Estee Lauder 2005 Annual Report Download - page 80

Pursuant to the Plans, share units in respect of 3,000,
62,100 and 57,800 shares were granted in fiscal 2005,
2004 and 2003, respectively, and pursuant to the executive
employment agreements, 1,200 and 1,400 were granted
in fiscal 2004 and 2003, respectively. On August 24, 2004,
the Company’s Compensation Committee of the Board of
Directors approved the conversion of 365,600 share units
(207,500 from the Plans and 158,100 from the executive
employment agreements) into a cash equivalent amount
of $16.1 million which was paid in the second quarter of
fiscal 2005. There were no share units converted to com-
mon stock in fiscal 2005 or fiscal 2004. 800 share units
were converted into shares of Class A Common Stock in
fiscal 2003. At June 30, 2005 and 2004, total outstanding
share units were 7,700 and 370,200, respectively. All of
the units outstanding at June 30, 2005 were granted under
the Non-Employee Director Share Incentive Plan and will
be converted into shares of Class A Common Stock as
provided for in that plan.
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Total rental expense included in the accompanying consol-
idated statements of earnings was $180.0 million in fiscal
2005, $166.8 million in fiscal 2004 and $147.5 million in fis-
cal 2003. At June 30, 2005, the future minimum rental com-
mitments under long-term operating leases are as follows:
YEAR ENDING JUNE 30 (In millions)
2006 $ 149.3
2007 134.2
2008 117.5
2009 102.5
2010 90.7
Thereafter 543.2
$1,137.4
The Company is involved, from time to time, in litigation
and other legal proceedings incidental to its business. Man-
agement believes that the outcome of current litigation
and legal proceedings will not have a material adverse
effect upon the results of operations or financial condition
of the Company. However, management’s assessment of
the Company’s current litigation and other legal proceed-
ings could change in light of the discovery of facts with
respect to legal actions or other proceedings pending
against the Company not presently known to the Company
or determinations by judges, juries or other finders of fact
which are not in accord with management’s evaluation
of the possible liability or outcome of such litigation or
proceedings.
On March 30, 2005, the United States District Court for
the Northern District of California entered into a Final
Judgment approving the settlement agreement the
Company entered into in July 2003, with the plaintiffs, the
other Manufacturer Defendants (as defined below) and the
Department Store Defendants (as defined below) 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. On April 29, 2005, notices of appeal were filed
by representatives of two members of the purported class
of consumers. If the appeal is resolved satisfactorily, the
Final Judgment will result in the plaintiffs’ claims being dis-
missed, with prejudice, in their entirety in both the Federal
and California actions. There has been no finding or admis-
sion of any wrongdoing by the Company in this lawsuit.
The Company entered into the settlement agreement
solely to avoid protracted and costly litigation. In connec-
tion with the settlement agreement, the defendants, includ-
ing 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 spe-
cial 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. At June 30, 2005, the remaining
accrual balance was $17.2 million. The charge did not have
a material adverse effect on the Company’s consolidated
financial condition. In the Federal action, the plaintiffs, pur-
porting to represent a class of all U.S. residents who pur-
chased prestige cosmetics products 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 Defen-
dants, the Company and eight other manufacturers of
cosmetics (the “Manufacturer Defendants”) conspired to
fix and maintain retail prices and to limit the supply of pres-
tige cosmetics products sold by the Department Store
Defendants in violation of state and Federal laws. The plain-
tiffs 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 esti-
mates to be $16 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
THE EST{E LAUDER COMPANIES INC.79