Dear Fellow Stockholders:

As we look back on fiscal 2001, the Estée Lauder Companies has much to be pleased about. We fulfilled the goals we set for ourselves and continued our tradition of more than 50 years of uninterrupted sales growth. That success reinforces some fundamental truths about this company. We are committed to growth even in difficult economies and we are able to continuously demonstrate the skill and the will throughout the organization to seek all opportunities for growth, regardless of market conditions. Most importantly, we enjoy our consumers’ trust, loyalty and appreciation based on the quality of our products, as well as the entire experience offered by each of our respective brands. The combination of these powerful assets gives us great confidence about our continuous prospects for growth in the years ahead.

Delivering results in challenging times

The biggest challenge in 2001 was the economic reality in some of our key markets. I am pleased to report that, excluding the negative impact of foreign currency translation, net sales increased 9% in fiscal 2001. While we are not immune to difficult climates, we are well situated to withstand them, thanks to our diversity in geography, channels of distribution, categories and brands, and our unrelenting drive for innovation. In an industry where product newness drives growth, approximately one third of our revenue in 2001 came from products on the market three years or less.

In 2001, this diversity helped us generate net sales of $4.62 billion, a 6% increase over fiscal 2000. Our net earnings were $347.7 million, up 11% from $314.1 million in the same period last year. Diluted earnings per common share increased 12% to $1.34 from $1.20 in the prior year. These results are before the cumulative effect of a change in accounting principle and before restructuring and other non-recurring charges, which are detailed in this Annual Report on page 54.

In Europe, the Middle East & Africa, net sales increased 17% over last year, excluding the impact of foreign currency translation. Every market in the region generated sales growth, with most posting double-digit increases. The Company posted a 7% increase in reported net sales for the region over the prior year to $1.21 billion. On a local currency basis, Asia/Pacific net sales increased 10% versus the prior year. Net sales in the region on a reported basis increased 2% to $590.6 million. And in the Americas region, net sales for the year increased 6% to $2.82 billion.