Estee Lauder 2005 Annual Report Download - page 81

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THE EST{E LAUDER COMPANIES INC.
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. The Company
and certain other PRPs have engaged in settlement dis-
cussions which to date have been unsuccessful. The Com-
pany 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 financial condition.
In January 2004, the Portuguese Tax Administration
issued a report alleging that the Company’s subsidiary had
income subject to tax in Portugal for the three calendar
years ended December 31, 2002. The Company’s sub-
sidiary has been operating in the Madeira Free Trade Zone
since 1989 under license from the Madeira Development
Corporation and, in accordance with such license and the
laws of Portugal, the Company believes that its income is
not subject to Portuguese income tax. In February 2004,
the subsidiary filed an appeal of the finding to the
Portuguese Secretary of State for Fiscal Matters. The appeal
is still pending. On December 20, 2004, the subsidiary
received a notice of assessment from the Portuguese Tax
Administration solely in respect of the calendar year ended
December 31, 2000. The assessment, which includes inter-
est, amounted to 27.7 million Euros. At the end of March
2005, the subsidiary filed an opposition to the assessment.
No action has been taken by the Portuguese Tax Adminis-
tration in respect of the opposition, which remains pend-
ing. In August 2005, the Portuguese Tax Administration
notified the subsidiary that it is beginning executive proce-
dures to collect on the assessment for 2000, and the
Company is in the process of arranging the required finan-
cial guarantee. On May 17 and 18, 2005, the subsidiary
received notices of assessment from the Portuguese Tax
Administration in respect of the calendar years ended
December 31, 2001 and 2002. The assessments are for
21.6 million Euros and 22.4 million Euros, respectively, to
which the subsidiary has filed oppositions in July 2005.
While no assurance can be given as to the ultimate out-
come in respect of the foregoing assessments or any addi-
tional assessments that may be issued for subsequent
periods, management believes that the likelihood that the
assessment or any future assessments ultimately will be
upheld is remote.
In December 2004, a plaintiff purporting to represent
a nationwide class brought an action in the Superior Court
of California for the County of San Diego. The complaint,
as amended, names two of the Company’s subsidiaries and
approximately 25 other defendants, including manufac-
turers and retailers. The plaintiff is seeking injunctive relief,
restitution, and general, special and punitive damages for
alleged violations of the California Unfair Competition Law,
the California False Advertising Law, and for negligent and
intentional misrepresentation. The purported class includes
individuals “who have purchased skin care products from
defendants that have been falsely advertised to have an
‘anti-aging’ or youth inducing benefit or effect.” The
Company intends to defend itself vigorously. While no
assurance can be given as to the ultimate outcome,
management believes that the resolution of this lawsuit
will not have a material adverse effect on the Company’s
consolidated financial condition.
In June 2005, an action was filed in the United States
District Court for the Southern District of Florida against
one of its subsidiaries. Two of the Company’s department
store customers were added as defendants in an amended
complaint filed in August 2005. The plaintiff, purporting to
represent a nationwide class of individuals “who have pur-
chased skin care products from Defendant that have been
falsely advertised to have an ‘anti-aging’ or youth-inducing
benefit or effect,” seeks injunctive relief as well as com-
pensatory and punitive damages for alleged breach of
express and implied warranties, negligent misrepresenta-
tion, and false advertising and unfair business practices.
While no assurance can be given as to the ultimate
outcome, management believes that the resolution of this
lawsuit will not have a material adverse effect on the
Company’s consolidated financial condition.
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