Financial Analysis

"COMMITMENTS AND CONTINGENCIES Contractual Obligations During the fiscal 2026 second quarter, the Company entered into a contract in connection with the transformation of its operating model, as part of its PRGP Enterprise Business Services initiative, as further described in Note 3 Charges Associated with Restructuring and Other Activities . This contract is intended to drive productivity and savings. As of December 31, 2025, this contract is expected to increase our unconditional purchase obligations through fiscal 2033 by approximately $1,600 million. The amounts expected to be paid under the contract may vary from this amount based on future variability in the pricing model and performance by the vendor under the contract. Legal Proceedings The Company is involved, from time to time, in litigation and other legal proceedings incidental to its business, including product liability matters (including asbestos-related claims), advertising, regulatory, employment, intellectual property, real estate, environmental, trade relations, securities, tax, and privacy. The Company establishes accruals for loss contingencies when it has determined that a loss is probable and that the amount of loss, or range of loss, can be reasonably estimated. Amounts accrued for legal contingencies often result from a complex series of judgments about future events and uncertainties that rely on estimates and assumptions including timing of related payments. Any such accruals are adjusted thereafter …

CommitmentsAndContingenciesDisclosureTextBlock · excerpt; the full note is in the filing

"STOCK PROGRAMS Additional information relating to the Company's stock programs are included in the notes to consolidated financial statements in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2025. Total net stock-based compensation expense is attributable to the granting of, and the remaining requisite service periods of stock options, restricted stock units (RSUs) and performance share units (PSUs). Compensation expense attributable to net stock-based compensation was $94 million and $106 million for the three months ended December 31, 2025 and 2024, respectively, and was $182 million and $180 million for the six months ended December 31, 2025 and 2024, respectively. Stock Options During the six months ended December 31, 2025, the Company granted stock options in respect of approximately 1.2 million shares of Class A Common Stock with a weighted average exercise price per share of $91.71 and a weighted average grant date fair value per share of $34.84. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model. Restricted Stock Units During the six months ended December 31, 2025, the Company granted RSUs in respect of approximately 3.5 million shares of Class A Common Stock with a weighted average grant date fair value per share of $91.66 that, at the time of grant, are scheduled to vest at 1.2 million, 1.5 million and 0.8 million shares per year, in fiscal 2027, fiscal 2028 and fiscal 202 …

DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock · excerpt; the full note is in the filing

FAIR VALUE MEASUREMENTS The Company records certain of its financial assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. The accounting for fair value measurements must be applied to nonfinancial assets and nonfinancial liabilities that require initial measurement or remeasurement at fair value, which principally consist of assets and liabilities acquired through business combinations and goodwill, indefinite-lived intangible assets and long-lived assets for the purposes of calculating potential impairment. The Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are as follows: Level 1: Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date. Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3: Inputs reflect managements best estimate of what market participa …

FairValueDisclosuresTextBlock · excerpt; the full note is in the filing

GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill The Company assigns goodwill at the time of acquisition to a reporting unit, which is one level below the Company's operating segments. The skin care, makeup, fragrance and hair care product categories are the Company's operating segments. The following table presents goodwill by product category and the related change in the carrying amount: (In millions) Skin Care Makeup Fragrance Hair Care Total Balance as of June 30, 2025 Goodwill $ 1,616 $ 1,116 $ 260 $ 353 $ 3,345 Accumulated impairments (435) (745) (30) (1,210) 1,181 371 230 353 2,135 Translation adjustments, goodwill (14) (14) Translation adjustments, accumulated impairments 16 16 2 2 Balance as of December 31, 2025 Goodwill 1,602 1,116 260 353 3,331 Accumulated impairments (419) (745) (30) (1,194) Total goodwill $ 1,183 $ 371 $ 230 $ 353 $ 2,137 Other Intangible Assets Other intangible assets consist of the following: December 31, 2025 June 30, 2025 (In millions) Gross Carrying Value Accumulated Amortization Total Net Book Value Gross Carrying Value Accumulated Amortization Total Net Book Value Amortizable intangible assets: Customer lists and other $ 1,942 $ 1,369 $ 573 $ 1,984 $ 1,348 $ 636 Non-amortizable intangible assets: Trademarks 3,123 3,123 Total other intangible assets, net $ 3,696 $ 3,759 The aggregate amortization expense related to amortizable intangible assets was $27 million and $35 million for the three months ended December 31, 2025 and 2024, respectively …

GoodwillAndIntangibleAssetsDisclosureTextBlock · excerpt; the full note is in the filing

Recently Issued Accounting Standards FASB ASU No. 2025-10 Accounting for Government Grants Received by Business Entities (Topic 832) In December 2025, the FASB issued authoritative guidance on the recognition, measurement, and presentation of government grants received by business entities. A government grant is defined as a transfer of a monetary asset or a tangible nonmonetary asset, other than in an exchange transaction, from a government to an entity. Government grants are recognized in earnings in the same periods that the costs for which the grant was intended to compensate are recognized. A government grant can be recognized once it is probable that both of the following conditions are met: (1) the company will comply with the conditions attached to the grant and (2) the grant will be received. The guidance differentiates between a grant related to an asset and a grant related to income, which is based on the purpose and conditions of the grant. A grant related to an asset is a government grant that is conditioned on the purchase, construction, or acquisition of an asset and is recognized on the balance sheet once the probable threshold is met and the related costs are incurred. The guidance allows companies to make an accounting policy election to use either a deferred income approach or a cost accumulation approach for recognition of a grant of an asset. A grant related to income is a government grant that does not meet the definition of a grant related to an asset a …

NewAccountingPronouncementsPolicyPolicyTextBlock · excerpt; the full note is in the filing

PENSION 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. The Company also maintains post-retirement benefit plans that provide certain medical and dental benefits to eligible employees. Descriptions of these plans are included in the notes to consolidated financial statements in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2025. The components of net periodic benefit cost for the three months ended December 31, 2025 and 2024 consisted of the following: Pension Plans Other than Pension Plans U.S. International Post-retirement (In millions) 2025 2024 2025 2024 2025 2024 Service cost $ 9 $ 9 $ 7 $ 7 $ $ Interest cost 13 12 5 4 2 2 Expected return on plan assets (13) (12) (6) (6) Amortization of: Actuarial loss (gain) 5 5 (2) Prior service cost (1) (1) (1) Special termination benefits (1) 1 Net periodic benefit cost $ 14 $ 14 $ 4 $ 4 $ 1 $ 1 The components of net periodic benefit cost for the six months ended December 31, 2025 and 2024 consisted of the following: Pension Plans Other than Pension Plans U.S. International Post-retirement (In millions) 2025 2024 2025 2024 2025 2024 Service cost $ 18 $ 18 $ 14 $ 14 $ $ Interest cost 27 25 9 9 4 4 Expected return on plan assets (26) (25) (13) (13) Amortization of: Actuarial loss (gain) 10 10 (3) Prior service cost (1) (2) (3) Special termination benefits 1 Net …

PensionAndOtherPostretirementBenefitsDisclosureTextBlock · excerpt; the full note is in the filing

"CHARGES ASSOCIATED WITH RESTRUCTURING AND OTHER ACTIVITIES Restructuring Program Component of the Profit Recovery and Growth Plan As announced on November 1, 2023, the Company launched the Profit Recovery and Growth Plan (""PRGP"") to help progressively rebuild its profit margins in fiscal years 2025 and 2026. As a component of the PRGP, on February 5, 2024, the Company announced a two-year restructuring program. The Company committed to this course of action on February 1, 2024. After reviewing additional potential initiatives and the progress of previously approved initiatives, on February 3, 2025, the Company committed to the expansion of the PRGP, including an expansion of the restructuring program. The expanded component of the restructuring program began during the Companys fiscal 2025 third quarter. The focus of the overall expanded restructuring program (collectively the Restructuring Program) includes (i) reorganization and rightsizing of certain areas, (ii) simplification and acceleration of processes, (iii) outsourcing of select services and (iv) evolution of go-to-market footprint and selling models. Cumulative initiatives under the Restructuring Program are expected to be approved by the end of fiscal 2026 and substantially completed by the end of fiscal 2027. In connection with the Restructuring Program, as of December 31, 2025, the Company estimates a net reduction in the range of approximately 5,800 to 7,000 positions globally, which is about 9%-11% of its po …

RestructuringAndRelatedActivitiesDisclosureTextBlock · excerpt; the full note is in the filing

"REVENUE RECOGNITION Disaggregation of net sales by the Company's geographic regions (1) are as follows: Three Months Ended December 31, Six Months Ended December 31, (In millions) 2025 2024 2025 2024 The Americas $ 1,218 $ 1,209 $ 2,392 $ 2,406 Europe, United Kingdom and Ireland and Emerging Markets (""EUKEM"") 1,183 1,085 2,084 1,953 Asia/Pacific (2) 900 888 1,773 1,694 Mainland China 928 822 1,460 1,312 4,229 4,004 7,709 7,365 Returns associated with restructuring and other activities 1 Net sales $ 4,229 $ 4,004 $ 7,710 $ 7,365 (1) The Company has reorganized its geographic regions, effective July 1, 2025 and has presented the information for the three and six months ended December 31, 2025 and 2024 under this new basis. (2) The net sales from the Companys travel retail business are included in the Asia/Pacific region. Accounts Receivable Accounts receivable, net is stated net of the allowance for doubtful accounts, including credit losses, and customer deductions totaling $53 million and $38 million as of December 31, 2025 and June 30, 2025, respectively. Payment terms are short-term in nature and are generally less than one year. Changes in the allowance for credit losses are as follows: (In millions) December 31, 2025 Balance at June 30, 2025 $ 26 Provision for expected credit losses 14 Write-offs, net & other Balance at December 31, 2025 $ 40 The remaining balance of the allowance for doubtful accounts and customer deductions of $13 million and $12 million as of De …

RevenueFromContractWithCustomerTextBlock · excerpt; the full note is in the filing

SEGMENT DATA AND RELATED INFORMATION Operating segments include components of an enterprise for which separate financial information is available that are regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Although the Company operates in one business segment, beauty products, the chief operating decision maker evaluates performance based on its four major product categories: skin care, makeup, fragrance and hair care. These product categories meet the definition of operating and reportable segments and, accordingly, additional financial data is provided below. Royalty revenue associated with the license of the TOM FORD trademark as well as sales and related results of ancillary products and services that do not fit within the Company's definitions of skin care, makeup, fragrance and hair care are included in the other category. Segment net sales and operating income (loss) is before the impacts of restructuring and other activities and the impacts from the other category described above. Returns and charges associated with restructuring and other activities are not allocated to the Company's segments because they are centrally directed and controlled, are not included in internal measures of segment performance and result from activities that are deemed Company-wide initiatives to redesign, resize and reorganize select areas of the business. The assets and liabilities of the Company are managed central …

SegmentReportingDisclosureTextBlock · excerpt; the full note is in the filing

EQUITY Total Stockholders Equity Three Months Ended December 31, Six Months Ended December 31, (In millions, except per share data) 2025 2024 2025 2024 Common stock, beginning of the period $ 6 $ 6 $ 6 $ 6 Stock-based compensation Common stock, end of the period 6 6 6 6 Paid-in capital, beginning of the period 7,141 6,778 7,012 6,685 Common stock dividends 1 1 4 4 Stock-based compensation 103 110 229 200 Paid-in capital, end of the period 7,245 6,889 7,245 6,889 Retained earnings, beginning of the period 11,591 13,031 11,672 13,427 Common stock dividends (129) (128) (257) (368) Net earnings (loss) 162 (590) 209 (746) Retained earnings, end of the period 11,624 12,313 11,624 12,313 Accumulated other comprehensive loss, beginning of the period (1,141) (1,057) (1,127) (1,140) Other comprehensive earnings (loss) 61 (284) 47 (201) Accumulated other comprehensive loss, end of the period (1,080) (1,341) (1,080) (1,341) Treasury stock, beginning of the period (13,707) (13,674) (13,698) (13,664) Stock-based compensation (57) (24) (66) (34) Treasury stock, end of the period (13,764) (13,698) (13,764) (13,698) Total equity $ 4,031 $ 4,169 $ 4,031 $ 4,169 Cash dividends declared per common share $ .35 $ .35 $ .70 $ 1.01 The following is a summary of quarterly cash dividends declared per share on the Companys Class A and Class B Common Stock during the six months ended December 31, 2025: Date Declared Record Date Payable Date Amount per Share August 19, 2025 September 2, 2025 September 16 …

StockholdersEquityNoteDisclosureTextBlock · excerpt; the full note is in the filing