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Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2017 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-14064 The Estée Lauder Companies Inc. (Exact name of registrant as specified in its charter) Delaware 11-2408943 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 767 Fifth Avenue, New York, New York 10153 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code 212-572-4200 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Class A Common Stock, $.01 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ý Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o Emerging growth company o If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý The aggregate market value of the registrant’s voting common equity held by non-affiliates of the registrant was approximately $17 billion at December 31, 2016 (the last business day of the registrant’s most recently completed second quarter).* At August 18, 2017, 224,193,862 shares of the registrant’s Class A Common Stock, $.01 par value, and 143,762,288 shares of the registrant’s Class B Common Stock, $.01 par value, were outstanding. Documents Incorporated by Reference Document Where Incorporated Proxy Statement for Annual Meeting of Stockholders to be held November 14, 2017 Part III * Calculated by excluding all shares held by executive officers and directors of registrant and certain trusts without conceding that all such persons are “affiliates” of registrant for purposes of the Federal securities laws.

FORM 10-K - The Estée Lauder Companies Inc. 10-K (Mark One) ý ... Registrant’s telephone number, including area code 212-572-4200 ... We sell our prestige products principally

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  • TableofContents

    UNITED STATES

    SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

    FORM 10-K(Mark One)

    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

    For the fiscal year ended June 30, 2017

    ORoTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

    For the transition period from to

    Commission file number 1-14064

    The Este Lauder Companies Inc.(Exactnameofregistrantasspecifiedinitscharter)

    Delaware

    11-2408943(Stateorotherjurisdictionofincorporationororganization)

    (I.R.S.EmployerIdentificationNo.)

    767 Fifth Avenue, New York, New York

    10153(Addressofprincipalexecutiveoffices)

    (ZipCode)

    Registrantstelephonenumber,includingareacode212-572-4200

    Securities registered pursuant to Section 12(b) of the Act:

    Title of each class

    Name of each exchange on which registered

    ClassACommonStock,$.01parvalue

    NewYorkStockExchange

    Securities registered pursuant to Section 12(g) of the Act: None

    Indicatebycheckmarkiftheregistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct.YesNoo

    IndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13orSection15(d)oftheAct.YesoNo

    Indicatebycheckmarkwhethertheregistrant(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.YesNoo

    IndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyandpostedonitscorporateWebsite,ifany,everyInteractiveDataFilerequiredtobesubmittedandpostedpursuanttoRule405ofRegulationS-T(232.405ofthischapter)duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitandpostsuchfiles).YesNoo

    IndicatebycheckmarkifdisclosureofdelinquentfilerspursuanttoItem405ofRegulationS-K(229.405ofthischapter)isnotcontainedherein,andwillnotbecontained,tothebestofregistrantsknowledge,indefinitiveproxyorinformationstatementsincorporatedbyreferenceinPartIIIofthisForm10-KoranyamendmenttothisForm10-K.

    Indicatebycheckmarkwhethertheregistrant is alargeacceleratedfiler, anacceleratedfiler, a non-acceleratedfiler, or asmaller reportingcompany. Seethedefinitionsoflargeacceleratedfiler,acceleratedfiler,smallerreportingcompanyandemerginggrowthcompanyinRule12b-2oftheExchangeAct.

    Largeacceleratedfiler

    Acceleratedfilero

    Non-acceleratedfilero(Donotcheckifasmallerreportingcompany)

    Smallerreportingcompanyo

    Emerginggrowthcompanyo

    Ifanemerginggrowthcompany,indicatebycheckmarkiftheregistranthaselectednottousetheextendedtransitionperiodforcomplyingwithanyneworrevisedfinancialaccountingstandardsprovidedpursuanttoSection13(a)oftheExchangeAct.o

    Indicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b-2oftheExchangeAct).YesoNo

    Theaggregatemarketvalueoftheregistrantsvotingcommonequityheldbynon-affiliatesoftheregistrantwasapproximately$17billionatDecember31,2016(thelastbusinessdayoftheregistrantsmostrecentlycompletedsecondquarter).*

    AtAugust18,2017,224,193,862sharesoftheregistrantsClassACommonStock,$.01parvalue,and143,762,288sharesoftheregistrantsClassBCommonStock,$.01parvalue,wereoutstanding.

    Documents Incorporated by Reference

    Document

    Where Incorporated

    ProxyStatementforAnnualMeetingofStockholderstobeheldNovember14,2017

    PartIII

    *CalculatedbyexcludingallsharesheldbyexecutiveofficersanddirectorsofregistrantandcertaintrustswithoutconcedingthatallsuchpersonsareaffiliatesofregistrantforpurposesoftheFederalsecuritieslaws.

  • TableofContents

    THE ESTE LAUDER COMPANIES INC.

    INDEX TO ANNUAL RE PORT ON FORM 10-K

    Page Part I:

    Item1.

    Business

    2 Item1A.

    RiskFactors

    14 Item1B.

    UnresolvedStaffComments

    19 Item2.

    Properties

    20 Item3.

    LegalProceedings

    20 Item4.

    MineSafetyDisclosures

    20 Part II:

    Item5.

    MarketforRegistrantsCommonEquity,RelatedStockholderMattersandIssuerPurchasesofEquitySecurities

    21 Item6.

    SelectedFinancialData

    22 Item7.

    ManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperations

    23 Item7A.

    QuantitativeandQualitativeDisclosuresAboutMarketRisk

    51 Item8.

    FinancialStatementsandSupplementaryData

    51 Item9.

    ChangesinandDisagreementswithAccountantsonAccountingandFinancialDisclosure

    52 Item9A.

    ControlsandProcedures

    52 Item9B.

    OtherInformation

    52 Part III:

    Item10.

    Directors,ExecutiveOfficersandCorporateGovernance

    52 Item11.

    ExecutiveCompensation

    52 Item12.

    SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMatters

    52 Item13.

    CertainRelationshipsandRelatedTransactions,andDirectorIndependence

    53 Item14.

    PrincipalAccountingFeesandServices

    53 Part IV:

    Item15.

    Exhibits,FinancialStatementSchedules

    53 Signatures

    60

  • TableofContentsCautionary Note Regarding Forward-Looking Information and Risk FactorsThis Annual Report on Form 10-K includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Suchstatements include our expectations regarding sales, earnings or other future operations, financial performance or liquidity, our long-term strategy,restructuring and other initiatives, product introductions, geographic regions or channels, information systems initiatives and new methods of sale. Althoughwe believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations, we cannot assurethat actual results will not differ materially from our expectations. Factors that could cause actual results to differ from expectations are described herein; inparticular, see Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations Cautionary Note Regarding Forward-Looking Information. In addition, there is a discussion of risks associated with an investment in our securities, see Item 1A. Risk Factors.Unlessthecontextrequiresotherwise,referencestowe,us,ourandtheCompanyrefertoTheEsteLauderCompaniesInc.anditssubsidiaries.

    PART IItem 1. Business.TheEsteLauderCompaniesInc.,foundedin1946byEsteandJosephLauder,isoneoftheworldsleadingmanufacturersandmarketersofqualityskincare,makeup,fragranceandhaircareproducts.Ourproductsaresoldinover150countriesandterritoriesunderanumberofwell-knownbrandnamesincluding:EsteLauder,Clinique,Origins,MAC,BobbiBrown,LaMer,JoMaloneLondon,AvedaandTooFaced.Wearealsothegloballicenseeforfragrancesand/orcosmeticssoldundervariousdesignerbrandnames,includingTommyHilfiger,DonnaKaranNewYork,DKNY,MichaelKorsandTomFord.Eachbrandisdistinctlypositionedwithinthemarketforcosmeticsandotherbeautyproducts.Webelievewearealeaderinthebeautyindustryduetotheglobalrecognitionofourbrandnames,ourleadershipinproductinnovation,ourstrongpositioninkeygeographicmarketsandtheconsistentlyhighqualityofourproductsandHigh-Touchservices.Wesellourprestigeproductsprincipallythroughlimiteddistributionchannelstocomplementtheimagesassociatedwithourbrands.Thesechannelsconsistprimarilyofdepartmentstores,specialtymulti-brandretailers,upscaleperfumeriesandpharmaciesandprestigesalonsandspas.Inaddition,ourproductsaresoldinourownandauthorizedfreestandingstores,ourownandauthorizedretailerwebsites,storesinairportsandoncruiseships,in-flight,andduty-freeshops.Webelievethatourstrategyofpursuingselectivedistributionstrengthensourrelationshipswithretailersandconsumers,enablesourbrandstobeamongthebestsellingproductlinesatthestoresandonline,andheightenstheaspirationalqualityofourbrands.Foradiscussionofrecentdevelopments,seeItem7.ManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperationsResultsofOperationsOverview.Forsegmentandgeographicalareafinancialinformation,seeItem8.FinancialStatementsandSupplementaryDataNote21SegmentDataandRelatedInformation.WehavebeencontrolledbytheLauderfamilysincethefoundingofourCompany.MembersoftheLauderfamily,someofwhomaredirectors,executiveofficersand/oremployees,beneficiallyown,directlyorindirectly,asofAugust18,2017,sharesofClassACommonStockandClassBCommonStockhavingapproximately87%oftheoutstandingvotingpoweroftheCommonStock.

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  • TableofContentsProducts

    Skin Care -Ourbroadrangeofskincareproductsaddressesvariousskincareneeds.Theseproductsincludemoisturizers,serums,cleansers,toners,body

    care,exfoliators,acneandoilcorrectors,facialmasks,cleansingdevicesandsuncareproducts.Anumberofourproductsaredevelopedforuseonparticularareasofthebody,suchastheface,thehandsoraroundtheeyes.

    Makeup -Wemanufacture,marketandsellafullarrayofmakeupproducts,includingthosefortheface,eyes,lipsandnails.Manyoftheproductsareofferedinanextensivepaletteofshadesandcolors.Wealsosellrelateditemssuchascompacts,brushesandothermakeuptools.

    Fragrance -Weofferavarietyoffragranceproducts.Thefragrancesaresoldinvariousforms,includingeaudeparfumspraysandcolognes,aswellaslotions,powders,creams,bath/showerproducts,candlesandsoapsthatareinfusedwithaparticularfragrance.

    Hair Care -Haircareproductsareofferedmainlyinprestigesalonsandinfreestandingstoresaswellassomedepartmentstoresandspecialtymulti-brandretailers,andincludeshampoos,conditioners,stylingproducts,treatment,finishingspraysandhaircolorproducts.

    Other -Wealsosellancillaryproductsandservices.

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  • TableofContentsOur BrandsGiventhepersonalnatureofourproductsandthewidearrayofconsumerpreferencesandtastes,aswellascompetitionfortheattentionofconsumers,ourstrategyhasbeentomarketandpromoteourproductsthroughdistinctivebrandsseekingtoaddressbroadpreferencesandtastes.Eachbrandhasasingleglobalimagethatispromotedwithconsistentlogos,packagingandadvertisingdesignedtoenhanceitsimageanddifferentiateitfromotherbrandsinthemarket.Beautybrandsaredifferentiatedbynumerousfactors,includingquality,performance,aparticularlifestyle,wheretheyaredistributed(e.g.,prestige,mass)andpricepoint.Belowisachartshowingmostofthebrandsthatwesellandhowweviewthembasedonlifestyleandpricepoint:

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  • TableofContentsInadditiontothebrandsdescribedabove,wemanufactureandsellproductsunderthePrescriptives,RODINoliolussoandFLIRT!brands.WealsodevelopandsellproductsunderalicensefromKiton.OurheritagebrandsareEsteLauder,CliniqueandOrigins.OurmakeupartistbrandsareMACandBobbiBrown.OurluxurybrandsareLaMer,JoMaloneLondon,TomFord,AERIN,RODINoliolusso,LeLabo,EditionsdeParfumsFrdricMalleandByKilian.OurdesignerfragrancesaresoldundertheTommyHilfiger,DonnaKaranNewYork,DKNY,MichaelKors,Kiton,ErmenegildoZegnaandToryBurchlicensesnotedabove.DistributionWesellourproductsprimarilythroughlimiteddistributionchannelsthatcomplementtheluxuryimageandprestigestatusofourbrands.Thesechannelsconsistprimarilyofdepartmentstores,specialtymulti-brandretailers,upscaleperfumeriesandpharmaciesandprestigesalonsandspas.Inaddition,ourproductsaresoldinfreestandingstoresthatareoperatedeitherbyusorbyauthorizedthirdparties,throughourownandthird-partyoperatede-commercewebsitesandwebsitesofourauthorizedretailers,invarioustravelretaillocationssuchasstoresinairportsandoncruiseships,in-flightandduty-freeshops,andcertainfragrancesaresoldinself-selectoutlets.Asiscustomaryinthecosmeticsindustry,ourpracticeistoacceptreturnsofourproductsfromretailersifproperlyrequestedandapproved.Wehavestrategicallyopenednewfreestandingstoresgloballythatweorauthorizedthirdpartiesoperate,ledbyMAC,JoMaloneLondon,BobbiBrownandAveda.Wearealsoevaluatingopportunitiestoopenadditionalfreestandingstoresforcertainofourotherbrands.AsofJune30,2017,weoperatedapproximately1,430freestandingstores,andmorethan500freestandingstoresareoperatedaroundtheworldbyauthorizedthirdparties.Weexpectthenumberoffreestandingstorestoincreaseoverthenextseveralyears.WecurrentlysellproductsfrommostofourbrandsdirectlytoconsumersonlinethroughCompany-ownedandoperatede-commerceandm-commercesitesinapproximately35countries.WhiletodayamajorityofouronlinesalesaregeneratedintheUnitedStatesandtheUnitedKingdom,wehaveampleopportunityforexpansionofonlinesalesgrowthglobally.Additionally,ourproductsaresoldthroughvariouswebsitesoperatedbyauthorizedretailers.Wemaintaindedicatedsalesteamsthatmanageourretailaccounts.Wehavewholly-ownedoperationsinover50countries,andtwocontrollingintereststhatoperateinseveralcountries,throughwhichwemarket,sellanddistributeourproducts.Incertaincountries,wesellourproductsthroughcarefullyselecteddistributorsthatshareourcommitmenttoprotectingtheimageandpositionofourbrands.Inaddition,wesellcertainproductsinselectdomesticandinternationalU.S.militaryexchanges.Forinformationregardingournetsalesandlong-livedassetsbygeographicregion,seeItem8.FinancialStatementsandSupplementaryDataNote21SegmentDataandRelatedInformation.CustomersOurstrategyistobuildstrongrelationshipsgloballywithselectretailers,aswellaswithourconsumersdirectlythroughfreestandingstores,e-commercesitesandsocialmedia.Seniormanagementworkswithexecutivesofourmajorretailaccountsonaregularbasis,andwebelieveweareviewedasanimportantsuppliertothesecustomers.Ourlargestcustomer,MacysInc.,sellsproductsprimarilywithintheUnitedStatesandaccountedfor8%ofourconsolidatednetsalesforfiscal2017,9%forfiscal2016and10%forfiscal2015,and8%and13%ofouraccountsreceivableasofJune30,2017and2016,respectively.MarketingOurstrategytomarketandpromoteourproductsbeginswithourwell-diversifiedportfolioofmorethan25distinctivebrandsacrossfourproductcategories.Ourportfoliocanbedeployedinmultipledistributionchannelsandgeographieswhereourglobalreputationandawarenessofourbrandsbenefitus.Ourgeographicanddistributionchanneldiversityallowsustoengagelocalconsumersacrossanarrayofdevelopedandemergingmarketsbyemphasizingproductsandserviceswiththegreatestlocalrelevanceandappeal.ThisstrategyisbuiltaroundBringingtheBesttoEveryoneWeTouch.Ourfounder,Mrs.EsteLauder,formulatedthisuniquemarketingphilosophytoprovideHigh-Touchserviceandhighqualityproductsasthefoundationforasolidandloyalconsumerbase.OurHigh-Touchapproachisdemonstratedthroughourintegratedconsumerengagementmodelsthatleverageourproductspecialistsandtechnologytoprovidetheconsumerwithadistinctexperiencethatcanincludepersonalconsultationswithbeautyadvisors,inpersonoronline,whodemonstrateandeducatetheconsumeronproductusageandapplication.Weplantocontinuetoleverageourcorestrengths,includingthequalityofourproducts,ourHigh-Touchcaretoconsumersandadiversifiedportfolioofbrands,channelsandgeographies.

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  • TableofContentsOurmarketingstrategiesvarybybrand,localmarketanddistributionchannel.Ourdiverseportfolioofbrandsemploydifferentengagementmodelssuitedtoeachbrandsequity,distribution,productfocusandunderstandingofthecoreconsumer.Thisenablesustoelevatetheconsumerexperienceasweattractnewcustomers,buildloyalty,driveconsumeradvocacyandaddressthetransformationofconsumershoppingbehaviors.Ourmarketingplanningapproachleverageslocalinsightstooptimizeallocationofresourcesacrossdifferentmediaoutletsandretailtouchpointstoresonatewithourmostdiscerningconsumersmosteffectively.Thisincludesstrategicallydeployingourbrandsandtailoringproductassortmentsandcommunicationstofitlocaltastesandpreferencesincitiesandneighborhoods.Mostofourcreativemarketingworkisdonebyin-houseteamsthatdesignandproducethesalesmaterials,socialmediastrategies,advertisementsandpackagingforproductsineachbrand.Webuildbrandequityanddrivetraffictoretaillocationsandtoourownandauthorizedretailerswebsitesthroughdigitalandsocialmedia,magazinesandnewspapers,television,billboardsincitiesandairports,anddirectmailandemail.Inaddition,weseekeditorialcoverageforourbrandsandproductsindigitalandsocialmediaandprint,todriveinfluenceramplification.Weareincreasingourbrandawarenessandsalesbycontinuingtoelevateourdigitalpresenceencompassinge-commerceandm-commerce,aswellasdigital,socialmediaandinfluencermarketing.Wecontinuetoinnovatetobettermeetconsumeronlineshoppingpreferences(e.g.,how-tovideos,ratingsandreviewsandmobilephoneandtabletapplications),supporte-commerceandm-commercebusinessesviadigitalandsocialmarketingactivitiesdesignedtobuildbrandequityandHigh-Touchconsumerengagement,inordertocontinuetoofferunparalleledserviceandsetthestandardforprestigebeautyshoppingonline.Wealsosupportourauthorizedretailerstostrengthentheire-commercebusinessesanddrivesalesofourbrandsontheirwebsites.Wehaveopportunitiestoexpandourbrandportfolioonlinearoundtheworld,andweareinvestinginandtestingnewomnichannelconceptsintheUnitedStatesandotherestablishedmarketstoincreasebrandloyaltybybetterservingconsumersastheyshopacrosschannels.Wehavededicatedresourcestoimplementcreative,coordinated,brand-enhancingstrategiesacrossallonlineactivitiestoincreaseourdirectaccesstoconsumers.Promotionalactivitiesandin-storedisplaysaredesignedtoattractnewconsumersandintroduceexistingconsumerstootherproductofferingsfromtherespectivebrands.Ourmarketingeffortsalsobenefitfromcooperativeadvertisingprogramswithsomeretailers,someofwhicharesupportedbycoordinatedpromotions,suchassamplingprograms,includingpurchasewithpurchaseandgiftwithpurchase,andwecontinuetobelievethatthequalityandperceivedbenefitsofsampleproductshavebeeneffectiveinducementstopurchasesbynewandexistingconsumers.Suchactivitiesattractconsumerstoourcountersandwebsitesandkeepexistingconsumersengaged.Ourmarketingandsalesexecutivesspendconsiderabletimeinthefieldmeetingwithconsumers,retailers,beautyadvisorsandmakeupartistsatthepointsofsaletoenableustoofferaseamlessexperienceacrosschannelsofdistribution.Information SystemsInformationsystemssupportbusinessprocessesincludingproductdevelopment,marketing,sales,orderprocessing,production,distributionandfinance.Wecontinuetomaintainandenhancethesesystemsinalignmentwithourlong-termstrategy.Manyelementsofourglobalinformationtechnologyinfrastructurearemanagedbythird-partyprovidersundervendor-owned,cloud-basedmodelswherewepayforservicesastheyareconsumed.Thisallowsamorescalableplatformtosupportcurrentandfuturerequirementsandimprovesouragilityandflexibilitytorespondtothedemandsofthebusinessbyleveragingmoreadvancedtechnologies.Wecontinuetoupgrademanyofourlegacysystems,includingretailsystemsandretailcapabilitiesglobally.Theretailsystemupgradesareexpectedtoenhancetheeffectivenessofstoreoperations,andsupportouromnichannelobjectives.Duringfiscal2017,wesubstantiallycompletedretailsystemupgradestoourfreestandingstoresinNorthAmericaandbeganourimplementationintheAsia/Pacificregion.Overthenextfewyears,weplantocontinuetoimplementupgradedpointofsale,retailmerchandising,andretailworkforcemanagementsolutionsincertainkeymarketsglobally.MostofourlocationsarecurrentlyenabledwithSAP-basedtechnologies(SAP).WecontinuetodevelopandinvestinnewdatainsightandanalyticcapabilitiestoallowustomoreeffectivelyutilizetheinformationprovidedbySAP,aswellasstrategicsourcesofbothinternalandexternaldata.Inaddition,wearemakingcontinuousinvestmentstointegratechangestosystemsapplicationswithSAPthatweexpectwillbringvaluecreationtothebusinessandincreaseproductivity.Inparticular,weareoptimizingcertainofoursupplychaincapabilities,includinginventoryandwarehousemanagement,aswellasaddingcapabilitiestoenhancecertainfinancialprocessesandworkforcemanagementsolutions.

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  • TableofContentsResearch and DevelopmentWebelievethatweareanindustryleaderinthedevelopmentofnewproducts.Ourresearchanddevelopmentgroup,whichincludesscientistsandotheremployeesinvolvedinproductinnovationandpackagingdesignanddevelopment,workscloselywithourmarketingandproductdevelopmentteamsandthird-partysupplierstogenerateideas,developnewproductsandproduct-lineextensions,createnewpackagingconcepts,andimprove,redesignorreformulateexistingproducts.Inaddition,theseresearchanddevelopmentpersonnelprovideongoingtechnicalassistanceandknow-howtoqualityassuranceandmanufacturingpersonnelonaworldwidebasis,toensureconsistentglobalstandardsforourproductsandtodeliverproductsthatmeetorexceedconsumerexpectations.Theresearchanddevelopmentgrouphaslong-standingworkingrelationshipswithseveralU.S.andinternationalmedicalandeducationalfacilities,whichsupplementinternalcapabilities.Membersoftheresearchanddevelopmentgrouparealsoresponsibleforregulatorycompliancematters.

    Researchanddevelopmentcostsareexpensedasincurred.AsofJune30,2017,wehadapproximately760employeesengagedinresearchanddevelopmentactivities.Wemaintainresearchanddevelopmentprogramsatcertainofourprincipalfacilitiesandfacilitiesdedicatedtoperformingresearchanddevelopment,seeItem2.Properties.Wedonotconductanimaltestingonourproductsoringredients,anddonotaskotherstotestonourbehalf,exceptwhenrequiredbylaw.Manufacturing, Warehousing and Raw MaterialsWemanufactureourproductsprimarilyintheUnitedStates,Belgium,Switzerland,theUnitedKingdomandCanada.Wecontinuetostreamlineourmanufacturingprocessesandidentifysourcingopportunitiestoimproveinnovation,increaseefficiencies,minimizeourimpactontheenvironmentandreducecosts.Ourmajormanufacturingfacilitiesoperateasfocusplantsthatprimarilymanufactureonecategoryofproduct(e.g.,makeup)formostofourprincipalbrands.Ourplantsaremodern,andourmanufacturingprocessesaresubstantiallyautomated.Whilewebelievethatournetworkofmanufacturingfacilitiesandthird-partymanufacturersissufficienttomeetcurrentandreasonablyanticipatedmanufacturingrequirements,wecontinuetoidentifyopportunitiestomakesignificantimprovementsincapacity,technology,andproductivityandalignourmanufacturingwithregionalsalesdemand.Tocapitalizeoninnovationandothersupplychainbenefits,wealsocontinuetoutilizeanetworkofthird-partymanufacturersonaglobalbasis.Wehaveestablishedaglobaldistributionnetworkdesignedtomeetthechangingdemandsofourcustomerswhilemaintainingservicelevels.Wearecontinuouslyevaluatingandadjustingthisphysicaldistributionnetwork.Wehaveestablishedregionaldistributioncenters,includingthosemaintainedbythirdparties,strategicallypositionedthroughouttheworldinordertofacilitateefficientdeliveryofourproductstoourcustomers.Theprincipalrawmaterialsusedinthemanufactureofourproductsareessentialoils,alcoholsandspecialtychemicals.Wealsopurchasepackagingcomponentsthataremanufacturedtoourdesignspecifications.ProcurementofmaterialsforallmanufacturingfacilitiesisgenerallymadeonaglobalbasisthroughourGlobalSupplierRelationsfunction.Wereviewoursupplierbaseperiodicallywiththespecificobjectivesofimprovingquality,increasinginnovationandspeed-to-marketandreducingcosts.Inaddition,wefocusonsupplysourcingwithintheregionofmanufacturetoallowforimprovedsupplychainefficiencies.Someofourproductsrelyonasingleorlimitednumberofsuppliers;however,webelievethatourportfolioofsuppliershasadequateresourcesandfacilitiestoovercomemostunforeseeninterruptionsofsupply.Inthepast,wehavebeenabletoobtainanadequatesupplyofessentialrawmaterialsandcurrentlybelievewehaveadequatesourcesofsupplyforvirtuallyallcomponentsofourproducts.

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  • TableofContentsWearecontinuallybenchmarkingtheperformanceofoursupplychainandwillchangesuppliersandadjustourdistributionnetworksandmanufacturingfootprintbaseduponthechangingneedsofthebusiness.Asweintegrateacquiredbrands,wecontinuallyseeknewwaystoleverageourproductionandsourcingcapabilitiestoimproveouroverallsupplychainperformance.CompetitionThereissignificantcompetitionwithineachmarketwhereourskincare,makeup,fragranceandhaircareproductsaresold.Brandrecognition,productqualityandeffectiveness,distributionchannels,accessibility,andpricepointaresomeofthefactorsthatimpactconsumerschoicesamongcompetingproductsandbrands.Marketing(includingsocialmediaactivities),merchandising,in-storeexperiencesanddemonstrations,andnewproductinnovationsalsohaveanimpactonconsumerspurchasingdecisions.Withourportfolioofdiversebrandssoldinavarietyofchannelsweareoneoftheworldsleadingmanufacturersandmarketersofskincare,makeup,fragranceandhaircareproducts.Wecompeteagainstanumberofcompanies,someofwhichhavesubstantiallygreaterresourcesthanwedo.Someofourcompetitorsarelarge,well-known,multinationalmanufacturersandmarketersofskincare,makeup,fragranceandhaircareproducts,mostofwhichmarketandselltheirproductsundermultiplebrandnames.TheyincludeLOrealS.A.;ShiseidoCompany,Ltd.;LVMHMotHennesseyLouisVuitton;Coty,Inc.;TheProcter&GambleCompany;ChanelS.A.;GroupeClarins;Amorepacific;andUnilever.Wealsofacecompetitionfromanumberofindependentbrands,someofwhicharebackedbyprivate-equityinvestors,aswellassomeretailersthathavetheirownbeautybrands.Certainofourcompetitorsalsohaveownershipinterestsinretailersthatarecustomersofours.Trademarks, Patents and CopyrightsWeownthetrademarkrightsusedinconnectionwiththemanufacturing,marketing,distributionandsaleofourproductsbothintheUnitedStatesandintheotherprincipalcountrieswheresuchproductsaresold,includingEsteLauder,Clinique,Aramis,Prescriptives,LabSeries,Origins,MAC,BobbiBrown,LaMer,Aveda,JoMaloneLondon,Bumbleandbumble,Darphin,GoodSkinLabs,Ojon,Smashbox,Osiao,LeLabo,RODINoliolusso,EditionsdeParfumsFrdricMalle,GLAMGLOW,ByKilian,BECCAandTooFacedandthenamesofmanyoftheproductssoldunderthesebrands.Wearetheexclusiveworldwidelicenseeforfragrances,cosmeticsand/orrelatedproductsforTommyHilfiger,DonnaKaranNewYork,DKNY,Kiton,MichaelKors,TomFord,Dr.AndrewWeil,ErmenegildoZegna,AERINandToryBurch.Forfurtherdiscussiononlicensearrangements,includingtheirduration,seeItem8.FinancialStatementsandSupplementaryDataNote2SummaryofSignificantAccountingPoliciesLicenseArrangements.WeprotectourtrademarksintheUnitedStatesandsignificantmarketsworldwide.Weconsidertheprotectionofourtrademarkstobeimportanttoourbusiness.Anumberofourproductsincorporatepatented,patent-pendingorproprietarytechnology.Inaddition,severalproductsandpackagingforsuchproductsarecoveredbydesignpatentsorcopyrights.Whileweconsiderthesepatentsandcopyrights,andtheprotectionthereof,tobeimportant,nosinglepatentorcopyright,orgroupofpatentsorcopyrights,isconsideredmaterialtotheconductofourbusiness.EmployeesAtJune30,2017,wehadapproximately46,000full-timeemployeesworldwide(includingdemonstratorsatpointsofsalewhoareemployedbyus).WehavenoemployeesintheUnitedStatesthatarecoveredbyacollectivebargainingagreement.AlimitednumberofemployeesoutsideoftheUnitedStatesarecoveredbyaworkscouncilagreementorothersyndicatearrangements.Government RegulationWeandourproductsaresubjecttoregulationbytheFoodandDrugAdministrationandtheFederalTradeCommissionintheUnitedStates,aswellasbyvariousotherfederal,state,localandinternationalregulatoryauthoritiesandtheregulatoryauthoritiesinthecountriesinwhichourproductsareproducedorsold.Suchregulationsprincipallyrelatetotheingredients,manufacturing,labeling,packaging,marketing,advertising,shipment,disposalandsafetyofourproducts.Webelievethatweareinsubstantialcompliancewithsuchregulations,aswellaswithapplicablefederal,state,localandinternationalandothercountriesrulesandregulationsgoverningthedischargeofmaterialshazardoustotheenvironmentorthatrelatetoclimatechange.Therearenosignificantcapitalexpendituresforenvironmentalcontrolorclimatechangematterseitherplannedinthecurrentyearorexpectedinthenearfuture.SeasonalityOurresultsofoperationsintotal,byregionandbyproductcategory,aresubjecttoseasonalfluctuations,withnetsalesinthefirsthalfofthefiscalyeartypicallybeingslightlyhigherthaninthesecondhalfofthefiscalyear.Thehighernetsalesinthefirsthalfofthefiscalyearareattributabletotheincreasedlevelsofpurchasingbyretailersfortheholidaysellingseason.Fluctuationsinnetsalesandoperatingincomeintotalandbygeographicregionandproductcategoryinanyfiscalquartermaybeattributabletothelevelandscopeofnewproductintroductionsortheparticularretailcalendarsfollowedbyourcustomersthatareretailers,whichmayimpacttheirorderplacementandreceiptofgoods.Additionally,grossmarginsandoperatingexpensesareimpactedonaquarter-by-quarterbasisbyvariationsinourlaunchcalendarandthetimingofpromotions,includingpurchasewithpurchaseandgiftwithpurchasepromotions.

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  • TableofContentsAvailability of ReportsWemakeavailablefinancialinformation,newsreleasesandotherinformationonourwebsiteatwww.elcompanies.com.OurannualreportonForm10-K,quarterlyreportsonForm10-Q,currentreportsonForm8-Kandotherreports,aswellasanyamendmentstothesereportsfiledorfurnishedpursuanttoSection13(a)or15(d)oftheSecuritiesExchangeActof1934,areavailablefreeofchargeviatheEDGARdatabaseatwww.sec.govorourwebsite,assoonasreasonablypracticableafterwefilesuchreportsandamendmentswith,orfurnishthemto,theSecuritiesandExchangeCommission.StockholdersmayalsocontactInvestorRelationsat767FifthAvenue,NewYork,NewYork10153orcall800-308-2334toobtainahardcopyofthesereportswithoutcharge.Corporate Governance Guidelines and Code of ConductTheBoardofDirectorshasdevelopedcorporategovernancepracticestohelpitfulfillitsresponsibilitiestostockholdersinprovidinggeneraldirectionandoversightofmanagement.ThesepracticesaresetforthinourCorporateGovernanceGuidelines.WealsohaveaCodeofConduct(Code)applicabletoallemployees,officersanddirectorsoftheCompany,includingtheChiefExecutiveOfficer,theChiefFinancialOfficerandotherseniorfinancialofficers.ThesedocumentsandanywaiverofaprovisionoftheCodegrantedtoanyseniorofficerordirectororanymaterialamendmenttotheCode,maybefoundintheInvestorssectionofourwebsite:www.elcompanies.comundertheheadingCorporateGovernance.ThechartersfortheAuditCommittee,CompensationCommitteeandNominatingandBoardAffairsCommitteemaybefoundinthesamelocationonourwebsite.StockholdersmayalsocontactInvestorRelationsat767FifthAvenue,NewYork,NewYork10153orcall800-308-2334toobtainahardcopyofthesedocumentswithoutcharge.Executive OfficersThefollowingtablesetsforthcertaininformationwithrespecttoourexecutiveofficers:Name

    Age

    Position(s) HeldJohnDemsey

    61

    ExecutiveGroupPresidentFabrizioFreda

    59

    President,ChiefExecutiveOfficerandaDirectorCarlHaney

    54

    ExecutiveVicePresident,GlobalResearchandDevelopment,CorporateProductInnovation,PackageDevelopment

    LeonardA.Lauder

    84

    ChairmanEmeritusandaDirectorRonaldS.Lauder

    73

    ChairmanofCliniqueLaboratories,LLCandaDirectorWilliamP.Lauder

    57

    ExecutiveChairmanandaDirectorSaraE.Moss

    70

    ExecutiveVicePresidentandGeneralCounselMichaelOHare

    49

    ExecutiveVicePresidentGlobalHumanResourcesGregoryF.Polcer

    62

    ExecutiveVicePresidentGlobalSupplyChainCedricProuv

    57

    GroupPresidentInternationalTraceyT.Travis

    55

    ExecutiveVicePresidentandChiefFinancialOfficerAlexandraC.Trower

    52

    ExecutiveVicePresidentGlobalCommunications

    John Demsey isExecutiveGroupPresident.Inthisrole,heisresponsiblefornumerousbrands,includingClinique,Aramis,Prescriptives,MAC,JoMaloneLondon,Smashbox,TomFord,RODINoliolusso,LeLabo,EditionsdeParfumsFrdricMalle,GLAMGLOW,ByKilian,andTooFaced.Mr.DemseyservedasGroupPresidentfromJuly2006toJanuary2016,andwasappointedExecutiveGroupPresidentinJanuary2016.HebecameGlobalBrandPresidentofEsteLauderinJanuary2005afterservingasPresidentandManagingDirectorofMACsince1998.From1991to1998,Mr.DemseyheldseveralpositionswithEsteLauder,includingSeniorVicePresidentofSalesandEducationforEsteLauderUSAandCanada.Beforejoiningus,heworkedinsalesandmarketingforRevlon,Borghese,AlexandradeMarkoffCosmetics,andLancasterCosmetics.Mr.DemseyalsoheldvariousexecutiveretailpositionsatBloomingdales,Macys,BenettonandSaksFifthAvenue.HeservesasChairmanoftheMACAIDSFundandisontheBoardofDirectorsofBaccaratS.A.

    Fabrizio Freda hasbeenPresidentandChiefExecutiveOfficeroftheCompanysinceJuly2009.FromMarch2008throughJune2009,hewasPresidentandChiefOperatingOfficeroftheCompanywhereheoversawtheClinique,BobbiBrown,LaMer,JoMaloneLondon,AvedaandBumbleandbumblebrandsandtheAramisandDesignerFragrancesdivision.HealsowasresponsiblefortheCompanysInternationalDivision,aswellasGlobalOperations,ResearchandDevelopment,Packaging,QualityAssurance,MerchandiseDesign,CorporateStoreDesignandRetailStoreOperations.PriortojoiningtheCompany,Mr.FredaservedinanumberofpositionsofincreasingresponsibilityatTheProcter&GambleCompany(P&G),wherehewasresponsibleforvariousoperating,marketingandkeystrategiceffortsforover20years.From2001through2007,Mr.FredawasPresident,GlobalSnacks,atP&G.HealsospentmorethanadecadeintheHealthandBeautyCaredivisionatP&G.From1986to1988hedirectedmarketingandstrategicplanningforGucciSpA.Mr.FredaiscurrentlyamemberoftheBoardofDirectorsofBlackRock,Inc.,aglobalassetmanagementcompany.

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    Carl Haney isExecutiveVicePresident,GlobalResearchandDevelopment,CorporateProductInnovation,PackageDevelopment.PriortojoiningtheCompanyin2012,Mr.HaneywasVicePresident,R&DGlobal,MaleGrooming,Gillette,BraunandDevices,leadingteamsinallaspectsofinnovation,includingproduct,packaging,processdevelopmentandengineeringatTheProcter&GambleCompany(P&G)from2007throughMay2012.Mr.HaneystartedhiscareeratP&Gin1984,andovertheyearsheldnumerousleadershippositionsinlocationsaroundtheworld.In1997,hewaspromotedtoDirector,LatinAmericaBeautyCareR&D.Mr.HaneyalsoheldR&DleadershiprolesforP&GGlobalCosmeticsandOralCareandledP&GinnovationteamsinLatinAmerica,EuropeandAsia.

    Leonard A. Lauder isChairmanEmeritusandamemberoftheBoardofDirectors.HewasChairmanoftheBoardofDirectorsfrom1995throughJune2009andservedasourChiefExecutiveOfficerfrom1982through1999andPresidentfrom1972until1995.Mr.LauderhasheldvariouspositionssinceformallyjoiningtheCompanyin1958afterservingasanofficerintheUnitedStatesNavy.HeisChairmanEmeritusoftheBoardofTrusteesoftheWhitneyMuseumofAmericanArt,aCharterTrusteeofTheUniversityofPennsylvania,aTrusteeofTheAspenInstituteandtheco-founderandCo-ChairmanoftheAlzheimersDrugDiscoveryFoundation.Mr.LauderisHonoraryChairmanoftheBreastCancerResearchFoundation.HealsoservedasamemberoftheWhiteHouseAdvisoryCommitteeonTradePolicyandNegotiationsunderPresidentReagan.

    Ronald S. Lauder hasservedasChairmanofCliniqueLaboratories,LLCsincereturningfromgovernmentservicein1987andwasChairmanofEsteeLauderInternational,Inc.from1987through2002.HejoinedtheCompanyin1964andhasservedinvariouscapacities.Mr.LauderwaselectedasamemberoftheBoardofDirectorsoftheCompanyin2016;previouslyhewasamemberoftheBoardofDirectorsoftheCompanyfrom1968to1986andagainfrom1988toJuly2009.From1983to1986,heservedasDeputyAssistantSecretaryofDefenseforEuropeanandNATOAffairs.From1986to1987,hewasU.S.AmbassadortoAustria.Mr.LauderisanHonoraryChairmanoftheBoardofTrusteesoftheMuseumofModernArtandPresidentoftheNeueGalerie.HeisalsoChairmanoftheBoardofGovernorsoftheJosephH.LauderInstituteofManagementandInternationalStudiesattheWhartonSchoolattheUniversityofPennsylvaniaandtheco-founderandCo-ChairmanoftheAlzheimersDrugDiscoveryFoundation.

    William P. Lauder isExecutiveChairmanand,insuchrole,heisChairmanoftheBoardofDirectors.HewasChiefExecutiveOfficeroftheCompanyfromMarch2008throughJune2009andPresidentandChiefExecutiveOfficerfromJuly2004throughFebruary2008.FromJanuary2003throughJune2004,hewasChiefOperatingOfficer.FromJuly2001through2002,hewasGroupPresidentresponsiblefortheworldwidebusinessoftheCliniqueandOriginsbrandsandtheCompanysretailstoreandonlineoperations.From1998to2001,hewasPresidentofCliniqueLaboratories,LLC.Priorto1998,hewasPresidentofOriginsNaturalResourcesInc.,andhehadbeentheseniorofficerofthatdivisionsinceitsinceptionin1990.Priorthereto,heservedinvariouspositionssincejoiningtheCompanyin1986.Mr.LaudercurrentlyservesasChairmanoftheBoardoftheFreshAirFund,amemberoftheboardsoftrusteesofTheUniversityofPennsylvaniaandTheTrinitySchoolinNewYorkCity,amemberoftheboardsofdirectorsofthe92 StreetYandthePartnershipforNewYorkCity,andisontheAdvisoryBoardofZelnickMedia.HeisalsoCo-ChairmanoftheBreastCancerResearchFoundation.

    Sara E. Moss isExecutiveVicePresidentandGeneralCounsel.ShejoinedusasSeniorVicePresident,GeneralCounselandSecretaryinSeptember2003andbecameExecutiveVicePresidentinNovember2004.ShewasSeniorVicePresidentandGeneralCounselofPitneyBowesInc.from1996toFebruary2003,andSeniorLitigationPartnerforHoward,Smith&Levin(nowCovington&Burling)inNewYorkfrom1984to1996.Priorto1984,Ms.MossservedasanAssistantUnitedStatesAttorneyintheCriminalDivisionintheSouthernDistrictofNewYork,wasanassociateatthelawfirmofDavis,Polk&WardwellandwasLawClerktotheHonorableConstanceBakerMotley,U.S.DistrictJudgeintheSouthernDistrictofNewYork.

    Michael OHare isExecutiveVicePresident-GlobalHumanResources.PriortojoiningtheCompanyin2013,hewaswithHeinekenN.V.,aglobalbrewerbasedintheNetherlands,whereheservedsince2009asGlobalChiefHumanResourcesOfficer.Priortothat,Mr.OHarespent13yearsatPepsiCo,aglobalfoodandbeveragecompany,whereheheldavarietyofseniorrolesinHumanResources,includingChiefPersonnelOfficer/VicePresidentforAsiaPacific.

    Gregory F. Polcer isExecutiveVicePresident-GlobalSupplyChain.HeisresponsibleforGlobalDirectandIndirectProcurement,Manufacturing,Logistics,QualityAssuranceandEnvironmentalAffairsandSafety.From1988to2008,whenhejoinedtheCompany,Mr.PolcerworkedforUnileverwherehedesignedandimplementedglobal,regionalandlocalinitiatives.From2006to2008,heservedastheSeniorVicePresident,SupplyChainforUnileverwhereheintegratedtheNorthandLatinAmericanSupplyChains,providedseniorleadershipforallglobalsupplymanagementandestablishedaglobaloutsourcingplan.Mr.PolcerservedasSeniorVicePresident,SupplyChain-NorthAmericafrom2005to2006andSeniorVicePresident,SupplyChain,HomeandPersonalCareNorthAmericafrom2002to2004.

    Cedric Prouv isGroupPresidentInternational.HeisresponsibleforourInternationalDivision,whichincludesallmarketsoutsideoftheUnitedStatesandCanada,ourTravelRetailbusinessworldwideandalloftheactivitiesofoursalesaffiliatesanddistributorrelationships.HebecameGroupPresidentInternationalinJanuary2003.FromAugust2000throughDecember2002,hewastheGeneralManagerofourJapanesesalesaffiliate.FromJanuary1997toAugust2000,hewasVicePresident,GeneralManager,TravelRetail.Mr.Prouvstartedwithusin1994asGeneralManager,TravelRetailing-AsiaPacificRegionandwasgiventheaddedresponsibilityofGeneralManagerofourSingaporeaffiliatein1995.Previously,heworkedatLOrealinsalesandmanagementpositionsintheAmericasandAsia/Pacific.

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    Tracey T. Travis isExecutiveVicePresidentandChiefFinancialOfficer.PriortojoiningtheCompanyin2012,shewasSeniorVicePresidentandChiefFinancialOfficerofRalphLaurenCorporationsince2005,responsibleforGlobalFinance,InternalAudit,Treasury,Tax,BusinessDevelopment,InvestorRelationsandGlobalInformationTechnology.Previously,Ms.TraviswasSeniorVicePresident,FinanceofIntimateBrandsforLimitedBrands,Inc.from2002to2004.ShealsospentadecadeatPepsiCoInc.andthePepsiBottlingGroup,wheresheheldoperationsmanagementandfinanceroles.ShebeganhercareerasanengineerandfinancialanalystatGeneralMotorsCompany.Ms.TravisjoinedtheBoardofDirectorsofAccentureplcinJuly2017,andsheisalsoamemberoftheBoardofDirectorsofCampbellSoupCompany.Inaddition,sheisamemberoftheBoardofOverseersatColumbiaBusinessSchool.

    Alexandra C. Trower isExecutiveVicePresident-GlobalCommunications.ShedirectstheCompanysoverallcommunicationsstrategy,overseeingbrandcommunications,corporatecommunications,internalcommunicationsandphilanthropiccommunications.PriortojoiningtheCompanyin2008,Ms.TrowerwasSeniorVicePresident,MediaRelationsforBankofAmericafromJuly2003toMarch2008.From1997to2003,sheworkedatJPMorganChase,whereshewasresponsibleforcorporatecommunicationsatJPMorganFlemingAssetManagement.From1987to1997,Ms.TrowerworkedataformerdivisionofCitibank,ChancellorCapitalManagement(nowpartofInvesco),wheresheheldavarietyofcommunicationsroles.Ms.TrowerservesontheBoardofDirectorsofHollinsUniversity,andsheisco-chairofTheInternationalWomensMediaFoundation.Eachexecutiveofficerservesforaone-yeartermendingatthenextannualelectionofofficers,subjecttohisorherapplicableemploymentagreementandhisorherearlierdeath,resignationorremoval.Item 1A. Risk Factors.Therearerisksassociatedwithaninvestmentinoursecurities.PleaseconsiderthefollowingrisksandalloftheotherinformationinthisannualreportonForm10-KandinoursubsequentfilingswiththeSecuritiesandExchangeCommission(SEC).Ourbusinessmayalsobeadverselyaffectedbyrisksanduncertaintiesnotpresentlyknowntousorthatwecurrentlybelievetobeimmaterial.Ifanyoftheeventscontemplatedbythefollowingdiscussionofrisksshouldoccurorotherrisksariseordevelop,ourbusiness,prospects,financialconditionandresultsofoperations,aswellasthetradingpricesofoursecurities,maybeadverselyaffected.The beauty business is highly competitive, and if we are unable to compete effectively our results will suffer.Wefacevigorouscompetitionfromcompaniesthroughouttheworld,includingmultinationalconsumerproductcompanies.Someofthesecompetitorshavegreaterresourcesthanwedoandothersarenewercompanies(somebackedbyprivate-equityinvestors)competingindistributionchannelswherewearelessrepresented.Insomecases,ourcompetitorsmaybeabletorespondtochangingbusinessandeconomicconditionsmorequicklythanus.Competitioninthebeautybusinessisbasedonavarietyoffactorsincludingpricingofproducts,innovation,perceivedvalue,servicetotheconsumer,promotionalactivities,advertising,specialevents,newproductintroductions,e-commerceandm-commerceinitiativesandotheractivities.Itisdifficultforustopredictthetimingandscaleofourcompetitorsactionsintheseareas.Ourabilitytocompetealsodependsonthecontinuedstrengthofourbrands,ourabilitytoattractandretainkeytalentandotherpersonnel,theefficiencyofourmanufacturingfacilitiesanddistributionnetwork,andourabilitytomaintainandprotectourintellectualpropertyandthoseotherrightsusedinourbusiness.OurCompanyhasawell-recognizedandstrongreputationthatcouldbenegativelyimpactedbymanyfactors.Ifourreputationisadverselyaffected,ourabilitytoattractandretaincustomersandconsumerscouldbeimpacted.Inaddition,certainofourkeyretailersaroundtheworldmarketandsellcompetingbrandsorareownedorotherwiseaffiliatedwithcompaniesthatmarketandsellcompetingbrands.Ourinabilitytocontinuetocompeteeffectivelyinkeycountriesaroundtheworldcouldhaveanadverseimpactonourbusiness.Our inability to anticipate and respond to market trends and changes in consumer preferences could adversely affect our financial results.Ourcontinuedsuccessdependsonourabilitytoanticipate,gaugeandreactinatimelyandcost-effectivemannertochangesinconsumertastesforskincare,makeup,fragranceandhaircareproducts,attitudestowardourindustryandbrands,aswellastowhereandhowconsumersshop.Wemustcontinuallyworktodevelop,manufactureandmarketnewproducts,maintainandadaptourHigh-Touchservicestoexistingandemergingdistributionchannels,maintainandenhancetherecognitionofourbrands,achieveafavorablemixofproducts,successfullymanageourinventories,andrefineourapproachastohowandwherewemarketandsellourproducts.Whilewedevoteconsiderableeffortandresourcestoshape,analyzeandrespondtoconsumerpreferences,werecognizethatconsumertastescannotbepredictedwithcertaintyandcanchangerapidly.Theissueiscompoundedbytheincreasinguseofdigitalandsocialmediabyconsumersandthespeedbywhichinformationandopinionsareshared.Ifweareunabletoanticipateandrespondtosuddenchallengesthatwemayfaceinthemarketplace,trendsinthemarketforourproductsandchangingconsumerdemandsandsentiment,ourfinancialresultswillsuffer.Inaddition,fromtimetotime,salesgrowthorprofitabilitymaybeconcentratedinarelativelysmallnumberofourbrands,channelsorcountries.Ifsuchasituationpersistsoranumberofbrands,channelsorcountriesfailtoperformasexpected,therecouldbeamaterialadverseeffectonourbusiness,financialconditionandresultsofoperations.

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  • TableofContentsInkeymarkets,suchastheUnitedStates,wehaveseenadeclineinretailtrafficinourdepartmentstorecustomersandcertainofourfreestandingstores.Weareseeingtheemergenceofstronge-andm-commerceplatforms(bothinmassandprestigedistribution)thatareimpactingourbusiness.Furtherconsolidationintheretailtrade,fromtheseorotherfactors,mayresultinusbecomingincreasinglydependentonkeyretailers.Thiscouldresultinanincreasedriskrelatedtotheconcentrationofourcustomers.Asevere,adverseimpactonthebusinessoperationsofourcustomerscouldhaveacorrespondingmaterialadverseeffectonus.Ifoneormoreofourlargestcustomerschangetheirstrategies(includingpricingorpromotionalactivities)ortheyorwechangeorterminatetheirrelationshipwithus,therecouldbeamaterialadverseeffectonourbusiness.Our future success depends on our ability to achieve our long-term strategy.Achievingourlong-termstrategywillrequireinvestmentinnewcapabilities,brands,categories,distributionchannels,technologiesandemergingandmorematuregeographicmarkets.Theseinvestmentsmayresultinshort-termcostswithoutanycurrentrevenuesand,therefore,maybedilutivetoourearnings,atleastintheshortterm.Inaddition,wemaydisposeofordiscontinueselectbrandsorstreamlineoperationsandincurcostsorrestructuringandotherchargesindoingso.Althoughwebelievethatourstrategywillleadtolong-termgrowthinrevenueandprofitability,wemaynotrealize,infullorinpart,theanticipatedbenefits.Thefailuretorealizebenefits,whichmaybeduetoourinabilitytoexecuteplans,globalorlocaleconomicconditions,competition,changesinthebeautyindustryandtheotherrisksdescribedherein,couldhaveamaterialadverseeffectonourbusiness,financialconditionandresultsofoperations.Acquisitions may expose us to additional risks.Wecontinuouslyreviewacquisitionandstrategicinvestmentopportunitiesthatwouldexpandourcurrentproductofferings,ourdistributionchannels,increasethesizeandgeographicscopeofouroperationsorotherwiseoffergrowthandoperatingefficiencyopportunities.Therecanbenoassurancethatwewillbeabletoidentifysuitablecandidatesorconsummatethesetransactionsonfavorableterms.Ifrequired,thefinancingforthesetransactionscouldresultinanincreaseinourindebtedness,dilutetheinterestsofourstockholdersorboth.Thepurchasepriceforsomeacquisitionsmayincludeadditionalamountstobepaidincashinthefuture,aportionofwhichmaybecontingentontheachievementofcertainfutureoperatingresultsoftheacquiredbusiness.Iftheperformanceofanysuchacquiredbusinessexceedssuchoperatingresults,thenwemayincuradditionalchargesandberequiredtopayadditionalamounts.Acquisitionsincludingstrategicinvestmentsoralliancesentailnumerousrisks,whichmayinclude:

    difficultiesinintegratingacquiredoperationsorproducts,includingthelossofkeyemployeesfrom,orcustomersof,acquiredbusinesses;diversionofmanagementsattentionfromourexistingbusinesses;adverseeffectsonexistingbusinessrelationshipswithsuppliersandcustomers;adverseimpactsofmarginandproductcoststructuresdifferentfromthoseofourcurrentmixofbusiness;andrisksofenteringdistributionchannels,categoriesormarketsinwhichwehavelimitedornopriorexperience.

    Ourfailuretosuccessfullycompletetheintegrationofanyacquiredbusinessortoachievethelong-termplanforsuchbusiness,aswellasanyotheradverseconsequencesassociatedwithouracquisitionandinvestmentactivities,couldhaveamaterialadverseeffectonourbusiness,financialconditionandoperatingresults.Completedacquisitionstypicallyresultinadditionalgoodwilland/oranincreaseinotherintangibleassetsonourbalancesheet.Wearerequiredatleastannually,orasfactsandcircumstancesexist,totestgoodwillandotherintangibleassetswithindefinitelivestodetermineifimpairmenthasoccurred.Ifthetestingperformedindicatesthatimpairmenthasoccurred,wearerequiredtorecordanon-cashimpairmentchargeforthedifferencebetweenthecarryingvalueofthegoodwillorotherintangibleassetswithindefinitelivesandtheimpliedfairvalueofthegoodwillorthefairvalueofotherintangibleassetswithindefinitelivesintheperiodthedeterminationismade.Wecannotaccuratelypredicttheamountandtimingofanyimpairmentofassets.Shouldthevalueofgoodwillorotherintangibleassetsbecomeimpaired,therecouldbeamaterialadverseeffectonourfinancialconditionandresultsofoperations.A general economic downturn, or sudden disruption in business conditions may affect consumer purchases of discretionary items and/or the financial strengthof our customers that are retailers, which could adversely affect our financial results.Thegenerallevelofconsumerspendingisaffectedbyanumberoffactors,includinggeneraleconomicconditions,inflation,interestrates,energycosts,andconsumerconfidencegenerally,allofwhicharebeyondourcontrol.Consumerpurchasesofdiscretionaryitemstendtodeclineduringrecessionaryperiods,whendisposableincomeislower,andmayimpactsalesofourproducts.Adeclineinconsumerpurchasesofdiscretionaryitemsalsotendstoimpactourcustomersthatareretailers.Wegenerallyextendcredittoaretailerbasedonanevaluationofitsfinancialcondition,usuallywithoutrequiringcollateral.However,thefinancialdifficultiesofaretailercouldcauseustocurtailoreliminatebusinesswiththatcustomer.Wemayalsoassumemorecreditriskrelatingtothereceivablesfromthatretailer.Ourinabilitytocollectreceivablesfromourlargestcustomersorfromagroupofcustomerscouldhaveamaterialadverseeffectonourbusinessandourfinancialcondition.Ifaretailerwastoliquidate,wemayincuradditionalcostsifwechoosetopurchasetheretailersinventoryofourproductstoprotectbrandequity.

    15

  • TableofContentsInaddition,suddendisruptionsinbusinessconditions,forexample,fromeventssuchasapandemic,orotherlocalorglobalhealthissues,conflictsaroundtheworld,orasaresultofaterroristattack,retaliationorsimilarthreats,orasaresultofadverseweatherconditions,climatechangesorseismicevents,canhaveashort-termand,sometimes,long-termimpactonconsumerspending.Eventsthatimpactconsumerswillingnessorabilitytotraveland/orpurchaseourproductswhiletravelingmayimpactourbusiness,includingtravelretail,asignificantcontributortoouroverallresults,andourstrategytomarketandsellproductstointernationaltravelersattheirdestinations.Adownturnintheeconomiesof,orcontinuingrecessionsin,thecountrieswherewesellourproductsorasuddendisruptionofbusinessconditionsinthosecountriescouldadverselyaffectconsumerconfidence,thefinancialstrengthofourretailersandoursalesandprofitability.Wearecautiousofthecontinueddeclineinretailtrafficprimarilyrelatedtobrick-and-mortardepartmentstoresintheUnitedStatesasaresultoftheimpactofshiftsinconsumerpreferencesastowhereandhowtheyshop.Wearealsocautiousofforeigncurrencymovementsandtheirimpactontourism,whichhasparticularlyimpactedcertaintourist-drivenstoresintheUnitedStates.Additionally,wecontinuetomonitortheeffectsofthemacroeconomicenvironmentsincertaincountriessuchasBrazilandintheMiddleEast,theUnitedKingdomsanticipatedexitfromtheEuropeanUnion,geopoliticaltensionsandglobalsecurityissues.Volatilityinthefinancialmarketsandarelatedeconomicdownturninkeymarketsormarketsgenerallythroughouttheworldcouldhaveamaterialadverseeffectonourbusiness.Whilewecurrentlygeneratesignificantcashflowsfromourongoingoperationsandhaveaccesstoglobalcreditmarketsthroughourvariousfinancingactivities,creditmarketsmayexperiencesignificantdisruptions.Deteriorationinglobalfinancialmarketsoranadversechangeinourcreditratingscouldmakefuturefinancingdifficultormoreexpensive.Ifanyfinancialinstitutionsthatarepartiestoourundrawnrevolvingcreditfacilityorotherfinancingarrangements,suchasforeignexchangeorinterestratehedginginstruments,weretodeclarebankruptcyorbecomeinsolvent,theymaybeunabletoperformundertheiragreementswithus.Thiscouldleaveuswithreducedborrowingcapacityorunhedgedagainstcertainforeigncurrencyorinterestrateexposureswhichcouldhaveanadverseimpactonourfinancialconditionandresultsofoperations.Changes in laws, regulations and policies that affect our business could adversely affect our financial results.Ourbusinessissubjecttonumerouslaws,regulationsandpolicies.Changesinthelaws,regulationsandpolicies,includingtheinterpretationorenforcementthereof,thataffect,orwillaffect,ourbusiness,includingchangesinaccountingstandards,taxlawsandregulations,lawsandregulationsrelatingtodataprivacy,anti-corruption,advertising,marketing,manufacturing,distribution,productregistration,ingredients,chemicalsandpackaging,lawsinEuropeandelsewhererelatingtoselectivedistribution,environmentalorclimatechangelaws,regulationsoraccords,traderulesandcustomsregulations,andtheoutcomeandexpenseoflegalorregulatoryproceedings,andanyactionwemaytakeasaresultcouldadverselyaffectourfinancialresults.We are involved, and may become involved in the future, in disputes and other legal or regulatory proceedings that, if adversely decided or settled, couldadversely affect our financial results.Weare,andmayinthefuturebecome,partytolitigation,otherdisputesorregulatoryproceedings.Ingeneral,claimsmadebyusoragainstusinlitigation,disputesorotherproceedingscanbeexpensiveandtimeconsumingtobringordefendagainstandcouldresultinsettlements,injunctionsordamagesthatcouldsignificantlyaffectourbusinessorfinancialresults.Wearecurrentlyvigorouslycontestingcertainoftheseclaims.However,itisnotpossibletopredictthefinalresolutionofthelitigation,disputesorproceedingstowhichwecurrentlyareormayinthefuturebecomepartyto,andtheimpactofcertainofthesemattersonourbusiness,resultsofoperationsandfinancialconditioncouldbematerial.Government reviews, inquiries, investigations, and actions could harm our business or reputation.Asweoperateinvariouslocationsaroundtheworld,ouroperationsincertaincountriesaresubjecttosignificantgovernmentalscrutinyandmaybeadverselyimpactedbytheresultsofsuchscrutiny.Theregulatoryenvironmentwithregardtoourbusinessisevolving,andofficialsoftenexercisebroaddiscretionindecidinghowtointerpretandapplyapplicableregulations.Fromtimetotime,wemayreceiveformalandinformalinquiriesfromvariousgovernmentregulatoryauthorities,aswellasself-regulatoryorganizations,aboutourbusinessandcompliancewithlocallaws,regulationsorstandards.Anydeterminationthatouroperationsoractivities,ortheactivitiesofouremployees,arenotincompliancewithexistinglaws,regulationsorstandardscouldnegativelyimpactusinanumberofways,includingtheimpositionofsubstantialfines,interruptionsofbusiness,lossofsupplier,vendororotherthird-partyrelationships,terminationofnecessarylicensesandpermits,orsimilarresults,allofwhichcouldpotentiallyharmourbusinessand/orreputation.Evenifaninquirydoesnotresultinthesetypesofdeterminations,itpotentiallycouldcreatenegativepublicitywhichcouldharmourbusinessand/orreputation.

    16

  • TableofContentsOur success depends, in part, on the quality, efficacy and safety of our products.Oursuccessdepends,inpart,onthequality,efficacyandsafetyofourproducts.Ifourproductsarefoundtobedefectiveorunsafe,ourproductclaimsarefoundtobedeceptive,orourproductsotherwisefailtomeetourconsumersexpectations,ourrelationshipswithcustomersorconsumerscouldsuffer,theappealofoneormoreofourbrandscouldbediminished,andwecouldlosesalesand/orbecomesubjecttoliabilityorclaims,anyofwhichcouldresultinamaterialadverseeffectonourbusiness,resultsofoperationsandfinancialcondition.Inaddition,thirdpartiesmaysellcounterfeitversionsofsomeofourproducts.Thesecounterfeitproductsmayposesafetyrisks,mayfailtomeetconsumersexpectations,andmayhaveanegativeimpactonourreputation.Our success depends, in part, on our key personnel.Oursuccessdepends,inpart,onourabilitytoretainourkeypersonnel,includingourexecutiveofficersandseniormanagementteam.Theunexpectedlossofoneormoreofourkeyemployeescouldadverselyaffectourbusiness.Oursuccessalsodepends,inpart,onourcontinuingabilitytoidentify,hire,trainandretainotherhighlyqualifiedpersonnel.Competitionfortheseemployeescanbeintense.Wemaynotbeabletoattract,assimilateorretainqualifiedpersonnelinthefuture,andourfailuretodosocouldadverselyaffectourbusiness.Thisriskmaybeexacerbatedbythestressesassociatedwiththeimplementationofourstrategicplanandotherinitiatives.We are subject to risks related to the global scope of our operations.Weoperateonaglobalbasis,withamajorityofourfiscal2017netsalesandoperatingincomegeneratedoutsidetheUnitedStates.Weintendtoreinvesttheseearningsinourforeignoperationsindefinitely,exceptwhereweareabletorepatriatetheseearningstotheUnitedStateswithoutmaterialincrementaltaxprovision.AmajorityofourcashandcashequivalentsthatresultfromtheseearningsremainoutsidetheUnitedStates.IftheseindefinitelyreinvestedearningswererepatriatedintotheUnitedStatesasdividends,wewouldbesubjecttoadditionaltaxes.Wemaintainofficesinover50countriesandhavekeyoperationalfacilitieslocatedinsideandoutsidetheUnitedStatesthatmanufacture,warehouseordistributegoodsforsalethroughouttheworld.Ourglobaloperationsaresubjecttomanyrisksanduncertainties,including:

    fluctuationsinforeigncurrencyexchangeratesandtherelativecostsofoperatingindifferentplaces,whichcanaffectourresultsofoperations,thevalueofourforeignassets,therelativepricesatwhichweandcompetitorssellproductsinthesamemarkets,thecostofcertaininventoryandnon-inventoryitemsrequiredinouroperations,andtherelativepricesatwhichwesellourproductsindifferentmarkets;

    foreignorU.S.laws,regulationsandpolicies,includingrestrictionsontrade,immigrationandtravel;importandexportlicenserequirements;tariffsand

    taxes;operations;andinvestments;

    lackofwell-establishedorreliablelegalandadministrativesystemsincertaincountriesinwhichweoperate;and

    adverseweatherconditions,currencyexchangecontrols,andsocial,economicandgeopoliticalconditions,suchasterroristattacks,warorothermilitaryaction.

    Theseriskscouldhaveamaterialadverseeffectonourbusiness,prospects,reputation,resultsofoperationsandfinancialcondition.A disruption in operations or our supply chain could adversely affect our business and financial results.Asacompanyengagedinmanufacturinganddistributiononaglobalscale,wearesubjecttotherisksinherentinsuchactivities,includingindustrialaccidents,environmentalevents,strikesandotherlabordisputes,disruptionsinsupplychainorinformationsystems,lossorimpairmentofkeymanufacturingsitesorsuppliers,productqualitycontrol,safety,increaseincommoditypricesandenergycosts,licensingrequirementsandotherregulatoryissues,aswellasnaturaldisastersandotherexternalfactorsoverwhichwehavenocontrol.Ifsuchaneventweretooccur,itcouldhaveanadverseeffectonourbusinessandfinancialresults.Weuseawidevarietyofdirectandindirectsuppliersofgoodsandservicesfromaroundtheworld.Someofourproductsrelyonsingleoralimitednumberofsuppliers.Changesinthefinancialorbusinessconditionofoursupplierscouldsubjectustolossesoradverselyaffectourabilitytobringproductstomarket.Further,thefailureofoursupplierstodelivergoodsandservicesinsufficientquantities,incompliancewithapplicablestandards,andinatimelymannercouldadverselyaffectourcustomerservicelevelsandoverallbusiness.Inaddition,anyincreasesinthecostsofgoodsandservicesforourbusinessmayadverselyaffectourprofitmarginsifweareunabletopassalonganyhighercostsintheformofpriceincreasesorotherwiseachievecostefficienciesinouroperations.

    17

  • TableofContentsOur information systems and websites may be susceptible to cybersecurity breaches, outages, and other risks.Werelyoninformationsystems(outsourcedandin-house)thatsupportourbusinessprocesses,includingproductdevelopment,marketing,sales,orderprocessing,production,distribution,financeandintracompanycommunicationsthroughouttheworld.Wehavee-commerce,m-commerceandotherInternetwebsitesintheUnitedStatesandmanyothercountries.Thesesystemsmaybesusceptibletooutagesduetofire,floods,powerloss,telecommunicationsfailures,break-insandotherevents.Despitetheimplementationofnetworksecuritymeasures,oursystemsmaybevulnerabletocybersecuritybreachessuchascomputerviruses,break-insandsimilardisruptionsfromunauthorizedtampering.Theoccurrenceoftheseorothereventscoulddisruptordamageourinformationsystemsandadverselyaffectourbusinessandresultsofoperations.Failure to adequately maintain the security of our electronic and other confidential information could materially adversely affect our financial condition andresults of operations.Wearedependentuponautomatedinformationtechnologyprocesses.Aspartofournormalbusinessactivities,wecollectandstorecertaininformationthatisconfidential,proprietaryorotherwisesensitive,includingpersonalinformationwithrespecttocustomers,consumersandemployees.Wemaysharesomeofthisinformationwithvendorswhoassistuswithcertainaspectsofourbusiness.Moreover,thesuccessofoure-commerceandm-commerceoperationsdependsuponthesecuretransmissionofconfidentialandpersonaldataoverpublicnetworks,includingtheuseofcashlesspayments.Anyfailureonthepartofusorourvendorstomaintainthesecurityofourconfidentialdataandpersonalinformation,includingviathepenetrationofournetworksecurityandthemisappropriationofconfidentialandpersonalinformation,couldresultinbusinessdisruption,damagetoourreputation,financialobligationstothirdparties,fines,penalties,regulatoryproceedingsandprivatelitigationwithpotentiallylargecosts,andalsoresultindeteriorationinouremployees,consumersandcustomersconfidenceinusandothercompetitivedisadvantages,andthuscouldhaveamaterialadverseimpactonourbusiness,financialconditionandresultsofoperations.Inaddition,asecuritybreachcouldrequirethatweexpendsignificantadditionalresourcestoenhanceourinformationsecuritysystemsandcouldresultinadisruptiontoouroperations.We are subject to risks associated with our global information systems.Ourimplementationandmaintenanceofglobalinformationsystems(outsourcedandin-house),includingsupplychainandfinancesystems,humanresourcemanagementsystems,creativeassetmanagementandretailoperatingsystems,aswellasassociatedhardwareanduseofcloud-basedmodels,involverisksanduncertainties.Failuretoimplementandmaintaintheseandothersystemsasplanned,intermsoftiming,specifications,costs,orotherwise,couldhaveanadverseimpactonourbusinessandresultsofoperations.As we outsource functions, we become more dependent on the entities performing those functions.Aspartofourlong-termstrategy,wearecontinuallylookingforopportunitiestoprovideessentialbusinessservicesinamorecost-effectivemanner.Insomecases,thisrequirestheoutsourcingoffunctionsorpartsoffunctionsthatcanbeperformedmoreeffectivelybyexternalserviceproviders.Theseincludecertaininformationsystems,financeandhumanresourcefunctions.Whilewebelieveweconductappropriateduediligencebeforeenteringintoagreementswiththeoutsourcingentity,thefailureofoneormoreentitiestoprovidetheexpectedservices,providethemonatimelybasisortoprovidethematthepricesweexpectmayhaveamaterialadverseeffectonourresultsofoperationsorfinancialcondition.Inaddition,ifwetransitionsystemstooneormorenew,oramongexisting,externalserviceproviders,wemayexperiencechallengesthatcouldhaveamaterialadverseeffectonourresultsofoperationsorfinancialcondition.The trading prices of our securities periodically may rise or fall based on the accuracy of predictions of our earnings or other financial performance.Ourbusinessplanningprocessisdesignedtomaximizeourlong-termstrength,growthandprofitability,nottoachieveanearningstargetinanyparticularfiscalquarter.Webelievethatthislonger-termfocusisinthebestinterestsoftheCompanyandourstockholders.Atthesametime,however,werecognizethatitmaybehelpfultoprovideinvestorswithguidanceastoourforecastofnetsales,earningspershareandotherfinancialmetricsorprojections.Accordingly,whenweannouncedouryear-endfinancialresultsforfiscal2017,weprovidedguidanceastocertainassumptions,includingrangesforourexpectednetsalesandearningspershareforthequarterendingSeptember30,2017andthefiscalyearendingJune30,2018.Whilewegenerallyexpecttoprovideupdatestoourguidancewhenwereportourresultseachfiscalquarter,weassumenoresponsibilitytoupdateanyofourforward-lookingstatementsatsuchtimesorotherwise.Inaddition,thelonger-termguidanceweprovideisbasedongoalsthatwebelieve,atthetimeguidanceisgiven,arereasonablyattainableforgrowthandperformanceoveranumberofyears.Suchtargetsaremoredifficulttopredictthanourcurrentquarterandfiscalyearexpectations.WehistoricallyhavepaiddividendsonourcommonstockandrepurchasedsharesofourClassACommonStock.Atanytime,wecouldstoporsuspendpaymentofdividendsorstoporsuspendourstockrepurchaseprogram,andanysuchactioncouldcausethemarketpriceofourstocktodecline.

    18

  • TableofContentsInallofourpublicstatementswhenwemake,orupdate,aforward-lookingstatementaboutournetsalesand/orearningsexpectationsorexpectationsregardingrestructuringorotherinitiatives,weaccompanysuchstatementsdirectly,orbyreferencetoapublicdocument,withalistoffactorsthatcouldcauseouractualresultstodiffermateriallyfromthoseweexpect.Suchalistisincluded,amongotherplaces,inourearningspressreleaseandinourperiodicfilingswiththeSecuritiesandExchangeCommission(e.g.,inourreportsonForm10-KandForm10-Q).Theseandotherfactorsmaymakeitdifficultforusandforoutsideobservers,suchasresearchanalysts,topredictwhatourearningswillbeinanygivenfiscalquarteroryear.Outsideanalystsandinvestorshavetherighttomaketheirownpredictionsofourfinancialresultsforanyfutureperiod.Outsideanalysts,however,haveaccesstonomorematerialinformationaboutourresultsorplansthananyotherpublicinvestor,andwedonotendorsetheirpredictionsastoourfutureperformance.Nordoweassumeanyresponsibilitytocorrectthepredictionsofoutsideanalystsorotherswhentheydifferfromourowninternalexpectations.Ifandwhenweannounceactualresultsthatdifferfromthosethatoutsideanalystsorothershavebeenpredicting,themarketpriceofoursecuritiescouldbeaffected.Investorswhorelyonthepredictionsofoutsideanalystsorotherswhenmakinginvestmentdecisionswithrespecttooursecuritiesdosoattheirownrisk.Wetakenoresponsibilityforanylossessufferedasaresultofsuchchangesinthepricesofoursecurities.We are controlled by the Lauder family. As a result of their control of us, the Lauder family has the ability to prevent or cause a change in control or approve,prevent or influence certain actions by us.

    AsofAugust18,2017,membersoftheLauderfamilybeneficiallyown,directlyorindirectly,sharesoftheCompanysClassACommonStock(withonevotepershare)andClassBCommonStock(with10votespershare)havingapproximately87%oftheoutstandingvotingpoweroftheCommonStock.Inaddition,therearefourmembersoftheLauderfamilywhoareemployeesandmembersofourBoardofDirectors.Anotherfamilymemberisapartytoaconsultingagreementandalicenseagreementwithus.AsaresultofthestockownershipandtheirpositionsattheCompany,theLauderfamilyhastheabilitytoexercisesignificantcontrolandinfluenceoverourbusiness,including,allmattersrequiringstockholderapproval,includingtheelectionofdirectors,amendmentstothecertificateofincorporationandsignificantcorporatetransactions,suchasamergerorothersaleofourCompanyoritsassets,fortheforeseeablefuture.We are a controlled company within the meaning of the New York Stock Exchange rules and, as a result, are relying on exemptions from certain corporategovernance requirements that are designed to provide protection to stockholders of companies that are not controlled companies.

    TheLauderfamilyandtheirrelatedentitiesownmorethan50%ofthetotalvotingpowerofourcommonsharesand,asaresult,weareacontrolledcompanyundertheNewYorkStockExchangecorporategovernancestandards.Asacontrolledcompany,weareexemptundertheNewYorkStockExchangestandardsfromtheobligationtocomplywithcertainNewYorkStockExchangecorporategovernancerequirements,includingtherequirementsthat(1)amajorityofourboardofdirectorsconsistsofindependentdirectors;(2)wehaveanominatingcommitteethatiscomposedentirelyofindependentdirectorswithawrittencharteraddressingthecommitteespurposeandresponsibilities;and(3)wehaveacompensationcommitteethatiscomposedentirelyofindependentdirectorswithawrittencharteraddressingthecommitteespurposeandresponsibilities.WhilewehavevoluntarilycausedourBoardtohaveamajorityofindependentdirectorsandthewrittenchartersofourNominatingandBoardAffairsCommitteeandtheCompensationCommitteetohavetherequiredprovisions,wearenotrequiringourNominatingandBoardAffairsCommitteeandCompensationCommitteetobecomprisedsolelyofindependentdirectors.Asaresultofouruseofthecontrolledcompanyexemptions,investorswillnothavethesameprotectionaffordedtostockholdersofcompaniesthataresubjecttoalloftheNewYorkStockExchangecorporategovernancerequirements.Item 1B. Unresolved Staff Comments.

    AsofthefilingofthisannualreportonForm10-K,therewerenounresolvedcommentsfromtheStaffoftheSecuritiesandExchangeCommission.

    19

  • TableofContentsItem 2. Properties .Thefollowingtablesetsforthourprincipalownedandleasedmanufacturing,assembly,researchanddevelopmentanddistributionfacilities,someofwhichincludecontiguousofficespace,asofAugust18,2017.Theleasesexpireatvarioustimesthrough2026subjecttocertainrenewaloptions.

    Location

    Use

    Approximate Square Footage

    The Americas

    Blaine,Minnesota

    Owned

    ManufacturingandR&D

    275,000

    Blaine,Minnesota

    Leased

    Distribution

    187,000

    Melville,NewYork

    Owned

    Manufacturing

    353,000

    Melville,NewYork

    Owned

    R&D

    134,000

    Bristol,Pennsylvania

    Leased

    Manufacturing

    67,000

    Bristol,Pennsylvania

    Leased

    ManufacturingandAssembly

    100,000

    Bristol,Pennsylvania

    Leased

    Distribution

    782,000

    Trevose,Pennsylvania

    Leased

    ManufacturingandAssembly

    80,000

    Agincourt,Ontario,Canada

    Owned

    Manufacturing

    96,000

    Markham,Ontario,Canada

    Leased

    Manufacturing

    137,000

    Markham,Ontario,Canada

    Leased

    R&D

    42,000

    Toronto,Ontario,Canada

    Leased

    Distribution

    186,000

    Europe, the Middle East & Africa

    Oevel,Belgium

    Owned

    Manufacturing

    113,000

    Oevel,Belgium

    Leased

    ManufacturingandR&D

    81,000

    Oevel,Belgium

    Leased

    Distribution

    105,000

    Kerpen,Germany

    Leased

    Distribution

    98,000

    Sandton,SouthAfrica

    Leased

    Distribution

    65,000

    Madrid,Spain

    Leased

    Distribution

    123,000

    Lachen,Switzerland

    Owned

    Manufacturing

    29,000

    Lachen,Switzerland

    Owned

    Distribution

    125,000

    Hampshire,UnitedKingdom

    Leased

    Distribution

    229,000

    Petersfield,UnitedKingdom

    Owned

    Manufacturing

    242,000

    Asia/Pacific

    Alexandria,Australia

    Leased

    Distribution

    87,000

    Shanghai,China

    Leased

    R&D

    34,000

    Shanghai,China

    Leased

    Distribution

    206,000

    HongKong

    Leased

    Distribution

    90,000

    Tokyo,Japan

    Leased

    Distribution,R&DandManufacturing

    187,000

    Yongin,Korea

    Leased

    DistributionandManufacturing

    139,000

    Weown,leaseandoccupynumerousoffices,assemblyanddistributionfacilitiesandwarehousesintheUnitedStatesandabroad.Weconsiderourpropertiestobegenerallyingoodconditionandbelievethatourfacilitiesareadequateforouroperationsandprovidesufficientcapacitytomeetanticipatedrequirements.Weleaseapproximately767,000squarefeetofrentablespaceforourprincipalofficesinNewYork,NewYork.Weownabuildingofapproximately57,000squarefeetofofficespaceinMelville,NewYork.AsofJune30,2017,wedirectlyleasedandoperatedapproximately1,430freestandingstores.Item 3. Legal Proceedings .Foradiscussionoflegalproceedings,seeItem8.FinancialStatementsandSupplementaryDataNote15CommitmentsandContingencies.Item 4. Mine Safety Disclosures.Notapplicable.

    20

  • TableofContents

    PART II

    Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.Market for Registrants Common Equity and Related Stockholder MattersOurClassACommonStockispubliclytradedontheNewYorkStockExchangeunderthesymbolEL.ThefollowingtableshowsthehighandlowpersharesalespricesasreportedontheNewYorkStockExchangeCompositeTapeandthecashdividendspersharedeclaredinfiscal2017andfiscal2016:

    Fiscal 2017

    Fiscal 2016

    High

    Low

    Cash Dividends

    High

    Low

    Cash Dividends

    FirstQuarter

    $ 95.38

    $ 86.57

    $ .30

    $ 91.68

    $ 73.67

    $ .24

    SecondQuarter

    88.74

    75.30

    .34

    89.93

    79.49

    .30

    ThirdQuarter

    87.55

    76.34

    .34

    94.93

    81.02

    .30

    FourthQuarter

    98.40

    83.34

    .34

    97.48

    87.08

    .30

    FiscalYear

    98.40

    75.30

    $ 1.32

    97.48

    73.67

    $ 1.14

    Weexpecttocontinuethepaymentofcashdividendsinthefuture,buttherecanbenoassurancethattheBoardofDirectorswillcontinuetodeclarethem.OnAugust17,2017,adividendwasdeclaredintheamountof$.34pershareonourClassAandClassBCommonStock.ThedividendispayableincashonSeptember15,2017tostockholdersofrecordatthecloseofbusinessonAugust31,2017.AsofAugust18,2017,therewere8,080recordholdersofClassACommonStockand15recordholdersofClassBCommonStock.Share Repurchase ProgramWeareauthorizedbytheBoardofDirectorstorepurchasesharesofourClassACommonStockintheopenmarketorinprivatelynegotiatedtransactions,dependingonmarketconditionsandotherfactors.ThefollowingtableprovidesinformationrelatingtoourrepurchaseofClassACommonStockduringthereferencedperiods:

    Period

    Total Number of Shares

    Purchased

    Average Price Paid Per Share

    Total Number of Shares Purchased as

    Part of Publicly Announced Program

    Maximum Number of Shares that May Yet Be Purchased

    Under the Program

    April2017

    3,422

    $ 84.42

    14,959,413

    May2017

    222,500

    92.70

    222,500

    14,736,913

    June2017

    301,672

    96.11

    285,000

    14,451,913

    527,594

    94.60

    507,500

    IncludessharesthatwererepurchasedbytheCompanytosatisfytaxwithholdingobligationsuponthepayoutofcertainstock-basedcompensationarrangements.

    Thecurrentrepurchaseprogramforupto40.0millionshareswasauthorizedbytheBoardofDirectorsonNovember1,2012.Ourrepurchaseprogramdoesnothaveanexpirationdate.

    SubsequenttoJune30,2017andasofAugust18,2017,wepurchasedapproximately0.5millionadditionalsharesofourClassACommonStockfor$45millionpursuanttooursharerepurchaseprogram.

    21

    (1) (2)

    (1)

    (2)

  • TableofContentsItem 6. Selected Financial Data .Thetablebelowsummarizesselectedfinancialinformation.Forfurtherinformation,refertotheauditedconsolidatedfinancialstatementsandthenotestheretobeginningonpageF-1ofthisreport.

    Year Ended or at June 30

    2017

    2016

    2015

    2014

    2013

    (In millions, except per share data)

    Statement of Earnings Data:

    Netsales

    $ 11,824

    $ 11,262

    $ 10,780

    $ 10,969

    $ 10,182

    NetearningsattributabletoTheEsteLauderCompaniesInc.

    1,249

    1,115

    1,089

    1,204

    1,020

    Per Share Data:

    NetearningsattributabletoTheEsteLauderCompaniesInc.percommonshare:

    Basic

    $ 3.40

    $ 3.01

    $ 2.87

    $ 3.12

    $ 2.63

    Diluted

    3.35

    2.96

    2.82

    3.06

    2.58

    Cashdividendsdeclaredpercommonshare

    1.32

    1.14

    .92

    .78

    1.08

    Balance Sheet Data:

    Totalassets

    $ 11,568

    $ 9,223

    $ 8,227

    $ 7,860

    $ 7,136

    Totaldebt

    3,572

    2,242

    1,625

    1,334

    1,335

    Fiscal2017resultsincluded$143million,aftertax,or$.38perdilutedcommonsharerelatedtototalchargesassociatedwithrestructuringandotheractivities.Fiscal2016resultsincluded$90million,aftertax,or$.24perdilutedcommonsharerelatedtototalchargesassociatedwithrestructuringandotheractivities.Fiscal2014resultsincluded$(2)million,aftertax,relatedtototaladjustmentsassociatedwithrestructuringandotheractivities.Fiscal2013resultsincluded$12million,aftertax,or$.03perdilutedcommonsharerelatedtototalchargesassociatedwithrestructuringandotheractivities.

    AsaresultofourJuly2014StrategicModernizationInitiativerollout,approximately$178millionofacceleratedorderswererecordedasnetsalesandapproximately$127millionasoperatingincomeinfiscal2014thatwouldhaveoccurredinthefiscal2015firstquarter,equaltoapproximately$.21perdilutedcommonshare.

    Duringthethirdquarteroffiscal2015,werecordeda$5millioncharge,onabeforeandaftertaxbasis,relatedtotheremeasurementofnetmonetaryassetsinVenezuela,equalto$.01perdilutedcommonshare.Duringthethirdquarteroffiscal2014,werecordeda$38millioncharge,onabeforeandaftertaxbasis,relatedtotheremeasurementofnetmonetaryassetsinVenezuela,equalto$.10perdilutedcommonshare.

    InFebruary2017,weissued1.80%,3.15%and4.15%SeniorNotesinapublicoffering,eachwithanaggregateprincipalamountof$500million.TheseSeniorNotesaredueinFebruary2020,March2027andMarch2047,respectively.WeusedthenetproceedsoftheofferingstoredeemtheSeniorNotesdueMay15,2017andforgeneralcorporatepurposes.InMay2016,weissued$450millionof1.70%SeniorNotesdueMay10,2021andanadditional$150millionofour4.375%SeniorNotesdueJune15,2045inapublicoffering.InJune2015,weissued$300millionof4.375%SeniorNotesdueJune15,2045inapublicoffering.InSeptember2012,weredeemedthe$230millionprincipalamountofour7.75%SeniorNotesdueNovember1,2013(2013SeniorNotes)atapriceof108%oftheprincipalamount.Werecordedapre-taxexpenseontheextinguishmentofdebtof$19million($12millionaftertax,or$.03perdilutedshare)representingthecallpremiumof$19millionandthepro-ratawrite-offoflessthan$1millionofissuancecostsanddebtdiscount.InAugust2012,weissued$250millionof2.35%SeniorNotesdueAugust15,2022and$250millionof3.70%SeniorNotesdueAugust15,2042inapublicoffering.Weusedthenetproceedsoftheofferingtoredeemthe2013SeniorNotesandforgeneralcorporatepurposes.

    Fiscal2017resultsincluded$23million,aftertax,or$.06perdilutedcommonsharerelatedtogoodwillandotherintangibleassetimpairments.

    Fiscal2017includeda$44milliongain,aftertax,or$.12perdilutedcommonshareandfiscal2016and2015included$8millionand$6millionofexpense,aftertax,respectively,or$.02perdilutedcommonshare,associatedwiththechangesinfairvalueofcontingentconsiderationrelatedtocertainofouracquisitions.

    Fiscal2017resultsinclude$75million,or$.20perdilutedcommonshare,relatedtothereversalofadeferredtaxassetvaluationallowance.Thedeferredtaxassetandassociatedvaluationallowancerelatedtotheaccumulatedcarryforwardofexcessadvertisingandpromotionalexpenses.Inthefourthquarteroffiscal2017,afavorablechangetothetaxlawinChinawasenactedthatexpandedthecorporateincometaxdeductionallowanceforadvertisingandpromotionalexpenses,resultinginthischangeinrealizabilityoftheasset.

    22

    (a) (b)

    (a) - (g)

    (a) - (g)

    (a) - (g)

    (g)

    (d)

    (a)

    (b)

    (c)

    (d)

    (e)

    (f)

    (g)

  • TableofContentsItem 7. Managements Discussion and Analysis of Financial Condition and Results of Operations .RESULTS OF OPERATIONSWemanufacture,marketandsellbeautyproductsincludingthoseintheskincare,makeup,fragranceandhaircarecategorieswhicharedistributedinover150countriesandterritories.Thefollowingtableisacomparativesummaryofoperatingresultsforfiscal2017,2016and2015andreflectsthebasisofpresentationdescribedinItem8.FinancialStatementsandSupplementaryDataNote2SummaryofSignificantAccountingPoliciesandNote21SegmentDataandRelatedInformationforallperiodspresented.Productsandservicesthatdonotmeetourdefinitionofskincare,makeup,fragranceandhaircarehavebeenincludedintheothercategory.

    Year Ended June 30

    2017

    2016

    2015

    (In millions)

    NET SALES

    By Product Category:

    SkinCare

    $ 4,527

    $ 4,446

    $ 4,479

    Makeup

    5,054

    4,702

    4,304

    Fragrance

    1,637

    1,487

    1,416

    HairCare

    539

    554

    531

    Other

    69

    74

    50

    11,826

    11,263

    10,780

    Returnsassociatedwithrestructuringandotheractivities

    (2) (1)

    NetSales

    $ 11,824

    $ 11,262

    $ 10,780

    By Region:

    TheAmericas

    $ 4,819

    $ 4,710

    $ 4,514

    Europe,theMiddleEast&Africa

    4,650

    4,381

    4,086

    Asia/Pacific

    2,357

    2,172

    2,180

    11,826

    11,263

    10,780

    Returnsassociatedwithrestructuringandotheractivities

    (2) (1)

    NetSales

    $ 11,824

    $ 11,262

    $ 10,780

    OPERATING INCOME (LOSS)

    By Product Category:

    SkinCare

    $ 1,014

    $ 842

    $ 832

    Makeup

    713

    758

    659

    Fragrance

    115

    87

    83

    HairCare

    51

    52

    38

    Other

    11

    5

    (6)

    1,904

    1,744

    1,606

    Chargesassociatedwithrestructuringandotheractivities

    (212) (134)

    NetSales

    $ 1,692

    $ 1,610

    $ 1,606

    By Region:

    TheAmericas

    $ 284

    $ 346

    $ 302

    Europe,theMiddleEast&Africa

    1,203

    1,027

    943

    Asia/Pacific

    417

    371

    361

    1,904

    1,744

    1,606

    Chargesassociatedwithrestructuringandotheractivities

    (212) (134)

    OperatingIncome

    $ 1,692

    $ 1,610

    $ 1,606

    23

  • TableofContentsThefollowingtablepresentscertainconsolidatedearningsdataasapercentageofnetsales:

    Year Ended June 30

    2017

    2016

    2015

    Netsales

    100.0% 100.0% 100.0%Costofsales

    20.6

    19.4

    19.5

    Grossprofit

    79.4

    80.6

    80.5

    Operatingexpenses:

    Selling,generalandadministrative

    63.3

    65.1

    65.6

    Goodwillimpairment

    0.2

    Impairmentofotherintangibleassets

    Restructuringandothercharges

    1.6

    1.2

    Totaloperatingexpenses

    65.1

    66.3

    65.6

    Operatingincome

    14.3

    14.3

    14.9

    Interestexpense

    0.8

    0.6

    0.6

    Interestincomeandinvestmentincome,net

    0.2

    0.1

    0.2

    Earningsbeforeincometaxes

    13.7

    13.8

    14.5

    Provisionforincometaxes

    3.1

    3.9

    4.4

    Netearnings

    10.6

    9.9

    10.1

    Netearningsattributabletononcontrollinginterests

    NetearningsattributabletoTheEsteLauderCompaniesInc.

    10.6% 9.9% 10.1%Inordertomeetthedemandsofconsumers,wecontinuallyintroducenewproducts,supportnewandestablishedproductsthroughadvertising,merchandisingandsamplingandphaseoutexistingproductsthatnolongermeettheneedsofourconsumersorourobjectives.Theeconomicsofdeveloping,producing,launching,supportinganddiscontinuingproductsimpactoursalesandoperatingperformanceeachperiod.Theintroductionofnewproductsmayhavesomecannibalizingeffectonsalesofexistingproducts,whichwetakeintoaccountinourbusinessplanning.Non-GAAP Financial MeasuresWeusecertainnon-GAAPfinancialmeasures,amongotherfinancialmeasures,toevaluateouroperatingperformance,whichrepresentthemannerinwhichweconductandviewourbusiness.Managementbelievesthatexcludingcertainitemsthatarenotcomparablefromperiodtoperiodhelpsinvestorsandotherscompareoperatingperformancebetweenperiods.Whileweconsiderthenon-GAAPmeasuresusefulinanalyzingourresults,theyarenotintendedtoreplace,oractasasubstitutefor,anypresentationincludedintheconsolidatedfinancialstatementspreparedinconformitywithU.S.GAAP.SeeReconciliationsofNon-GAAPFinancialMeasuresbeginningonpage41forreconciliationsbetweennon-GAAPfinancialmeasuresandthemostdirectlycomparableU.S.GAAPmeasures.Weoperateonaglobalbasis,withthemajorityofournetsalesgeneratedoutsidetheUnitedStates.Accordingly,fluctuationsinforeigncurrencyexchangeratescanaffectourresultsofoperations.Therefore,wepresentcertainnetsales,operatingresultsanddilutednetearningspercommonshareinformationexcludingtheeffectofforeigncurrencyratefluctuationstoprovideaframeworkforassessingtheperformanceofourunderlyingbusinessoutsidetheUnitedStates.Constantcurrencyinformationcomparesresultsbetweenperiodsasifexchangerateshadremainedconstantperiod-over-period.Wecalculateconstantcurrencyinformationbytranslatingcurrentyearresultsusingprioryearweighted-averageforeigncurrencyexchangerates.OverviewWebelievethebestwaytoincreasestockholdervalueistocontinuetoprovidesuperiorproductsandservicesinthemostefficientandeffectivemannerwhilerecognizingconsumerschangingbehaviorsandshoppingpreferences.Weareguidedbyourlong-termstrategy,whichhasnumerousinitiativesacrossgeographicregions,productcategories,brands,channelsofdistributionandfunctionsthataredesignedtogrowoursales,providecostefficiencies,leverageourstrengthsandmakeusmoreproductiveandprofitable.Weplantobuilduponandleverageourhistoryofoutstandingcreativityandinnovation,highqualityproductsandservices,andengagingcommunicationswhileinvestingforlong-termsustainablegrowth.

    24

  • TableofContentsOurbalanced,diverseandhighlydesirablebrandportfoliopositionsuswelltocapitalizeonopportunitiesinfastgrowingandprofitableareasofprestigebeauty.Webelievethatourrangeofprestigeproductofferingsallowsustoincreaseourshareofaconsumersbeautyroutineandsourceconsumersfrombrandssoldinmass-marketdistribution.

    OurskincareproductcategorybenefitsfromheroproductlinessuchasAdvancedNightRepairfromEsteLauderandCrmedeLaMerfromLaMer.Duringfiscal2017,wecontinuedtoexpandtheseproductlinesthroughtheintroductionoftheAdvancedNightRepairEyeConcentrateMatrixfromEsteLauderandtheRevitalizingHydratingSerumfromLaMer.GLAMGLOWalsocontributedtothesuccessinthecategorythroughtargetedexpandedconsumerreachandnewlaunchessuchasPlumprageous.Inthefourthquarteroffiscal2017,wepurchasedaminorityinterestinDECIEM,askincarebrand,whichprovidesuswithastrategicinvestmentinacompanythatattractsmillennialsandadiverseconsumerbase.

    Inourmakeupcategory,wefurtherdevelopedheroproductlinessuchasDoubleWearandPureColorEnvyfromEsteLauderthroughthelaunchof

    additionalproductsincludingDoubleWearNudeCushionStickRadiantMakeupandPureColorEnvyHi-LustreLightSculptingLipstick.Wecontinuouslylooktoacquirebrandsthatcomplementourexistingbusiness,havesignificantsalesgrowthpotentialandprovideopportunitiesforfutureprofitablegrowth.Duringourfiscal2017secondquarter,weexpandedourmakeupportfoliowiththeacquisitionsofTooFacedandBECCA.Bothofthesebrandsareprimarilydistributedinthefastergrowingspecialty-multiandonlinechannels.Theyareexpectedtohelpusreachnewconsumers,toincreaseoursalesinthesechannelsandtocontinuegeneratingstrongprofitablegrowth.

    OurfragrancecategorycontinuestobenefitfromincreasedsalesofJoMaloneLondonandTomFordfragrances,aswellasfromourfiscal2015and

    fiscal2016acquisitions.WehavealsobenefitedfromthegrowthofthefragrancecategoryintheAsia/Pacificregionandlookforfurtheropportunitiestostrengthenourbusinessinthiscategorythere.

    Inourhaircarecategory,wearereachingnewconsumersasweexpandourpresencebeyondsalons,suchastheplannedSeptember2017launchof

    BumbleandbumbleinUltaBeauty,aleadingspecialty-multiretailerintheUnitedStates.Ourglobalfootprintprovidesmanyavenuesofgrowth.Weleverageourregionalorganizationsandthetalentsandexpertiseofourpeopletocontinuetobelocallyrelevantthroughevolvingthewayweconnectwithourconsumersinstores,onlineandwheretheytravel.Thisincludestheexpansionofourdigitalandsocialmediapresenceandtheengagementofglobalandlocalinfluencerstoamplifybrandorproductstories.Wetailorourstrategybycountrywithourproducts,services,channels,marketingandvisualmerchandising.Wecontinuouslystrengthenourpresenceinlarge,image-buildingcoremarkets,suchastheUnitedStatesandtheUnitedKingdom,andbroadenourpresenceinemergingmarkets,includingtheMiddleEast,Russia,SouthAfricaandBrazil.

    InNorthAmerica,wecontinuetodeployanumberofstrategiestoaccelerategrowth,despiteachallengingenvironmentespeciallyinbrickandmortardepartmentstores,andinLatinAmericawecontinuetolaunchnewbrands,expandtheintegrationofsocialmediaandgainshareinprestigebeautybyencouragingconsumerstotradeupfrommass-marketproducts.

    InEurope,theMiddleEast&Africa,weareexpandingourdigitalandsocialmediapresenceaswellasleveragingourmakeupstrengthtogainsharein

    prestigebeauty.

    InAsia/Pacific,particularlyinChina,weareleveragingourdiversifiedbrandportfoliotobenefitfromthegrowthofthemakeupandfragrancecategoriesaswellascontinuingtolaunchnewskincareproductssuchastheCliniqueFreshPressedlineofproductswithVitaminC.

    Weapproachdistributionstrategicallybybrand,distributionchannelandproductcategory.Weareaddingbrandstofastergrowingchannels,suchase-andm-commerceandspecialtymulti-brandretailers,andweareexpandingcertainbrandsintogeographicmarketswheretheyarenotyetsold.

    Infiscal2017,weincreasedourpenetrationinthespecialty-multichannelthroughtheacquisitionsofBECCAandTooFaced,andweexpandedtherepresentationofourexistingbrands,suchasthelaunchofMACinUltaBeauty.Inaddition,wehaveopportunitiestoaccelerateourgrowthwithinspecialty-multibrandretailersastheyopennewdoors.

    Internationally,weareexpandingourbusinessinfreestandingretailstoresoperatedbyusandbyauthorizedthirdparties,inEuropeanperfumeriesand

    pharmacies,andindepartmentstores,particularlyintheUnitedKingdomandcertainmarketsinAsia.

    Weseektooptimizedistributioninbothchannelsandgeographies,matchingeachbrandwithappropriateopportunitieswhilemaintaininghighproductivityperdoor.Wefocusonbrand-buildingretailopportunitiesthatwillexpandconsumercoverageforourbrands.Aspartofthisstrategy,wecontinuetodiversifyourbusinessinourtravelretailchannelacrossbrandsandproductcategories.Travelretailcontinuestobeanimportantchannelforbrandbuildingandprofitmarginexpansion.Atthesametimeitissusceptibletoanumberofexternalfactors,includingfluctuationsincurrencyexchangeratesandconsumerswillingnessandabilitytotravelandspend.

    25

  • TableofContents

    Onlinenetsalescontinuetogrowstronglyonaglobalbasisandwearecontinuingtolaunche-andm-commercesitesinnewandexistingmarkets.Wearealsopartneringwithourretailersgloballytodrivesalesofourproductsontheironlinesites.Webelieveoursuccessindeliveringparticularlystrongonlinegrowthisaresultofcustomizationofourstrategytomeetlocalmarketneeds.Wealsocontinuetodevelopandimplementomnichannelconceptstodeliveranintegratedconsumerexperienceandbetterserveconsumersastheyshopacrosschannels.

    Whileourbusinessisperformingwelloverall,wecontinuetofacestrongcompetitiongloballyandeconomicchallengesincertaincountries.Inparticular,wearecautiousofthecontinueddeclinei


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