Estee Lauder 2007 Annual Report Download - page 84

the Department Store Defendants (as defi ned 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. On April 29, 2005, notices of appeal
were fi led by representatives of two members of the
purported class of consumers. One of those appeals has
since been withdrawn. If the appeal is resolved satisfacto-
rily, the Final Judgment will result in the plaintiffs’ claims
being dismissed, with prejudice, in their entirety in both
the Federal and California actions. There has been no fi nd-
ing 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 agreement, the defen-
dants, including the Company, will provide consumers
with certain free products and pay the plaintiffs’ attorneys’
fees. To meet its obligations under the settlement, the
Company took a special pre-tax charge of $22.0 million,
or $13.5 million after-tax, equal to $.06 per diluted com-
mon share in the fourth quarter of fi scal 2003. At June 30,
2007, the remaining accrual balance was $16.3 million.
The charge did not have a material adverse effect on the
Company’s consolidated financial condition. In the
Federal action, the plaintiffs, purporting to represent a
class of all U.S. residents who purchased prestige cosmet-
ics products at retail for personal use from eight depart-
ment 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 “Manufac-
turer Defendants”) conspired to fi x and maintain retail
prices and to limit the supply of prestige cosmetics prod-
ucts 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 1999, the Offi ce of the Attorney General of the State
of New York (the “State”) notifi ed the Company and ten
other entities that they had been identifi ed as potentially
responsible parties (“PRPs”) with respect to the Blyden-
burgh landfi ll in Islip, New York. Each PRP may be jointly
and severally liable for the costs of investigation and
cleanup, which the State estimated in 2006 to be approx-
imately $19.7 million for all PRPs. In 2001, the State sued
other PRPs (including Hickey’s Carting, Inc., Dennis C.
Hickey and Maria Hickey, collectively the “Hickey
Parties”), in the U.S. District Court for the Eastern District
of New York to recover such costs in connection with the
site, and in September 2002, the Hickey Parties brought
contribution actions against the Company and other
Blydenburgh PRPs. These contribution actions seek to
recover, among other things, any damages for which the
Hickey Parties are found liable in the State’s lawsuit
against them, and related costs and expenses, including
attorneys’ fees. In June 2004, the State added the
Company and other PRPs as defendants in its pending
case against the Hickey Parties. In April 2006, the
Company and other defendants added numerous other
parties to the case as third-party defendants. The Com-
pany and certain other PRPs have engaged in settlement
discussions which to date have been unsuccessful. Settle-
ment negotiations with the new third-party defendants,
the State, the Company and other defendants began in
July 2006. The Company has accrued an amount which it
believes would be necessary to resolve its share of this
matter. If settlement discussions are not successful, the
Company intends to vigorously defend the pending
claims. While no assurance can be given as to the ultimate
outcome, management believes that the resolution of the
Blydenburgh matters will not have a material adverse
effect on the Company’s consolidated fi nancial condition.
On March 30, 2006, a purported securities class action
complaint captioned Thomas S. Shin, et al. v. The Estée
Lauder Companies Inc., et al., was filed against the
Company and certain of its offi cers and directors (collec-
tively the “Defendants”) in the United States District Court
for the Southern District of New York. The complaint
alleged that the Defendants made statements during the
period April 28, 2005 to October 25, 2005 in press
releases, the Company’s public fi lings and during confer-
ence calls with analysts that were materially false and mis-
leading and that artificially inflated the price of the
Company’s stock. The complaint alleged claims under
Sections 10(b) and 20(a) of the Securities Exchange Act of
1934. The complaint also asserted that during the class
period, certain executive offi cers and the trust for the ben-
efi t of a director sold shares of the Company’s Class A
Common Stock at artifi cially infl ated prices. Three addi-
tional purported securities class action complaints were
subsequently fi led in the United States District Court for
the Southern District of New York containing similar alle-
gations. On July 10, 2006, the Court consolidated these
actions under the caption In re: Estée Lauder Companies
Securities Litigation, appointed lead plaintiff, and
approved the selection of lead counsel. A consolidated
amended complaint addressing the same issues as the
original complaint was fi led on September 8, 2006. The
Defendants fi led a motion to dismiss the amended com-
plaint on November 7, 2006. On May 21, 2007, the Court
granted the motion to dismiss and gave plaintiff until
June 4, 2007 to fi le an amended complaint. The plaintiff
did not fi le an amended complaint by the deadline.
THE EST{E LAUDER COMPANIES INC. 83