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With ten more countries from Central Europe joining the European Union, we see big opportunities for growth and efficiencies as Pan-European synergies unfold. 

## PRODUCT INNOVATION 

New products are still the lifeblood of this business. Our Research and Development team provides an important competitive asset. This year we launched more than 315 new products, many with groundbreaking results. In particular, we reinforced our strength in skin care, positioned ourselves as innovators in the highly competitive mascara arena and made great strides in hair and scalp care. 

## PERFORMANCE IMPROVEMENTS 

We are able to invest aggressively in new ventures, as well as global expansion, because we have managed our resources wisely. Last year, cost savings from our Global Operations Group helped achieve goals and fuel profitability. Additional savings were gained through ongoing globalization efforts. Cost of goods as a percentage of net sales improved 70 basis points over last year and speed-to-market improved dramatically. 

## FOCUSING ON EMPLOYEES 

Once again, the creativity, passion and drive of our employees was a source of inspiration. From the challenges of geo-political unrest to the threat of SARS, our employees remained shining examples of composure, commitment and good humor. 

I am especially delighted that in January, William P. Lauder became our Chief Operating Officer. William and I agree that the development and growth of our people is a top priority. He will lead the effort to improve our training programs and evaluation methods to ensure we attract and retain the very best people. In addition to leading the Human Resources function, William’s responsibilities as COO include the Inter- national Division, Operations and our Specialty Brands. 

## THE FUTURE 

Throughout this letter, I have expressed themes you’ve heard before. However, we firmly believe good strategies never go out of fashion. Our core competencies reinforce a sound strategy, build strong relation- ships over time and inspire our more than 20,000 colleagues globally. 

Though we are steadfast in our strategy and core values, we are open to new ideas, new people and new ways of looking at the world. One of the great strengths of The Estée Lauder Companies is our ability to combine trends with traditions. 

I want to thank our Chairman, Leonard Lauder, and the entire Board of Directors for guiding us through another successful, productive and profitable year. 

Sincerely, 

<img src='content_image/120603.jpg'>

