td><td>$ (4.3)</td></tr><tr><td></td><td></td><td></td><td>Selling, general and administrative</td><td></td><td>7.1</td><td>(10.8)</td></tr><tr><td>Total derivatives</td><td>$40.2</td><td>(38.0)</td><td></td><td></td><td>$11.7</td><td>$(15.1)</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td colspan="7">(2) The amount of gain (loss) recognized in earnings related to the amount excluded from effectiveness testing was $(0.8) million and $0.3 million for fiscal 2012 and 2011, respectively. The gain recognized in earnings related to the ineffective portion of the hedging relationships was de minimis for fiscal 2012. The loss recognized in earnings related to the ineffective portion of the hedging relationships was $0.5 million for fiscal 2011.</td></tr></table>

<table><tr><td rowspan="3"></td><td colspan="2">Location of Gain or (Loss) Recognized in Earnings on Derivatives</td><td colspan="2">Amount of Gain or (Loss) Recognized in Earnings on Derivatives \( ^{(1)} \)</td></tr><tr><td colspan="2"></td><td colspan="2">June 30</td></tr><tr><td></td><td></td><td>2012</td><td>2011</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td></tr><tr><td>Derivatives in Fair Value Hedging Relationships:</td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate swap contracts</td><td>Interest expense, net</td><td></td><td>$—</td><td>$8.7</td></tr><tr><td colspan="5">(1) Changes in the fair values of the interest rate swap agreements are exactly offset by changes in the fair value of the underlying long-term debt.</td></tr></table>



The amounts of the gains and losses related to the Company’s derivative financial instruments not designated as hedging instruments are presented as follows:

<table><tr><td rowspan="3"></td><td rowspan="2">Location of Gain or (Loss) Recognized in Earnings on Derivatives</td><td colspan="2">Amount of Gain or (Loss) Recognized in Earnings on Derivatives</td></tr><tr><td colspan="2">June 30</td></tr><tr><td></td><td>2012</td><td>2011</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Derivatives Not Designated as Hedging Instruments:</td><td></td><td></td><td></td></tr><tr><td>Foreign currency forward contracts</td><td>Selling, general and administrative</td><td>$ (0.3)</td><td>$0.6</td></tr></table>

## Foreign Currency Cash-Flow Hedges

The Company enters into foreign currency forward contracts to hedge anticipated transactions, as well as receivables and payables denominated in foreign currencies, for periods consistent with the Company’s identified exposures. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on costs and on the cash flows that the Company receives from foreign subsidiaries. The majority of foreign currency forward contracts are denominated in currencies of major industrial countries. The foreign currency forward contracts entered into to hedge anticipated transactions have been designated as foreign currency cash-flow hedges and have varying maturities through the end of March 2014. Hedge effectiveness of foreign currency forward contracts is based on a hypothetical derivative methodology and excludes the portion of fair value attributable to the spot-forward difference which is recorded in current-period earnings.

The ineffective portion of foreign currency forward contracts is recorded in current-period earnings. For hedge contracts that are no longer deemed highly effective, hedge accounting is discontinued and gains and losses accumulated in OCI are reclassified to earnings when the underlying forecasted transaction occurs. If it is probable that the forecasted transaction will no longer occur, then any gains or losses in accumulated OCI are reclassified to current-period earnings. As of June 30, 2012, the Company’s foreign currency cash-flow hedges were highly effective in all material respects. The estimated net gain as of June 30, 2012 that is expected to be reclassified from accumulated OCI into earnings, net of tax, within the next twelve months is $8.6 million. The accumulated gain (loss) on derivative instruments in accumulated OCI was $15.3 million and $13.2 million as of June 30, 2012 and June 30, 2011, respectively.

At June 30, 2012, the Company had foreign currency forward contracts in the amount of $1,476.0 million. The foreign currencies included in foreign currency forward contracts (notional value stated in U.S. dollars) are principally the British pound ($376.7 million), Euro ($223.4 million), Canadian dollar ($184.0 million), Swiss franc ($129.9 million), Australian dollar ($106.5 million), Korean won ($75.1 million) and Thailand baht ($51.3 million).

At June 30, 2011, the Company had foreign currency forward contracts in the amount of $1,490.7 million. The foreign currencies included in foreign currency forward contracts (notional value stated in U.S. dollars) are principally the Swiss franc ($284.9 million), British pound ($273.5 million), Canadian dollar ($210.1 million), Euro ($164.6 million), Australian dollar ($110.7 million), Korean won ($77.9 million) and Russian ruble ($45.2 million).

## Fair-Value Hedges

The Company may enter into interest rate derivative contracts to manage the exposure to interest rate fluctuations on its funded indebtedness and anticipated issuance of debt for periods consistent with the identified exposures. During fiscal 2011, the Company terminated its interest rate swap agreements which had effectively converted the fixed rate interest on its outstanding 2017 Senior Notes to variable interest rates. Additionally, the instrument, which was classified as an asset, had a fair value of $47.4 million at the date of cash settlement. This net settlement is classified as a financing activity on the consolidated statements of cash flows. Hedge accounting treatment was discontinued prospectively and the fair value adjustment to the carrying amount of the related debt is being amortized against interest expense over the remaining life of the debt.

## Credit Risk

As a matter of policy, the Company only enters into derivative contracts with counterparties that have a long-term credit rating of at least A- or higher by at least two nationally recognized rating agencies. The counterparties to these contracts are major financial institutions. Exposure



to credit risk in the event of nonperformance by any of the counterparties is limited to the gross fair value of contracts in asset positions, which totaled $17.7 million at June 30, 2012, of which 35% and 16% were attributable to two counterparties. To manage this risk, the Company has established strict counterparty credit guidelines that are continually monitored. Accordingly, management believes risk of loss under these hedging contracts is remote.

Certain of the Company’s derivative financial instruments contain credit-risk-related contingent features. At June 30, 2012, the Company was in a net asset position for certain derivative contracts that contain such features with two counterparties. The fair value of those contracts as of June 30, 2012 was approximately $2.8 million. As of June 30, 2012, the Company was in compliance with such credit-risk-related contingent features.

## NOTE 12 – FAIR VALUE MEASUREMENTS

The Company records 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, which principally consist of assets and liabilities acquired through business combinations, goodwill, indefinite-lived intangible assets and long-lived assets for the purposes of calculating potential impairment, and liabilities associated with restructuring activities. 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, 2012:

<table><tr><td></td><td>Level 1</td><td>Level 2</td><td>Level 3</td><td>Total</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td></tr><tr><td>Assets:</td><td></td><td></td><td></td><td></td></tr><tr><td>Foreign currency forward contracts</td><td>$ —</td><td>$17.7</td><td>$ —</td><td>$17.7</td></tr><tr><td>Available-for-sale securities</td><td>5.9</td><td>—</td><td>—</td><td>5.9</td></tr><tr><td>Total</td><td>$5.9</td><td>$17.7</td><td>$ —</td><td>$23.6</td></tr><tr><td>Liabilities:</td><td></td><td></td><td></td><td></td></tr><tr><td>Foreign currency forward contracts</td><td>$ —</td><td>$ 6.2</td><td>$ —</td><td>$ 6.2</td></tr></table>

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, 2011:

<table><tr><td></td><td>Level 1</td><td>Level 2</td><td>Level 3</td><td>Total</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td></tr><tr><td>Assets:</td><td></td><td></td><td></td><td></td></tr><tr><td>Foreign currency forward contracts</td><td>$ —</td><td>$15.0</td><td>$ —</td><td>$15.0</td></tr><tr><td>Available-for-sale securities</td><td>6.6</td><td>—</td><td>—</td><td>6.6</td></tr><tr><td>Total</td><td>$6.6</td><td>$15.0</td><td>$ —</td><td>$21.6</td></tr><tr><td>Liabilities:</td><td></td><td></td><td></td><td></td></tr><tr><td>Foreign currency forward contracts</td><td>$ —</td><td>$30.9</td><td>$ —</td><td>$30.9</td></tr></table>



The following table presents the Company’s hierarchy and impairment charges for certain of its nonfinancial assets measured at fair value on a nonrecurring basis during fiscal 2012:

<table><tr><td></td><td>Impairment Charges</td><td>Date of Carrying Value</td><td>Carrying Value</td><td>Level 3</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td></tr><tr><td>Other intangible assets, net (trademark)</td><td>$ 6.7</td><td>December 31, 2011</td><td>$3.3</td><td>$3.3</td></tr><tr><td>Other intangible assets, net (trademark)</td><td>3.3</td><td>April 1, 2012</td><td>—</td><td>—</td></tr><tr><td>Other intangible assets, net (customer list)</td><td>11.7</td><td>April 1, 2012</td><td>—</td><td>—</td></tr><tr><td>Total</td><td>$21.7</td><td></td><td></td><td></td></tr></table>

To determine fair value of the trademark at December 31, 2011, the Company used the relief-from-royalty method. This method, which is an income approach, assumed 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 calculation of fair value requires significant judgment in determining both the assets' estimated cash flows as well as the appropriate discount and royalty rates applied to those cash flows to determine fair value. As these inputs are unobservable in the market and significant to the fair value calculation, the trademark was classified as Level 3. In determining its fair value, a terminal growth rate of 3% was applied to future cash flows, and was used in conjunction with a 1.5% royalty rate discounted to present value at a 17% rate.

To determine fair value of the trademark and customer list at April 1, 2012, the Company assessed the future performance of the related reporting unit and determined that negative cash flows in future forecasted periods would not support a royalty rate for the calculation of fair value of the trademark and negative income associated with existing customers would not support a value for the customer list. The Company therefore concluded that the carrying value of these assets were not recoverable.

See Note 5—Goodwill and Other Intangible Assets for further discussion of the Company’s impairment testing.

The following table presents the Company’s hierarchy and impairment charges for certain of its nonfinancial assets measured at fair value on a nonrecurring basis during fiscal 2011:

<table><tr><td></td><td>Impairment Charges</td><td>Date of Carrying Value</td><td>Carrying Value</td><td>Level 3 \( ^{(1)} \)</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td></tr><tr><td>Goodwill</td><td>$29.3</td><td>March 31, 2011</td><td>$—</td><td>$—</td></tr><tr><td>Other intangible assets, net (trademark)</td><td>7.0</td><td>March 31, 2011</td><td>10.0</td><td>10.0</td></tr><tr><td>Other intangible assets, net (trademark)</td><td>1.7</td><td>April 1, 2011</td><td>—</td><td>—</td></tr><tr><td>Total</td><td>$38.0</td><td></td><td></td><td></td></tr></table>

(1) See Note 5—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.

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

Cash and cash equivalents – The carrying amount approximates fair value, primarily because of the short maturity of cash equivalent instruments.

Available-for-sale securities – Available-for-sale securities are generally comprised of mutual funds and are valued using quoted market prices on an active exchange. Available-for-sale securities are included in Other assets in the accompanying consolidated balance sheets.

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.

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 capital lease obligations for which the carrying amount approximates the fair value. The Company’s debt is classified within Level 2 of the valuation hierarchy.



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

<table><tr><td rowspan="2"></td><td colspan="2">JUNE 30, 2012</td><td colspan="2">JUNE 30, 2011</td></tr><tr><td>Carrying Amount</td><td>Fair Value</td><td>Carrying Amount</td><td>Fair Value</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td></tr><tr><td>Nonderivatives</td><td></td><td></td><td></td><td></td></tr><tr><td>Cash and cash equivalents</td><td>$1,347.7</td><td>$1,347.7</td><td>$1,253.0</td><td>$1,253.0</td></tr><tr><td>Available-for-sale securities</td><td>5.9</td><td>5.9</td><td>6.6</td><td>6.6</td></tr><tr><td>Current and long-term debt</td><td>1,288.1</td><td>1,478.9</td><td>1,218.1</td><td>1,293.5</td></tr><tr><td>Derivatives</td><td></td><td></td><td></td><td></td></tr><tr><td>Foreign currency forward contracts - asset (liability)</td><td>11.5</td><td>11.5</td><td>(15.9)</td><td>(15.9)</td></tr></table>

## NOTE 13 – PENSION, DEFERRED COMPENSATION AND POST-RETIREMENT BENEFIT PLANS

The Company maintains pension plans covering substantially all of its full-time employees for its U.S. operations and a majority of its international operations. Several plans provide pension benefits based primarily on years of service and employees' earnings. In certain instances, the Company adjusts benefits in connection with international employee transfers.

## Retirement Growth Account Plan (U.S.)

The Retirement Growth Account Plan is a trust-based, noncontributory qualified defined benefit pension plan. The Company’s funding policy consists of contributions at a rate that provides for future plan benefits and maintains appropriate funded percentages. Such contribution is not less than the minimum required by the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, and subsequent pension legislation and is not more than the maximum amount deductible for income tax purposes.

## Restoration Plan (U.S.)

The Company also has an unfunded, non-qualified domestic noncontributory pension Restoration Plan to provide benefits in excess of Internal Revenue Code limitations.

## International Pension Plans

The Company maintains international pension plans, the most significant of which are defined benefit pension plans. The Company’s funding policies for these plans are determined by local laws and regulations. The Company’s most significant defined benefit pension obligations are included in the plan summaries below. The fiscal 2011 international plan summary reflects a plan amendment and settlement that was a result of the establishment of a successor defined benefit pension plan, to comply with local regulations, for the employees of a particular international affiliate.

## Post-retirement Benefit Plans

The Company maintains a domestic post-retirement benefit plan which provides certain medical and dental benefits to eligible employees. Employees hired after January 1, 2002 are not eligible for retiree medical benefits when they retire. Certain retired employees who are receiving monthly pension benefits are eligible for participation in the plan. Contributions required and benefits received by retirees and eligible family members are dependent on the age of the retiree. It is the Company’s practice to fund these benefits as incurred and to provide discretionary funding for the future liability up to the maximum amount deductible for income tax purposes.

Certain of the Company’s international subsidiaries and affiliates have post-retirement plans, although most participants are covered by government-sponsored or administered programs.



## Plan Summaries

The significant components of the above mentioned plans as of and for the years ended June 30 are summarized as follows:

<table><tr><td rowspan="3"></td><td colspan="4">Pension Plans</td><td colspan="2">Other than Pension Plans</td></tr><tr><td colspan="2">U.S.</td><td colspan="2">International</td><td colspan="2">Post-retirement</td></tr><tr><td>2012</td><td>2011</td><td>2012</td><td>2011</td><td>2012</td><td>2011</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Change in benefit obligation:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Benefit obligation at beginning of year</td><td>$ 574.1</td><td>$545.6</td><td>$ 451.3</td><td>$ 413.7</td><td>$ 156.3</td><td>$ 145.0</td></tr><tr><td>Service cost</td><td>27.7</td><td>25.8</td><td>22.3</td><td>21.5</td><td>3.8</td><td>3.8</td></tr><tr><td>Interest cost</td><td>29.8</td><td>27.8</td><td>18.8</td><td>19.5</td><td>8.6</td><td>7.8</td></tr><tr><td>Plan participant contributions</td><td>—</td><td>—</td><td>3.3</td><td>3.1</td><td>0.7</td><td>0.6</td></tr><tr><td>Actuarial loss (gain)</td><td>107.2</td><td>14.4</td><td>52.6</td><td>(12.4)</td><td>32.7</td><td>4.6</td></tr><tr><td>Foreign currency exchange rate impact</td><td>—</td><td>—</td><td>(34.1)</td><td>58.5</td><td>(1.5)</td><td>1.5</td></tr><tr><td>Benefits, expenses, taxes and premiums paid</td><td>(32.7)</td><td>(39.5)</td><td>(21.7)</td><td>(30.4)</td><td>(6.3)</td><td>(6.2)</td></tr><tr><td>Plan amendments</td><td>—</td><td>—</td><td>(8.8)</td><td>11.4</td><td>6.8</td><td>(0.8)</td></tr><tr><td>Settlements and curtailments</td><td>—</td><td>—</td><td>(0.3)</td><td>(33.6)</td><td>—</td><td>—</td></tr><tr><td>Benefit obligation at end of year</td><td>$ 706.1</td><td>$574.1</td><td>$ 483.4</td><td>$ 451.3</td><td>$ 201.1</td><td>$ 156.3</td></tr><tr><td>Change in plan assets:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Fair value of plan assets at beginning of year</td><td>$ 554.7</td><td>$478.3</td><td>$ 391.3</td><td>$ 353.1</td><td>$ 15.4</td><td>$ 6.0</td></tr><tr><td>Actual return on plan assets</td><td>41.4</td><td>71.6</td><td>34.2</td><td>20.6</td><td>1.2</td><td>1.0</td></tr><tr><td>Foreign currency exchange rate impact</td><td>—</td><td>—</td><td>(21.6)</td><td>43.1</td><td>—</td><td>—</td></tr><tr><td>Employer contributions</td><td>82.2</td><td>44.3</td><td>29.7</td><td>34.1</td><td>15.0</td><td>14.0</td></tr><tr><td>Plan participant contributions</td><td>—</td><td>—</td><td>3.4</td><td>3.1</td><td>0.7</td><td>0.6</td></tr><tr><td>Settlements</td><td>—</td><td>—</td><td>—</td><td>(32.3)</td><td>—</td><td>—</td></tr><tr><td>Benefits, expenses, taxes and premiums paid</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>from plan assets</td><td>(32.7)</td><td>(39.5)</td><td>(21.7)</td><td>(30.4)</td><td>(6.3)</td><td>(6.2)</td></tr><tr><td>Fair value of plan assets at end of year</td><td>$ 645.6</td><td>$554.7</td><td>$ 415.3</td><td>$ 391.3</td><td>$ 26.0</td><td>$ 15.4</td></tr><tr><td>Funded status</td><td>$ (60.5)</td><td>$ (19.4)</td><td>$ (68.1)</td><td>$ (60.0)</td><td>$ (175.1)</td><td>$ (140.9)</td></tr><tr><td>Amounts recognized in the Balance Sheet consist of:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Other assets</td><td>$ 51.1</td><td>$ 78.0</td><td>$ 41.6</td><td>$ 47.3</td><td>$ —</td><td>$ —</td></tr><tr><td>Other accrued liabilities</td><td>(10.5)</td><td>(9.6)</td><td>(3.0)</td><td>(2.2)</td><td>(0.3)</td><td>(0.3)</td></tr><tr><td>Other noncurrent liabilities</td><td>(101.1)</td><td>(87.8)</td><td>(106.7)</td><td>(105.1)</td><td>(174.8)</td><td>(140.6)</td></tr><tr><td>Funded status</td><td>(60.5)</td><td>(19.4)</td><td>(68.1)</td><td>(60.0)</td><td>(175.1)</td><td>(140.9)</td></tr><tr><td>Accumulated other comprehensive loss</td><td>219.5</td><td>123.3</td><td>157.7</td><td>143.0</td><td>67.2</td><td>29.8</td></tr><tr><td>Net amount recognized</td><td>$ 159.0</td><td>$103.9</td><td>$ 89.6</td><td>$ 83.0</td><td>$ (107.9)</td><td>$ (111.1)</td></tr></table>



<table><tr><td rowspan="3"></td><td colspan="6">Pension Plans</td><td colspan="3">Other than Pension Plans</td></tr><tr><td colspan="3">U.S.</td><td colspan="3">International</td><td colspan="3">Post-retirement</td></tr><tr><td>2012</td><td>2011</td><td>2010</td><td>2012</td><td>2011</td><td>2010</td><td>2012</td><td>2011</td><td></td></tr><tr><td>(\( in millions)</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Components of net periodic benefit cost:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Service cost, net</td><td>$ 27.7</td><td>$ 25.8</td><td>$ 22.5</td><td>$ 22.3</td><td>$ 21.5</td><td>$ 17.9</td><td>$ 3.8</td><td>$ 3.8</td><td>$ 3.3</td><td></td></tr><tr><td>Interest cost</td><td>29.8</td><td>27.8</td><td>29.3</td><td>18.8</td><td>19.5</td><td>19.3</td><td>8.6</td><td>7.8</td><td>8.0</td><td></td></tr><tr><td>Expected return on assets</td><td>(38.9)</td><td>(34.7)</td><td>(32.4)</td><td>(21.1)</td><td>(21.9)</td><td>(19.8)</td><td>(1.2)</td><td>(0.5)</td><td>—</td><td></td></tr><tr><td>Amortization of:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Prior service cost</td><td>0.7</td><td>0.7</td><td>0.8</td><td>3.3</td><td>2.5</td><td>2.3</td><td>0.3</td><td>(0.1)</td><td>—</td><td></td></tr><tr><td>Actuarial loss (gain)</td><td>7.9</td><td>9.7</td><td>4.1</td><td>4.9</td><td>5.8</td><td>1.9</td><td>1.9</td><td>1.7</td><td>0.6</td><td></td></tr><tr><td>Settlements and curtailments</td><td>—</td><td>—</td><td>—</td><td>(0.3)</td><td>9.1</td><td>2.7</td><td>—</td><td>—</td><td>—</td><td></td></tr><tr><td>Special termination benefits</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>1.1</td><td>—</td><td>—</td><td>—</td><td></td></tr><tr><td>Net periodic benefit cost</td><td>$ 27.2</td><td>$ 29.3</td><td>$ 24.3</td><td>$ 27.9</td><td>$ 36.5</td><td>$ 25.4</td><td>$13.4</td><td>$12.7</td><td>$11.9</td><td></td></tr><tr><td>Weighted-average assumptions used to determine benefit obligations at June 30:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Discount rate</td><td>3.90%</td><td>5.40%</td><td>5.30%</td><td>1.00-7.00%</td><td>1.25-8.25%</td><td>1.25-8.00%</td><td>3.70-8.65%</td><td>5.40-8.75%</td><td>5.30-9.00%</td><td></td></tr><tr><td>Rate of compensation increase</td><td>4.00-12.00%</td><td>4.00-12.00%</td><td>4.00-12.00</td><td>1.00-6.00%</td><td>2.00-6.00%</td><td>2.00-6.00%</td><td>N/A</td><td>N/A</td><td>N/A</td><td></td></tr><tr><td>Weighted-average assumptions used to determine net periodic benefit cost for the year ended June 30:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Discount rate</td><td>5.40%</td><td>5.30%</td><td>6.50%</td><td>1.25-8.25%</td><td>1.25-8.00%</td><td>1.75-8.75%</td><td>5.40-8.75%</td><td>5.30-9.00%</td><td>6.50-9.00%</td><td></td></tr><tr><td>Expected return on assets</td><td>7.75%</td><td>7.75%</td><td>7.75%</td><td>2.00-8.25%</td><td>2.50-8.00%</td><td>2.75-8.75%</td><td>7.75%</td><td>7.75%</td><td>N/A</td><td></td></tr><tr><td>Rate of compensation increase</td><td>4.00-12.00%</td><td>4.00-12.00%</td><td>4.00-12.00</td><td>2.00-6.00%</td><td>2.00-6.00%</td><td>1.75-5.50%</td><td>N/A</td><td>N/A</td><td>N/A</td><td></td></tr></table>

The discount rate for each plan used for determining future net periodic benefit cost is based on a review of highly rated long-term bonds. The discount rate for the Company’s U.S. plans is based on a bond portfolio that includes only long-term bonds with an Aa rating, or equivalent, from a major rating agency. The Company believes the timing and amount of cash flows related to the bonds included in this portfolio is expected to match the estimated defined benefit payment streams of its U.S. plans. In determining the long-term rate of return for a plan, the Company considers the historical rates of return, the nature of the plan’s investments and an expectation for the plan’s investment strategies.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. The assumed weighted-average health care cost trend rate for the coming year is 6.67% while the weighted-average ultimate trend rate of 4.56% is expected to be reached in approximately 16 years. A one-percentage-point change in assumed health care cost trend rates for fiscal 2012 would have had the following effects:

<table><tr><td></td><td>One-Percentage-Point Increase</td><td>One-Percentage-Point Decrease</td></tr><tr><td>(In millions)</td><td></td><td></td></tr><tr><td>Effect on total service and interest costs</td><td>$ 1.2</td><td>$ (1.0)</td></tr><tr><td>Effect on post-retirement benefit obligations</td><td>$13.9</td><td>$(12.6)</td></tr></table>



Amounts recognized in accumulated OCI (before tax) as of June 30, 2012 are as follows:

<table><tr><td rowspan="2"></td><td colspan="2">Pension Plans</td><td colspan="2">Other than Pension Plans</td></tr><tr><td>U.S.</td><td>International</td><td>Post-retirement</td><td>Total</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td></tr><tr><td>Net actuarial (gains) losses, beginning of year</td><td>$118.9</td><td>$112.6</td><td>$31.5</td><td>$263.0</td></tr><tr><td>Actuarial (gains) losses recognized</td><td>104.8</td><td>39.5</td><td>32.6</td><td>176.9</td></tr><tr><td>Amortization of amounts included in net periodic benefit cost</td><td>(7.9)</td><td>(4.9)</td><td>(1.9)</td><td>(14.7)</td></tr><tr><td>Translation adjustments</td><td>—</td><td>(6.9)</td><td>0.1</td><td>(6.8)</td></tr><tr><td>Net actuarial (gains) losses, end of year</td><td>215.8</td><td>140.3</td><td>62.3</td><td>418.4</td></tr><tr><td>Net prior service cost (credit), beginning of year</td><td>4.4</td><td>30.5</td><td>(1.7)</td><td>33.2</td></tr><tr><td>Prior service cost (credit) recognized</td><td>—</td><td>(8.8)</td><td>6.8</td><td>(2.0)</td></tr><tr><td>Amortization of amounts included in net periodic benefit cost</td><td>(0.7)</td><td>(3.3)</td><td>(0.3)</td><td>(4.3)</td></tr><tr><td>Translation adjustments</td><td>—</td><td>(0.9)</td><td>0.1</td><td>(0.8)</td></tr><tr><td>Net prior service cost (credit), end of year</td><td>3.7</td><td>17.5</td><td>4.9</td><td>26.1</td></tr><tr><td>Net transition obligation (asset), beginning of year</td><td>—</td><td>(0.1)</td><td>—</td><td>(0.1)</td></tr><tr><td>Amortization of amounts included in net periodic benefit cost</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Net transition obligation (asset), end of year</td><td>—</td><td>(0.1)</td><td>—</td><td>(0.1)</td></tr><tr><td>Total amounts recognized in accumulated OCI</td><td>$219.5</td><td>$157.7</td><td>$67.2</td><td>$444.4</td></tr></table>

Amounts in accumulated OCI expected to be amortized as components of net periodic benefit cost during fiscal 2013 are as follows:

<table><tr><td rowspan="2"></td><td colspan="2">Pension Plans</td><td rowspan="2">Other than Pension Plans</td></tr><tr><td>U.S.</td><td>International</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Prior service cost</td><td>$0.7</td><td>$2.7</td><td>$0.8</td></tr><tr><td>Net actuarial loss</td><td>$7.9</td><td>$9.3</td><td>$4.4</td></tr></table>

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the Company’s pension plans at June 30 are as follows:

<table><tr><td rowspan="2"></td><td colspan="2">Retirement Growth Account</td><td colspan="2">Pension Plans</td><td colspan="2">International</td></tr><tr><td>2012</td><td>2011</td><td>2012</td><td>2011</td><td>2012</td><td>2011</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Projected benefit obligation</td><td>$594.5</td><td>$476.8</td><td>$111.6</td><td>$97.3</td><td>$483.4</td><td>$451.3</td></tr><tr><td>Accumulated benefit obligation</td><td>$522.1</td><td>$422.4</td><td>$ 86.3</td><td>$76.1</td><td>$426.5</td><td>$392.0</td></tr><tr><td>Fair value of plan assets</td><td>$645.6</td><td>$554.7</td><td>$ —</td><td>$ —</td><td>$415.3</td><td>$391.3</td></tr></table>

International pension plans with projected benefit obligations in excess of the plans’ assets had aggregate projected benefit obligations of $223.0 million and $179.3 million and aggregate fair value of plan assets of $113.3 million and $72.0 million at June 30, 2012 and 2011, respectively. International pension plans with accumulated benefit obligations in excess of the plans’ assets had aggregate accumulated benefit obligations of $155.6 million and $147.5 million and aggregate fair value of plan assets of $72.5 million and $70.1 million at June 30, 2012 and 2011, respectively.



The expected cash flows for the Company’s pension and post-retirement plans are as follows:

<table><tr><td rowspan="2"></td><td colspan="2">Pension Plans</td><td rowspan="2">Other than Pension Plans</td></tr><tr><td>U.S.</td><td>International</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Expected employer contributions for year ending June 30, 2013</td><td>$ —</td><td>$ 24.7</td><td>$ —</td></tr><tr><td>Expected benefit payments for year ending June 30, 2013</td><td>46.3</td><td>19.5</td><td>6.0</td></tr><tr><td>2014</td><td>46.0</td><td>16.5</td><td>6.7</td></tr><tr><td>2015</td><td>42.9</td><td>17.7</td><td>7.3</td></tr><tr><td>2016</td><td>38.4</td><td>18.1</td><td>8.1</td></tr><tr><td>2017</td><td>38.5</td><td>20.1</td><td>9.0</td></tr><tr><td>Years 2018-2022</td><td>197.2</td><td>114.9</td><td>58.3</td></tr></table>

## Plan Assets

The Company’s investment strategy for its pension and post-retirement plan assets is to maintain a diversified portfolio of asset classes with the primary goal of meeting long-term cash requirements as they become due. Assets are primarily invested in diversified funds that hold equity or debt securities to maintain the security of the funds while maximizing the returns within each plan’s investment policy. The investment policy for each plan specifies the type of investment vehicles appropriate for the plan, asset allocation guidelines, criteria for selection of investment managers, procedures to monitor overall investment performance, as well as investment manager performance.

The Company’s target asset allocation at June 30, 2012 is as follows:

<table><tr><td rowspan="2"></td><td colspan="2">Pension Plans</td><td rowspan="2">Other than Pension Plans</td></tr><tr><td>U.S.</td><td>International</td></tr><tr><td>Equity</td><td>30%</td><td>19%</td><td>30%</td></tr><tr><td>Debt securities</td><td>41%</td><td>56%</td><td>41%</td></tr><tr><td>Other</td><td>29%</td><td>25%</td><td>29%</td></tr><tr><td></td><td>100%</td><td>100%</td><td>100%</td></tr></table>

The following is a description of the valuation methodologies used for plan assets measured at fair value:

Short-term investment funds—The fair value is determined using the Net Asset Value (“NAV”) provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. The NAV is a quoted price in a market that is not active and is primarily classified as Level 2. When quoted in an active market, these investments are classified within Level 1 of the valuation hierarchy.

Government and agency securities—When quoted prices are available in an active market, the investments are classified as Level 1. When quoted market prices are not available in an active market, these investments are classified as Level 2.

Equity securities—The fair values reflect the closing price reported on a major market where the individual securities are traded. These investments are classified within Level 1 of the valuation hierarchy.
Debt instruments—The fair values are based on a compilation of primarily observable market information or a broker quote in a non-active market. These investments are primarily classified within Level 2 of the valuation hierarchy.

Commingled funds—The fair values are determined using NAV provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the trust/entity, minus its liabilities, and then divided by the number of shares outstanding. When quoted in an active market, these investments are classified within Level 1 of the valuation hierarchy. When the market is not active, these investments are generally classified within Level 2. When the market is not active and some inputs are unobservable, these investments are generally classified within Level 3.

Insurance contracts—These instruments are issued by insurance companies. The fair value is based on negotiated value and the underlying investment held in separate account portfolios as well as considering the credit worthiness of the issuer. The underlying investments are government, asset-backed and fixed income securities.



Insurance contracts are generally classified as Level 3 as there are no quoted prices nor other observable inputs for pricing.

Interests in limited partnerships and hedge fund investments—One limited partnership investment and one hedge fund was valued using the NAV provided by the administrator of the partnership/fund. The NAV is based on the value of the underlying assets owned by the partnership/fund, minus its liabilities, and then divided by the number of shares outstanding. All other limited partnership investments and hedge fund investments are private equity funds and the fair values are determined by the fund managers based on the estimated value of the various holdings of the fund portfolio. These investments are primarily classified within Level 3 of the valuation hierarchy.

The following table presents the fair values of the Company’s pension and post-retirement plan assets by asset category as of June 30, 2012:

<table><tr><td></td><td>Level 1</td><td>Level 2</td><td>Level 3</td><td>Total</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td></tr><tr><td>Short-term investment funds</td><td>$ 79.4</td><td>$ 78.4</td><td>$ —</td><td>$ 157.8</td></tr><tr><td>Government and agency securities</td><td>—</td><td>35.8</td><td>—</td><td>35.8</td></tr><tr><td>Equity securities</td><td>73.6</td><td>—</td><td>—</td><td>73.6</td></tr><tr><td>Debt instruments</td><td>—</td><td>134.2</td><td>—</td><td>134.2</td></tr><tr><td>Commingled funds</td><td>153.6</td><td>361.0</td><td>37.7</td><td>552.3</td></tr><tr><td>Insurance contracts</td><td>—</td><td>—</td><td>38.7</td><td>38.7</td></tr><tr><td>Limited partnerships and hedge fund investments</td><td>—</td><td>—</td><td>94.5</td><td>94.5</td></tr><tr><td>Total</td><td>$306.6</td><td>$609.4</td><td>$170.9</td><td>$1,086.9</td></tr></table>

The following table presents the fair values of the Company’s pension and post-retirement plan assets by asset category as of June 30, 2011:

<table><tr><td></td><td>Level 1</td><td>Level 2</td><td>Level 3</td><td>Total</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td></tr><tr><td>Short-term investment funds</td><td>$ 22.9</td><td>$ 44.9</td><td>$ —</td><td>$ 67.8</td></tr><tr><td>Government and agency securities</td><td>—</td><td>29.6</td><td>—</td><td>29.6</td></tr><tr><td>Equity securities</td><td>59.8</td><td>—</td><td>—</td><td>59.8</td></tr><tr><td>Debt instruments</td><td>—</td><td>102.3</td><td>—</td><td>102.3</td></tr><tr><td>Commingled funds</td><td>190.4</td><td>345.3</td><td>39.0</td><td>574.7</td></tr><tr><td>Insurance contracts</td><td>—</td><td>—</td><td>39.0</td><td>39.0</td></tr><tr><td>Limited partnerships and hedge fund investments</td><td>—</td><td>—</td><td>88.2</td><td>88.2</td></tr><tr><td>Total</td><td>$273.1</td><td>$522.1</td><td>$166.2</td><td>$961.4</td></tr></table>

The following table presents the changes in Level 3 plan assets for fiscal 2012:

<table><tr><td></td><td>Commingled Funds</td><td>Insurance Contracts</td><td>Limited Partnerships and Hedge Fund Investments</td><td>Total</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td></tr><tr><td>Balance as of June 30, 2011</td><td>$39.0</td><td>$39.0</td><td>$88.2</td><td>$166.2</td></tr><tr><td>Actual return on plan assets:</td><td></td><td></td><td></td><td></td></tr><tr><td>Relating to assets still held at the reporting date</td><td>1.4</td><td>3.9</td><td>(4.7)</td><td>0.6</td></tr><tr><td>Relating to assets sold during the year</td><td>(0.7)</td><td>—</td><td>3.7</td><td>3.0</td></tr><tr><td>Transfers in (out)</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Purchases, sales, issuances and settlements, net</td><td>(1.0)</td><td>1.2</td><td>7.3</td><td>7.5</td></tr><tr><td>Foreign exchange impact</td><td>(1.0)</td><td>(5.4)</td><td>—</td><td>(6.4)</td></tr><tr><td>Balance as of June 30, 2012</td><td>$37.7</td><td>$38.7</td><td>$94.5</td><td>$170.9</td></tr></table>

## 401(k) Savings Plan (U.S.)

The Company’s 401(k) Savings Plan (“Savings Plan”) is a contributory defined contribution plan covering substantially all regular U.S. employees who have completed the hours and service requirements, as defined by the plan document. Regular full-time employees are eligible to participate in the Savings Plan thirty days following their date of hire. The Savings Plan is subject to the applicable provisions of ERISA. The Company matches a portion of the participant’s contributions after one year of service under a predetermined formula based on the participant’s contribution level. The Company’s contributions were $23.6 million, $22.4 million and $20.8 million for fiscal 2012, 2011 and 2010, respectively. Shares of the Company’s Class A Common Stock are not an investment option in the Savings Plan and the Company does not use such shares to match participants’ contributions.



## Deferred Compensation

The Company accrues for deferred compensation and interest thereon, and for the increase in the value of share units pursuant to agreements with certain key executives and outside directors. The amounts included in the accompanying consolidated balance sheets under these plans were $66.6 million and $65.8 million as of June 30, 2012 and 2011, respectively. The expense for fiscal 2012, 2011 and 2010 was $8.4 million, $9.9 million and $1.7 million, respectively.

## NOTE 14 – COMMITMENTS AND CONTINGENCIES

## Contractual Obligations

The following table summarizes scheduled maturities of the Company’s contractual obligations for which cash flows are fixed and determinable as of June 30, 2012:

<table><tr><td rowspan="2"></td><td rowspan="2">Total</td><td colspan="6">Payments Due in Fiscal</td></tr><tr><td>2013</td><td>2014</td><td>2015</td><td>2016</td><td>2017</td><td>Thereafter</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Debt service \( ^{(1)} \)</td><td>$2,066.7</td><td>$ 286.2</td><td>$291.6</td><td>$ 46.6</td><td>$ 46.4</td><td>$346.3</td><td>$1,049.6</td></tr><tr><td>Operating lease commitments \( ^{(2)} \)</td><td>1,537.9</td><td>266.6</td><td>243.5</td><td>209.3</td><td>182.8</td><td>153.5</td><td>482.2</td></tr><tr><td>Unconditional purchase obligations \( ^{(3)} \)</td><td>2,178.6</td><td>1,130.0</td><td>213.1</td><td>197.5</td><td>185.0</td><td>114.5</td><td>338.5</td></tr><tr><td>Gross unrecognized tax benefits and interest-current \( ^{(4)} \)</td><td>0.9</td><td>0.9</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Total contractual obligations</td><td>$5,784.1</td><td>$1,683.7</td><td>$748.2</td><td>$453.4</td><td>$414.2</td><td>$614.3</td><td>$1,870.3</td></tr></table>

(1) Includes long-term and short-term debt and the related projected interest costs, and to a lesser extent, capital lease commitments. Interest costs on long-term and short-term debt are projected to be $64.4 million in fiscal 2013, $55.1 million in fiscal 2014, $46.2 million in each of the years from fiscal 2015 through fiscal 2017 and $549.8 million thereafter. Projected interest costs on variable rate instruments were calculated using market rates at June 30, 2012. Including the 2022 Senior Notes and 2042 Senior Notes and redemption of the 2013 Senior Notes, debt service costs are projected to increase $247.2 million in fiscal 2013, decrease $223.9 million in fiscal 2014, increase $15.1 million in each of the years from fiscal 2015 through fiscal 2017, and increase $768.2 million thereafter. Refer to Note 10—Debt.

(2) Minimum operating lease commitments only include base rent. Certain leases provide for contingent rents that are not measurable at inception and primarily include rents based on a percentage of sales in excess of stipulated levels, as well as common area maintenance. These amounts are excluded from minimum operating lease commitments and are included in the determination of total rent expense when it is probable that the expense has been incurred and the amount is reasonably measurable. Such amounts have not been material to total rent expense. Total rental expense included in the accompanying consolidated statements of earnings was $304.9 million in fiscal 2012, $290.9 million in fiscal 2011 and $272.8 million in fiscal 2010.

(3) Unconditional purchase obligations primarily include inventory commitments, estimated future earn-out payments, estimated royalty payments pursuant to license agreements, advertising commitments, capital improvement commitments, planned funding of pension and other post-retirement benefit obligations, commitments pursuant to executive compensation arrangements, obligations related to the Company’s cost savings initiatives and acquisitions. Future earn-out payments and future royalty and advertising commitments were estimated based on planned future sales for the term that was in effect at June 30, 2012, without consideration for potential renewal periods.

(4) Refer to Note 8—Income Taxes for information regarding unrecognized tax benefits. As of June 30, 2012, the noncurrent portion of the Company’s unrecognized tax benefits, including related accrued interest and penalties was $106.2 million. At this time, the settlement period for the noncurrent portion of the unrecognized tax benefits, including related accrued interest and penalties, cannot be determined and therefore was not included.

## Legal Proceedings

The Company is involved, from time to time, in litigation and other legal proceedings incidental to its business. Management believes that the outcome of current litigation and legal proceedings will not have a material adverse effect upon the Company’s results of operations, financial condition or cash flows. However, management’s assessment of the Company’s current litigation and other legal proceedings could change in light of the discovery of facts with respect to legal actions or other proceedings pending against the Company, not presently known to the Company or determinations by judges, juries or other finders of fact which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or proceedings. Except as disclosed below, reasonably possible losses in addition to the amounts accrued for litigation and other legal proceedings are not material to the Company’s consolidated financial statements.

During the fiscal 2007 fourth quarter, the former owner of the DARPHIN brand initiated litigation in the Paris Commercial Court against the Company and one of its subsidiaries seeking to recover €60.0 million ($75.5 million at the exchange rate at June 30, 2012) that he claims he was owed as additional consideration for the sale of DARPHIN to the Company in April 2003. On December 23, 2011, the Paris Commercial Court issued its judgment, awarding the former owner €22.9 million ($28.8 million at



the exchange rate at June 30, 2012) plus interest from 2007. The Company has filed its appeal with the Paris Court of Appeal. In accordance with the judgment, in January 2012, the Company paid €25.3 million ($31.8 million at the exchange rate at June 30, 2012) to the former owner and received from him a bank guarantee to assure repayment to the Company of such sum (or any part thereof) in the event that the judgment is reversed by the Paris Court of Appeal. Based upon its assessment of the case, as well as the advice of external counsel, the Company is maintaining the amount it previously accrued as an amount that it believes will ultimately be paid based on the probable outcome of the appeal. Such amount is less than the Paris Commercial Court’s award.

## Other Income

In November 2011, the Company settled a commercial dispute with third parties that was outside its normal operations. In connection therewith, the Company received a $10.5 million cash payment, which has been classified as other income in its consolidated statement of earnings.

## NOTE 15 – COMMON STOCK

As of June 30, 2012, the Company’s authorized common stock consists of 650 million shares of Class A Common Stock, par value $.01 per share, and 240 million shares of Class B Common Stock, par value $.01 per share. Class B Common Stock is convertible into Class A Common Stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of Class A Common Stock for each share of Class B Common Stock converted. Holders of the Company’s Class A Common Stock are entitled to one vote per share and holders of the Company’s Class B Common Stock are entitled to ten votes per share.

On November 3, 2011, the Company’s Board of Directors declared a two-for-one stock split on the Company’s Class A and Class B Common Stock. The stock split was effected in the form of a stock dividend and resulted in one additional share being issued on January 20, 2012 for each share held by stockholders of record at the close of business on January 4, 2012. The stock split did not have an impact on the Company’s consolidated financial position or results of operations. In addition, on November 3, 2011, the Company’s Board of Directors declared a dividend in the amount of $.525 per share on the Company’s Class A and Class B Common Stock. The dividend was paid in cash on December 14, 2011 to stockholders of record at the close of business on November 28, 2011.

Information about the Company’s common stock outstanding is as follows:
The Company is authorized by the Board of Directors to repurchase up to 176.0 million shares of Class A Common Stock in the open market or in privately negotiated transactions, depending on market conditions and other factors. As of June 30, 2012, the cumulative total of acquired shares pursuant to the authorization was 161.1 million, reducing the remaining authorized share repurchase balance to 14.9 million.

<table><tr><td></td><td>Class A</td><td>Class B</td></tr><tr><td>(Shares in thousands)</td><td></td><td></td></tr><tr><td>Balance at June 30, 2009</td><td>237,253.8</td><td>156,134.5</td></tr><tr><td>Acquisition of treasury stock</td><td>(9,803.7)</td><td>—</td></tr><tr><td>Conversion of Class B to Class A</td><td>1,970.4</td><td>(1,970.4)</td></tr><tr><td>Stock-based compensation</td><td>11,862.8</td><td>—</td></tr><tr><td>Balance at June 30, 2010</td><td>241,283.3</td><td>154,164.1</td></tr><tr><td>Acquisition of treasury stock</td><td>(10,515.1)</td><td>—</td></tr><tr><td>Conversion of Class B to Class A</td><td>2,200.0</td><td>(2,200.0)</td></tr><tr><td>Stock-based compensation</td><td>9,630.7</td><td>—</td></tr><tr><td>Balance at June 30, 2011</td><td>242,598.9</td><td>151,964.1</td></tr><tr><td>Acquisition of treasury stock</td><td>(11,980.2)</td><td>—</td></tr><tr><td>Conversion of Class B to Class A</td><td>186.0</td><td>(186.0)</td></tr><tr><td>Stock-based compensation</td><td>6,314.8</td><td>—</td></tr><tr><td>Balance at June 30, 2012</td><td>237,119.5</td><td>151,778.1</td></tr></table>

Subsequent to June 30, 2012, the Company purchased approximately 2.0 million additional shares of Class A Common Stock for $104.2 million pursuant to its share repurchase program.

## NOTE 16 – STOCK PROGRAMS

As of June 30, 2012, the Company has two active equity compensation plans which include the Amended and Restated Fiscal 2002 Share Incentive Plan (the "Fiscal 2002 Plan") and the Non-Employee Director Share Incentive Plan (collectively, the "Plans"). These Plans currently provide for the issuance of 66,319,900 shares of Class A Common Stock, which consist of shares originally provided for and shares transferred to the Fiscal 2002 Plan from other inactive plans and employment agreements, to be granted in the form of stock-based awards to key employees, consultants and non-employee directors of the Company. As of June 30, 2012, approximately 23,396,400 shares of Class A Common Stock were reserved and available to be granted pursuant to these Plans. The Company may satisfy the obligation of its stock-based compensation awards with either new or treasury shares. The Company's equity compensation awards outstanding at June 30, 2012 include stock options, performance share units ("PSU"), restricted stock units ("RSU"), market share units ("MSU") and share units.

Total stock-based compensation expense is attributable to the granting of, and the remaining requisite service periods of stock options, PSUs, RSUs, MSUs and share



units. Stock-based compensation expense and related income tax benefits are as follows:

<table><tr><td>YEAR ENDED JUNE 30</td><td>2012</td><td>2011</td><td>2010</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Compensation expense</td><td>$124.7</td><td>$94.8</td><td>$57.0</td></tr><tr><td>Income tax benefit</td><td>41.1</td><td>31.5</td><td>19.0</td></tr></table>

As of June 30, 2012, the total unrecognized compensation cost related to nonvested stock-based awards was $80.8 million and the related weighted-average period over which it is expected to be recognized is approximately 1.7 years.

## Stock Options

A summary of the Company’s stock option programs as of June 30, 2012 and changes during the fiscal year then ended, is presented below:

<table><tr><td></td><td>Shares</td><td>Weighted-Average Exercise Price Per Share</td><td>Aggregate Intrinsic Value \( ^{(1)} \)  (in millions)</td><td>Weighted-Average Contractual Life Remaining in Years</td></tr><tr><td>(Shares in thousands)</td><td></td><td></td><td></td><td></td></tr><tr><td>Outstanding at June 30, 2011</td><td>16,972.5</td><td>22.87</td><td></td><td></td></tr><tr><td>Granted at fair value</td><td>3,349.7</td><td>49.22</td><td></td><td></td></tr><tr><td>Exercised</td><td>(4,318.8)</td><td>21.33</td><td></td><td></td></tr><tr><td>Expired</td><td>(16.9)</td><td>20.64</td><td></td><td></td></tr><tr><td>Forfeited</td><td>(175.7)</td><td>31.26</td><td></td><td></td></tr><tr><td>Outstanding at June 30, 2012</td><td>15,810.8</td><td>28.86</td><td>399.6</td><td>7.0</td></tr><tr><td>Vested and expected to vest at June 30, 2012</td><td>15,654.9</td><td>28.72</td><td>397.8</td><td>7.0</td></tr><tr><td>Exercisable at June 30, 2012</td><td>8,005.8</td><td>22.38</td><td>254.1</td><td>5.9</td></tr></table>

(1) The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.

The exercise period for all stock options generally may not exceed ten years from the date of grant. Stock option grants to individuals generally become exercisable in three substantively equal tranches over a service period of up to four years. The Company attributes the value of option awards on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards.

The following is a summary of the per-share weighted-average grant date fair value of stock options granted and total intrinsic value of stock options exercised:

<table><tr><td>YEAR ENDED JUNE 30</td><td>2012</td><td>2011</td><td>2010</td></tr><tr><td>(In millions, except per share data)</td><td></td><td></td><td></td></tr><tr><td>Per-share weighted-average grant date fair value of stock options granted</td><td>$17.41</td><td>$18.93</td><td>$10.64</td></tr><tr><td>Intrinsic value of stock options exercised</td><td>$154.0</td><td>$178.1</td><td>$91.8</td></tr></table>

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

<table><tr><td>YEAR ENDED JUNE 30</td><td>2012</td><td>2011</td><td>2010</td></tr><tr><td>Weighted-average expected stock-price volatility</td><td>35%</td><td>31%</td><td>30%</td></tr><tr><td>Weighted-average expected option life</td><td>8 years</td><td>8 years</td><td>8 years</td></tr><tr><td>Average risk-free interest rate</td><td>1.7%</td><td>2.2%</td><td>3.1%</td></tr><tr><td>Average dividend yield</td><td>1.0%</td><td>1.1%</td><td>2.0%</td></tr></table>

The Company uses a weighted-average expected stock-price volatility assumption that is a combination of both current and historical implied volatilities of the underlying stock. The implied volatilities were obtained from publicly available data sources. For the weighted-average expected option life assumption, the Company considers the exercise behavior of past grants and models the pattern of aggregate exercises. The average risk-free interest rate is based on the U.S. Treasury strip rate for the expected term of the options and the average dividend yield is based on historical experience.

## Performance Share Units

During fiscal 2012, the Company granted approximately 260,000 PSUs, which will be settled in stock subject to the achievement of the Company’s net sales, diluted



net earnings per common share and return on invested capital goals for the three fiscal years ending June 30, 2014, all subject to the continued employment or retirement of the grantees. Settlement will be made pursuant to a range of opportunities relative to the net sales, diluted net earnings per common share and return on invested capital targets of the Company and, as such, the compensation cost of the PSU is subject to adjustment based upon the attainability of these target goals. No settlement will occur for results below the applicable minimum threshold of a target and additional shares shall be issued if performance exceeds the targeted performance goals. Certain PSUs are accompanied by dividend equivalent rights that will be payable in cash upon settlement of the PSU. Other PSUs granted in fiscal 2012 are not accompanied by dividend equivalent rights and, as such, were valued at the closing market value of the Company's Class A Common Stock on the date of grant less the discounted present value of the dividends expected to be paid on the shares during the vesting period. These awards are subject to the provisions of the agreement under which the PSUs are granted. The PSUs were valued at the closing market value of the Company's Class A Common Stock on the date of grant and generally vest at the end of the performance period. Approximately 495,900 shares of Class A Common Stock are anticipated to be issued, relative to the target goals set at the time of issuance, in settlement of the 330,600 PSUs that vested as of June 30, 2012. In September 2011, approximately 275,200 shares of the Company's Class A Common Stock were issued and related accrued dividends were paid, relative to the target goals set at the time of issuance, in settlement of 262,000 PSUs which vested as of June 30, 2011.

The following is a summary of the status of the Company’s PSUs as of June 30, 2012 and activity during the fiscal year then ended:

<table><tr><td></td><td>Shares</td><td>Weighted-Average Grant Date Fair Value Per Share</td></tr><tr><td>(Shares in thousands)</td><td></td><td></td></tr><tr><td>Nonvested at June 30, 2011</td><td>699.8</td><td>$23.36</td></tr><tr><td>Granted</td><td>260.0</td><td>48.57</td></tr><tr><td>Vested</td><td>(330.6)</td><td>16.71</td></tr><tr><td>Forfeited</td><td>(3.3)</td><td>28.84</td></tr><tr><td>Nonvested at June 30, 2012</td><td>625.9</td><td>37.31</td></tr></table>

## Restricted Stock Units

The Company granted approximately 1,336,200 RSUs during fiscal 2012 which, at the time of grant, were scheduled to vest as follows: 751,500 on October 31, 2012, 3,900 on April 25, 2013, 392,500 on October 31, 2013, 3,900 on April 25, 2014, 175,500 on October 31, 2014, 5,000 on December 1, 2014 and 3,900 on April 27, 2015, all subject to the continued employment or retirement of the grantees. Certain RSUs granted in fiscal 2012 are accompanied by dividend equivalent rights that will be payable in cash upon settlement of the RSU and, as such, were valued at the closing market value of the Company's Class A Common Stock on the date of grant. Other RSUs granted in fiscal 2012 are not accompanied by dividend equivalent rights and, as such, were valued at the closing market value of the Company's Class A Common Stock on the date of grant less the discounted present value of the dividends expected to be paid on the shares during the vesting period.

The following is a summary of the status of the Company’s RSUs as of June 30, 2012 and activity during the fiscal year then ended:

<table><tr><td></td><td>Shares</td><td>Weighted-Average Grant Date Fair Value Per Share</td></tr><tr><td>(Shares in thousands)</td><td></td><td></td></tr><tr><td>Nonvested at June 30, 2011</td><td>2,870.3</td><td>$24.87</td></tr><tr><td>Granted</td><td>1,336.2</td><td>48.85</td></tr><tr><td>Vested</td><td>(1,716.8)</td><td>24.31</td></tr><tr><td>Forfeited</td><td>(96.8)</td><td>35.77</td></tr><tr><td>Nonvested at June 30, 2012</td><td>2,392.9</td><td>38.22</td></tr></table>

## Market Share Unit

As of June 30, 2012, the Company had one outstanding market share with a grant date fair value of $10.6 million that was estimated using a lattice model with a Monte Carlo simulation and the following assumptions: contractual life of 41 months, a weighted-average expected volatility of 29%, a weighted-average risk-free interest rate of 1.6% and a weighted-average dividend yield of 1.0%. The Company used an expected stock-price volatility assumption that is a combination of both current and historical implied volatilities from options on the underlying stock. The implied volatilities were obtained from publicly available data sources. The expected life is equal to the contractual term of the grant. The average risk-free interest rate is based on the U.S. Treasury strip rates over the contractual term of the grant and the average dividend yield is based on historical experience.

## Share Units

The Company grants share units to certain non-employee directors under the Non-Employee Director Share Incentive Plan. The share units are convertible into shares of Class A Common Stock as provided for in that plan. Share units are accompanied by dividend equivalent rights that are converted to additional share units when such dividends are declared.



The following is a summary of the status of the Company’s share units as of June 30, 2012 and activity during the fiscal year then ended:

<table><tr><td></td><td>Shares</td><td>Weighted-Average Grant Date Fair Value Per Share</td></tr><tr><td>(Shares in thousands)</td><td></td><td></td></tr><tr><td>Outstanding at June 30, 2011</td><td>58.4</td><td>$21.22</td></tr><tr><td>Granted</td><td>14.5</td><td>57.53</td></tr><tr><td>Dividend equivalents</td><td>0.8</td><td>52.79</td></tr><tr><td>Converted</td><td>—</td><td>—</td></tr><tr><td>Outstanding at June 30, 2012</td><td>73.7</td><td>28.69</td></tr></table>

## Cash Units

Certain non-employee directors defer cash compensation in the form of cash payout share units, which are not subject to the Plans. These share units are classified as liabilities and, as such, their fair value is adjusted to reflect the current market value of the Company’s Class A Common Stock. The Company recorded $0.8 million, $4.9 million and $2.3 million as compensation expense to reflect additional deferrals and the change in the market value for fiscal 2012, 2011 and 2010, respectively.

## NOTE 17—NET EARNINGS ATTRIBUTABLE

TO THE ESTÉE LAUDER COMPANIES INC.

PER COMMON SHARE

Net earnings attributable to The Estée Lauder Companies Inc. per common share (“basic EPS”) is computed by dividing net earnings attributable to The Estée Lauder Companies Inc. by the weighted-average number of common shares outstanding and contingently issuable shares (which satisfy certain conditions). Net earnings attributable to The Estée Lauder Companies Inc. per common share assuming dilution (“diluted EPS”) is computed by reflecting potential dilution from stock-based awards.

A reconciliation between the numerators and denominators of the basic and diluted EPS computations is as follows:

<table><tr><td>YEAR ENDED JUNE 30</td><td>2012</td><td>2011</td><td>2010</td></tr><tr><td>(In millions, except per share data)</td><td></td><td></td><td></td></tr><tr><td>Numerator:</td><td></td><td></td><td></td></tr><tr><td>Net earnings attributable to The Estée Lauder Companies Inc.</td><td>$856.9</td><td>$700.8</td><td>$478.3</td></tr><tr><td>Denominator:</td><td></td><td></td><td></td></tr><tr><td>Weighted-average common shares outstanding—Basic</td><td>388.7</td><td>394.0</td><td>395.4</td></tr><tr><td>Effect of dilutive stock options</td><td>6.3</td><td>6.5</td><td>4.5</td></tr><tr><td>Effect of RSUs, PSUs and MSU</td><td>2.0</td><td>1.9</td><td>1.6</td></tr><tr><td>Weighted-average common shares outstanding—Diluted</td><td>397.0</td><td>402.4</td><td>401.5</td></tr><tr><td>Net earnings attributable to The Estée Lauder Companies Inc. per common share:</td><td></td><td></td><td></td></tr><tr><td>Basic</td><td>$ 2.20</td><td>$ 1.78</td><td>$ 1.21</td></tr><tr><td>Diluted</td><td>2.16</td><td>1.74</td><td>1.19</td></tr></table>

As of June 30, 2012, 2011 and 2010, outstanding stock options that were not included in the computation of diluted EPS because their inclusion would be anti-dilutive were de minimis. As of June 30, 2012, 2011 and 2010, 0.6 million, 0.7 million and 0.6 million, respectively, of PSUs have been excluded from the calculation of diluted EPS because the number of shares ultimately issued is contingent on the achievement of certain performance targets of the Company, as discussed in Note 16—Stock Programs.



## NOTE 18 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The components of Accumulated OCI (“AOCI”) included in the accompanying consolidated balance sheets consist of the following:

<table><tr><td>YEAR ENDED JUNE 30</td><td>2012</td><td>2011</td><td>2010</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Net unrealized investment gains (losses), beginning of year</td><td>$ 0.5</td><td>$ 0.2</td><td>$ (0.2)</td></tr><tr><td>Unrealized investment gains (losses)</td><td>0.1</td><td>0.4</td><td>0.6</td></tr><tr><td>Benefit (provision) for deferred income taxes</td><td>(0.1)</td><td>(0.1)</td><td>(0.2)</td></tr><tr><td>Net unrealized investment gains, end of year</td><td>0.5</td><td>0.5</td><td>0.2</td></tr><tr><td>Net derivative instruments, beginning of year</td><td>(0.7)</td><td>14.3</td><td>1.5</td></tr><tr><td>Gain (loss) on derivative instruments</td><td>40.2</td><td>(38.0)</td><td>(0.2)</td></tr><tr><td>Benefit (provision) for deferred income taxes on derivative instruments</td><td>(14.3)</td><td>13.4</td><td>(0.1)</td></tr><tr><td>Reclassification to earnings during the year:</td><td></td><td></td><td></td></tr><tr><td>Foreign currency forward contracts</td><td>(11.7)</td><td>15.1</td><td>20.3</td></tr><tr><td>Settled interest rate-related derivatives</td><td>(0.3)</td><td>(0.3)</td><td>(0.2)</td></tr><tr><td>Benefit (provision) for deferred income taxes on reclassification</td><td>4.2</td><td>(5.2)</td><td>(7.0)</td></tr><tr><td>Net derivative instruments, end of year</td><td>17.4</td><td>(0.7)</td><td>14.3</td></tr><tr><td>Net pension and post-retirement adjustments, beginning of year</td><td>(199.0)</td><td>(217.6)</td><td>(190.7)</td></tr><tr><td>Changes in plan assets and benefit obligations:</td><td></td><td></td><td></td></tr><tr><td>Net actuarial gains (losses) recognized</td><td>(176.9)</td><td>30.7</td><td>(65.6)</td></tr><tr><td>Net prior service credit (cost) recognized</td><td>2.0</td><td>(10.6)</td><td>2.6</td></tr><tr><td>Translation adjustments</td><td>7.6</td><td>(16.4)</td><td>6.5</td></tr><tr><td>Amortization of amounts included in net periodic benefit cost:</td><td></td><td></td><td></td></tr><tr><td>Net actuarial (gains) losses</td><td>14.7</td><td>26.3</td><td>9.3</td></tr><tr><td>Net prior service cost (credit)</td><td>4.3</td><td>3.1</td><td>3.1</td></tr><tr><td>Net transition asset (obligation)</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Benefit (provision) for deferred income taxes</td><td>53.8</td><td>(14.5)</td><td>17.2</td></tr><tr><td>Net pension and post-retirement adjustments, end of year</td><td>(293.5)</td><td>(199.0)</td><td>(217.6)</td></tr><tr><td>Cumulative translation adjustments, beginning of year</td><td>216.9</td><td>6.4</td><td>72.3</td></tr><tr><td>Translation adjustments</td><td>(156.6)</td><td>213.2</td><td>(65.5)</td></tr><tr><td>Benefit (provision) for deferred income taxes</td><td>2.4</td><td>(2.7)</td><td>(0.4)</td></tr><tr><td>Cumulative translation adjustments, end of year</td><td>62.7</td><td>216.9</td><td>6.4</td></tr><tr><td>Accumulated other comprehensive income (loss)</td><td>$ 212.9</td><td>$ 17.7</td><td>$(196.7)</td></tr></table>

Of the $17.4 million, net of tax, derivative instrument gain recorded in AOCI at June 30, 2012, $9.8 million in gains, net of tax, related to foreign currency forward contracts, which the Company will reclassify to earnings through March 2014. Also included in the net derivative instrument gain recorded in AOCI was $8.2 million, net of tax, related to the October 2003 gain from the settlement of the treasury lock agreements upon the issuance of the Company's 2033 Senior Notes, which is being reclassified to earnings as an offset to interest expense over the life of the debt. These gains were partially offset by $0.6 million, net of tax, related to a loss from the settlement of a series of forward-starting interest rate swap agreements upon the issuance of the Company's 2037 Senior Notes, which is being reclassified to earnings as an addition to interest expense over the life of the debt.

Refer to Note 13 – Pension, Deferred Compensation and Post-retirement Benefit Plans for the discussion regarding the net pension and post-retirement adjustments.



## NOTE 19 – STATEMENT OF CASH FLOWS
Supplemental cash flow information is as follows:

<table><tr><td>YEAR ENDED JUNE 30</td><td>2012</td><td>2011</td><td>2010</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>Cash:</td><td></td><td></td><td></td></tr><tr><td>Cash paid during the year for interest</td><td>$ 75.0</td><td>$ 72.6</td><td>$106.0</td></tr><tr><td>Cash paid during the year for income taxes</td><td>$326.4</td><td>$241.7</td><td>$265.2</td></tr><tr><td>Non-cash investing and financing activities:</td><td></td><td></td><td></td></tr><tr><td>Incremental tax benefit from the exercise of stock options</td><td>$ (10.0)</td><td>$ (20.0)</td><td>$ (21.3)</td></tr><tr><td>Change in liability associated with acquisition of business</td><td>$ —</td><td>$ —</td><td>$ 7.0</td></tr><tr><td>Capital lease obligations incurred</td><td>$ 8.6</td><td>$ 1.0</td><td>$ 22.5</td></tr><tr><td>Interest rate swap derivative mark to market</td><td>$ —</td><td>$ 8.7</td><td>$ 14.2</td></tr></table>

## NOTE 20 – SEGMENT DATA AND RELATED INFORMATION

Reportable operating segments include components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (the "Chief Executive") in deciding how to allocate resources and in assessing performance. As a result of the similarities in the manufacturing, marketing and distribution processes for all of the Company's products, much of the information provided in the consolidated financial statements is similar to, or the same as, that reviewed on a regular basis by the Chief Executive. Although the Company operates in one business segment, beauty products, management also evaluates performance on a product category basis.

While the Company’s results of operations are also reviewed on a consolidated basis, the Chief Executive reviews data segmented on a basis that facilitates comparison to industry statistics. Accordingly, net sales, depreciation and amortization, and operating income are available with respect to the manufacture and distribution of skin care, makeup, fragrance, hair care and other products. These product categories meet the definition of operating segments and, accordingly, additional financial data are provided below. The “other” segment includes the sales and related results of ancillary products and services that do not fit the definition of skin care, makeup, fragrance and hair care.
Product category performance is measured based upon net sales before returns associated with restructuring activities, and earnings before income taxes, other income, net interest expense, interest expense on debt extinguishment and total charges associated with restructuring activities. Returns and charges associated with restructuring activities are not allocated to the product categories because they result from activities that are deemed a company-wide program to redesign the Company’s organizational structure. The accounting policies for the Company’s reportable segments are the same as those described in the summary of significant accounting policies, except for depreciation and amortization charges, which are allocated, primarily, based upon net sales. The assets and liabilities of the Company are managed centrally and are reported internally in the same manner as the consolidated financial statements; thus, no additional information is produced for the Chief Executive or included herein.



<table><tr><td>YEAR ENDED JUNE 30</td><td>2012</td><td>2011</td><td>2010</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>PRODUCT CATEGORY DATA</td><td></td><td></td><td></td></tr><tr><td>Net Sales:</td><td></td><td></td><td></td></tr><tr><td>Skin Care</td><td>$4,225.2</td><td>$3,718.6</td><td>$3,227.1</td></tr><tr><td>Makeup</td><td>3,696.8</td><td>3,370.8</td><td>2,978.2</td></tr><tr><td>Fragrance</td><td>1,271.0</td><td>1,236.0</td><td>1,136.9</td></tr><tr><td>Hair Care</td><td>462.4</td><td>432.3</td><td>413.9</td></tr><tr><td>Other</td><td>60.3</td><td>56.9</td><td>55.4</td></tr><tr><td></td><td>9,715.7</td><td>8,814.6</td><td>7,811.5</td></tr><tr><td>Returns associated with restructuring activities</td><td>(2.1)</td><td>(4.6)</td><td>(15.7)</td></tr><tr><td></td><td>$9,713.6</td><td>$8,810.0</td><td>$7,795.8</td></tr><tr><td>Depreciation and Amortization:</td><td></td><td></td><td></td></tr><tr><td>Skin Care</td><td>$ 119.9</td><td>$ 116.3</td><td>$ 104.4</td></tr><tr><td>Makeup</td><td>127.8</td><td>127.4</td><td>110.3</td></tr><tr><td>Fragrance</td><td>37.5</td><td>40.0</td><td>37.2</td></tr><tr><td>Hair Care</td><td>9.5</td><td>9.7</td><td>10.8</td></tr><tr><td>Other</td><td>1.1</td><td>1.0</td><td>1.0</td></tr><tr><td></td><td>$ 295.8</td><td>$ 294.4</td><td>$ 263.7</td></tr><tr><td>Goodwill, Other Intangible Asset and Long-Lived Asset Impairments:</td><td></td><td></td><td></td></tr><tr><td>Skin Care</td><td>$ —</td><td>$ 3.8</td><td>$ 11.0</td></tr><tr><td>Makeup</td><td>—</td><td>1.1</td><td>1.0</td></tr><tr><td>Fragrance</td><td>—</td><td>—</td><td>0.5</td></tr><tr><td>Hair Care</td><td>21.7</td><td>33.1</td><td>35.9</td></tr><tr><td>Other</td><td>—</td><td>—</td><td>—</td></tr><tr><td></td><td>$ 21.7</td><td>$ 38.0</td><td>$ 48.4</td></tr><tr><td>Operating Income (Loss) before total charges associated with restructuring activities:</td><td></td><td></td><td></td></tr><tr><td>Skin Care</td><td>$ 746.7</td><td>$ 595.1</td><td>$ 434.3</td></tr><tr><td>Makeup</td><td>538.0</td><td>493.8</td><td>416.8</td></tr><tr><td>Fragrance</td><td>100.1</td><td>80.7</td><td>26.3</td></tr><tr><td>Hair Care</td><td>12.2</td><td>(9.1)</td><td>(6.2)</td></tr><tr><td>Other</td><td>(22.1)</td><td>(11.7)</td><td>3.4</td></tr><tr><td>Reconciliation:</td><td></td><td></td><td></td></tr><tr><td>Total charges associated with restructuring activities(1)</td><td>1,374.9</td><td>1,148.8</td><td>874.6</td></tr><tr><td>Interest expense, net</td><td>(63.2)</td><td>(59.4)</td><td>(84.7)</td></tr><tr><td>Other income</td><td>(61.1)</td><td>(63.9)</td><td>(74.3)</td></tr><tr><td>Interest expense on debt extinguishment</td><td>10.5</td><td>—</td><td>—</td></tr><tr><td>Earnings before income taxes</td><td>—</td><td>—</td><td>(27.3)</td></tr><tr><td></td><td>$1,261.1</td><td>$1,025.5</td><td>$ 688.3</td></tr></table>

(1) includes $8.8 million of impairment charges in fiscal 2010 related to the reformulation of Ojon brand products.



<table><tr><td>YEAR ENDED OR AT JUNE 30</td><td>2012</td><td>2011</td><td>2010</td></tr><tr><td>(In millions)</td><td></td><td></td><td></td></tr><tr><td>GEOGRAPHIC DATA</td><td></td><td></td><td></td></tr><tr><td>Net Sales:</td><td></td><td></td><td></td></tr><tr><td>The Americas</td><td>$4,101.1</td><td>$3,796.3</td><td>$3,442.1</td></tr><tr><td>Europe, the Middle East &amp; Africa</td><td>3,603.2</td><td>3,257.6</td><td>2,859.3</td></tr><tr><td>Asia/Pacific</td><td>2,011.4</td><td>1,760.7</td><td>1,510.1</td></tr><tr><td></td><td>9,715.7</td><td>8,814.6</td><td>7,811.5</td></tr><tr><td>Returns associated with restructuring activities</td><td>(2.1)</td><td>(4.6)</td><td>(15.7)</td></tr><tr><td></td><td>$9,713.6</td><td>$8,810.0</td><td>$7,795.8</td></tr><tr><td>Operating Income (Loss):</td><td></td><td></td><td></td></tr><tr><td>The Americas</td><td>$ 288.4</td><td>$ 244.9</td><td>$ 161.5</td></tr><tr><td>Europe, the Middle East &amp; Africa</td><td>746.3</td><td>651.9</td><td>500.8</td></tr><tr><td>Asia/Pacific</td><td>340.2</td><td>252.0</td><td>212.3</td></tr><tr><td></td><td>1,374.9</td><td>1,148.8</td><td>874.6</td></tr><tr><td>Total charges associated with restructuring activities</td><td>(63.2)</td><td>(59.4)</td><td>(84.7)</td></tr><tr><td></td><td>$1,311.7</td><td>$1,089.4</td><td>$ 789.9</td></tr><tr><td>Total Assets:</td><td></td><td></td><td></td></tr><tr><td>The Americas</td><td>$3,616.5</td><td>$3,633.6</td><td>$3,237.3</td></tr><tr><td>Europe, the Middle East &amp; Africa</td><td>2,311.6</td><td>2,034.0</td><td>1,600.0</td></tr><tr><td>Asia/Pacific</td><td>664.9</td><td>606.3</td><td>498.3</td></tr><tr><td></td><td>$6,593.0</td><td>$6,273.9</td><td>$5,335.6</td></tr><tr><td>Long-Lived Assets (property, plant and equipment, net):</td><td></td><td></td><td></td></tr><tr><td>The Americas</td><td>$ 815.2</td><td>$ 750.7</td><td>$ 702.6</td></tr><tr><td>Europe, the Middle East &amp; Africa</td><td>307.8</td><td>307.5</td><td>258.3</td></tr><tr><td>Asia/Pacific</td><td>108.8</td><td>84.9</td><td>62.7</td></tr><tr><td></td><td>$1,231.8</td><td>$1,143.1</td><td>$1,023.6</td></tr></table>

Net sales are predominantly attributed to a country within a geographic segment based on the location of the customer. The net sales from the Company’s travel retail business are included in the Europe, the Middle East & Africa region. The Company is domiciled in the United States. Net sales in the United States in fiscal 2012, 2011 and 2010 were $3,582.1 million, $3,309.1 million and $2,992.7 million, respectively. The Company’s long-lived assets in the United States at June 30, 2012, 2011 and 2010 were $736.5 million, $672.1 million and $630.1 million, respectively.



## NOTE 21 – UNAUDITED QUARTERLY FINANCIAL DATA

The following summarizes the unaudited quarterly operating results of the Company for fiscal 2012 and 2011:

<table><tr><td rowspan="2"></td><td colspan="5">Quarter Ended</td></tr><tr><td>September 30 \( ^{(1)} \)</td><td>December 31 \( ^{(2)} \)</td><td>March 31 \( ^{(3)} \)</td><td>June 30 \( ^{(4)} \)</td><td>Total Year</td></tr><tr><td>(In millions, except per share data)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Fiscal 2012</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net Sales \( ^{(5)(6)} \)</td><td>2,476.7</td><td>2,737.5</td><td>2,248.2</td><td>2,251.2</td><td>9,713.6</td></tr><tr><td>Gross Profit</td><td>1,942.4</td><td>2,186.5</td><td>1,778.9</td><td>1,810.0</td><td>7,717.8</td></tr><tr><td>Operating Income \( ^{(5)} \)</td><td>430.0</td><td>597.0</td><td>211.5</td><td>73.2</td><td>1,311.7</td></tr><tr><td>Net Earnings Attributable to The Estée Lauder Companies Inc.</td><td>278.6</td><td>396.7</td><td>130.4</td><td>51.2</td><td>856.9</td></tr><tr><td>Net earnings attributable to The Estée Lauder Companies Inc. per common share:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Basic</td><td>.71</td><td>1.03</td><td>.34</td><td>.13</td><td>2.20</td></tr><tr><td>Diluted</td><td>.70</td><td>1.00</td><td>.33</td><td>.13</td><td>2.16</td></tr><tr><td>Fiscal 2011</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net Sales \( ^{(5)} \)</td><td>2,091.7</td><td>2,492.0</td><td>2,165.7</td><td>2,060.6</td><td>8,810.0</td></tr><tr><td>Gross Profit</td><td>1,603.6</td><td>1,950.9</td><td>1,683.1</td><td>1,635.5</td><td>6,873.1</td></tr><tr><td>Operating Income \( ^{(5)} \)</td><td>298.0</td><td>517.7</td><td>209.1</td><td>64.6</td><td>1,089.4</td></tr><tr><td>Net Earnings Attributable to The Estée Lauder Companies Inc.</td><td>191.1</td><td>343.9</td><td>124.7</td><td>41.1</td><td>700.8</td></tr><tr><td>Net earnings attributable to The Estée Lauder Companies Inc. per common share:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Basic</td><td>.49</td><td>.87</td><td>.32</td><td>.10</td><td>1.78</td></tr><tr><td>Diluted</td><td>.48</td><td>.86</td><td>.31</td><td>.10</td><td>1.74</td></tr></table>

(1) Fiscal 2012 first quarter results include charges associated with restructuring activities of $4.1 million ($2.9 million after tax, or $.01 per diluted common share). Fiscal 2011 first quarter results include charges associated with restructuring activities of $4.6 million ($3.3 million after tax, or $.01 per diluted common share).

(2) Fiscal 2012 second quarter results include charges associated with restructuring activities of $6.1 million ($4.4 million after tax, or $0.1 per diluted common share) and other intangible asset impairment charges of $6.7 million ($4.3 million after tax, or $0.1 per diluted common share). Fiscal 2011 second quarter results include charges associated with restructuring activities of $19.3 million ($11.9 million after tax, or $0.3 per diluted common share).)

(3) Fiscal 2012 third quarter results include charges associated with restructuring activities of $28.8 million ($18.8 million after tax, or $0.5 per diluted common share). Fiscal 2011 third quarter results include charges associated with restructuring activities of $23.5 million ($17.9 million after tax, or $0.4 per diluted common share) and goodwill and other intangible asset impairment charges of $36.3 million ($23.3 million after tax, or $0.6 per diluted common share).

(4) Fiscal 2012 fourth quarter results include charges associated with restructuring activities of $24.2 million ($18.0 million after tax, or $0.4 per diluted common share) and other intangible asset impairment charges of $15.0 million ($9.6 million after tax, or $0.2 per diluted common share). Fiscal 2011 fourth quarter results include charges associated with restructuring activities of $12.0 million ($8.6 million after tax, or $0.2 per diluted common share), other intangible asset impairment charges of $1.7 million ($1.1 million after tax, or less than $0.1 per diluted common share) and certain out-of-period adjustments of $8.6 million after tax, or $0.2 per diluted common share.

(5) As a result of the Company’s SAP rollout, approximately $30 million of accelerated orders were recorded as net sales (approximately $23 million of operating income) in the fiscal 2012 second quarter that likely would have occurred in the fiscal 2012 third quarter. In addition, approximately $42 million of accelerated orders (approximately $31 million of operating income) were recorded as net sales in the fiscal 2011 third quarter that would have occurred in the fiscal 2011 fourth quarter.

(6) The Company established a provision in the fiscal 2012 third quarter for then-anticipated returns of approximately $16 million as a result of repositioning certain products due to changes in regulations related to sunscreen products in the United States. These regulations were subsequently deferred and, accordingly, the Company reversed this provision in the fiscal 2012 fourth quarter.



Management of The Estée Lauder Companies Inc. (including its subsidiaries) (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) of the Securities Exchange Act of 1934, as amended).

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision of and with the participation of the Chief Executive Officer and the Chief Financial Officer, the Company’s management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework and criteria established in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, the Company’s management has concluded that, as of June 30, 2012, the Company’s internal control over financial reporting was effective.

The effectiveness of the Company’s internal control over financial reporting as of June 30, 2012 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which appears under the heading “Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting.”



Fabrizio Freda

President and Chief Executive Officer



Richard W. Kunes

Executive Vice President and Chief Financial Officer

August 17, 2012



The Board of Directors and Stockholders
The Estée Lauder Companies Inc.:

We have audited The Estée Lauder Companies Inc. and subsidiaries' (“the Company”) internal control over financial reporting as of June 30, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, The Estée Lauder Companies Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of June 30, 2012, based on criteria established in Internal Control—Integrated Framework issued by the COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The Estée Lauder Companies Inc. and subsidiaries as of June 30, 2012 and 2011, and the related consolidated statements of earnings, equity, comprehensive income (loss), and cash flows for each of the years in the three-year period ended June 30, 2012, and our report dated August 17, 2012 expressed an unqualified opinion on those consolidated financial statements.



New York, New York
August 17, 2012



The Board of Directors and Stockholders

The Estée Lauder Companies Inc.:

We have audited the accompanying consolidated balance sheets of The Estée Lauder Companies Inc. and subsidiaries ("the Company") as of June 30, 2012 and 2011, and the related consolidated statements of earnings, equity, comprehensive income (loss), and cash flows for each of the years in the three-year period ended June 30, 2012. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements, based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Estée Lauder Companies Inc. and subsidiaries as of June 30, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2012, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), The Estée Lauder Companies Inc. and subsidiaries' internal control over financial reporting as of June 30, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated August 17, 2012 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

The Company changed its methods of accounting for business combinations and non-controlling interests in the year ended June 30, 2010.

## KPMG LLP

New York, New York

August 17, 2012



## Company Headquarters

The Estée Lauder Companies Inc.
767 Fifth Avenue, New York, New York 10153
212-572-4200

## Stockholder Information

Stockholders may access Company information, including a summary of the latest financial results, 24 hours a day, by dialing our toll-free information line, 800-308-2334. Company news releases are available online at www.elcompanies.com.

## Investor Inquiries

We welcome inquiries from investors, securities analysts and other members of the professional financial community. Please contact the Investor Relations Department in writing at the Company’s headquarters or by telephone at 212-572-4384.

## Annual Report on Form 10-K

If you would like a copy of the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, please call the toll-free information line, 800-308-2334, or write to the Investor Relations Department at the Company’s headquarters. Our Form 10-K is also available on our website at www.elcompanies.com as well as at the Securities and Exchange Commission website at www.sec.gov.

## Common Stock Information

The Class A Common Stock of The Estée Lauder Companies Inc. is listed on the New York Stock Exchange with the symbol EL.

<table><tr><td rowspan="2">Fiscal 2012</td><td colspan="3">Market Price of Common Stock</td></tr><tr><td>High</td><td>Low</td><td>Close</td></tr><tr><td>September 30</td><td>$54.39</td><td>$42.83</td><td>$43.92</td></tr><tr><td>December 31</td><td>60.37</td><td>40.76</td><td>56.16</td></tr><tr><td>March 31</td><td>63.92</td><td>54.00</td><td>61.94</td></tr><tr><td>June 30</td><td>65.60</td><td>51.82</td><td>54.12</td></tr></table>

## Dividends

Dividends on the common stock are expected to be paid annually following the declaration by the Board of Directors. The last annual dividend was $.525 per share and was paid in December 2011.

## Annual Meeting

The Company’s Annual Meeting of Stockholders will be held on Friday, November 9, 2012, at 10:00 a.m. at:

Essex House

160 Central Park South

New York, New York 10019

Attendance at the Annual Meeting will require an admission ticket.

## Stockholder Services

Computershare Shareowner Services is the Company’s transfer agent and registrar. Please contact Computershare directly with all inquiries and requests to:

• Change the name, address, or ownership of stock;

• Replace lost certificates or dividend checks;

• Obtain information about dividend reinvestment, direct stock purchase or direct deposit of dividends.

Computershare Shareowner Services
P.O. Box 358015
Pittsburgh, PA 15252-8015
888-860-6295
www.cpushareownerservices.com

## Corporate Responsibility Report

At The Estée Lauder Companies, our success relies on continuing our mission of “Bringing the Best to Everyone We Touch and Being the Best in Everything We Do.”

This philosophy guides our efforts around the environment, natural resources, caring for our employees and contributing to the well-being of communities where we work.

We have recently published our third corporate responsibility report, which describes our progress and performance in these areas. We use the Global Reporting Initiative guidelines to ensure we cover the main issues of interest to our stakeholders.

Learn more about our Company’s and our brands’ commitment to corporate responsibility in our 2010 CR report: http://www.elcompanies.com/Pages/Corporate-Responsibility.aspx

An updated report will be available at the same link in Fall 2012.



## Performance Graphs

The following graphs compare the cumulative five- and seventeen-year total stockholder return (stock price appreciation plus dividends) on the Company’s Class A Common Stock with the cumulative total return of the S&P 500 Index and a market weighted index of a publicly traded peer group. The returns are calculated by assuming an investment of $100 in the Class A Common Stock and in each index on June 30, 2007 for the five-year graph, and November 16, 1995 (the Company’s initial public offering date) for the seventeen-year graph. The publicly traded companies included in the peer group are: Avon Products, Inc., Beiersdorf AG, L’Oreal S.A., LVMH Moët Hennessy Louis Vuitton S.A., The Procter & Gamble Company and Shiseido Company, Ltd.

Cumulative five-year total stockholder return



Cumulative seventeen-year total stockholder return






## Trademarks

The Estée Lauder Companies Inc. and its subsidiaries own numerous trademarks. Those appearing in the text in this report include:

Advanced Night Repair, American Beauty, A Perfect World, Aramis, Aveda, Bb. ColorMinded, Bb. Straight, Be Legendary, Bobbi Brown, Bobbi Brown LongWear, Bumble and bumble, Calyx, Chubby Stick, Clinique, Crème de la Mer, Crème Soyeuse de La Mer, Darphin, Double Wear, Equinol, Estée Lauder, Estée Lauder Beautiful, Estée Lauder pleasures, Estée Lauder Wood Mystique, Even Better, Even Better Clinical, Eyliplex-2, Flirt!, Flirt! Big Flirt!, GoodSkin Labs, Grassroots Research Labs, Grassroots, Ideal Resource, Idealist, IntuiGen Technology, Invati, Jo Malone, Jo Malone London, Jo Malone London crème and black box, Jo Malone Wild Bluebell, Lab Series, Lab Series Max LS, La Mer, M·A·C, M·A·C AIDS Fund, M·A·C Zoom Waterfast Lash, Matchmaster, Mega-Bright, Mineralize, Moisture Surge Intense, Ojon, Origin, Perfume Calligraphy by Aramis, Photo Op, Powered by Nature. Proven by Science, Prescriptives, Pure Color, Quickliner, Rare Blend Oil, Revitalizing Supreme, Smashbox, Surf Spray, Tri-Aktiline, VIVA GLAM, Youth-full and Z-Pore.

Coach, Coach Poppy, Coach Poppy Flower, Coach Poppy Blossom and Coach Signature Rose D'Or are licensed trademarks from Coach Services Inc.; Dr. Andrew Weil is a licensed trademark from Weil Lifestyle LLC; DKNY, DKNY Be Delicious, Donna Karan, Donna Karan New York and Donna Karan Cashmere Mist are all licensed trademarks from Donna Karan Studio LLC; Kiton is a licensed trademark from Ciro Paone S.p.A.; Marni is a licensed trademark from Marni International S.A.; Michael Kors and Michael Kors Gold Rose are licensed trademarks from Michael Kors LLC; Tom Ford, Tom Ford Black Orchid, Tom Ford Neroli Portofino, Tom Ford Private Blend and Tom Ford Sahara Noir are licensed trademarks from 001 Corporation; Tommy, Tommy Hilfiger, HILFIGER Man and Tommy Girl are licensed trademarks from Tommy Hilfiger Licensing LLC; Tory Burch is a licensed trademark from Tory Burch LLC; Z Zegna and Ermenegildo Zegna are licensed trademarks from Consitex S.A.



## THE ESTÉE LAUDER COMPANIES INC. 2012 ANNUAL REPORT ENVIRONMENTAL FIGURES

The Estée Lauder Companies Inc. 2012 Annual Report is printed on paper that is made with certified renewable electricity and is Forest Stewardship Council \( ^{™} \)  (FSC \( ^{®} \) ) Certified, ensuring all papers come from responsibly managed forests. Paper used in the financial section is made with 100% post-consumer recycled fiber (PCRF), Green Seal \( ^{™} \)  Certified and Carbon Neutral Plus, all of which ensure a reduction in carbon emissions and demonstrate a commitment to conserve the environment.

The coated paper in the Annual Report is Elemental Chlorine Free (ECF), a technique that uses chlorine dioxide for the bleaching of wood pulp. It does not use elemental chlorine gas during the bleaching process and prevents the formation of dioxin. The paper made with 100% PCRF is Processed Chlorine Free (PCF), recycled paper in which the recycled content is unbleached or bleached without chlorine or chlorine derivatives.

Combined savings from using 7,800 lbs of paper made with 100% PCRF and 12,800 lbs of paper made with 20% PCRF to produce this report:

38,129 lbs wood A total of 117 trees, which supply enough oxygen for 59 people annually.

24 trees PCRF displaces wood fiber with savings translated as trees.
(Assumes a mix of hardwoods and softwoods 6" to 8" in diameter and 40' tall.)

53,757 gal water Enough water to take 3,227 eight-minute showers.

10,923 gal waste water PCRF content eliminates wastewater produced by processing equivalent virgin fiber. (Swimming pools - 1 Olympic-sized swimming pool holds 660,430 gallons.)

720 lbs solid waste PCRF content eliminates solid waste generated through the pulp and paper manufacturing process.
(Garbage trucks - 1 fully loaded garbage truck weighs an average of 28,000 lbs.)

3,241 lbs solid waste Solid waste trash thrown away by 723 people in a single day.

9.7 million BTU PCRF content displaces energy used to process equivalent virgin fiber. (Homes per year - The average US household uses 91 million BTUs of energy in a year.)

37 min BTUs energy Enough energy to power an average American household for 148 days.

11,953 lbs emissions Carbon sequestered by 94 tree seedlings grown for 5 years.

Reduction of emissions derived from using paper made with 100% renewable energy:

8,194 lbs Combined amount of CO \( _{2} \) , SO \( _{2} \) , and NO \( _{x} \)  not emitted.

10,045 lbs Greenhouse Gas Reduction - PCRF content reduces greenhouse gas emissions (measured in CO \( _{2} \)  equivalents) that would be generated by equivalent virgin fiber production. Purchasing green power significantly reduces greenhouse gas emissions, as well. (Cars per year - the average car emits 110,013 pounds of CO \( _{2} \)  in a year.)

Savings of these greenhouse gas emissions are equivalent to:

4,271.49 hours Number of kilowatt-hours of electricity offset by purchase of renewable energy.

1,087 hours Total continuous electricity used by a single-family home.

5,071 lbs Amount of waste recycled instead of disposed in landfills.



Sandy Alexander Inc., an ISO 14001:2004 certified printer with FSC \( ^{®} \)  Chain-of-Custody Certification, printed this report with the use of 100% certified renewable wind power sources, which benefit the environment by preventing emissions of greenhouse gases.

Reduction of emissions from printing using wind-generated electricity: 4,171.48 lbs. of CO \( _{2} \)  not emitted.

This amount of wind-generated electricity is equivalent to: 3,619 miles not driven in an automobile or 284 trees being planted.



MISSION
BRINGING
THE BEST TO
EVERYONE
WE TOUCH...

AND BEING
THE BEST IN
EVERYTHING
WE DO