Estee Lauder 2003 Annual Report Download - page 79

THEEST{E LAUDER COMPANIES INC.
NOTE 15 – COMMITMENTS AND CONTINGENCIES
Total rental expense included in the accompanying con-
solidated statements of earnings was $147.8 million in
fiscal 2003, $142.8 million in fiscal 2002 and $120.9 mil-
lion in fiscal 2001. At June 30, 2003, the future minimum
rental commitments under long-term operating leases are
as follows:
YEAR ENDING JUNE 30 (In millions)
2004 $118.5
2005 103.7
2006 74.1
2007 61.8
2008 54.7
Thereafter 189.8
$602.6
In July 2003, the Company signed a new lease for its
principal offices at the same location. Rental obligations
under the new lease will commence in fiscal 2005 and
expire in fiscal 2020. Obligations pursuant to the lease
in fiscal 2005, 2006, 2007, 2008 and thereafter are $5.9
million, $23.6 million, $23.6 million, $24.1 million and
$324.2 million, respectively.
In July 2003, the U.S. Magistrate Judge appointed by
the U.S. District Judge, Southern District of New York,
issued his report and recommendation finding in favor of
the Company and its subsidiaries with respect to, among
other things, their motion for summary judgment of non-
infringement in the case brought against them in August
2000 by an affiliate of Revlon, Inc. Revlon claimed, among
other things, that five Estée Lauder products, two Origins
foundations, a La Mer concealer and a jane foundation
infringed its patent. Revlon sought, among other things,
treble damages, punitive damages, equitable relief and
attorneys’ fees. Revlon has objected to this opinion. The
Companyhas responded to the objection. Revlon also
may appeal the decision to the Court of Appeals for the
Federal Circuit.
In July 2003, the Company entered into a settlement
agreement with the plaintiffs, the other manufacturer
defendants and the department store defendants in a con-
solidated 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 wrong-
doing 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 defendants, including the Com-
pany, will provide consumers with certain free products
and pay the plaintiffs’ attorneys’ fees. To meet its obliga-
tions 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 common share in the fourth
quarter of fiscal 2003.
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. While the State has sued
other PRPs in connection with the site, the State has not
sued the Company. The Company and certain other PRPs
are in discussions with the State regarding possible settle-
ment of the matter. While no assurance can be given as
to the ultimate outcome, management believes that
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 matter will not have a
material adverse effect on the Company’s consolidated
financial condition.
In June 2003, a lawsuit was filed in the U.S. District
Court, Eastern District of New York, on behalf of two
former employees and one former temporary employee
alleging race and disability discrimination, harassment and
retaliation. The complaint seeks $10 million in damages
for each of seven causes of action. The Company intends
to defend the action vigorously. While no assurances
can be given as to the ultimate outcome, management
believes that this 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 pro-
ceedings, separately and in the aggregate, will not have a
material adverse effect on the Company’s business or
consolidated financial results.
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