Estee Lauder 2004 Annual Report Download - page 81

THE EST{E LAUDER COMPANIES INC.
NOTE 15 – COMMITMENTS AND CONTINGENCIES
Total rental expense included in the accompanying
consolidated statements of earnings was $166.8 million
in fiscal 2004, $147.5 million in fiscal 2003 and $142.5
million in fiscal 2002. At June 30, 2004, the future mini-
mum rental commitments under long-term operating
leases are as follows:
YEAR ENDING JUNE 30 (In millions)
2005 $ 132.8
2006 122.5
2007 108.9
2008 92.6
2009 80.9
Thereafter 464.2
$1,001.9
In July 2003, the Company entered into a settlement
agreement with the plaintiffs, the other Manufacturer
Defendants (as defined below) and the Department Store
Defendants (as defined below) in a consolidated class
action lawsuit that had been pending in the Superior
Court of the State of California in Marin County since
1998. In connection with the settlement, the case has
been refiled in the United States District Court for the
Northern District of California on behalf of a nationwide
class of consumers of prestige cosmetics in the United
States. The settlement requires Court approval and, if
approved by the Court, will result in the plaintiffs’ claims
being dismissed, with prejudice, in their entirety. There
has been no finding or admission of any wrongdoing by
the Company in this lawsuit. The Company entered into
the settlement agreement solely to avoid protracted and
costly litigation. In connection with the settlement agree-
ment, the defendants, including the Company, will provide
consumers with certain free products and pay the plain-
tiffs’ attorneys’ fees. To meet its obligations under the set-
tlement, the Company took a special pre-tax charge of
$22.0 million, or $13.5 million after tax, equal to $.06 per
diluted common share in the fourth quarter of fiscal 2003.
The charge did not have a material adverse effect on the
Company’s consolidated financial condition. In the Fed-
eral action, the plaintiffs, purporting to represent a class of
all U.S. residents who purchased prestige cosmetics prod-
ucts at retail for personal use from eight department
stores groups that sold such products in the United States
(the “Department Store Defendants”), alleged that the
Department Store Defendants, the Company and eight
other manufacturers of cosmetics (the “Manufacturer
Defendants”) conspired to fix and maintain retail prices
and to limit the supply of prestige cosmetics products sold
by the Department Store Defendants in violation of state
and Federal laws. The plaintiffs sought, among other
things, treble damages, equitable relief, attorneys’ fees,
interest and costs.
In 1998, the Office of the Attorney General of the State
of New York (the “State”) notified the Company and ten
other entities that they are potentially responsible parties
(“PRPs”) with respect to the Blydenburgh landfill in Islip,
New York. Each PRP may be jointly and severally liable for
the costs of investigation and cleanup, which the State
estimates to be $16 million. In 2001, the State sued other
PRPs in the U.S. District Court for the Eastern District of
New York to recover such costs in connection with the
site. In June 2004, the State added the Company and
other PRPs as defendants in this matter. The Company
and certain other PRPs have engaged in settlement dis-
cussions which through August 6, 2004 have been unsuc-
cessful. The Company intends to vigorously defend the
pending claims. While no assurance can be given as to
the ultimate outcome, management believes that the res-
olution of the matter will not have a material adverse
effect on the Company’s consolidated financial condition.
In 1998, the State notified the Company and fifteen
other entities that they are PRPs with respect to the
Huntington/East Northport landfill. The cleanup costs are
estimated at $20 million. No litigation has commenced.
The Company and other PRPs are in discussions with the
State regarding possible settlement of the matter. While
no assurance can be given as to the ultimate outcome,
management believes that the resolution of the matter will
not have a material adverse effect on the Company’s con-
solidated financial condition.
In January 2004, the Portuguese Tax Administration
issued a report alleging that a subsidiary of the Company
had income subject to tax in Portugal for the three fiscal
years ended June 30, 2002. The Company’s subsidiary has
been operating in the Madeira Free Trade Zone since
1989 under license from the Madeira Development Cor-
poration and, in accordance with such license and the
laws of Portugal, the Company believes that its income is
not subject to Portuguese income tax. The subsidiary has
filed an appeal of the finding to the Portuguese Secretary
of State for Fiscal Matters. As of August 6, 2004, no formal
tax assessment has been made. While no assurance can
be given as to the ultimate outcome, management
believes that the resolution of the matter will not have a
material adverse effect on the Company’s consolidated
financial condition.
The Company is involved in various routine legal pro-
ceedings incident to the ordinary course of its business.
In management’s opinion, the outcome of pending legal
proceedings, separately and in the aggregate, will not
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