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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549-1004

----------

FORM 10-K

(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

FOR THE FISCAL YEAR ENDED JUNE 30, 2003 COMMISSION FILE NUMBER 1-14064

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934


THE ESTEE LAUDER COMPANIES INC.
(Exact name of registrant as specified in its charter)


DELAWARE 11-2408943
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)


767 FIFTH AVENUE, NEW YORK, NEW YORK 10153
(Address of principal executive offices) (Zip Code)


REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 212-572-4200

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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:


NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Class A Common Stock, $.01 par value New York Stock Exchange


SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]

The aggregate market value of the registrant's voting common equity held by
non-affiliates of the registrant was approximately $3.33 billion at December 31,
2002 (the last business day of the registrant's most recently completed second
quarter).*

At September 12, 2003, 120,840,387 shares of the registrant's Class A Common
Stock, $.01 par value, and 107,162,533 shares of the registrant's Class B Common
Stock, $.01 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

DOCUMENT WHERE INCORPORATED
-------- ------------------
Proxy Statement for Annual Meeting of Part III
Stockholders to be held November 5, 2003

* Calculated by excluding all shares held by executive officers and directors of
registrant and certain trusts without conceding that all such persons are
"affiliates" of registrant for purposes of the Federal securities laws.





THE ESTEE LAUDER COMPANIES INC.

INDEX TO ANNUAL REPORT ON FORM 10-K


PAGE

PART I:

Item 1. Business........................................................ 2

Item 2. Properties...................................................... 13

Item 3. Legal Proceedings............................................... 13

Item 4. Submission of Matters to a Vote of Security Holders............. 14


PART II:

Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters..................................... 15

Item 6. Selected Financial Data......................................... 16

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 17

Item 7A. Quantitative and Qualitative Disclosures About Market Risk...... 37

Item 8. Financial Statements and Supplementary Data..................... 37

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................. 37

Item 9A. Controls and Procedures......................................... 37


PART III:

Items 10 - 14.............................................................. 37

PART IV:

Item 15. Exhibits, Financial Statement Schedules and Reports on
Form 8-K ...................................................... 38

Signatures................................................................. 41




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FORWARD-LOOKING STATEMENTS

THIS ANNUAL REPORT ON FORM 10-K INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS
INCLUDE, WITHOUT LIMITATION, OUR EXPECTATIONS REGARDING SALES, EARNINGS OR OTHER
FUTURE FINANCIAL PERFORMANCE AND LIQUIDITY, PRODUCT INTRODUCTIONS, ENTRY INTO
NEW GEOGRAPHIC REGIONS, INFORMATION SYSTEMS INITIATIVES, NEW METHODS OF SALE AND
FUTURE OPERATIONS OR OPERATING RESULTS. ALTHOUGH WE BELIEVE THAT OUR
EXPECTATIONS ARE BASED ON REASONABLE ASSUMPTIONS WITHIN THE BOUNDS OF OUR
KNOWLEDGE OF OUR BUSINESS AND OPERATIONS, WE CANNOT ASSURE THAT ACTUAL RESULTS
WILL NOT DIFFER MATERIALLY FROM OUR EXPECTATIONS. FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER FROM EXPECTATIONS ARE DESCRIBED HEREIN; IN PARTICULAR,
SEE "ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- FORWARD-LOOKING INFORMATION."


PART I

ITEM 1. BUSINESS.

The Estee Lauder Companies Inc., founded in 1946 by Estee and Joseph Lauder, is
one of the world's leading manufacturers and marketers of quality skin care,
makeup, fragrance and hair care products. Our products are sold in over 130
countries and territories under the following well-recognized brand names: Estee
Lauder, Clinique, Aramis, Prescriptives, Origins, M.A.C, Bobbi Brown, La Mer,
jane, Aveda, Stila, Jo Malone, Bumble and bumble, Darphin and Rodan & Fields. We
are also the global licensee for fragrances and cosmetics sold under the Tommy
Hilfiger, Donna Karan, kate spade and Michael Kors brands. Each brand is
distinctly positioned within the market for beauty products.

We are a pioneer in the cosmetics industry and believe we are a leader in the
industry due to the global recognition of our brand names, our leadership in
product innovation, our strong market position in key geographic markets and the
consistently high quality of our products. We sell our prestige products
principally through limited distribution channels to complement the images
associated with our brands. These channels, encompassing over 16,900 points of
sale, consist primarily of upscale department stores, specialty retailers,
upscale perfumeries and pharmacies and, to a lesser extent, freestanding
company-owned stores and spas, our own and authorized retailer web sites, stores
on cruise ships, in-flight and duty-free shops. We believe that our strategy of
pursuing limited distribution strengthens our relationships with retailers,
enables our brands to be among the best selling product lines at the stores and
heightens the aspirational quality of our brands.

We also sell products at self-select outlets (jane) and prestige salons (Aveda
and Bumble and bumble).

We have been controlled by the Lauder family since the founding of our company.
Members of the Lauder family, some of whom are directors, executive officers
and/or employees, beneficially own, directly or indirectly, as of September 12,
2003, shares of Class A Common Stock and Class B Common Stock having
approximately 91.3% of the outstanding voting power of the Common Stock.

Unless the context requires otherwise, references to "we," "us," "our" and the
"Company" refer to The Estee Lauder Companies Inc. and its subsidiaries.

PRODUCTS

SKIN CARE - Our broad range of skin care products addresses various
skin care needs for women and men. These products include moisturizers, creams,
lotions, cleansers, sun screens and self-tanning products, a number of which are
developed for use on particular areas of the body, such as the face or the hands
or around the eyes. Skin care products accounted for approximately 37% of our
net sales in fiscal 2003.

MAKEUP - We manufacture, market and sell a full array of makeup
products, including lipsticks, mascaras, foundations, eyeshadows, nail polishes
and powders. Many of the products are offered in an extensive array of shades
and colors. We also sell related items such as compacts, brushes and other
makeup tools. Makeup products accounted for approximately 37% of our net sales
in fiscal 2003.

FRAGRANCE - We offer a variety of fragrance products for women and men.
The fragrances are sold in various forms, including eau de parfum sprays and
colognes, as well as lotions, powders, creams and soaps that are based on a
particular fragrance. Fragrance products accounted for approximately 21% of our
net sales in fiscal 2003.



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HAIR CARE - Hair care products are offered mainly in salons and in
freestanding retail stores and include styling products, shampoos, conditioners
and finishing sprays. In fiscal 2003, hair care products accounted for
approximately 5% of our net sales.

Given the personal nature of our products and the wide array of consumer
preferences and tastes, as well as competition for the attention of consumers,
our strategy has been to market and promote our products through distinctive
brands seeking to address broad preferences and tastes. Each brand has a single
global image that is promoted with consistent logos, packaging and advertising
designed to enhance its image and differentiate it from other brands.

ESTEE LAUDER - Estee Lauder brand products, which have been sold since
1946, are positioned as luxurious, classic and aspirational. We believe that
Estee Lauder brand products are technologically advanced and innovative and have
a worldwide reputation for excellence. The broad product line principally
consists of skin care, makeup and fragrance products that are presented in high
quality packaging.

CLINIQUE - First introduced in 1968, Clinique skin care and makeup products
are all allergy tested and 100% fragrance free and have been designed to address
individual skin types and needs. The products are based on the research and
related expertise of leading dermatologists. Clinique skin care products are
generally marketed as part of the 3-Step System: Cleanse, Exfoliate, Moisturize.
Clinique also offers fragrances for men and women and a line of hair care
products.

ARAMIS - We pioneered the marketing of prestige men's grooming and skin
care products and fragrances with the introduction of Aramis products in 1964.
Aramis continues to offer one of the broadest lines of prestige men's products
and has extended the line to include fragrances for women.

PRESCRIPTIVES - We developed and introduced Prescriptives in 1979.
Prescriptives is positioned as a color authority with an advanced collection of
highly individualized products primarily addressing the makeup and skin care
needs of contemporary women with active lifestyles. The products are
characterized by simple concepts, minimalist design and an innovative image and,
through a system of color application and extensive range of makeup shades,
accommodate a diverse group of consumers.

ORIGINS - Origins, our most recent internally developed brand, was
introduced in 1990. It is positioned as a plant-based cosmetics line of skin
care, makeup and aromatherapy products that combine time-tested botanical
ingredients with modern science to promote total well-being. Origins sells its
products at our freestanding Origins stores and through stores-within-stores
(which are designed to replicate the Origins store environment within a
department store), at traditional retail counters, in perfumeries and directly
to consumers over the Internet.

TOMMY HILFIGER - We have an exclusive global license arrangement to develop
and market men's and women's fragrances and cosmetics under the Tommy Hilfiger
brand. We launched the line in 1995 with a men's fragrance, "tommy". Today, we
manufacture and sell a variety of fragrances and ancillary products for men and
women.

M.A.C - M.A.C products comprise a broad line of color-oriented,
professional cosmetics and professional makeup tools targeting makeup artists
and fashion-conscious consumers. The products are sold through a limited number
of department and specialty stores, at freestanding M.A.C stores and directly
to consumers over the Internet. We acquired Make-Up Art Cosmetics Limited, the
manufacturer of M.A.C products, in three stages: in December 1994, March 1997
and February 1998.

BOBBI BROWN - In October 1995, we acquired the Bobbi Brown line of color
cosmetics, professional makeup brushes and skin care products. Bobbi Brown
products are manufactured to our specifications, primarily by third parties, and
sold through a limited number of department and specialty stores and directly to
consumers over the Internet.

LA MER - La Mer products primarily consist of moisturizing creams, lotions,
cleansers, toners and other skin care products. The line, which is available in
very limited distribution in the United States and certain other countries, is
an extension of the initial Creme de la Mer product that we acquired in 1995.

jane - In October 1997, we acquired Sassaby, Inc., the owner of the jane
brand of color cosmetics targeted to young consumers. jane products are
currently distributed only in the United States in the self-select distribution
channel.



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DONNA KARAN COSMETICS - In November 1997, we obtained the exclusive global
license to develop, market and distribute a line of fragrances and other
cosmetics under the Donna Karan New York and DKNY trademarks, including certain
products that were originally sold by The Donna Karan Company. We launched the
first DKNY women's fragrance in fiscal 2000 and the first DKNY men's fragrance
in fiscal 2001. Under this license, fragrances have been expanded to include
extensive lines of companion bath and body products.

AVEDA - We acquired the Aveda business in December 1997 and have since
acquired selected Aveda distributors and retail stores. Aveda, a prestige hair
care leader, is a manufacturer and marketer of plant-based hair care, skin care,
makeup and fragrance products. We sell Aveda products to third-party
distributors and prestige salons and spas, cosmetology schools and specialty
retailers, and directly to consumers at our own freestanding Aveda Experience
Centers and certain Aveda Institutes.

STILA - In August 1999, we acquired the business of Los Angeles-based Stila
Cosmetics, Inc. Stila is known for its stylish, wearable makeup products and
eco-friendly packaging and has developed a following among young,
fashion-forward consumers. Stila products are currently available at the brand's
flagship store in Los Angeles, California, and also in limited distribution in
the United States and certain other countries.

JO MALONE - We acquired London-based Jo Malone Limited in October 1999. Jo
Malone is known for its prestige skin care, fragrance and hair care products
showcased at its flagship store in London. Products are also available through a
company catalogue, at freestanding stores and at a very limited group of
specialty stores in the United States, Canada and the United Kingdom.

BUMBLE AND BUMBLE - In June 2000, we acquired a controlling majority equity
interest in Bumble and Bumble Products, LLC, a marketer and distributor of
quality hair care products, and Bumble and Bumble, LLC, the operator of a
premier hair salon in New York City. Bumble and bumble styling and other hair
care products are distributed to top-tier salons and select specialty stores.
The founder and two of his partners own the remaining equity interests and have
continued to manage the domestic operations.

kate spade beauty - In November 1999, we obtained exclusive worldwide
rights to use the kate spade trademark and related trademarks for the
manufacture, marketing, distribution and sale of beauty products. During fiscal
2002, we launched the first products - a distinctive and personal signature
fragrance and companion products.

DARPHIN - In April 2003, we acquired Laboratoires Darphin, the Paris-based
company dedicated to the development, manufacture and marketing of prestige skin
care and makeup products which are distributed through high-end independent
pharmacies and specialty stores.

MICHAEL KORS - In May 2003, we entered into a license agreement for
fragrances and beauty products under the "Michael Kors" trademarks and purchased
certain related rights and inventory from another party. All fragrances
including MICHAEL, MICHAEL for Men and KORS Michael Kors, as well as ancillary
bath and body products, are sold in departments stores, specialty stores, at
freestanding Michael Kors boutiques and over the Internet.

RODAN & FIELDS - In July 2003, we acquired the Rodan & Fields skin care
line launched in 2002 by Stanford University-trained dermatologists Katie Rodan,
M.D. and Kathy Fields, M.D. The line offers solutions for specific skin
problems, targeting them with individually packaged, dedicated regimens with the
mission of maximizing the health and well-being of the skin. The line is
currently sold in three U.S. specialty stores and over the Internet at
rodanandfields.com.

In addition to the foregoing brands, we manufacture and sell Kiton and Toni Gard
products as a licensee.

DISTRIBUTION

We sell our products principally through limited distribution channels to
complement the images associated with our core brands. These channels include
more than 16,900 points of sale in over 130 countries and territories and
consist primarily of upscale department stores, specialty retailers, upscale
perfumeries and pharmacies and, to a lesser extent, freestanding company-owned
stores and spas, our own and authorized retailer web sites, stores on cruise
ships, in-flight and duty-free shops.



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We maintain a dedicated sales force which sells to our retail accounts in North
America and in the major overseas markets, such as Western Europe and Japan. We
have wholly-owned operations in over 30 countries, and a controlling interest in
a joint venture that operates in three other countries, through which we market,
sell and distribute our products. In certain markets, we sell our products
through selected local distributors under contractual arrangements designed to
protect the image and position of the brands. In addition, we sell certain
products in select domestic and international military locations and over the
Internet. For information regarding our net sales and long-lived assets by
geographic region, see Note 18 of Notes to Consolidated Financial Statements,
which is incorporated herein by reference. Our net sales in the United States in
fiscal 2003, 2002 and 2001 were $2,774.4 million, $2,696.0 million and $2,669.6
million, respectively. Our long-lived assets in the United States at June 30,
2003, 2002 and 2001 were $420.1 million, $442.4 million and $435.2 million,
respectively.

There are risks inherent in foreign operations, including changes in social,
political and economic conditions. We are also exposed to risks associated with
changes in the laws and policies that govern foreign investment in countries
where we have operations as well as, to a lesser extent, changes in United
States laws and regulations relating to foreign trade and investment. In
addition, our results of operations and the value of our foreign assets are
affected by fluctuations in foreign currency exchange rates. Changes in such
rates also may affect the relative prices at which we and foreign competitors
sell products in the same markets. Similarly, the cost of certain items required
in our operations may be affected by changes in the value of the relevant
currencies.

With the acquisitions of jane and Aveda in fiscal 1998, a controlling majority
equity interest in Bumble and bumble in fiscal 2000 and the acquisition of
Darphin in fiscal 2003, we broadened our distribution in new and existing
channels, namely self-select outlets, salons and high-end independent
pharmacies. jane products are currently sold only in the United States in
approximately 14,200 points of sale, including mass merchandise stores, drug
stores and specialty stores. We principally sell Aveda products to third-party
distributors and prestige salons and spas, cosmetology schools and specialty
retailers, and directly to consumers at our own freestanding Aveda Experience
Centers and certain Aveda Institutes. There are currently about 7,300 points of
sale, primarily in the United States, that sell Aveda products. Bumble and
bumble products are principally sold to approximately 1,400 independent salons,
primarily in the United States. Darphin products are sold through high-end
independent pharmacies, principally in Europe, representing approximately 2,400
points of sale.

As part of our strategy to diversify our distribution, primarily in the United
States, we have been expanding the number of single-brand, freestanding stores
that we own and operate. The Origins, Aveda and M.A.C brands are the primary
focus for this method of distribution. To date, we operate approximately 420
single-brand, freestanding stores worldwide and expect that number to increase
moderately over the next several years.

We sell some of our products directly to consumers over the Internet through our
own web sites (Estee Lauder, Clinique, Origins, Bobbi Brown, M.A.C and Rodan &
Fields), and through Gloss.com (Estee Lauder, Clinique, Prescriptives, Origins,
M.A.C, Bobbi Brown, La Mer and Stila). Gloss.com is currently a joint venture
in which we own a controlling majority interest. Chanel, Inc. and Clarins
(U.S.A.) Inc. became partners in the venture in August 2000 and Chanel and
Clarins products are also available on the web site.

As is customary in the cosmetics industry, our practice is to accept returns of
our products from retailers. In accepting returns, we typically provide a credit
to the retailer against sales and accounts receivable from that retailer on a
dollar-for-dollar basis. In recognition of this practice, and in accordance with
generally accepted accounting principles, we report sales levels on a net basis,
which is computed by deducting the amount of actual returns received and an
amount established for anticipated returns from gross sales. As a percent of
gross sales, returns were 5.2% in fiscal 2003 and 4.9% in each of fiscal 2002
and 2001.

CUSTOMERS

Our strategy has been to build strong strategic relationships with selected
retailers globally. Senior management works with executives of our major retail
accounts on a regular basis, and we believe we are viewed as an important
supplier to these customers.

For the fiscal years ended June 30, 2003, 2002 and 2001, our three largest
customers accounted for 24%, 25% and 28%, respectively, of our net sales.
Individually no customer accounted for more than 10% of our net sales during
fiscal 2003 or 2002. Customers affiliated with Federated Department Stores, Inc.
(e.g., Bloomingdale's, Burdines, Macy's and Rich's/Lazarus) accounted for 11% of
our net sales in fiscal 2001. The May Department Stores Company (e.g., Foley's,
Lord & Taylor and Robinsons-May) accounted for 10% of our net sales in fiscal
2001.



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MARKETING

Our marketing strategy is built around our vision statement: "Bringing the Best
to Everyone We Touch." Mrs. Estee Lauder formulated this marketing philosophy to
provide high-quality service and products as the foundation for a solid and
loyal consumer base.

Our marketing efforts focus principally on promoting the quality and benefits of
our products. Each of our brands is distinctively positioned, has a single
global image, and is promoted with consistent logos, packaging and advertising
designed to enhance its image and differentiate it from other brands. We
regularly advertise our products on television and radio, in upscale magazines
and prestigious newspapers and through direct mail and photo displays at
international airports. Promotional activities and in-store displays are
designed to introduce existing consumers to different products in the line and
to attract new consumers. Our marketing efforts also benefit from cooperative
advertising programs with retailers, some of which are supported by coordinated
promotions, such as purchase with purchase and gift with purchase. At in-store
counters, sales representatives offer personal demonstrations to market
individual products as well as to provide education on basic skin care and
makeup application. We conduct extensive sampling programs and we pioneered gift
with purchase as a sampling program. We believe that the quality and perceived
benefits of sample products have been effective inducements to purchases by new
and existing consumers.

Starting with the launch of the Clinique website in 1996, we have used the
Internet to educate and inform consumers about certain of our brands. Currently,
we have fourteen single-brand marketing sites, six of which have e-commerce
capabilities, and Gloss.com, our majority-owned, multi-brand marketing and
e-commerce site.

Most of our creative marketing work is done by in-house creative teams. The
creative staff designs and produces the sales materials, advertisements and
packaging for all products in each brand. Total advertising and promotional
expenditures were $1,425.6 million, $1,326.2 million and $1,255.3 million for
fiscal 2003, 2002 and 2001, respectively. These amounts include expenses
relating to purchase with purchase and gift with purchase promotions that are
reflected in net sales and cost of sales. In addition, our products receive
extensive editorial coverage in prestige publications and other media worldwide.

Our marketing and sales executives spend considerable time in the field meeting
with consumers and key retailers and consulting with sales representatives at
the points of sale. These include Estee Lauder Beauty Advisors, Clinique
Consultants, Aramis Selling Specialists, Prescriptives Analysts and Origins
Guides.

MANAGEMENT INFORMATION SYSTEMS

Management information systems support business processes including product
development, marketing, sales, order processing, production, distribution and
finance. Of the many systems currently being utilized, the most significant to
our business needs are: (i) a centralized data repository of essential
attributes for each of the products we offer, or plan to offer, which enables us
to globally manufacture and market products of consistent quality; (ii) a sales
analysis system to track weekly sales at the stock keeping unit (SKU) level at
most significant retail sales locations (i.e. sell-through data), increasing our
understanding of consumer preferences and enabling us to coordinate more
effectively our product development, manufacturing and marketing strategies;
(iii) an automated replenishment system with many of our key domestic customers,
allowing us to replenish inventories for individual points of sale
automatically, with minimal paperwork; and (iv) an inventory management system
to provide us with a global view of finished goods availability relative to
actual requirements, resulting in improved inventory control and distribution
for both existing product lines and new product launches.

The efficiencies provided by these systems have resulted in increased sales,
fewer out-of-stocks and reduced retail inventories. We expect that these systems
will continue to provide inventory and sales efficiencies in the short and
medium terms.

As part of our ongoing effort to enhance these efficiencies, we are evaluating
enterprise-wide global programs that could deliver a single set of integrated
data, processes, and technologies, which would be scalable and used to
standardize business processes across brands, operating units, and sales
affiliates.



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RESEARCH AND DEVELOPMENT

We believe that we are an industry leader in the development of new products.
Marketing, product development and packaging groups work with our research and
development group to identify shifts in consumer preferences, develop new
products and redesign or reformulate existing products. In addition, research
and development personnel work closely with quality assurance and manufacturing
personnel on a worldwide basis to ensure consistent global standards for our
products and to deliver products with attributes that fulfill consumer
expectations.

We maintain ongoing research and development programs primarily at our
facilities in Melville, New York; Oevel, Belgium; Tokyo, Japan; Markham,
Ontario; and Blaine, Minnesota. As of June 30, 2003, we had approximately 400
employees engaged in research and development. Research and development
expenditures totaled $60.8 million, $61.3 million and $57.3 million in fiscal
2003, 2002 and 2001, respectively. Our research and development group makes
significant contributions toward improving existing products and developing new
products and provides ongoing technical assistance and know-how to our
manufacturing activities. The research and development group has had
long-standing working relationships with several U.S. and international medical
and educational facilities, which supplement internal capabilities. We do not
conduct animal testing of our products.

MANUFACTURING AND RAW MATERIALS

We manufacture skin care, makeup, fragrance and hair care products primarily in
the United States, Belgium, Switzerland, the United Kingdom and Canada. We
continue to streamline our manufacturing processes and identify sourcing
opportunities to improve innovation, increase efficiencies and reduce costs. Our
major manufacturing facilities operate as "focus" plants that primarily
manufacture one type of product (e.g., lipsticks) for all of the principal
brands. Our plants are modern and our manufacturing processes are substantially
automated. While we believe that our manufacturing facilities are sufficient to
meet current and reasonably anticipated manufacturing requirements, we continue
to identify opportunities to make significant improvements in capacity and
productivity. Some of our finished products are manufactured to our
specifications by third parties.

The principal raw materials used in the manufacture of our products are
essential oils, alcohol and specialty chemicals. We also purchase packaging
components that are manufactured to our design specifications. Procurement of
materials for all manufacturing facilities is generally made on a global basis
through our centralized supplier relations department. A concentrated effort in
supplier rationalization has been made with the specific objective of reducing
costs, increasing innovation and improving quality. As a result of sourcing
initiatives, there is increased dependency on certain suppliers, but we believe
that these suppliers have adequate resources and facilities to overcome any
unforeseen interruption of supply. We are continually benchmarking the
performance of the supply chain and will add or delete suppliers based upon the
changing needs of the business. We have, in the past, been able to obtain an
adequate supply of essential raw materials and currently believe we have
adequate sources of supply for virtually all components of our products. As we
integrate acquired brands, we continually seek new ways to leverage our
production and sourcing capabilities to improve manufacturing performance.





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COMPETITION

The skin care, makeup, fragrance and hair care businesses are characterized by
vigorous competition throughout the world. Brand recognition, quality,
performance and price have a significant influence on consumers' choices among
competing products and brands. Advertising, promotion, merchandising, the pace
and timing of new product introductions, line extensions and the quality of
in-store sales staff, also have a significant impact on consumers' buying
decisions. We compete against a number of manufacturers and marketers of skin
care, makeup, fragrance and hair care products, some of which have substantially
greater resources than we do.

Our principal competitors among manufacturers and marketers of skin care,
makeup, fragrance and hair care products include:

o L'Oreal S.A., which markets Lancome, Ralph Lauren, Giorgio Armani, Garnier,
L'Oreal, Maybelline, Biotherm, Helena Rubinstein, Redken, Matrix, Kiehl's
Since 1851, Shu Uemura and other brands;

o Unilever N.V., which markets Calvin Klein, Cerruti, Vera Wang, Pond's,
Thermasilk, Vaseline Intensive Care and other brands;

o The Procter & Gamble Company, which markets Cover Girl, Olay, Giorgio
Beverly Hills, Hugo Boss, Rochas, Escada, Max Factor, Vidal Sassoon,
Pantene, Clairol, Wella, Valentino, Gucci, Sebastian, Aussi and other
brands;

o Beiersdorf AG, which markets Nivea, Eucerine, La Prairie, Juvena and other
brands;

o Avon Products Inc., a direct marketer of Avon Color, Anew, Skin-so-soft,
Mark, Avon Wellness, BeComing and other products;

o Shiseido Company, Ltd., which markets Shiseido, Cle de Peau Beaute, Zirh,
Nars, Decleor, Issey Miyake, Jean Paul Gaultier, Helene Curtis, Za and
other brands;

o LVMH Moet Hennessey Louis Vuitton ("LVMH"), which markets Christian Dior,
Kenzo, Givenchy, Guerlain, Bliss, Benefit, Make Up For Ever, Fresh, Aqua di
Parma and other brands;

o Coty, Inc., which markets Lancaster, Davidoff, Isabella Rossellini, Rimmel,
Yue-Sai, Astor, Adidas, The Healing Garden, Chopard, Jennifer Lopez,
Kenneth Cole, Marc Jacobs, Stetson and other brands;

o Revlon, Inc., which markets Revlon, Almay, Ultima II and other brands;

o Chanel, Inc.;

o Clarins S.A., which markets Clarins, Azzaro, Hermes, Lacoste, Burberry,
Thierry Mugler and other brands; and

o Elizabeth Arden, Inc., which markets Elizabeth Arden, Elizabeth Taylor
fragrances, Geoffrey Beene, Halston and other brands.

We also face competition from retailers that have developed their own brands,
such as:

o Gap Inc., which markets The Gap and Banana Republic products;

o Intimate Brands, which markets Victoria's Secret Beauty, Bath and Body
Works, and, in a venture with Shiseido, Aura Science; and

o Sephora.

Some retailers have acquired brands, such as Neiman Marcus Group, which acquired
Laura Mercier.

Some of our competitors also have ownership interests in retailers that are
customers of ours. For example, LVMH has interests in DFS Group LTD, Miami
Cruiseline Services, Le Bon Marche, la Samaritaine, eLuxury and Sephora.

TRADEMARKS, PATENTS AND COPYRIGHTS

We own all of the material trademark rights used in connection with the
manufacturing, marketing and distribution of our major products both in the
United States and in the other principal countries where such products are sold,
except for the trademark rights relating to Tommy Hilfiger (including "tommy"
and "tommy girl"), Donna Karan New York, DKNY, Michael Kors and kate spade, as
to which we are the exclusive worldwide licensee for fragrances, cosmetics and
related products. Trademarks for our principal products are registered in the
United States and in most of the countries in which such products are sold. The
major trademarks used in our business include the brand names Estee Lauder,
Clinique, Aramis, Prescriptives, Origins, Tommy Hilfiger, Donna Karan New York,
DKNY, M.A.C, Bobbi Brown, La Mer, jane, Aveda, Stila, Jo Malone, Bumble and
bumble, kate spade, Darphin and Michael Kors and the names of many of the
products sold under each of these brands. We consider the protection of our
trademarks to be important to our business.



-8-



A number of our products incorporate patented or patent-pending formulations. In
addition, several products are covered by design patents, patent applications or
copyrights. While we consider these patents and copyrights, and the protection
thereof, to be important, no single patent or copyright is considered material
to the conduct of our business.

EMPLOYEES

At June 30, 2003, we had approximately 21,500 full-time employees worldwide
(including sales representatives at points of sale who are employed by us), of
whom approximately 10,800 are employed in the United States and Canada. None of
our employees in the United States is covered by a collective bargaining
agreement. In certain other countries a limited number of employees are covered
by a works council agreement or other syndicate arrangements. We believe that
relations with our employees are good. We have never encountered a material
strike or work stoppage in the United States or in any other country where we
have a significant number of employees.

GOVERNMENT REGULATION

We and our products are subject to regulation by the Food and Drug
Administration and the Federal Trade Commission in the United States, as well as
by various other Federal, state, local and international regulatory authorities
and the regulatory authorities in the countries in which our products are
produced or sold. Such regulations principally relate to the ingredients,
labeling, packaging and marketing of our products. We believe that we are in
substantial compliance with such regulations, as well as with applicable
Federal, state, local and international and other countries' rules and
regulations governing the discharge of materials hazardous to the environment.
There are no significant capital expenditures for environmental control matters
either planned in the current year or expected in the near future. Along with
other unrelated parties, we have been named as a potentially responsible party
by the Office of the Attorney General of the State of New York with regard to
two landfills in Long Island, New York. See "Item 3. Legal Proceedings."

SEASONALITY

Our results of operations in total, by region and by product category, are
subject to seasonal fluctuations, with net sales in the first and second fiscal
quarters typically being slightly higher than in the third and fourth fiscal
quarters. The higher net sales in the first two fiscal quarters are attributable
to the increased levels of purchasing by retailers for the holiday selling
season and for fall fashion makeup introductions. In addition, fluctuations in
net sales, operating income and product category results in any fiscal quarter
may be attributable to the level and scope of new product introductions.
Additionally, gross margins and operating expenses are impacted on a
quarter-by-quarter basis by variations in our launch calendar and the timing of
promotions, including purchase with purchase and gift with purchase promotions.

AVAILABILITY OF REPORTS

We make available financial information, news releases and other information on
our Web site at www.elcompanies.com. There is a direct link from the Web site to
our Securities and Exchange Commission filings via the EDGAR database, where our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and any amendments to these reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free
of charge as soon as reasonably practicable after we file such reports and
amendments with, or furnish them to, the Securities and Exchange Commission.
Stockholders may also contact Investor Relations at 767 Fifth Avenue, New York,
New York 10153 or call 800-308-2334 to obtain a hard copy of these reports
without charge.



-9-



EXECUTIVE OFFICERS

The following table sets forth certain information with respect to our executive
officers.



NAME AGE POSITION(S) HELD
- ---- --- ----------------

Patrick Bousquet-Chavanne 45 Group President
Daniel J. Brestle 58 Group President
Andrew J. Cavanaugh 56 Senior Vice President - Global Human Resources
Richard W. Kunes 50 Senior Vice President and Chief Financial Officer
Fred H. Langhammer 59 President and Chief Executive Officer and a Director
Evelyn H. Lauder 67 Senior Corporate Vice President
Leonard A. Lauder 70 Chairman of the Board of Directors
Ronald S. Lauder 59 Chairman of Clinique Laboratories, Inc. and a Director
William P. Lauder 43 Chief Operating Officer and a Director
Sara E. Moss 56 Senior Vice President, General Counsel and Secretary
Cedric Prouve 43 Group President, International
Philip Shearer 50 Group President
Edward M. Straw 64 President, Global Operations
Sally Susman 41 Senior Vice President - Global Communications



PATRICK BOUSQUET-CHAVANNE became Group President responsible for Estee
Lauder, M.A.C and our fragrance brands (principally Aramis, Tommy Hilfiger and
Donna Karan) on a worldwide basis in July 2001. Michael Kors was added in May
2003. From 1998 to 2001, he was the President of Estee Lauder International,
Inc. ("ELII"). From 1992 to 1996, Mr. Bousquet-Chavanne was Senior Vice
President - General Manager/Travel Retailing of ELII. From 1989 to 1992, he was
Vice President and General Manager of Aramis International, a division of ELII.
From 1996 to 1998, he was Executive Vice President/General Manager International
Operations of Parfums Christian Dior S.A., based in Paris.

DANIEL J. BRESTLE became Group President responsible for our specialty
brands, such as Aveda, Bobbi Brown, Bumble and bumble, La Mer, Prescriptives,
jane, Jo Malone, kate spade and Stila on a worldwide basis in July 2001. He is
also responsible for the recently acquired brands, Darphin and Rodan & Fields.
From July 1998 through June 2001, he was President of Estee Lauder (USA &
Canada). Prior to July 1998, he was President of Clinique Laboratories, Inc. and
had been the senior officer of that division since 1992. From 1988 through 1992,
he was President of Prescriptives U.S.A. Mr. Brestle joined us in 1978.

ANDREW J. CAVANAUGH has been Senior Vice President - Global Human Resources
since 1999. He was Senior Vice President - Corporate Human Resources from 1994
through 1999. Mr. Cavanaugh joined the Company in 1988 as Executive Director -
Human Resources.

RICHARD W. KUNES became Senior Vice President and Chief Financial Officer
in October 2000. He joined the Company in 1986 and served in various
finance-related positions until November 1993, when he was named Vice President
- - Operations Finance Worldwide. From January 1998 through September 2000, Mr.
Kunes was Vice President - Financial Administration and Corporate Controller.
Prior to joining the Company, he held finance and controller positions at the
Colgate-Palmolive Company. Mr. Kunes is on the Board of Directors of Make-a-Wish
Foundation of Suffolk County, NY, Inc.



-10-



FRED H. LANGHAMMER has been Chief Executive Officer since 2000 and
President of the Company since 1995. He was Chief Operating Officer from 1985
through 1999. Mr. Langhammer joined the Company in 1975 as President of its
operations in Japan. In 1982, he was appointed Managing Director of the
Company's operations in Germany. He is a member of the Board of Directors of
Inditex, S.A. (an apparel manufacturer and retailer), the Cosmetics, Toiletries
and Fragrance Association, the German American Chamber of Commerce, Inc., The
Gillette Company, The Germany Fund and Co-Chairman of the American Institute for
Contemporary German Studies at Johns Hopkins University. He is also a Senior
Fellow of the Foreign Policy Association and a Director of the Japan Society.

EVELYN H. LAUDER has been Senior Corporate Vice President of the Company
since 1989, and previously served as Vice President and in other executive
capacities since first joining the Company in 1959 as Education Director. She is
a member of the Board of Overseers, Memorial Sloan-Kettering Cancer Center, a
member of the Boards of Trustees of Central Park Conservancy, Inc. and The
Trinity School in New York City (Trustee Emirata), a member of the Board of
Directors of New Yorkers for Parks, an Honorary Board Member of Cold Spring
Harbor Laboratories and the Founder and Chairman of The Breast Cancer Research
Foundation.

LEONARD A. LAUDER has been Chairman of the Board of Directors since 1995.
He served as Chief Executive Officer of the Company from 1982 through 1999 and
President from 1972 until 1995. Mr. Lauder formally joined the Company in 1958
after serving as an officer in the United States Navy. Since joining the
Company, he has held various positions, including executive officer positions
other than those described above. He is Chairman of the Board of Trustees of the
Whitney Museum of American Art, a Charter Trustee of the University of
Pennsylvania and a Trustee of The Aspen Institute. He also served as a member of
the White House Advisory Committee on Trade Policy and Negotiations under
President Reagan.

RONALD S. LAUDER has served as Chairman of Clinique Laboratories, Inc.
since returning from government service in 1987. He was Chairman of Estee Lauder
International, Inc. from 1987 through 2002. Mr. Lauder joined the Company in
1964 and has held various positions, including those described above, since
then. From 1983 to 1986, Mr. Lauder was Deputy Assistant Secretary of Defense
for European and NATO Affairs. From 1986 to 1987, he served as U.S. Ambassador
to Austria. He is non-executive Chairman of the Board of Directors of Central
European Media Enterprises Ltd. He is also Chairman of the Board of Trustees of
the Museum of Modern Art.

WILLIAM P. LAUDER became Chief Operating Officer in January 2003. From July
2001 until December 2002 he served as Group President of Clinique and Origins
and our retail store and On-line operations. From 1998 to 2001, he was President
of Clinique Laboratories, Inc. Prior to 1998, he was President of Origins
Natural Resources Inc. and had been the senior officer of that division since
its inception in 1990. Prior thereto, he served in various positions since
joining the Company in 1986. He is a member of the Board of Trustees of The
Trinity School in New York City and the Boards of Directors of The Fragrance
Foundation, The Fresh Air Fund and the 92nd Street Y.

SARA E. MOSS joined the Company as Senior Vice President, General Counsel
and Secretary in September 2003. She was Senior Vice President and General
Counsel of Pitney Bowes Inc. from 1996 to February 2003, and Senior Litigation
Partner for Howard, Smith & Levin (now part of Covington & Burling) in New York
from 1984 to 1996. Prior to 1984, Ms. Moss served as an Assistant United States
Attorney in the Criminal Division in the Southern District of New York, was an
associate at the law firm of Davis, Polk & Wardwell and was Law Clerk to the
Honorable Constance Baker Motley, a U.S. District Judge in the Southern District
of New York.

CEDRIC PROUVE became Group President, International, effective January
2003. He is responsible for sales and profits in all markets outside of North
America and for all of the activities of our sales affiliates and distributor
relationships worldwide. He also oversees the Company's travel retail business.
From August 2000 through 2002 he was the General Manager of our Japanese sales
affiliate. From January 1997 to August 2000, he was Vice President, General
Manager, Travel Retail. He started with us in 1994 as General Manager, Travel
Retailing - Asia Pacific Region and was given the added responsibility of
General Manager of the Company's Singapore affiliate in 1995. Prior to joining
us he spent time with L'Oreal serving in sales and management positions of
increasing responsibility in the Americas and Asia/Pacific.

PHILIP SHEARER became Group President responsible for Clinique, Origins and
our On-line operations in January 2003. He joined the Company as Group
President, International in September 2001. Prior thereto, from 1998 to 2001, he
was President of the Luxury Products Division of L'Oreal U.S.A., which included
Lancome, Helena Rubinstein, Ralph Lauren fragrances, Giorgio Armani and Kiehl's
Since 1851. He served in various positions at L'Oreal from 1987, including
management positions in the United Kingdom and in Japan.



-11-



EDWARD M. STRAW is President, Global Operations responsible for research
and development, procurement, manufacturing, packaging, distribution, quality
assurance, information systems, international merchandising development, store
planning and design development, corporate sales, security, environmental
affairs and safety, and corporate security and trademark protection. Prior to
joining us in 2000, Mr. Straw was Senior Vice President, Global Supply Chain and
Manufacturing for the Compaq Computer Corporation. From 1997 to 1998, he was
President of Ryder Global Logistics, Inc., and prior to joining Ryder, he served
for 35 years in the United States Navy, retiring in 1996 as a Vice Admiral and
Director of the Defense Logistics Agency.

SALLY SUSMAN has been Senior Vice President - Global Communications since
September 2000 and is responsible for all media relations, internal
communications and consumer relations for the Company and its brands. Prior to
joining the Company, Ms. Susman held several high-level communications and
government relations positions at American Express Company from 1990 to 1993 and
1995 to 2000. From 1993 to 1995, she was the Deputy Assistant Secretary for
Legislative Affairs at the U.S. Department of Commerce. Ms. Susman is a
Commissioner on the New York City Commission on Women's Issues and is a member
of the Boards of Directors of Parsons School of Design and The National
Partnership for Women and Families and is a Trustee of Connecticut College.

Each executive officer serves for a one-year term ending at the next annual
meeting of the Board of Directors, subject to his or her applicable employment
agreement and his or her earlier death, resignation or removal.






-12-



ITEM 2. PROPERTIES.

The following table sets forth our principal owned and leased manufacturing and
research and development facilities as of September 10, 2003. The leases expire
at various times through 2015, subject to certain renewal options.

APPROXIMATE
LOCATION USE SQUARE FOOTAGE
-------- --- --------------

THE AMERICAS
Melville, New York (owned) Manufacturing 300,000
Melville, New York (owned) R&D 78,000
Blaine, Minnesota (owned) Manufacturing and R&D 275,000
Oakland, New Jersey (leased) Manufacturing 148,000
Bristol, Pennsylvania (leased) Manufacturing 67,000
Agincourt, Ontario, Canada (owned) Manufacturing 96,000
Markham, Ontario, Canada (leased) Manufacturing 58,000
Markham, Ontario, Canada (leased) R&D 26,000

EUROPE, THE MIDDLE EAST & AFRICA
Oevel, Belgium (owned) Manufacturing 113,000
Oevel, Belgium (owned) R&D 2,000
Petersfield, England (owned) Manufacturing 225,000
Lachen, Switzerland (owned) Manufacturing 53,000

ASIA/PACIFIC
Tokyo, Japan (leased) R&D 4,000

We own, lease and occupy numerous offices, assembly and distribution facilities
and warehouses in the United States and abroad. We consider our properties to be
generally in good condition and believe that our facilities are adequate for our
operations and provide sufficient capacity to meet anticipated requirements. We
lease approximately 310,000 square feet of rentable space for our principal
offices in New York, New York and own an office building of approximately 57,000
square feet in Melville, New York. In July 2003, we signed a new lease for our
principal offices at the same location. Our occupancy under the new lease will
commence in 2005 and expire in 2020. As of September 10, 2003, we operated 483
freestanding retail stores, including 16 for the Estee Lauder brand, 15 for
Clinique, 139 for Origins, 104 for M.A.C, 130 for Aveda, 2 for Bobbi Brown, 8
for Jo Malone, 1 for Bumble and bumble, 3 for Stila and 65 multi-brand stores.

ITEM 3. LEGAL PROCEEDINGS.

We are involved in various routine legal proceedings incident to the ordinary
course of business. In management's opinion, the outcome of pending legal
proceedings, separately and in the aggregate, will not have a material adverse
effect on our business or consolidated financial condition.

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,
our motion for summary judgment of non-infringement in the case brought against
us in August 2000 by an affiliate of Revlon, Inc. Revlon claimed, among other
things, that five Estee 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 Company has responded to the objection.
Revlon also may appeal the decision to the Court of Appeals for the Federal
Circuit.




-13-



In July 2003, we entered into a settlement agreement with the plaintiffs, the
other Manufacturer Defendants (as defined below) and the Department Store
Defendants (as defined below) in a consolidated 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 wrongdoing by the
Company in this lawsuit. We entered into the settlement agreement solely to
avoid protracted and costly litigation. In connection with the settlement
agreement, the defendants, including 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 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. The charge will not have a material
adverse effect on the Company's financial condition. In the federal action, the
plaintiffs, purporting to represent a class of all U.S. residents who purchased
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 Defendants, the Company
and eight other manufacturers of cosmetics (the "Manufacturer Defendants")
conspired to fix and maintain retail prices and to limit the supply of prestige
cosmetics products sold by the Department Store Defendants in violation of state
and federal laws. The plaintiffs 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 estimates to be $16 million. While
the State has sued other PRPs in connection with the site (including Hickey's
Carting, Inc., Dennis C. Hickey and Maria Hickey, collectively the "Hickey
Parties"), the State has not sued the Company. The Company and certain other
PRPs are in discussions with the State regarding possible settlement of the
matter. On September 9, 2002, the Hickey Parties brought contribution actions
against the Company and other Blydenburgh PRPs in the State's lawsuit against
the Hickey Parties in the U.S. District Court for the Eastern District of New
York. These 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. The Company intends to
defend the contribution claim vigorously. While no assurance can be given as to
the ultimate outcome, management believes that the Blydenburgh matters 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. We
intend to defend the action vigorously. While no assurances can be given as to
the ultimate outcome, we believe that this matter will not have a material
adverse effect on the Company's consolidated financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of security holders during the quarter ended
June 30, 2003.




-14-



PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our Class A Common Stock is publicly traded on the New York Stock Exchange under
the symbol "EL." The following table shows the high and low sales prices as
reported on the New York Stock Exchange Composite Tape and the cash dividends
per share declared in fiscal 2003 and fiscal 2002.

FISCAL 2003 FISCAL 2002
---------------------------- ----------------------------
CASH CASH
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------ ------ --------- ------ ------ ---------
First Quarter $35.99 $25.80 $ -- $43.55 $30.30 $ .05
Second Quarter 30.10 25.20 .20 34.90 29.25 .05
Third Quarter 31.04 25.73 -- 35.75 29.25 .05
Fourth Quarter 35.99 28.91 -- 38.80 33.50 .05
------ ------
Year 35.99 25.20 $ .20 43.55 29.25 $ .20
====== ======


We expect to continue the payment of cash dividends in the future, but there can
be no assurance that the Board of Directors will continue to declare them. In
May 2002, after declaring the $.05 per share dividend that was paid in July
2002, the Board of Directors determined that it would pay future cash dividends
on its common stock annually rather than quarterly. The Board of Directors
declared the first annual dividend of $.20 per share in the second quarter of
fiscal 2003 which was paid in January 2003.

As of September 12, 2003, there were approximately 4,254 record holders of Class
A Common Stock and 17 record holders of Class B Common Stock.






-15-



ITEM 6. SELECTED FINANCIAL DATA.

The table below summarizes selected financial information. For further
information, refer to the audited consolidated financial statements and the
notes thereto beginning on page F-1 of this report.



YEAR ENDED OR AT JUNE 30
---------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)


STATEMENT OF EARNINGS DATA:
Net sales (a) ................................... $5,117.6 $4,743.7 $4,667.7 $4,440.3 $4,040.3
Gross profit (a) ................................ 3,781.9 3,470.3 3,441.3 3,202.3 2,877.5
Operating income ................................ 495.1 341.4 495.6 515.8 456.9
Earnings before income taxes, minority interest
and accounting change ......................... 487.0 331.6 483.3 498.7 440.2
Net earnings .................................... 319.8(b) 191.9(c) 305.2(d) 314.1 272.9
Preferred stock dividends ....................... 23.4 23.4 23.4 23.4 23.4
Net earnings attributable to common stock ....... 296.4(b) 168.5(c) 281.8(d) 290.7 249.5

CASH FLOW DATA:
Net cash flows provided by operating activities . $ 548.5 $ 518.0 $ 305.4 $ 442.5 $ 352.3
Net cash flows used for investing activities .... (192.5) (217.0) (206.3) (374.3) (200.3)
Net cash flows used for financing activities .... (550.4) (121.8) (63.5) (87.9) (73.2)

PER SHARE DATA:
Net earnings per common share:
Basic ......................................... $ 1.27(b) $ .71(c) $ 1.18(d) $ 1.22 $ 1.05
Diluted ....................................... $ 1.26(b) $ .70(c) $ 1.16(d) $ 1.20 $ 1.03

Weighted average common shares outstanding:
Basic ......................................... 232.6 238.2 238.4 237.7 237.0
Diluted ....................................... 234.7 241.1 242.2 242.5 241.2

Cash dividends declared per common share ........ $ .20 $ .20 $ .20 $ .20 $ .1775

BALANCE SHEET DATA:
Working capital ................................. $ 791.3 $ 968.0 $ 882.2 $ 716.7 $ 708.0
Total assets .................................... 3,349.9 3,416.5 3,218.8 3,043.3 2,746.7
Total debt ...................................... 291.4 410.5 416.7 425.4 429.1
Redeemable preferred stock ...................... 360.0 360.0 360.0 360.0 360.0
Stockholders' equity ............................ 1,423.6 1,461.9 1,352.1 1,160.3 924.5


- -----------
(a) Effective January 1, 2002, we adopted Emerging Issues Task Force ("EITF")
Issue No. 01-9, "Accounting for Consideration Given by a Vendor to a
Customer." Upon adoption of this Issue, we reclassified revenues generated
from our purchase with purchase activities as sales and the costs of our
purchase with purchase and gift with purchase activities as cost of sales,
which were previously reported net as operating expenses. Operating income
has remained unchanged by this adoption. For purposes of comparability,
these reclassifications have been reflected retroactively for all periods
presented.

(b) Net earnings, net earnings attributable to common stock and net earnings
per common share for the year ended June 30, 2003 included a special charge
related to the proposed settlement of a legal action of $13.5 million,
after-tax, or $.06 per diluted common share.

(c) Net earnings, net earnings attributable to common stock and net earnings
per common share for the year ended June 30, 2002 included a restructuring
charge of $76.9 million, after-tax, or $.32 per diluted common share, and a
one-time charge of $20.6 million, or $.08 per diluted common share,
attributable to the cumulative effect of adopting Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets."

(d) Net earnings, net earnings attributable to common stock and net earnings
per common share for the year ended June 30, 2001 included restructuring
and other non-recurring charges of $40.3 million, after-tax, or $.17 per
diluted common share, and a one-time charge of $2.2 million, after-tax, or
$.01 per diluted common share, attributable to the cumulative effect of
adopting SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities."



-16-



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in conformity with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses reported in those financial statements. These
judgments can be subjective and complex, and consequently actual results could
differ from those estimates. Our most critical accounting policies relate to
revenue recognition; concentration of credit risk; inventory; pension and other
postretirement benefit costs; goodwill and other intangible assets; income
taxes; and derivatives.

REVENUE RECOGNITION

Generally, revenues from merchandise sales are recorded at the time the product
is shipped to the customer. We report our sales levels on a net sales basis,
which is computed by deducting from gross sales the amount of actual returns
received and an amount established for anticipated returns.

As is customary in the cosmetics industry, our practice is to accept returns of
our products from retailers if properly requested, authorized and approved. In
accepting returns, we typically provide a credit to the retailer against sales
and accounts receivable from that retailer on a dollar-for-dollar basis.

Our sales return accrual is a subjective critical estimate that has a direct
impact on reported net sales. This accrual is calculated based on a history of
gross sales and actual returns by region and product category. In addition, as
necessary, specific accruals may be established for future known or anticipated
events. As a percentage of gross sales, sales returns were 5.2%, 4.9% and 4.9%
in fiscal 2003, 2002 and 2001, respectively.

CONCENTRATION OF CREDIT RISK

An entity is more vulnerable to concentrations of credit risk if it is exposed
to risk of loss greater than it would have had it mitigated its risk through
diversification of customers. Such risks of loss manifest themselves
differently, depending on the nature of the concentration, and vary in
significance.

We have three major customers that owned and operated retail stores that in the
aggregate accounted for approximately $1.24 billion, or 24%, of our consolidated
net sales in fiscal 2003 and $179.8 million, or 28%, of our accounts receivable
at June 30, 2003. These customers sell products primarily within North America.
Although management believes that these customers are sound and creditworthy, a
severe adverse impact on their business operations could have a corresponding
material adverse effect on our net sales, cash flows, and/or financial
condition.

In the ordinary course of business, we have established an allowance for
doubtful accounts and customer deductions in the amount of $31.8 million and
$30.6 million as of June 30, 2003 and 2002, respectively. Our allowance for
doubtful accounts is a subjective critical estimate that has a direct impact on
reported net earnings. This reserve is based upon the evaluation of accounts
receivable aging, specific exposures and historical trends.

INVENTORY

We state our inventory at the lower of cost or fair market value, with cost
being determined on the first-in, first-out (FIFO) method. We believe FIFO most
closely matches the flow of our products from manufacture through sale. The
reported net value of our inventory includes saleable products, promotional
products, raw materials and componentry that will be sold or used in future
periods. Inventory cost includes raw materials, direct labor and overhead.

We also record an inventory obsolescence reserve, which represents the
difference between the cost of the inventory and its estimated market value,
based on various product sales projections. This reserve is calculated using an
estimated obsolescence percentage applied to the inventory based on age,
historical trends and requirements to support forecasted sales. In addition, and
as necessary, we may establish specific reserves for future known or anticipated
events.

PENSION AND OTHER POSTRETIREMENT BENEFIT COSTS

We offer the following benefits to some or all of our employees: a domestic
trust-based noncontributory defined benefit pension plan ("U.S. Plan"); an
unfunded, nonqualified domestic noncontributory pension plan to provide benefits
in excess of statutory limitations; a contributory defined contribution plan;
international pension plans, which vary by country, consisting of both defined
benefit and defined contribution pension plans; deferred compensation; and
certain other postretirement benefits.



-17-



The amounts necessary to fund future payouts under these plans are subject to
numerous assumptions and variables. Certain significant variables require us to
make assumptions that are within our control such as an anticipated discount
rate, expected rate of return on plan assets and future compensation levels. We
evaluate these assumptions with our actuarial advisors and we believe they are
within accepted industry ranges, although an increase or decrease in the
assumptions or economic events outside our control could have a direct impact on
reported net earnings.

The pre-retirement discount rate for each plan used for determining future
pension obligations is based on a review of highly rated long-term bonds. At
June 30, 2003, we used a pre-retirement discount rate for our U.S. Plan of 5.75%
and varying rates on our international plans of between 2.75% and 7.0%. For
fiscal 2003, we used an expected return on plan assets of 8.5% for our U.S. Plan
and varying rates of between 4.5% and 8.25% for our international plans. In
determining the long-term rate of return for a plan, we consider the historical
rates of return, the nature of the plan's investments and an expectation for the
plan's investment strategies. The U.S. Plan asset allocation as of June 30, 2003
was approximately 58% equity investments, 23% fixed income investments, 13% cash
and 6% other investments.

For fiscal 2004, we will use a pre-retirement discount rate for the U.S. Plan of
5.75% and anticipate using an expected return on plan assets of 8.00%. The
change in this assumption from that used in fiscal 2003 will cause an increase
in pension expense in fiscal 2004. We will continue to monitor the market
conditions relative to these assumptions and adjust them accordingly.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is calculated as the excess of the cost of purchased businesses over
the value of their underlying net assets. Other intangible assets principally
consist of purchased royalty rights and trademarks. Goodwill and other
intangible assets that have an indefinite life are not amortized.

On an annual basis, we test goodwill and other intangible assets for impairment.
To determine the fair value of these intangible assets, there are many
assumptions and estimates used that directly impact the results of the testing.
We have the ability to influence the outcome and ultimate results based on the
assumptions and estimates we choose. To mitigate undue influence, we use
industry accepted valuation models and set criteria that are reviewed and
approved by various levels of management. Additionally, we evaluate our recorded
goodwill with the assistance of a third-party valuation firm.

INCOME TAXES

We have accounted for, and currently account for, income taxes in accordance
with SFAS No. 109, "Accounting for Income Taxes." This Statement establishes
financial accounting and reporting standards for the effects of income taxes
that result from an enterprise's activities during the current and preceding
years. It requires an asset and liability approach for financial accounting and
reporting of income taxes.

As of June 30, 2003, we have current net deferred tax assets of $116.0 million
and non-current net deferred tax assets of $38.7 million. These net deferred tax
assets assume sufficient future earnings for their realization, as well as the
continued application of current tax rates. Included in net deferred tax assets
is a valuation allowance of approximately $2.9 million for deferred tax assets,
which relates to foreign tax loss carryforwards not utilized to date, where
management believes it is more likely than not that the deferred tax assets will
not be realized in the relevant jurisdiction. Based on our assessments, no
additional valuation allowance is required. If we determine that a deferred tax
asset will not be realizable, an adjustment to the deferred tax asset will
result in a reduction of earnings at that time.

Furthermore, we provide tax reserves for Federal, state and international
exposures relating to audit results, planning initiatives and compliance
responsibilities. The development of these reserves requires judgments about tax
issues, potential outcomes and timing, and is a subjective critical estimate.

DERIVATIVES

We currently account for derivative financial instruments in accordance with
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended, which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. This Statement also requires the
recognition of all derivative instruments as either assets or liabilities on the
balance sheet and that they be measured at fair value.



-18-



We currently use derivative financial instruments to hedge certain anticipated
transactions and interest rates, as well as receivables and payables denominated
in foreign currencies. We do not utilize derivatives for trading or speculative
purposes. Hedge effectiveness is documented, assessed and monitored by our
employees who are qualified to make such assessments and monitor the
instruments. Variables that are external to us such as social, political and
economic risks may have an impact on our hedging program and the results
thereof.

RESULTS OF OPERATIONS

We manufacture, market and sell skin care, makeup, fragrance and hair care
products which are distributed in over 130 countries and territories. The
following is a comparative summary of operating results for fiscal 2003, 2002
and 2001 and reflects the basis of presentation described in Note 2 and Note 18
to the Notes to Consolidated Financial Statements for all periods presented.
Products and services that do not meet our definition of skin care, makeup,
fragrance and hair care have been included in the "other" category.

YEAR ENDED JUNE 30
--------------------------------
2003 2002 2001
-------- -------- --------
(IN MILLIONS)
NET SALES
BY REGION:
The Americas ...................... $2,953.4 $2,878.2 $2,857.8
Europe, the Middle East & Africa .. 1,506.4 1,261.1 1,221.8
Asia/Pacific ...................... 657.8 610.6 596.1
-------- -------- --------
5,117.6 4,749.9 4,675.7
Restructuring * ................... -- (6.2) (8.0)
-------- -------- --------
$5,117.6 $4,743.7 $4,667.7
======== ======== ========

BY PRODUCT CATEGORY:
Skin Care ......................... $1,893.7 $1,703.3 $1,660.7
Makeup ............................ 1,909.4 1,790.5 1,721.6
Fragrance ......................... 1,059.6 1,017.3 1,085.1
Hair Care ......................... 228.9 215.8 180.7
Other ............................. 26.0 23.0 27.6
-------- -------- --------
5,117.6 4,749.9 4,675.7
Restructuring * ................... -- (6.2) (8.0)
-------- -------- --------
$5,117.6 $4,743.7 $4,667.7
======== ======== ========

OPERATING INCOME
BY REGION:
The Americas ...................... $ 246.7 $ 222.9 $ 299.9
Europe, the Middle East & Africa .. 227.7 179.9 201.8
Asia/Pacific ...................... 42.7 56.0 56.9
-------- -------- --------
517.1 458.8 558.6
Restructuring and Special Charges* (22.0) (117.4) (63.0)
-------- -------- --------
$ 495.1 $ 341.4 $ 495.6
======== ======== ========

BY PRODUCT CATEGORY:
Skin Care ......................... $ 273.2 $ 248.4 $ 266.9
Makeup ............................ 198.0 183.2 212.5
Fragrance ......................... 32.1 13.4 63.6
Hair Care ......................... 14.8 13.7 13.1
Other ............................. (1.0) 0.1 2.5
-------- -------- --------
517.1 458.8 558.6
Restructuring and Special Charges * (22.0) (117.4) (63.0)
-------- -------- --------
$ 495.1 $ 341.4 $ 495.6
======== ======== ========

* Refer to the following tables and discussion for further information regarding
these charges.




-19-



The following table presents certain consolidated earnings data as a percentage
of net sales:

YEAR ENDED JUNE 30
-------------------------
2003 2002 2001
----- ----- -----
Net sales ......................................... 100.0% 100.0% 100.0%
Cost of sales ..................................... 26.1 26.8 26.3
----- ----- -----
Gross profit ...................................... 73.9 73.2 73.7
----- ----- -----

Operating expenses:
Selling, general and administrative ........... 63.4 63.3 61.5
Restructuring ................................. -- 2.3 0.8
Special charges ............................... 0.4 -- 0.3
Related party royalties ....................... 0.4 0.4 0.5
----- ----- -----
64.2 66.0 63.1
----- ----- -----

Operating income .................................. 9.7 7.2 10.6
Interest expense, net ............................. 0.2 0.2 0.2
----- ----- -----

Earnings before income taxes, minority interest
and accounting change ........................... 9.5 7.0 10.4
Provision for income taxes ........................ 3.1 2.4 3.7
Minority interest, net of tax ..................... (0.1) (0.1) (0.1)
----- ----- -----

Net earnings before accounting change ............. 6.3 4.5 6.6
Cumulative effect of a change in accounting
principle, net of tax ........................... -- (0.4) (0.1)
----- ----- -----
Net earnings ...................................... 6.3% 4.1% 6.5%
===== ===== =====


The following tables present reconciliations of our financial results for the
fiscal years ended June 30, 2003, 2002 and 2001 as reported in conformity with
generally accepted accounting principles in the United States ("GAAP") and those
results adjusted to exclude certain charges described above each table. We have
presented these reconciliations because of the special nature of the charges or
the fact that they are not necessarily comparable from period to period. We
believe that such measures provide investors with a view of our ongoing business
trends and results of operations. This is consistent with the approach used by
management in its evaluation and monitoring of such trends and results and
provides investors with a base for evaluating future periods.

While we consider the non-GAAP financial measures useful in analyzing our
results, it is not intended to replace, or act as a substitute for, any
presentation included in the consolidated financial statements prepared in
conformity with GAAP.





-20-



The table below reconciles the fiscal 2003 results as reported and results prior
to adjustment for a special pre-tax charge of $22.0 million, or $13.5 million
after-tax, equal to $.06 per diluted common share, in connection with the
proposed settlement of a class action lawsuit brought against us and a number of
other defendants (see "Item 3. Legal Proceedings."). The amount of the charge in
this case is significantly larger than similar charges we have incurred
individually or in the aggregate for legal proceedings in any prior year and we
do not expect to take a charge of a similar magnitude for a single matter like
it in the near future.

YEAR ENDED JUNE 30, 2003
------------------------------------
(In millions, except per share data)

RESULTS RECONCILING NON-GAAP
AS REPORTED ITEMS RESULTS
------------ ----------- ---------
Net sales .............................. $ 5,117.6 $ -- $ 5,117.6
Cost of sales .......................... 1,335.7 -- 1,335.7
--------- --------- ---------
Gross profit ........................... 3,781.9 -- 3,781.9
--------- --------- ---------
GROSS MARGIN ....................... 73.9% 73.9%
Operating expenses ..................... 3,286.8 22.0 3,264.8
--------- --------- ---------
OPERATING EXPENSE MARGIN ........... 64.2% 63.8%
Operating income ....................... 495.1 22.0 517.1
--------- --------- ---------
OPERATING INCOME MARGIN ............ 9.7% 10.1%
Provision (benefit) for income taxes ... 160.5 (8.5) 169.0
--------- --------- ---------
Net earnings ........................... $ 319.8 $ 13.5 $ 333.3
========= ========= =========
Diluted net earnings per common share .. $ 1.26 $ .06 $ 1.32
========= ========= =========


The table below reconciles the fiscal 2002 results as reported and results prior
to adjustment for (i) pre-tax restructuring charges of $117.4 million, or $76.9
million after-tax, equal to $.32 per diluted common share (see "Results of
Operations - Fiscal 2002 as Compared with Fiscal 2001"); and (ii) a $20.6
million charge, equal to $.08 per diluted common share, in connection with the
cumulative effect of a change in accounting principle upon adoption of SFAS No.
142, "Goodwill and Other Intangible Assets" (see Note 2 "Summary of Significant
Accounting Policies" in the accompanying Consolidated Financial Statements). The
restructuring charges were related to repositioning certain businesses as part
of a globalization and reorganization initiative and are described in greater
detail in Note 5 to Notes to Consolidated Financial Statements. The
restructuring and the adoption of the new accounting pronouncement were not
considered part of our core business operations in fiscal 2002. Management also
excludes the related charges in evaluating its performance when comparing fiscal
2002 to future periods.

YEAR ENDED JUNE 30, 2002
------------------------------------
(In millions, except per share data)

RESULTS RECONCILING NON-GAAP
AS REPORTED ITEMS RESULTS
----------- ----------- ---------
Net sales .............................. $ 4,743.7 $ 6.2 $ 4,749.9
Cost of sales .......................... 1,273.4 0.8 1,272.6
--------- --------- ---------
Gross profit ........................... 3,470.3 7.0 3,477.3
--------- --------- ---------
GROSS MARGIN ....................... 73.2% 73.2%
Operating expenses ..................... 3,128.9 110.4 3,018.5
--------- --------- ---------
OPERATING EXPENSE MARGIN ........... 66.0% 63.5%
Operating income ....................... 341.4 117.4 458.8
--------- --------- ---------
OPERATING INCOME MARGIN ............ 7.2% 9.7%
Provision (benefit) for income taxes ... 114.4 (40.5) 154.9
--------- --------- ---------
Net earnings before accounting change .. 212.5 76.9 289.4
Cumulative effect of a change in
accounting principle ................. (20.6) 20.6 --
--------- --------- ---------
Net earnings ........................... $ 191.9 $ 97.5 $ 289.4
========= ========= =========
Diluted net earnings per common share .. $ .70 $ .40 $ 1.10
========= ========= =========




-21-



The table below reconciles the fiscal 2001 results as reported and results prior
to adjustment for (i) pre-tax restructuring and special charges of $63.0
million, or $40.3 million after-tax, equal to $.17 per diluted common share (see
"Results of Operations - Fiscal 2002 as Compared with Fiscal 2001"); (ii) $13.4
million after-tax adjustment, equal to $.06 per diluted common share, to reflect
the retroactive impact of the adoption of SFAS No. 142, "Goodwill and Other
Intangible Assets" (see Note 2 "Summary of Significant Accounting Policies" in
the accompanying Consolidated Financial Statements); and (iii) a one-time charge
of $2.2 million after-tax, or $.01 per diluted common share, attributable to the
cumulative effect of adopting SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." We adopted a restructuring plan in the
fourth quarter of fiscal 2001, our first since the initial public offering in
1995. The particular restructuring and special charges relating to the plan are
described in Note 5 to Notes to Consolidated Financial Statements. These costs,
as well as those resulting from the adoption of new accounting standards, were
not considered part of our core business in fiscal 2001. Management also
excludes the related charges in evaluating its performance when comparing fiscal
2001 to future periods.

YEAR ENDED JUNE 30, 2001
------------------------------------
(In millions, except per share data)

RESULTS RECONCILING NON-GAAP
AS REPORTED ITEMS RESULTS
----------- ----------- ---------
Net sales ................................. $ 4,667.7 $ 8.0 $ 4,675.7
Cost of sales ............................. 1,226.4 1.1 1,225.3
--------- --------- ---------
Gross profit .............................. 3,441.3 9.1 3,450.4
--------- --------- ---------
GROSS MARGIN ........................... 73.7% 73.8%
Operating expenses ........................ 2,945.7 53.9 2,891.8
--------- --------- ---------
OPERATING EXPENSE MARGIN ............... 63.1% 61.9%
Operating income .......................... 495.6 63.0 558.6
--------- --------- ---------
OPERATING INCOME MARGIN ................ 10.6% 11.9%
Provision (benefit) for income taxes ...... 174.0 (22.7) 196.7
--------- --------- ---------
Net earnings before accounting change ..... 307.4 40.3 347.7
2001 amortization of goodwill, net of tax . -- 13.4 13.4
Cumulative effect of a change in accounting
principle, net of tax .................. (2.2) 2.2 --
--------- --------- ---------
Net earnings .............................. $ 305.2 $ 55.9 $ 361.1
========= ========= =========
Diluted net earnings per common share ..... $ 1.16 $ .23 $ 1.39
========= ========= =========






-22-



FISCAL 2003 AS COMPARED WITH FISCAL 2002

NET SALES

Net sales increased 8% or $373.9 million to $5,117.6 million, reflecting growth
in all product categories and each of our geographic regions. Product category
results were led by skin care, and our regions were led by Europe, the Middle
East & Africa, where results benefited from favorable foreign exchange rates to
the U.S. dollar and improvements in the travel retail business. Travel retail
improved during the middle of fiscal 2003 compared with lower results during the
middle of fiscal 2002 but was adversely affected during the last quarter of
fiscal 2003 by certain world events, including the lingering effects of the war
in Iraq and concerns relating to SARS. Such events may affect our future sales
and earnings. Excluding the impact of foreign currency translation, net sales
increased 4%.

PRODUCT CATEGORIES

SKIN CARE

Net sales of skin care products increased 11% or $190.4 million to $1,893.7
million, which was primarily attributable to the recent launches of
Perfectionist Correcting Serum for Lines/Wrinkles and Resilience Lift OverNight
Face and Throat Creme by Estee Lauder, and the Repairwear line of products and
Advanced Stop Signs from Clinique. Additionally, the increase was supported by
strong sales of Comforting Cream Cleanser, Moisture Surge Extra Thirsty Skin
Relief and Moisture Surge Eye Gel, and products in the 3-Step Skin Care System
by Clinique, as well as by Re-Nutriv Ultimate Lifting Creme from Estee Lauder,
and A Perfect World line of products by Origins. Partially offsetting this
increase were lower net sales of certain existing products such as Stop Signs,
Total Turnaround Cream and Turnaround Cream by Clinique and Idealist Skin
Refinisher by Estee Lauder. Excluding the impact of foreign currency
translation, skin care net sales increased 7%.

MAKEUP

Makeup net sales increased 7% or $118.9 million to $1,909.4 million due to
strong sales of our makeup artist lines and current year launches of Dewy Smooth
Anti-Aging Makeup and Colour Surge Lipstick by Clinique, and MagnaScopic Maximum
Volume Mascara and Artist's Lip and Eye Pencils from Estee Lauder. Also
contributing to growth were strong sales from Estee Lauder brand products
including So Ingenious Multi-Dimension Liquid Makeup and Loose Powder, as well
as from new and existing products in the Pure Color line. Offsetting this
increase were lower net sales of certain existing products such as Sumptuous
Lipstick from Estee Lauder, and Gentle Light Makeup and Powder and High Impact
Eye Shadow Duos by Clinique. Excluding the impact of foreign currency
translation, makeup net sales increased 4%.

FRAGRANCE

Net sales of fragrance products increased 4% or $42.3 million to $1,059.6
million, primarily reflecting the effects of favorable foreign currency exchange
rates to the U.S. dollar. The fragrance industry continues to experience a
difficult environment. The travel retail business, which depends substantially
on fragrance products, began to improve in the middle of the fiscal year
relative to the prior year, however the latter part of fiscal 2003 was adversely
affected by international uncertainties stemming from events in Iraq and
concerns relating to SARS. In fiscal 2003, we successfully launched Estee Lauder
pleasures intense, T girl by Tommy Hilfiger, Clinique Happy Heart, Lauder
Intuition for Men and Donna Karan Black Cashmere. Net sales also benefited from
strong sales of Beautiful by Estee Lauder and Aromatics Elixir from Clinique.
Offsetting these increases and sales from new product launches were lower net
sales of certain Tommy Hilfiger products, Intuition by Estee Lauder and Estee
Lauder pleasures. Excluding the impact of foreign currency translation,
fragrance net sales were relatively unchanged from the prior year.

HAIR CARE

Hair care net sales increased 6% or $13.1 million to $228.9 million. This
increase was primarily the result of sales growth from Aveda and Bumble and
bumble products. We also increased the number of Company-owned Aveda Experience
Centers and strategically decreased the number of salons that offer Aveda
products. Partially offsetting the increase were lower net sales of Clinique's
Simple Hair Care System.

The introduction of new products may have some cannibalizing effect on sales of
existing products, which we take into account in our business planning.



-23-



GEOGRAPHIC REGIONS

Net sales in the Americas increased 3% or $75.2 million to $2,953.4 million
primarily reflecting growth from our newer brands as well as the success of new
and recently launched products. Despite the increase, we continue to experience
a soft retail environment in the United States.

In Europe, the Middle East & Africa, net sales increased 19% or $245.3 million
to $1,506.4 million. Net sales in the United Kingdom, Spain, Italy, France,
Switzerland and Greece experienced double-digit growth. Also contributing to the
increase with double-digit growth was our worldwide travel retail business, as
sales recovered from the levels experienced after September 11, 2001. However,
our travel retail business was adversely affected at the end of fiscal 2003 by
certain world events including the lingering effects of the war in Iraq and
concerns associated with SARS. Excluding the impact of foreign currency
translation, Europe, the Middle East & Africa net sales increased 8%.

Net sales in Asia/Pacific increased 8% or $47.2 million to $657.8 million
primarily due to higher net sales in Korea, Japan, Australia and Thailand.
Despite increased net sales in Japan, the country remains a difficult market due
to local economic conditions and competition. Excluding the impact of foreign
currency translation, Asia/Pacific net sales increased 3%.

We strategically stagger our new product launches by geographic market, which
may account for differences in regional sales growth.

COST OF SALES

Cost of sales as a percentage of total net sales improved to 26.1% from 26.8%,
reflecting production and supply chain efficiencies and lower costs from
promotional activities.

We continued to emphasize sourcing initiatives and overall supply chain
management which resulted in lower manufacturing costs, whereas in the prior
year we experienced under-absorption of overhead as a result of the impact of
the events of September 11, 2001.

The inclusion of promotional merchandise as a component of cost of sales results
in lower margins. A strategic shift to reduce these activities has contributed
to the improvement in our gross profit margin for the year. The inclusion of the
cost of purchase with purchase and gift with purchase merchandise as a component
of cost of sales resulted from our adoption of EITF Issue No. 01-9. Since the
cost of these promotional activities is a component of cost of sales and the
timing and level of promotions vary with our promotional calendar, we have
experienced, and expect to continue to experience, fluctuations in the cost of
sales percentage.

OPERATING EXPENSES

Operating expenses decreased to 64.2% of net sales as compared with 66.0% of net
sales in the prior-year period. The current year results were impacted by a
charge related to the pending settlement of a legal proceeding of $22.0 million
or 0.4% of net sales. Prior-year operating expenses included a restructuring
charge of $110.4 million or 2.3% of net sales. Before considering the effect of
these two charges, operating expenses increased slightly to 63.8% of net sales
compared with 63.5% of net sales in the prior year. The increase in spending
primarily related to advertising, sampling and merchandising activities
particularly during the early portion of fiscal 2003 (excluding purchase with
purchase and gift with purchase activities, discussed as a component of cost of
sales) which supported our sales growth and built momentum going into the second
half of fiscal 2003. Changes in advertising, sampling and merchandising spending
result from the type, timing and level of activities related to product launches
and rollouts, as well as the markets being emphasized.

OPERATING RESULTS

Operating income increased 45% or $153.7 million to $495.1 million as compared
with the prior-year period. Operating margins were 9.7% of net sales in the
current period as compared with 7.2% in the prior-year period. These results
include a charge related to the pending settlement of a legal proceeding of
$22.0 million in the current year and a prior year restructuring charge of
$117.4 million. Absent these items, operating income increased 13% or $58.3
million to $517.1 million and operating margins increased to 10.1% as compared
with 9.7% in fiscal 2002. These increases in operating income and operating
margin reflect sales growth, including the benefits from favorable foreign
currency exchange rates to the U.S. dollar and gross margin improvement, as well
as benefits from our prior restructurings and our continued cost containment
efforts.



-24-



Net earnings and net earnings per diluted share increased approximately 67% and
80%, respectively. Net earnings improved $127.9 million to $319.8 million and
net earnings per diluted share increased by $.56 from $.70 to $1.26. Absent the
cumulative effect of a change in accounting principle in fiscal 2002, net
earnings increased by $107.3 million or 50% and diluted earnings per common
share increased 62% to $1.26 from $.78 in the prior year. Before the fiscal 2003
charge related to the pending settlement of a legal proceeding and the fiscal
2002 restructuring and the cumulative effect of adopting a new accounting
principle, net earnings increased 15% to $333.3 million and diluted earnings per
common share increased 20% to $1.32 from $1.10 in the prior year.

The following discussions of Operating Results by PRODUCT CATEGORIES and
GEOGRAPHIC REGIONS exclude the impact of the fiscal 2003 charge related to the
pending settlement of a legal proceeding and the fiscal 2002 restructuring. We
believe the following analysis of operating income better reflects the manner in
which we conduct and view our business. The tables on page 21 reconcile these
results to operating income as reported in the consolidated statement of
earnings.

PRODUCT CATEGORIES

Operating income more than doubled to $32.1 million in fragrance due primarily
to improved results from our travel retail business. Operating income increased
10% to $273.2 million in skin care and 8% to $198.0 million in makeup reflecting
higher net sales, partially offset by strategic spending on advertising,
sampling and merchandising, particularly in the earlier portion of the current
year. Operating income increased $1.1 million or 8% to $14.8 million in hair
care, reflecting improvements in Aveda and Bumble and bumble, as well as higher
profits in the latter portion of the year outside the United States.

GEOGRAPHIC REGIONS

Operating income in the Americas increased 11% or $23.8 million to $246.7
million due to sales growth, the benefits of our prior restructurings and
continued cost containment efforts. Operating income also benefited from the
results of strategic efforts related to product support spending in the earlier
part of the year that led to increased net sales during the year. In Europe, the
Middle East & Africa, operating income increased 27% or $47.8 million to $227.7
million primarily due to the improved operating results in the United Kingdom as
well as increased results generated from our travel retail business. As
described elsewhere, profitability in the region has been and will continue to
be affected by current international uncertainties. In Asia/Pacific, operating
income decreased 24% or $13.3 million to $42.7 million. This decrease reflects
improved results in Korea and Thailand, which were more than offset by a
decrease in Australia, which derived a benefit in the prior-year period from a
change in our retailer arrangements.

INTEREST EXPENSE, NET

Net interest expense was $8.1 million as compared with $9.8 million in the prior
year. The decrease in net interest expense was primarily due to lower
outstanding net borrowings and higher interest income generated by higher
invested cash balances. This improvement was partially offset by a higher
effective interest rate, which resulted from the increased proportion of fixed
rate debt as compared with variable rate debt in the same period last year. In
May 2003, we executed a fixed-to floating interest rate swap on our $250.0
million 6% Senior Notes due 2012. See "Liquidity and Capital Resources" for
further details.

PROVISION FOR INCOME TAXES

The provision for income taxes represents Federal, foreign, state and local
income taxes. The effective rate for income taxes for the fiscal year was 33.0%
as compared with 34.5% in the prior-year period. These rates differ from
statutory rates, reflecting the effect of state and local taxes, tax rates in
foreign jurisdictions and certain nondeductible expenses. The decrease in the
effective tax rate was principally attributable to ongoing tax planning
initiatives, including the favorable settlement of certain tax negotiations and
the reduction of the overall tax rate relating to the Company's foreign
operations. In addition, the tax effect of the charge related to the pending
settlement of a legal proceeding in late fiscal 2003 contributed to an effective
tax rate slightly lower than previously expected.



-25-



FISCAL 2002 AS COMPARED WITH FISCAL 2001

NET SALES

Net sales increased 2% or $76.0 million to $4.74 billion reflecting growth in
the makeup, skin care and hair care categories, partially offset by a decline in
fragrance net sales. Excluding the impact of foreign currency translation, net
sales increased 3%. The unusual events that occurred during fiscal 2002 and
their effect on the economy, particularly in the United States, adversely
impacted our business. In addition, the decline in worldwide travel during most
of fiscal 2002 led to a 13% reduction in our travel retail sales. Sales growth
from certain newer brands and recently launched products partially offset these
decreases.

The following discussions of Net Sales by PRODUCT CATEGORIES and GEOGRAPHIC
REGIONS exclude the impact of the restructurings in fiscal 2002 and fiscal 2001.
Neither restructuring was material to our net sales, and we believe the
following analysis of net sales better reflects the manner in which we conduct
and view our business. For a discussion of the restructurings, see "Operating
Expenses - Restructuring and Special Charges" in this section. The tables on
pages 21 and 22 reconcile these results to operating income as reporting in the
consolidated statement of earnings.

PRODUCT CATEGORIES

SKIN CARE

Net sales of skin care products increased 3% or $42.6 million to $1.70 billion.
The net sales increase is primarily attributable to recently launched products
such as Total Turnaround Visible Skin Renewer, Advanced Night Repair Eye
Recovery Complex, Moisture Surge Extra Thirsty Skin Relief and Moisture Surge
Eye Gel, A Perfect World line of products, LightSource Transforming Moisture
Lotion and Cream, and Re-Nutriv Ultimate Lifting Creme. Partially offsetting
these increases were lower net sales of certain existing products such as
Turnaround Cream and Resilience Lift, as well as products in Clinique's 3-Step
Skin Care System.

MAKEUP

Makeup net sales increased 4% or $68.9 million to $1.79 billion. Newer brands
such as M.A.C, Bobbi Brown and Stila, which are primarily makeup products,
contributed through growth at existing doors and increased distribution. In
addition, strong sales of the Pure Color Line of products, the worldwide launch
of Gentle Light Makeup and Illusionist Mascara contributed positively to net
sales growth. Partially offsetting the increase in net sales were lower sales of
Two-in-One Eye Shadow, Lucidity Makeup, and Long Last Soft Shine Lipstick.

FRAGRANCE

Net sales of fragrance products decreased 6% or $67.8 million to $1.02 billion.
This category was impacted by the softness of the fragrance business in the
United States and the decline in our travel retail business, which depends
substantially on fragrance products. Lower net sales of Beautiful, Estee Lauder
pleasures, DKNY for Women and certain existing Tommy Hilfiger products were
partially offset by the launch of T, a fragrance in the Tommy Hilfiger line, and
Intuition for Men, as well as strong sales of Donna Karan Cashmere Mist.

HAIR CARE

Hair care net sales increased 19% or $35.1 million to $215.8 million. This
increase was primarily the result of growth from Aveda, which benefited from the
launch of texture lotion products and Color Conserve Shampoo and an increase in
the number of Company-owned Aveda Experience Centers. Sales of Bumble and bumble
products increased due to an expanded product line and an increase in the number
of points of sale. The results were partially offset by lower sales from
Clinique's Simple Hair Care System when compared with the prior-year launch.

The introduction of new products may have some cannibalizing effect on sales of
existing products, which we take into account in our business planning.



-26-



GEOGRAPHIC REGIONS

Net sales in the Americas increased 1% or $20.4 million to $2.88 billion. The
increase was primarily due to the success of most newer brands, partially offset
by economic weakness and uncertainty in the United States during most of the
fiscal year. In Europe, the Middle East & Africa, net sales increased 3% or
$39.3 million to $1.26 billion. This increase was primarily the result of higher
net sales in the United Kingdom, Spain and Greece, where in fiscal 2002 we
formed a joint venture, in which we own a controlling majority interest, with
our former distributor. The increase was partially offset by lower net sales in
our travel retail business, which has been adversely affected by a decrease in
worldwide travel. Excluding the impact of our travel retail business, net sales
in Europe, the Middle East & Africa increased 8% or $77.8 million. Net sales in
Asia/Pacific increased 2% or $14.5 million to $610.6 million primarily due to
higher net sales in Korea and Thailand, as well as in Australia where we
benefited from a change in retailer arrangements. The increased sales were
partially offset by lower net sales in Japan. Japan continued to be a difficult
market due to local economic conditions and increasing competition. The
challenges were made more difficult by the weakness of the Japanese yen during
fiscal 2002 as compared with the U.S. dollar. Excluding the impact of foreign
currency translation, Asia/Pacific net sales increased 9%.

We strategically stagger our new product launches by geographic market, which
may account for differences in regional sales growth.

COST OF SALES

Cost of sales as a percentage of total net sales was 26.8% as compared with
26.3% in the prior year. The lower margin can be attributed in part to
production volume decreases resulting in under-absorption of overhead, as well
as lower than planned raw material purchases that reduced anticipated savings
from sourcing initiatives. Partially offsetting these negative factors were
lower sales volumes of products with a higher cost of goods, particularly in
travel retail and fragrance.

OPERATING EXPENSES

Operating expenses increased to 66.0% of net sales as compared with 63.1% of net
sales in the prior year. The increase in operating expenses primarily related to
restructuring expenses, continued advertising and promotional spending and the
cost to expand and operate our retail stores. The increase in operating expenses
as a percentage of net sales reflects a slower growth rate in sales than
operating expenses, primarily due to economic conditions in the United States as
discussed above. As part of our long-term strategies, we continued to emphasize
the building of "brand equities" through advertising and promotional spending
and retail store expansion despite difficult economic times. Changes in
advertising and promotional spending result from the type, timing and level of
advertising and promotional activities related to product launches and rollouts,
as well as the markets being emphasized. Excluding the impact of restructuring
and special charges, operating expenses were 63.5% and 61.9% of net sales for
the fiscal years ended 2002 and 2001, respectively.

RESTRUCTURING AND SPECIAL CHARGES

During the fourth quarter of fiscal 2002, we recorded charges for a
restructuring related to repositioning certain businesses as part of our ongoing
efforts to drive long-term growth and increase profitability. The restructuring
focused on cost reduction opportunities related to the Internet, our supply
chain, globalization of the organization and distribution channel refinements.
We committed to a defined plan of action, which resulted in an aggregate pre-tax
charge of $117.4 million, of which $59.4 million is cash related. On an
after-tax basis, the aggregate charge was $76.9 million, equal to $.32 per
diluted share.





-27-



Specifically, the charge included the following:

o INTERNET. In an effort to achieve strategic objectives, reduce costs and
improve profitability, we outsourced Gloss.com platform development and
maintenance efforts to a third-party provider. Additionally, Gloss.com
closed its San Francisco facility and consolidated its operations in New
York. As a result, included in the charge was a $23.9 million provision for
restructuring the Gloss.com operations, including benefits and severance
packages for 36 employees as well as asset write-offs. We also took a $20.1
million charge to write off the related Gloss.com acquisition goodwill.

o SUPPLY CHAIN. Building on previously announced supply chain initiatives, we
restructured certain manufacturing, distribution, research and development,
information systems and quality assurance operations in the United States,
Canada and Europe, which included benefits and severance for 110 employees.
A charge of $23.7 million was recorded related to this effort.

o GLOBALIZATION OF ORGANIZATION. We continued to implement our transition,
announced in 2001, to a global brand structure designed to streamline the
decision-making process and increase innovation and speed-to-market. The
next phase of this transition entailed eliminating duplicate functions and
responsibilities, which resulted in charges for benefits and severance for
122 employees. We recorded a charge of $27.1 million associated with these
efforts.

o DISTRIBUTION. We evaluated areas of distribution relative to our financial
targets and decided to focus our resources on the most productive sales
channels and markets. As a result, we closed our operations in Argentina
and the remaining customers are being serviced by our Chilean affiliate. We
began to close all remaining in-store "tommy's shops" and we identified for
closing other select points of distribution. We recorded a $22.6 million
provision related to these actions, which included benefits and severance
for 85 employees.

Following is a summary of the charges as recorded in the consolidated statement
of earnings for fiscal 2002:

RESTRUCTURING
-------------------------------------
NET COST OF OPERATING
SALES SALES EXPENSES TOTAL
------ ------- --------- ------
(IN MILLIONS)
Internet ............................ $ -- $ -- $ 44.0 $ 44.0
Supply Chain ........................ -- -- 23.7 23.7
Globalization of Organization ....... -- -- 27.1 27.1
Distribution ........................ 6.2 0.8 15.6 22.6
------ ------ ------ ------
TOTAL CHARGE ........................ $ 6.2 $ 0.8 $110.4 117.4
====== ====== ======
Tax effect .......................... (40.5)
------
NET CHARGE .......................... $ 76.9
======

The restructuring charge was recorded in other accrued liabilities or, where
applicable, as a reduction of the related asset. During fiscal 2002, $9.3
million related to this restructuring was paid. We expected to, and did, settle
a majority of the remaining obligations by the end of fiscal 2003 with certain
additional payments to be made ratably through fiscal 2006.

During the fourth quarter of fiscal 2001, we recorded charges for restructuring
and special charges related to repositioning certain businesses as part of our
ongoing efforts to drive long-term growth and increase profitability. The
restructuring and special charges focused on four areas: product fixtures for
the jane brand; in-store "tommy shops"; information systems and other assets;
and global brand reorganization. We committed to a defined plan of action, which
resulted in an aggregate pre-tax charge of $63.0 million, of which $35.9 million
is cash related. On an after-tax basis, the aggregate charge was $40.3 million,
equal to $.17 per diluted share. As of June 30, 2003, the remaining obligation
was $2.6 million with payments expected to be made ratably through fiscal 2004.





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OPERATING RESULTS

Operating income decreased 31% or $154.2 million to $341.4 million as compared
with the prior year. Operating margins were 7.2% of net sales in fiscal 2002 as
compared with 10.6% in the prior year. The decrease in operating margin was
primarily due to restructuring expenses, lower than expected sales levels,
increased support spending and new distribution channel costs. This was
partially offset by the exclusion of amortization expense due to the adoption of
SFAS No. 142, "Goodwill and Other Intangible Assets," in fiscal 2002 and the
November 2000 expiration of amortization related to purchased royalty rights.
Operating income reflected the inclusion of restructuring and special charges of
$117.4 million and $63.0 million in fiscal 2002 and 2001, respectively. Before
consideration of the restructuring and special charges, operating income
decreased 18% to $458.8 million and operating margins were 9.7% in fiscal 2002
as compared with 11.9% in fiscal 2001.

Net earnings and net earnings per diluted share decreased approximately 37% and
39%, respectively. Net earnings declined $113.3 million to $191.9 million and
net earnings per diluted share was lower by $.46 per diluted share from $1.16 to
$.70. On a comparable basis, before restructuring and special charges, before
the cumulative effect of adopting a new accounting principle, and excluding
goodwill amortization in fiscal 2001, net earnings were $289.4 million,
representing a decrease of 20% over the prior year, and diluted earnings per
common share decreased 21% to $1.10 from $1.39 in the prior year.

The following discussions of Operating Results by PRODUCT CATEGORIES and
GEOGRAPHIC REGIONS exclude the impact of restructuring and special charges. We
believe the following analysis of operating income better reflects the manner in
which we conduct and view our business. The tables on pages 21 and 22 reconcile
these results to operating income as reported in the consolidated statement of
earnings.

PRODUCT CATEGORIES

Operating income decreased 79% to $13.4 million in fragrance, 14% to $183.2
million in makeup and 7% to $248.4 million in skin care, primarily due to lower
than anticipated sales levels, coupled with continued advertising and
promotional spending to promote new and recently launched products. Hair care
operating income increased 5%, from a smaller base, to $13.7 million, primarily
due to sales growth from Aveda and Bumble and bumble.

GEOGRAPHIC REGIONS

Operating income in the Americas decreased 26% or $77.0 million to $222.9
million, primarily due to lower sales attributable to weakness in the U.S.
economy and continued advertising and promotional spending. In Europe, the
Middle East & Africa, operating income decreased 11% or $21.9 million to $179.9
million, primarily due to the significant decrease in our travel retail
business. Partially offsetting the decrease were improved operating results in
Italy, the United Kingdom, Spain and Germany. We also benefited from the
inclusion of operating results from our majority-owned joint venture in Greece.
In Asia/Pacific, operating income decreased slightly to $56.0 million due to
lower income in China and Hong Kong offset by higher results in Korea, in
Australia, where we benefited from a change in retailer arrangements, and in
Japan, where we were able to reduce operating expenses.

INTEREST EXPENSE, NET

Net interest expense was $9.8 million as compared with $12.3 million in the
prior year. The decrease in net interest expense resulted from a lower effective
interest rate compared with the prior year. This was primarily due to our
interest rate risk management strategy that relied on commercial paper and
variable-rate term loans. In January 2002, we took advantage of prevailing
market rates and issued fixed rate long-term notes to replace our variable-rate
debt.

PROVISION FOR INCOME TAXES

The Company's effective tax rate will change from year to year based on
non-recurring and recurring factors including, but not limited to, the
geographical mix of earnings, the timing and amount of foreign dividends, state
and local taxes, tax audit settlements and the interaction of various global tax
strategies.

The provision for income taxes represents Federal, foreign, state and local
income taxes. The effective rate for income taxes for fiscal 2002 was 34.5%
compared with 36% in the prior year. These rates reflect the effect of state and
local taxes, changes in tax rates in foreign jurisdictions, tax credits and
certain non-deductible expenses. The decrease in the effective income tax rate
was attributable to ongoing tax planning initiatives, as well as a decrease in
non-deductible domestic royalty expense and the elimination of certain
non-deductible goodwill amortization resulting from the implementation of SFAS
No. 142, "Goodwill and Other Intangible Assets."



-29-



FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of funds historically have been cash flows from operations
and borrowings under commercial paper, borrowings from the issuance of long-term
debt and committed and uncommitted credit lines provided by banks in the United
States and abroad. At June 30, 2003, we had cash and cash equivalents of $364.1
million compared with $546.9 million at June 30, 2002.

At June 30, 2003, our outstanding borrowings of $291.4 million included: (i)
$257.1 million of 6% Senior Notes due January 2012 consisting of $250.0 million
principal, an unamortized debt discount of $1.0 million, and an $8.1 million
adjustment to reflect the fair value of an outstanding interest rate swap; (ii)
a 3.0 billion yen term loan (approximately $25.2 million at current exchange
rates), which is due in March 2006; (iii) $7.8 million of other short-term
borrowings; and (iv) $1.3 million of other long-term borrowings.

In May 2003, we entered into an interest rate swap agreement with a notional
amount of $250.0 million to effectively convert the fixed rate interest on our
outstanding $250.0 million 6% Senior Notes to variable interest rates based on
LIBOR. In the short-term, this will provide us with a lower level of interest
expense related to the 6% Senior Notes based on current variable interest rates,
however, over the life of the notes, interest expense may be greater than 6%
based upon the fluctuations of LIBOR.

We have a $750.0 million commercial paper program under which we may issue
commercial paper in the United States. Our commercial paper is currently rated
A-1 by Standard & Poor's and P-1 by Moody's. Our long-term credit ratings are A+
by Standard & Poor's and A1 by Moody's. At June 30, 2003, we had no commercial
paper outstanding. We also have an effective shelf registration statement
covering the potential issuance of up to $500.0 million in debt securities. As
of June 30, 2003, we had an unused $400.0 million revolving credit facility,
expiring on June 28, 2006, and $156.6 million in additional uncommitted credit
facilities.

Our business is seasonal in nature and, accordingly, our working capital needs
vary. From time to time, we may enter into investing and financing transactions
that require additional funding. To the extent that these needs exceed cash from
operations, we could, subject to market conditions, issue commercial paper,
issue long-term debt securities or borrow under the revolving credit facility.

The effects of inflation have not been significant to our overall operating
results in recent years. Generally, we have been able to introduce new products
at higher selling prices or increase selling prices sufficiently to offset cost
increases, which have been moderate.

We believe that cash on hand, cash generated from operations, available credit
lines and access to credit markets will be adequate to support currently planned
business operations and capital expenditures on both a near-term and long-term
basis.

CASH FLOWS

Net cash provided by operating activities was $548.5 million in fiscal 2003 as
compared with $518.0 million in fiscal 2002 and $305.4 million in fiscal 2001.
The improved operating cash flow primarily reflects increased earnings and
seasonal levels of operating assets and liabilities. Operating assets and
liabilities reflect an improvement in accounts receivable collections, and a
higher level of accounts payable, partially offset by increased inventories in
anticipation of product launches in the first half of fiscal 2004 and the impact
of acquisitions on required inventory levels. The improvement in net cash flows
for fiscal 2002 compared to fiscal 2001 was generated primarily by a reduction
of inventory. Inventory levels were unseasonably high at the end of fiscal 2001
and were lowered during fiscal 2002 as part of our effort to keep inventory
levels in line with forecasted sales. Operating cash flows were generally not
impacted by the fiscal 2002 restructuring as lower net earnings were offset by
the non-cash portion of the charge and the increase in other accrued
liabilities.

Net cash used for investing activities was $192.5 million in fiscal 2003,
compared with $217.0 million in fiscal 2002 and $206.3 million in fiscal 2001.
Net cash used in investing activities in fiscal 2003 primarily relates to
capital expenditures and the acquisition of Darphin and certain Aveda
distributors. Net cash used in investing activities during fiscal 2002 and
fiscal 2001 relates primarily to capital expenditures.



-30-



Capital expenditures amounted to $163.1 million, $203.2 million and $192.2
million in fiscal 2003, 2002 and 2001, respectively. Spending in all three years
primarily reflected the continued upgrade of manufacturing equipment, dies and
molds, new store openings, store improvements, counter construction and
information technology enhancements. The reduced level of capital expenditures
in fiscal 2003 reflects tight control on our spending in light of economic
conditions, fewer retail store openings and reduced spending related to
leasehold improvements.

Cash used for financing activities was $550.4 million, $121.8 million and $63.5
million in fiscal 2003, 2002 and 2001, respectively. The net cash used for
financing activities in 2003 primarily relates to common stock repurchases, the
repayment of long-term debt and dividend payments. Net cash used for financing
during fiscal 2002 primarily relates to dividend payments and common stock
repurchases. The net cash used in fiscal 2001 was primarily related to dividend
payments.

DIVIDENDS

The Board of Directors declared, and we paid on our Class A Common Stock and
Class B Common Stock, an annual dividend of $.20 per share in fiscal 2003 and
quarterly dividends at the rate of $.05 per share in each quarter of fiscal 2002
and 2001. The last quarterly dividend of $.05 per share was paid in the first
quarter of fiscal 2003. As previously disclosed, the Board of Directors
determined that, at its discretion, it would declare and the Company would pay
dividends on its common stock annually rather than quarterly commencing in
fiscal 2003. In fiscal 2003, 2002 and 2001, dividends declared on our common
stock totaled $46.5 million, $47.5 million and $47.7 million, respectively.
Total dividends declared, including dividends on the $6.50 Cumulative Redeemable
Preferred Stock, were $69.9 million, $70.9 million and $71.1 million in fiscal
2003, 2002 and 2001, respectively.

SHARE REPURCHASE PROGRAM

In September 1998, our Board of Directors authorized a share repurchase program
to repurchase a total of up to 8.0 million shares of Class A Common Stock in the
open market or in privately negotiated transactions, depending on market
conditions and other factors. In October 2002, the Board of Directors authorized
the repurchase of up to 10.0 million additional shares of Class A Common Stock,
increasing the total authorization under the share repurchase program to 18.0
million shares. During fiscal 2003, we purchased 11.2 million shares for $352.4
million. As of June 30, 2003, we have purchased approximately 13.8 million
shares under this program. Subsequent to year-end, we purchased an additional
0.4 million shares for $12.3 million bringing the cumulative total of acquired
shares to 14.2 million.

PENSION PLAN FUNDING AND EXPENSE

We maintain pension plans covering substantially all of our full-time employees
for our U.S. operations and a majority of our international operations. Several
plans provide pension benefits based primarily on years of service and
employees' earnings. In the United States, we maintain a trust-based,
noncontributory defined benefit pension plan ("U.S. Plan"). Additionally, we
have an unfunded, nonqualified domestic benefit plan to provide benefits in
excess of Internal Revenue Code limitations. Our international pension plans are
comprised of defined benefit and defined contribution plans.

Several factors influence our annual funding requirements. For the U.S. Plan,
our funding policy consists of an annual contribution at a rate that provides
for future plan benefits and maintains appropriate funded percentages. Such
contribution is not less than the minimum required by the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and subsequent pension
legislation and is not more than the maximum amount deductible for income tax
purposes. For each international plan, our funding policies are determined by
local laws and regulations. In addition, amounts necessary to fund future
obligations under these plans could vary depending on estimated assumptions (as
detailed in "Critical Accounting Polices and Estimates"). The effect on
operating results in the future of pension plan funding will depend on economic
conditions, employee demographics, mortality rates, the number of participants
electing to take lump-sum distributions, investment performance and funding
decisions.

During fiscal 2003, we changed certain of the underlying assumptions associated
with our pension plans based upon the recent past performance and outlook of the
securities markets, resulting in a larger funding requirement. In addition, the
assets associated with the pension plans experienced negative investment
returns, which also affected our funding requirements. Even after considering
the impact of these factors, there was no minimum contribution to the U.S. Plan
required by ERISA for fiscal 2003 and 2002. However, at management's discretion,
we made cash contributions to the U.S. Plan of $76.0 million and $43.0 million
during fiscal 2003 and 2002, respectively.



-31-



In addition, at June 30, 2003, we recognized a liability on our balance sheet
for each pension plan if the fair market value of the assets of that plan was
less than the accumulated benefit obligation and, accordingly, a charge is
recorded in accumulated other comprehensive income (loss) in shareholders'
equity. During fiscal 2003 and 2002, we recorded a charge to accumulated other
comprehensive income (loss) of $20.3 million and $7.9 million, respectively.
This charge had no impact on our consolidated net earnings or liquidity.

COMMITMENTS AND CONTINGENCIES

We will be required to redeem the outstanding $6.50 Cumulative Redeemable
Preferred Stock on June 30, 2005. However, in the event that Mrs. Estee Lauder
were to pass away before such date, then we would have the right to redeem the
shares from the current holders, and the holders of such shares would have the
right to put the shares to us, at $100 per share (for an aggregate cost of
$360.0 million). If shares of $6.50 Cumulative Redeemable Preferred Stock are
put to us, we would have up to 120 days after notice to purchase such shares.

Certain of our business acquisition agreements include "earn-out" provisions.
These provisions generally require that we pay to the seller or sellers of the
business additional amounts based on the performance of the acquired business.
The payments typically are made after a certain period of time and our next
"earn-out" payment is expected to be made after the end of fiscal 2005. Since
the size of each payment depends upon performance of the acquired business, we
do not expect that such payments will have a material adverse impact on our
future results of operations or financial condition.

Under agreements covering our purchase of trademarks for a percentage of related
sales, royalty payments totaling $20.3 million, $16.5 million and $16.0 million
in fiscal 2003, 2002 and 2001, respectively, have been charged to expense. Such
payments were made to Mrs. Estee Lauder. This obligation is not necessarily
fixed and determinable, and therefore has been excluded from the following
contractual obligation table.

CONTRACTUAL OBLIGATIONS

The following table summarizes scheduled maturities of our contractual
obligations for which cash flows are fixed and determinable as of June 30, 2003.



Payments Due in Fiscal
----------------------------------------------------------------
Total 2004 2005 2006 2007 2008 Thereafter
-------- -------- -------- -------- -------- -------- ----------
(In millions)

Long-term debt including current portion (1) $ 291.4 $ 7.8 $ 1.3 $ 25.2 $ -- $ -- $ 257.1
Redeemable preferred stock (2) 360.0 -- 360.0 -- -- -- --
Lease commitments (3) 605.6 120.1 104.6 74.4 61.9 54.8 189.8
Unconditional purchase obligations (4) 698.7 346.9 37.8 42.6 27.3 25.5 218.6
-------- -------- -------- -------- -------- -------- --------
Total contractual obligations $1,955.7 $ 474.8 $ 503.7 $ 142.2 $ 89.2 $ 80.3 $ 665.5
======== ======== ======== ======== ======== ======== ========



(1) Refer to Note 8 of Notes to Consolidated Financial Statements.

(2) Refer to Note 12 of Notes to Consolidated Financial Statements.

(3) Includes operating lease commitments, and to a lesser extent, minimal
capital lease commitments. Refer to Note 15 of Notes to Consolidated
Financial Statements.

(4) Unconditional purchase obligations primarily include inventory commitments,
estimated future earn-out payments, estimated royalty payments pursuant to
license agreements, advertising commitments and capital improvement
commitments.

In July 2003, we signed a new lease for our principal offices at the same
location. Our 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.




-32-



BUSINESS ACQUISITIONS AND LICENSE AGREEMENTS

In April 2003, we acquired the Paris-based Darphin group of companies that
develops, manufactures and markets the "Darphin" brand of skin care products.
The initial purchase price, paid at closing, was funded by cash provided by
operations, and did not have a material effect on our results of operations or
financial condition. An additional payment is expected to be made in fiscal
2009, the amount of which will depend on future net sales and earnings of the
Darphin business.

In May 2003, we entered into a license agreement to manufacture and sell
fragrances and beauty products under the "Michael Kors" trademarks with Michael
Kors L.L.C. At the same time, we purchased certain related rights and inventory
from American Designer Fragrances, a division of LVMH.

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

We address certain financial exposures through a controlled program of risk
management that includes the use of derivative financial instruments. We
primarily enter into foreign currency forward exchange contracts and foreign
currency options to reduce the effects of fluctuating foreign currency exchange
rates. We also enter into interest rate derivative contracts to manage the
effects of fluctuating interest rates. We categorize these instruments as
entered into for purposes other than trading.

For each derivative contract entered into where we look to obtain special hedge
accounting treatment, we formally document the relationship between the hedging
instrument and hedged item, as well as its risk-management objective and
strategy for undertaking the hedge. This process includes linking all
derivatives that are designated as fair-value, cash-flow, or foreign-currency
hedges to specific assets and liabilities on the balance sheet or to specific
firm commitments or forecasted transactions. We also formally assess, both at
the hedge's inception and on an ongoing basis, whether the derivatives that are
used in hedging transactions are highly effective in offsetting changes in fair
values or cash flows of hedged items. If it is determined that a derivative is
not highly effective, then we will be required to discontinue hedge accounting
with respect to that derivative prospectively.

FOREIGN EXCHANGE RISK MANAGEMENT

We enter into forward exchange contracts to hedge anticipated transactions as
well as receivables and payables denominated in foreign currencies for periods
consistent with our identified exposures. The purpose of the hedging activities
is to minimize the effect of foreign exchange rate movements on our costs and on
the cash flows that we receive from foreign subsidiaries. Almost all foreign
currency contracts are denominated in currencies of major industrial countries
and are with large financial institutions rated as strong investment grade by a
major rating agency. We also enter into foreign currency options to hedge
anticipated transactions where there is a high probability that anticipated
exposures will materialize. The forward exchange contracts and foreign currency
options entered into to hedge anticipated transactions have been designated as
cash-flow hedges. As of June 30, 2003, these cash-flow hedges were highly
effective, in all material respects.

As a matter of policy, we only enter into contracts with counterparties that
have at least an "A" (or equivalent) credit rating. The counterparties to these
contracts are major financial institutions. We do not have significant exposure
to any one counterparty. Our exposure to credit loss in the event of
nonperformance by any of the counterparties is limited to only the recognized,
but not realized, gains attributable to the contracts. Management believes risk
of loss under these hedging contracts is remote and in any event would not be
material to the consolidated financial results. The contracts have varying
maturities through the end of June 2004. Costs associated with entering into
such contracts have not been material to our consolidated financial results. We
do not utilize derivative financial instruments for trading or speculative
purposes. At June 30, 2003, we had foreign currency contracts in the form of
forward exchange contracts and option contracts in the amount of $476.7 million
and $57.7 million, respectively. The foreign currencies included in forward
exchange contracts (notional value stated in U.S. dollars) are principally the
Euro ($114.0 million), Swiss franc ($61.9 million), Japanese yen ($56.0
million), British pound ($49.8 million), Canadian dollar ($37.7 million), South
Korean won ($37.6 million) and Australian dollar ($30.6 million). The foreign
currencies included in the option contracts (notional value stated in U.S.
dollars) are principally the Swiss franc ($21.9 million), Canadian dollar ($21.0
million) and Euro ($11.7 million).

INTEREST RATE RISK MANAGEMENT

We enter into interest rate derivative contracts to manage the exposure to
fluctuations of interest rates on our funded and unfunded indebtedness, as well
as cash investments, for periods consistent with the identified exposures. All
interest rate derivative contracts are with large financial institutions rated
as strong investment grade by a major rating agency.



-33-



In May 2003, we entered into an interest rate swap agreement with a notional
amount of $250.0 million to effectively convert fixed interest on the existing
$250.0 million 6% Senior Notes to variable interest rates based on LIBOR. We
designated the swap as a fair value hedge. As of June 30, 2003, the fair value
hedge was highly effective, in all material respects.

Additionally, in May 2003, we entered into a series of treasury lock agreements
on a notional amount totaling $195.0 million at a weighted average all-in rate
of 4.53%. These treasury lock agreements expire in September 2003 and are used
to hedge the exposure to a possible rise in interest rates prior to the
anticipated issuance of debt. The agreements will be settled upon the issuance
of the new debt, if completed, and any realized gain or loss to be received or
paid by us will be amortized in interest expense over the life of the new debt.
We designated the treasury lock agreements as cash flow hedges. As of June 30,
2003, the cash flow hedges were highly effective, in all material respects.

MARKET RISK

We use a value-at-risk model to assess the market risk of our derivative
financial instruments. Value-at-risk represents the potential losses for an
instrument or portfolio from adverse changes in market factors for a specified
time period and confidence level. We estimate value-at-risk across all of our
derivative financial instruments using a model with historical volatilities and
correlations calculated over the past 250-day period. The measured
value-at-risk, calculated as an average, for the twelve months ended June 30,
2003 related to our foreign exchange contracts was $7.6 million. As of June 30,
2003, the measured value-at-risk related to our interest rate contracts was
$10.3 million. The model estimates were made assuming normal market conditions
and a 95 percent confidence level. We used a statistical simulation model that
valued our derivative financial instruments against one thousand randomly
generated market price paths.

Our calculated value-at-risk exposure represents an estimate of reasonably
possible net losses that would be recognized on our portfolio of derivative
financial instruments assuming hypothetical movements in future market rates and
is not necessarily indicative of actual results, which may or may not occur. It
does not represent the maximum possible loss or any expected loss that may
occur, since actual future gains and losses will differ from those estimated,
based upon actual fluctuations in market rates, operating exposures, and the
timing thereof, and changes in our portfolio of derivative financial instruments
during the year.

We believe, however, that any loss incurred would be offset by the effects of
market rate movements on the respective underlying transactions for which the
hedge is intended.

OFF-BALANCE SHEET ARRANGEMENTS

We do not maintain any off-balance sheet arrangements, transactions, obligations
or other relationships with unconsolidated entities that would be expected to
have a material current or future effect upon our financial condition or results
of operations.





-34-



RECENTLY ISSUED ACCOUNTING STANDARDS

In May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" ("SFAS No. 150"). SFAS No. 150 established standards for
classifying and measuring certain financial instruments with characteristics of
both liabilities and equity. It specifically requires that mandatorily
redeemable instruments, instruments with repurchase obligations which embody,
are indexed to, or obligate the repurchase of, the issuer's own equity shares,
and instruments with obligations to issue a variable number of the issuer's own
equity shares, be classified as a liability. Initial and subsequent measurements
of the instruments differ based on the characteristics of each instrument and as
provided for in the statement. SFAS No. 150 is effective for all freestanding
financial instruments entered into or modified after May 31, 2003 and otherwise
became effective at the beginning of the first interim period beginning after
June 15, 2003. We have adopted this statement effective for all instruments
entered into or modified after May 31, 2003 and will adopt the statement for any
existing financial instruments in the first quarter of fiscal 2004. Based on the
provisions of this statement, beginning in fiscal 2004, we will be classifying
the $6.50 Cumulative Redeemable Preferred Stock as a liability and the related
dividends thereon will be characterized as interest expense. Restatement of
financial statements for earlier years presented is not permitted. The adoption
of this statement will result in the inclusion of the dividends on the preferred
stock (equal to $23.4 million per year) as interest expense. While the inclusion
will impact net earnings, net earnings attributable to common stock and earnings
per common share will be unaffected. Given that the dividends are not deductible
for income tax purposes, the inclusion of the preferred stock dividends as an
interest expense will cause an increase in our effective tax rate. The adoption
of SFAS No. 150 will have no impact on our financial condition.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" ("SFAS No. 148"). SFAS No. 148
provides alternative methods of transition for a voluntary change to the fair
value method of accounting for stock-based employee compensation as originally
defined by SFAS No. 123 "Accounting for Stock-Based Compensation." Additionally,
SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require
prominent disclosure in both the annual and interim financial statements about
the method of accounting for stock-based compensation and the effect of the
method used on reported results. The transitional requirements of SFAS No. 148
are effective for all financial statements for fiscal years ending after
December 15, 2002. We adopted the disclosure portion of this statement for the
fiscal quarter ended March 31, 2003. The application of the disclosure portion
of this standard has no impact on our consolidated financial position or results
of operations. The FASB recently indicated that it will require stock-based
employee compensation to be recorded as a charge to earnings pursuant to a
standard on which it is currently deliberating. The FASB anticipates issuing an
Exposure Draft in the fourth quarter of 2003 and a final statement in the second
quarter of 2004. We will continue to monitor the FASB's progress on the issuance
of this standard as well as evaluate our position with respect to current
guidance.






-35-



FORWARD-LOOKING INFORMATION

We and our representatives from time to time make written or oral
forward-looking statements, including statements contained in this and other
filings with the Securities and Exchange Commission, in our press releases and
in our reports to stockholders. The words and phrases "will likely result,"
"expect," "believe," "planned," "will," "will continue," "may," "could,"
"anticipated," "estimate," "project" or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements include, without
limitation, our expectations regarding sales, earnings or other future financial
performance and liquidity, product introductions, entry into new geographic
regions, information systems initiatives, new methods of sale and future
operations or operating results. Although we believe that our expectations are
based on reasonable assumptions within the bounds of our knowledge of our
business and operations, actual results may differ materially from our
expectations. Factors that could cause actual results to differ from
expectations include, without limitation:

(1) increased competitive activity from companies in the skin care,
makeup, fragrance and hair care businesses, some of which have greater
resources than we do;

(2) our ability to develop, produce and market new products on which
future operating results may depend;

(3) consolidations, restructurings, bankruptcies and reorganizations in
the retail industry causing a decrease in the number of stores that
sell our products, an increase in the ownership concentration within
the retail industry, ownership of retailers by our competitors and
ownership of competitors by our customers that are retailers;

(4) shifts in the preferences of consumers as to where and how they
shop for the types of products and services we sell;

(5) social, political and economic risks to our foreign or domestic
manufacturing, distribution and retail operations, including changes in
foreign investment and trade policies and regulations of the host
countries and of the United States;

(6) changes in the laws, regulations and policies that affect, or will
affect, our business, including changes in accounting standards, tax
laws and regulations, trade rules and customs regulations, and the
outcome and expense of legal or regulatory proceedings;

(7) foreign currency fluctuations affecting our results of operations
and the value of our foreign assets, the relative prices at which we
and our foreign competitors sell products in the same markets and our
operating and manufacturing costs outside of the United States;

(8) changes in global or local economic conditions that could affect
consumer purchasing, the willingness of consumers to travel, the
financial strength of our customers, the cost and availability of
capital, which we may need for new equipment, facilities or
acquisitions, and the assumptions underlying our critical accounting
estimates;

(9) shipment delays, depletion of inventory and increased production
costs resulting from disruptions of operations at any of the facilities
which, due to consolidations in our manufacturing operations, now
manufacture nearly all of our supply of a particular type of product
(i.e. focus factories);

(10) real estate rates and availability, which may affect our ability
to increase the number of retail locations at which we sell our
products and the costs associated with our other facilities;

(11) changes in product mix to products which are less profitable;

(12) our ability to acquire or develop e-commerce capabilities, and
other new information and distribution technologies, on a timely basis
and within our cost estimates;

(13) our ability to capitalize on opportunities for improved
efficiency, such as globalization, and to integrate acquired businesses
and realize value therefrom; and

(14) consequences attributable to the events that are currently taking
place in Iraq and that took place in New York City and Washington, D.C.
on September 11, 2001, including further attacks, retaliation and the
threat of further attacks or retaliation.

We assume no responsibility to update forward-looking statements made herein or
otherwise.



-36-



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The information required by this item is set forth in Item 7 of this Annual
Report on Form 10-K under the caption "Liquidity and Capital Resources - Market
Risk" and is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The information required by this item appears beginning on page F-1 of this
Annual Report on Form 10-K and is incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

On April 12, 2002, the Board of Directors of the Company, upon recommendation of
the Audit Committee, decided to end the engagement of Arthur Andersen LLP
("Arthur Andersen") as the Company's independent public accountants, effective
April 30, 2002, and authorized the engagement of KPMG LLP ("KPMG") to serve as
the Company's independent public accountants for the fiscal year ending June 30,
2002. None of Arthur Andersen's reports on the Company's consolidated financial
statements for the fiscal year ended June 30, 2001 contained an adverse opinion
or disclaimer of opinion, nor was any such report qualified or modified as to
uncertainty, audit scope or accounting principles.

During the fiscal years ended June 30, 2002 and 2001, there were no
disagreements between the Company and Arthur Andersen on any matter of
accounting principle or practice, financial statement disclosure, or auditing
scope or procedure which, if not resolved to Arthur Andersen's satisfaction,
would have caused them to make reference to the subject matter in connection
with their report on the Company's consolidated financial statements for such
years; and there were no reportable events as defined in Item 304(a)(1)(v) of
Regulation S-K.

During the fiscal year ended June 30, 2001 and prior to their appointment as the
Company's independent public accountants, the Company did not consult KPMG LLP
with respect to the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company's consolidated financial statements, or any
other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii)
of Regulation S-K.

ITEM 9A. CONTROLS AND PROCEDURES.

Our disclosure controls and procedures (as defined in Rules13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) are designed to ensure that information required to be disclosed in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission. The Chief Executive Officer and the
Chief Financial Officer, with assistance from other members of management, have
reviewed the effectiveness of our disclosure controls and procedures as of June
30, 2003 and, based on their evaluation, have concluded that the disclosure
controls and procedures were effective as of such date.

There has been no change in our internal control over financial reporting (as
defined in Rules13a-15(f) and 15d-15(f) of the Exchange Act) that occurred
during the fourth quarter of fiscal 2003 that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.

PART III

The information required by Item 10 (Directors and Executive Officers of the
Registrant), Item 11 (Executive Compensation), Item 12 (Security Ownership of
Certain Beneficial Owners and Management and Equity Compensation Plan
Information), Item 13 (Certain Relationships and Related Transactions) and Item
14 (Principal Accountant Fees and Services) of Form 10-K, and not already
provided herein under "Item 1. Business - Executive Officers," will be included
in our Proxy Statement for the 2003 Annual Meeting of Stockholders, which will
be filed within 120 days after the close of the fiscal year ended June 30, 2003,
and such information is incorporated herein by reference.



-37-



PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) 1, 2. Financial Statements and Schedules - See index on Page F-1.

3. Exhibits-


EXHIBIT
NUMBER DESCRIPTION
------- -----------

3.1 Restated Certificate of Incorporation, dated November 16,
1995.

3.2 Certificate of Amendment to Restated Certificate of
Incorporation (filed as Exhibit 3.1 to our Quarterly Report
on Form 10-Q for the quarter ended December 31, 1999).*

3.3 Amended and Restated By-laws (filed as Exhibit 3.2 to our
Quarterly Report on Form 10-Q for the quarter ended December
31, 1999).*

4.1 Indenture, dated as of November 5, 1999, between the Company
and State Street Bank and Trust Company, N.A. (filed as
Exhibit 4 to Amendment No. 1 to our Registration Statement
on Form S-3 (No. 333-85947) on November 5, 1999).*

4.2 Officers' Certificate, dated January 10, 2002, defining
certain terms of the 6% Senior Notes due 2012 (filed as
Exhibit 4.2 to our Quarterly Report on Form 10-Q for the
quarter ended December 31, 2001 (the "FY 2002 Q2 10-Q")).*

4.3 Global Note for the 6% Senior Notes due 2012 (filed as
Exhibit 4.3 to the FY 2002 Q2 10-Q).*

10.1 Stockholders' Agreement, date November 22, 1995.

10.1a Amendment No. 1 to Stockholders' Agreement (filed as Exhibit
10.1 to our Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996).*

10.1b Amendment No. 2 to Stockholders' Agreement (filed as Exhibit
10.2 to our Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996).*

10.1c Amendment No. 3 to Stockholders' Agreement (filed as Exhibit
10.2 to our Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997 (the "FY 1997 Q3 10-Q")).*

10.1d Amendment No. 4 to Stockholders' Agreement (filed as Exhibit
10.1d to our Annual Report on Form 10-K for the year ended
June 30, 2000 (the "FY 2000 10-K")).*

10.1e Amendment No. 5 to Stockholders' Agreement (filed as Exhibit
10.1e to our Annual Report on Form 10-K for the year ended
June 30, 2002 (the "FY 2002 10-K")).*

10.2 Registration Rights Agreement, dated November 22, 1995.

10.2a First Amendment to Registration Rights Agreement (filed as
Exhibit 10.3 to our Annual Report on Form 10-K for the
fiscal year ended June 30, 1996).*

10.2b Second Amendment to Registration Rights Agreement (filed as
Exhibit 10.1 to the FY 1997 Q3 10-Q).*

10.2c Third Amendment to Registration Rights Agreement (filed as
Exhibit 10.2c to our Annual Report on Form 10-K for the year
ended June 30, 2001 (the "FY 2001 10-K")).*

10.3 Fiscal 1996 Share Incentive Plan. +

10.4 Fiscal 1999 Share Incentive Plan (filed as Exhibit 4(c) to
our Registration Statement on Form S-8 (No. 333-66851) on
November 5, 1998).* +

10.5 The Estee Lauder Companies Retirement Growth Account Plan. +

10.6 The Estee Lauder Inc. Retirement Benefits Restoration Plan
(filed as Exhibit 10.6 to our Annual Report on Form 10-K for
the fiscal year ended June 30, 1999).* +

10.7 Executive Annual Incentive Plan (filed as Exhibit 10.2 to
our Quarterly Report on Form 10-Q for the quarter ended
December 31, 1998).* +

10.8 Employment Agreement with Leonard A. Lauder (filed as
Exhibit 10.8 to the FY 2001 10-K).* +

10.8a Amendment to Employment Agreement with Leonard A. Lauder
(filed as Exhibit 10.8a to the FY 2002 10-K).* +

10.8b Option Agreement, dated November 16, 1995, with Leonard A.
Lauder (Exhibit B to Mr. Lauder's 1995 employment
agreement). +

10.9 Employment Agreement with Ronald S. Lauder (filed as Exhibit
10.1 to our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000).* +



-38-



10.9a Amendment to Employment Agreement with Ronald S. Lauder
(filed as Exhibit 10.9a to the FY 2002 10-K).* +

10.9b Option Agreement, dated November 16, 1995, with Ronald S.
Lauder (Exhibit B to Mr. Lauder's 1995 employment
agreement). +

10.10 Employment Agreement with Fred H. Langhammer (filed as
Exhibit 10.10 to the FY 2000 10-K).* +

10.10a Amendment to Employment Agreement with Fred H. Langhammer
(filed as Exhibit 10.10a to the FY 2001 10-K).* +

10.10b Amendment to Employment Agreement with Fred H. Langhammer
(filed as Exhibit 10.10b to the FY 2002 10-K).* +

10.10c Share unit and Option Agreement with Fred H. Langhammer. +

10.11 Employment Agreement with Daniel J. Brestle (filed as
Exhibit 10.11 to the FY 2001 10-K).* +

10.11a Amendment to Employment Agreement with Daniel J. Brestle
(filed as Exhibit 10.11a to the FY 2002 10-K).* +

10.11b Option Agreement, dated November 16, 1995, with Daniel J.
Brestle (Schedule A to Mr. Brestle's 1995 employment
agreement).+

10.12 Employment Agreement with William P. Lauder (filed as
Exhibit 10.1 to our Quarterly Report on Form 10-Q for the
quarter ended March 31, 2003).* +

10.13 Employment Agreement with Patrick Bousquet-Chavanne (filed
as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the
quarter ended September 30, 2001).* +

10.13a Amendment to Employment Agreement with Patrick
Bousquet-Chavanne (filed as Exhibit 10.13a to the FY 2002
10-K).* +

10.14 Form of Deferred Compensation Agreement (interest-based)
with Outside Directors (filed as Exhibit 10.14 to the FY
2001 10-K).* +

10.15 Form of Deferred Compensation Agreement (stock-based) with
Outside Directors (filed as Exhibit 10.15 to the FY 2001
10-K).* +

10.16 Non-Employee Director Share Incentive Plan (filed as Exhibit
4(d) to our Registration Statement on Form S-8 (No.
333-49606) filed on November 9, 2000).* +

10.17 Fiscal 2002 Share Incentive Plan (filed as Exhibit 4(d) to
our Registration Statement on Form S-8 (No. 333-72684) on
November 1, 2001).* +

21.1 List of significant subsidiaries.

23.1 Consent of KPMG LLP.

23.2 Notice regarding consent of Arthur Andersen LLP.

24.1 Power of Attorney.

31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (CEO).

31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (CFO).

32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(CEO). (furnished)

32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(CFO). (furnished)

- ----------
* Incorporated herein by reference.

+ Exhibit is a management contract or compensatory plan or arrangement.




-39-



(b) Reports on Form 8-K.

On April 30, 2003, we furnished a Current Report on Form 8-K. Pursuant to Item
12 of Form 8-K, we furnished our press release reporting our fiscal 2003
third-quarter results.

On May 9, 2003, we furnished a Current Report on Form 8-K. Pursuant to Item 9 of
Form 8-K, we announced that we had entered into a license agreement for
fragrances and beauty products under the "Michael Kors" trademark with Michael
Kors L.L.C. and acquired the related business previously conducted by American
Designer Fragrances, a division of LVMH.






-40-



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

THE ESTEE LAUDER COMPANIES INC.

By /s/ RICHARD W. KUNES
--------------------------------
Richard W. Kunes
Senior Vice President
and Chief Financial Officer

Date: September 15, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.



SIGNATURE TITLE (S) DATE
--------- --------- ----


/s/ FRED H. LANGHAMMER President, Chief Executive Officer September 15, 2003
- -------------------------------------- and a Director
Fred H. Langhammer (Principal Executive Officer)

LEONARD A. LAUDER* Chairman of the Board of September 15, 2003
- -------------------------------------- Directors
Leonard A. Lauder

CHARLENE BARSHEFSKY * Director September 15, 2003
- --------------------------------------
Charlene Barshefsky

ROSE MARIE BRAVO* Director September 15, 2003
- --------------------------------------
Rose Marie Bravo

IRVINE O. HOCKADAY, JR.* Director September 15, 2003
- --------------------------------------
Irvine O. Hockaday, Jr.

RONALD S. LAUDER* Director September 15, 2003
- --------------------------------------
Ronald S. Lauder

WILLIAM P. LAUDER* Director September 15, 2003
- --------------------------------------
William P. Lauder

RICHARD D. PARSONS* Director September 15, 2003
- --------------------------------------
Richard D. Parsons

MARSHALL ROSE* Director September 15, 2003
- --------------------------------------
Marshall Rose

LYNN FORESTER DE ROTHSCHILD* Director September 15, 2003
- --------------------------------------
Lynn Forester De Rothschild

/s/ RICHARD W. KUNES Senior Vice President and September 15, 2003
- -------------------------------------- Chief Financial Officer
Richard W. Kunes (Principal Financial and
Accounting Officer)


- ----------
* By signing his name hereto, Richard W. Kunes signs this document in the
capacities indicated above and on behalf of the persons indicated above
pursuant to powers of attorney duly executed by such persons and filed
herewith.

By /s/ RICHARD W. KUNES
---------------------------------
Richard W. Kunes
(Attorney-in-Fact)



-41-



THE ESTEE LAUDER COMPANIES INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE



PAGE

FINANCIAL STATEMENTS:

Independent Auditors' Report.............................................. F-2

Copy of Report of Independent Public Accountants (Arthur Andersen LLP).... F-3

Consolidated Statements of Earnings....................................... F-4

Consolidated Balance Sheets............................................... F-5

Consolidated Statements of Stockholders' Equity and Comprehensive Income.. F-6

Consolidated Statements of Cash Flows..................................... F-7

Notes to Consolidated Financial Statements................................ F-8

FINANCIAL STATEMENT SCHEDULE:

Independent Auditors' Report on Schedule.................................. S-1

Copy of Report of Independent Public Accountants
(Arthur Andersen LLP) on Schedule.................................... S-2

Schedule II - Valuation and Qualifying Accounts........................... S-3


All other schedules are omitted because they are not applicable or the required
information is included in the consolidated financial statements or notes
thereto.






F-1



INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
The Estee Lauder Companies Inc.:

We have audited the accompanying consolidated balance sheets of The Estee Lauder
Companies Inc. and subsidiaries as of June 30, 2003 and 2002, and the related
consolidated statements of earnings, stockholders' equity and comprehensive
income and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. The 2001 financial statements of The Estee
Lauder Companies Inc. and subsidiaries were audited by other auditors who have
ceased operations. Those auditors expressed an unqualified opinion on those
financial statements, before the revision described in Note 2 to the financial
statements, in their report dated August 10, 2001.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Estee Lauder
Companies Inc. and subsidiaries as of June 30, 2003 and 2002, and the results of
their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.

As discussed above, the 2001 consolidated financial statements of The Estee
Lauder Companies Inc. and subsidiaries were audited by other auditors who have
ceased operations. As described in Note 2, these financial statements have been
revised to include the transitional disclosures required by Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets,"
which was adopted by the Company as of July 1, 2001. In our opinion, the
disclosures for 2001 in Note 2 are appropriate. However, we were not engaged to
audit, review, or apply any procedures to the 2001 consolidated financial
statements of The Estee Lauder Companies Inc. and subsidiaries other than with
respect to such disclosures and, accordingly, we do not express an opinion or
any other form of assurance on the 2001 consolidated financial statements taken
as a whole.


KPMG LLP

New York, New York
August 8, 2003





F-2



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To The Estee Lauder Companies Inc.:

We have audited the accompanying consolidated balance sheets of The Estee Lauder
Companies Inc. (a Delaware corporation) and subsidiaries as of June 30, 2001 and
2000, and the related consolidated statements of earnings, stockholders' equity
and comprehensive income and cash flows for each of the three years in the
period ended June 30, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Estee Lauder Companies Inc.
and subsidiaries as of June 30, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2001 in conformity with accounting principles generally accepted in the
United States.



ARTHUR ANDERSEN LLP

New York, New York
August 10, 2001



This is a copy of the audit report previously issued by Arthur Andersen LLP in
connection with our filing on Form 10-K for the fiscal year ended June 30, 2001.
This audit report has not been reissued by Arthur Andersen LLP in connection
with this filing on Form 10-K. See Exhibit 23.2 for further discussion.






F-3



THE ESTEE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF EARNINGS



YEAR ENDED JUNE 30
-----------------------------------
2003 2002 2001
--------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)


NET SALES ................................................ $ 5,117.6 $ 4,743.7 $ 4,667.7
Cost of sales ............................................ 1,335.7 1,273.4 1,226.4
--------- --------- ---------

GROSS PROFIT ............................................. 3,781.9 3,470.3 3,441.3
--------- --------- ---------

Operating expenses:
Selling, general and administrative .................. 3,244.5 3,002.0 2,869.2
Restructuring ........................................ -- 110.4 37.6
Special charges ...................................... 22.0 -- 16.3
Related party royalties .............................. 20.3 16.5 22.6
--------- --------- ---------
3,286.8 3,128.9 2,945.7
--------- --------- ---------

OPERATING INCOME ......................................... 495.1 341.4 495.6

Interest expense, net .................................... 8.1 9.8 12.3
--------- --------- ---------
EARNINGS BEFORE INCOME TAXES, MINORITY INTEREST
AND ACCOUNTING CHANGE ................................... 487.0 331.6 483.3

Provision for income taxes ............................... 160.5 114.4 174.0
Minority interest, net of tax ............................ (6.7) (4.7) (1.9)
--------- --------- ---------
NET EARNINGS BEFORE ACCOUNTING CHANGE .................... 319.8 212.5 307.4

Cumulative effect of a change in accounting principle,
net of tax .............................................. -- (20.6) (2.2)
--------- --------- ---------
NET EARNINGS ............................................. 319.8 191.9 305.2

Preferred stock dividends ................................ 23.4 23.4 23.4
--------- --------- ---------
NET EARNINGS ATTRIBUTABLE TO COMMON STOCK ................ $ 296.4 $ 168.5 $ 281.8
========= ========= =========

Basic net earnings per common share:
Net earnings attributable to common stock before
accounting change ................................... $ 1.27 $ .79 $ 1.19
Cumulative effect of a change in accounting principle,
net of tax .......................................... -- (.08) (.01)
--------- --------- ---------
Net earnings attributable to common stock ............ $ 1.27 $ .71 $ 1.18
========= ========= =========

Diluted net earnings per common share:
Net earnings attributable to common stock before
accounting change ................................... $ 1.26 $ .78 $ 1.17
Cumulative effect of a change in accounting principle,
net of tax .......................................... -- (.08) (.01)
--------- --------- ---------
Net earnings attributable to common stock ............ $ 1.26 $ .70 $ 1.16
========= ========= =========

Weighted average common shares outstanding:
Basic ................................................ 232.6 238.2 238.4
Diluted .............................................. 234.7 241.1 242.2


See notes to consolidated financial statements.



F-4



THE ESTEE LAUDER COMPANIES INC.

CONSOLIDATED BALANCE SHEETS



JUNE 30
--------------------
2003 2002
-------- --------
(IN MILLIONS)

ASSETS

CURRENT ASSETS
Cash and cash equivalents .................................................... $ 364.1 $ 546.9
Accounts receivable, net ..................................................... 634.2 624.8
Inventory and promotional merchandise, net ................................... 599.0 544.5
Prepaid expenses and other current assets .................................... 247.6 211.4
-------- --------
TOTAL CURRENT ASSETS ..................................................... 1,844.9 1,927.6
-------- --------

PROPERTY, PLANT AND EQUIPMENT, NET ........................................... 607.7 580.7
-------- --------

OTHER ASSETS
Investments, at cost or market value ......................................... 14.0 30.3
Deferred income taxes ........................................................ 38.7 72.7
Goodwill, net ................................................................ 695.3 675.6
Other intangible assets, net ................................................. 65.4 18.4
Other assets, net ............................................................ 83.9 111.2
-------- --------
TOTAL OTHER ASSETS ....................................................... 897.3 908.2
-------- --------
TOTAL ASSETS ........................................................ $3,349.9 $3,416.5
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Short-term debt .............................................................. $ 7.8 $ 6.6
Accounts payable ............................................................. 229.9 216.4
Accrued income taxes ......................................................... 111.9 110.0
Other accrued liabilities .................................................... 704.0 626.6
-------- --------
TOTAL CURRENT LIABILITIES ................................................ 1,053.6 959.6
-------- --------

NONCURRENT LIABILITIES
Long-term debt ............................................................... 283.6 403.9
Other noncurrent liabilities ................................................. 216.8 220.9
-------- --------
TOTAL NONCURRENT LIABILITIES ............................................. 500.4 624.8
-------- --------

COMMITMENTS AND CONTINGENCIES (see Note 15)

$6.50 CUMULATIVE REDEEMABLE PREFERRED STOCK, AT REDEMPTION VALUE ............. 360.0 360.0
-------- --------
MINORITY INTEREST ............................................................ 12.3 10.2
-------- --------

STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 650,000,000 shares Class A authorized; shares
issued: 133,616,710 in 2003 and 131,567,986 in 2002; 240,000,000 shares
Class B authorized; shares issued and outstanding: 107,462,533 in 2003 and
108,412,533 in 2002 ...................................................... 2.4 2.4
Paid-in capital .............................................................. 293.7 268.8
Retained earnings ............................................................ 1,613.6 1,363.7
Accumulated other comprehensive income (loss) ................................ (53.1) (92.5)
-------- --------
1,856.6 1,542.4
Less: Treasury stock, at cost; 13,623,060 Class A shares at June 30, 2003 and
2,377,860 Class A shares at June 30, 2002 ................................ (433.0) (80.5)
-------- --------
TOTAL STOCKHOLDERS' EQUITY ............................................... 1,423.6 1,461.9
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................... $3,349.9 $3,416.5
======== ========


See notes to consolidated financial statements.



F-5



THE ESTEE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME



YEAR ENDED JUNE 30
--------------------------------
2003 2002 2001
-------- -------- --------
(IN MILLIONS)

STOCKHOLDERS' EQUITY

Common stock, beginning of year ....................... $ 2.4 $ 2.4 $ 2.4
-------- -------- --------
Common stock, end of year ............................. 2.4 2.4 2.4
-------- -------- --------

Paid-in capital, beginning of year .................... 268.8 258.3 237.1
Stock compensation programs ........................... 24.9 10.5 21.2
-------- -------- --------
Paid-in capital, end of year .......................... 293.7 268.8 258.3
-------- -------- --------

Retained earnings, beginning of year .................. 1,363.7 1,242.7 1,008.6
Preferred stock dividends ............................. (23.4) (23.4) (23.4)
Common stock dividends ................................ (46.5) (47.5) (47.7)
Net earnings for the year ............................. 319.8 191.9 305.2
-------- -------- --------
Retained earnings, end of year ........................ 1,613.6 1,363.7 1,242.7
-------- -------- --------

Accumulated other comprehensive loss, beginning of year (92.5) (120.5) (57.1)
Other comprehensive income (loss) ..................... 39.4 28.0 (63.4)
-------- -------- --------
Accumulated other comprehensive loss, end of year ..... (53.1) (92.5) (120.5)
-------- -------- --------

Treasury stock, beginning of year ..................... (80.5) (30.8) (30.7)
Acquisition of treasury stock ......................... (352.5) (49.7) (0.1)
-------- -------- --------
Treasury stock, end of year ........................... (433.0) (80.5) (30.8)
-------- -------- --------

TOTAL STOCKHOLDERS' EQUITY ................... $1,423.6 $1,461.9 $1,352.1
======== ======== ========

COMPREHENSIVE INCOME

Net earnings .......................................... $ 319.8 $ 191.9 $ 305.2
-------- -------- --------

Other comprehensive income (loss):

Net unrealized investment gains (losses) .......... 0.8 (3.0) (11.0)
Net derivative instrument gains (losses) .......... 7.6 (7.1) (2.0)
Net minimum pension liability adjustments ......... (20.3) (7.9) (12.4)
Translation adjustments ........................... 51.3 46.0 (38.0)
-------- -------- --------

Other comprehensive income (loss) ................. 39.4 28.0 (63.4)
-------- -------- --------

TOTAL COMPREHENSIVE INCOME ................... $ 359.2 $ 219.9 $ 241.8
======== ======== ========



See notes to consolidated financial statements.



F-6



THE ESTEE LAUDER COMPANIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS



YEAR ENDED JUNE 30
--------------------------
2003 2002 2001
------ ------ ------
(IN MILLIONS)

CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings .......................................................... $319.8 $191.9 $305.2
Adjustments to reconcile net earnings to net cash flows provided by
operating activities:
Depreciation and amortization .................................... 174.8 162.0 156.3
Amortization of purchased royalty rights ......................... -- -- 6.6
Deferred income taxes ............................................ 36.5 (22.6) 4.7
Minority interest ................................................ 6.7 4.7 1.9
Non-cash stock compensation ...................................... 1.5 (0.1) 0.7
Cumulative effect of a change in accounting principle ............ -- 20.6 2.2
Non-cash portion of restructuring and other non-recurring expenses -- 58.0 27.1
Other non-cash items ............................................. 0.9 0.9 --

Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net .................. 38.6 (15.4) (57.3)
Decrease (increase) in inventory and promotional merchandise, net (15.7) 102.2 (102.1)
Increase in other assets ......................................... (15.3) (11.7) (53.6)
Increase (decrease) in accounts payable .......................... (8.4) (32.6) 14.2
Increase in accrued income taxes ................................. 5.4 28.8 5.9
Increase (decrease) in other accrued liabilities ................. 52.7 59.6 (23.4)
Increase (decrease) in other noncurrent liabilities .............. (49.0) (28.3) 17.0
------ ------ ------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES ................ 548.5 518.0 305.4
------ ------ ------

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures .................................................. (163.1) (203.2) (192.2)
Acquisition of businesses, net of acquired cash ....................... (50.4) (18.5) (16.0)
Proceeds from disposition of long-term investments .................... 21.0 4.7 1.9
------ ------ ------
NET CASH FLOWS USED FOR INVESTING ACTIVITIES ................... (192.5) (217.0) (206.3)
------ ------ ------

CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term debt, net ........................... 2.9 0.6 (0.1)
Proceeds from issuance of long-term debt, net ......................... -- 247.2 24.5
Repayments of long-term debt .......................................... (135.8) (256.6) (30.1)
Net proceeds from employee stock transactions ......................... 16.7 7.7 13.3
Payments to acquire treasury stock .................................... (352.5) (49.7) (0.1)
Dividends paid ........................................................ (81.7) (71.0) (71.0)
------ ------ ------
NET CASH FLOWS USED FOR FINANCING ACTIVITIES ................... (550.4) (121.8) (63.5)
------ ------ ------

Effect of Exchange Rate Changes on Cash and Cash Equivalents .............. 11.6 21.0 (9.2)
------ ------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................. (182.8) 200.2 26.4
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ........................ 546.9 346.7 320.3
------ ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR .............................. $364.1 $546.9 $346.7
====== ====== ======

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (see Note 17)
Cash paid during the year for:
Interest ......................................................... $ 17.7 $ 17.6 $ 26.7
====== ====== ======
Income Taxes ..................................................... $134.7 $120.5 $176.6
====== ====== ======


See notes to consolidated financial statements.



F-7



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- DESCRIPTION OF BUSINESS

The Estee Lauder Companies Inc. manufactures, markets and sells skin care,
makeup, fragrance and hair care products around the world. Products are marketed
under the following brand names: Estee Lauder, Clinique, Aramis, Prescriptives,
Origins, M.A.C, Bobbi Brown, La Mer, jane, Aveda, Stila, Jo Malone, Bumble and
bumble and Darphin. The Estee Lauder Companies Inc. is also the global licensee
of the Tommy Hilfiger, Donna Karan, kate spade and Michael Kors brands for
fragrances and cosmetics.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of The
Estee Lauder Companies Inc. and its subsidiaries (collectively, the "Company").
All significant intercompany balances and transactions have been eliminated.

Certain amounts in the consolidated financial statements of prior years have
been reclassified to conform to current year presentation for comparative
purposes.

NET EARNINGS PER COMMON SHARE

Net earnings per common share ("basic EPS") is computed by dividing net
earnings, after deducting preferred stock dividends on the Company's $6.50
Cumulative Redeemable Preferred Stock, by the weighted average number of common
shares outstanding and contingently issuable shares (which satisfy certain
conditions). Net earnings per common share assuming dilution ("diluted EPS") is
computed by reflecting potential dilution from the exercise of stock options.

A reconciliation between the numerators and denominators of the basic and
diluted EPS computations is as follows:



YEAR ENDED JUNE 30
-----------------------------
2003 2002 2001
------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)

NUMERATOR:
Net earnings before accounting change ............................ $ 319.8 $ 212.5 $ 307.4
Preferred stock dividends ........................................ (23.4) (23.4) (23.4)
------- ------- -------
Net earnings attributable to common stock before accounting change 296.4 189.1 284.0
Cumulative effect of a change in accounting principle, net of tax -- (20.6) (2.2)
------- ------- -------
Net earnings attributable to common stock ........................ $ 296.4 $ 168.5 $ 281.8
======= ======= =======
DENOMINATOR:
Weighted average common shares outstanding - Basic ............... 232.6 238.2 238.4
Effect of dilutive securities: Stock options ..................... 2.1 2.9 3.8
------- ------- -------
Weighted average common shares outstanding - Diluted ............. 234.7 241.1 242.2
======= ======= =======
BASIC NET EARNINGS PER COMMON SHARE:
Net earnings before accounting change ............................ $ 1.27 $ .79 $ 1.19
Cumulative effect of a change in accounting principle, net of tax -- (.08) (.01)
------- ------- -------
Net earnings ..................................................... $ 1.27 $ .71 $ 1.18
======= ======= =======
DILUTED NET EARNINGS PER COMMON SHARE:
Net earnings before accounting change ............................ $ 1.26 $ .78 $ 1.17
Cumulative effect of a change in accounting principle, net of tax -- (.08) (.01)
------- ------- -------
Net earnings ..................................................... $ 1.26 $ .70 $ 1.16
======= ======= =======





F-8



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2003, 2002 and 2001, options to purchase 13.6 million, 12.1
million and 10.5 million shares, respectively, of Class A Common Stock were not
included in the computation of diluted EPS because the exercise prices of those
options were greater than the average market price of the common stock and their
inclusion would be anti-dilutive. The options were still outstanding at the end
of the applicable periods.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include $76.2 million and $104.6 million of short-term
time deposits at June 30, 2003 and 2002, respectively. The Company considers all
highly liquid investments with original maturities of three months or less to be
cash equivalents.

ACCOUNTS RECEIVABLE

Accounts receivable is stated net of the allowance for doubtful accounts and
customer deductions of $31.8 million and $30.6 million as of June 30, 2003 and
2002, respectively.

CURRENCY TRANSLATION AND TRANSACTIONS

All assets and liabilities of foreign subsidiaries and affiliates are translated
at year-end rates of exchange, while revenue and expenses are translated at
weighted average rates of exchange for the year. Unrealized translation gains or
losses are reported as cumulative translation adjustments through other
comprehensive income. Such adjustments amounted to $51.3 million, $46.0 million
and $(38.0) million of unrealized translation gains (losses) in fiscal 2003,
2002 and 2001, respectively.

The Company enters into forward foreign exchange contracts and foreign currency
options to hedge foreign currency transactions for periods consistent with its
identified exposures. Accordingly, the Company categorizes these instruments as
entered into for purposes other than trading.

The accompanying consolidated statements of earnings include net exchange losses
of $15.0 million and $6.8 million in fiscal 2003 and 2002, respectively, and net
exchange gains of $9.2 million in fiscal 2001.

INVENTORY AND PROMOTIONAL MERCHANDISE

Inventory and promotional merchandise only includes inventory considered
saleable or usable in future periods, and is stated at the lower of cost or
fair-market value, with cost being determined on the first-in, first-out method.
Promotional merchandise is charged to expense at the time the merchandise is
shipped to the Company's customers.

JUNE 30
---------------
2003 2002
------ ------
(IN MILLIONS)
Inventory and promotional merchandise consists of:
Raw materials ................................. $137.7 $117.5
Work in process ............................... 34.1 27.0
Finished goods ................................ 296.6 272.2
Promotional merchandise ....................... 130.6 127.8
------ ------
$599.0 $544.5
====== ======





F-9



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is carried at cost less accumulated depreciation
and amortization. For financial statement purposes, depreciation is provided
principally on the straight-line method over the estimated useful lives of the
assets ranging from 3 to 40 years. Leasehold improvements are amortized on a
straight-line basis over the shorter of the lives of the respective leases or
the expected useful lives of those improvements.

JUNE 30
-------------------
2003 2002
-------- --------
(IN MILLIONS)
Land ......................................... $ 13.5 $ 13.0
Buildings and improvements ................... 152.7 144.0
Machinery and equipment ...................... 676.7 611.7
Furniture and fixtures ....................... 95.3 86.1
Leasehold improvements ....................... 538.6 447.2
-------- --------
1,476.8 1,302.0
Less accumulated depreciation and amortization 869.1 721.3
-------- --------
$ 607.7 $ 580.7
======== ========

Depreciation and amortization of property, plant and equipment was $157.0
million, $140.5 million and $112.1 million in fiscal 2003, 2002 and 2001,
respectively.

GOODWILL AND OTHER INTANGIBLE ASSETS

Effective July 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill
and Other Intangible Assets." These statements established financial accounting
and reporting standards for acquired goodwill and other intangible assets.
Specifically, the standards address how acquired intangible assets should be
accounted for both at the time of acquisition and after they have been
recognized in the financial statements. The provisions of SFAS No. 141 apply to
all business combinations initiated after June 30, 2001. In accordance with SFAS
No. 142, intangible assets, including purchased goodwill, must be evaluated for
impairment. Those intangible assets that will continue to be classified as
goodwill or as other intangibles with indefinite lives are no longer amortized.

In accordance with SFAS No. 142, the Company completed its transitional
impairment testing of intangible assets during the first quarter of fiscal 2002.
That effort, and preliminary assessments of the Company's identifiable
intangible assets, indicated that little or no adjustment would be required upon
adoption of this pronouncement. The impairment testing is performed in two
steps: (i) the Company determines impairment by comparing the fair value of a
reporting unit with its carrying value, and (ii) if there is an impairment, the
Company measures the amount of impairment loss by comparing the implied fair
value of goodwill with the carrying amount of that goodwill. Subsequent to the
first quarter of fiscal 2002, with the assistance of a third-party valuation
firm, the Company finalized the testing of goodwill. Using conservative, but
realistic, assumptions to model the Company's jane business, the Company
determined that the carrying value of this unit was slightly greater than the
derived fair value, indicating an impairment in the recorded goodwill. To
determine fair value, the Company relied on three valuation models: guideline
public companies, acquisition analysis and discounted cash flow. For goodwill
valuation purposes only, the revised fair value of this unit was allocated to
the assets and liabilities of the business unit to arrive at an implied fair
value of goodwill, based upon known facts and circumstances, as if the
acquisition occurred currently. This allocation resulted in a write-down of
recorded goodwill in the amount of $20.6 million, which has been reported as the
cumulative effect of a change in accounting principle, as of July 1, 2001, in
the accompanying consolidated statements of earnings. On a product category
basis, this write-down would have primarily impacted the Company's makeup
category.

During fiscal 2002, the Company recorded a goodwill impairment charge related to
its Gloss.com business as a component of its restructuring expense (see Note 5).



F-10



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents adjusted net earnings and earnings per share data
restated to include the retroactive impact of the adoption of SFAS No. 142.



YEAR ENDED JUNE 30
------------------------------
2003 2002 2001
------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)


Reported Net Earnings before Accounting Change ...................... $ 319.8 $ 212.5 $ 307.4
Cumulative effect of a change in accounting principle, net of tax -- (20.6) (2.2)
------- ------- -------
Net Earnings .................................................... 319.8 191.9 305.2

Preferred stock dividends ....................................... 23.4 23.4 23.4
------- ------- -------
Reported Net Earnings Attributable to Common Stock .................. 296.4 168.5 281.8
Add back:
Goodwill amortization, net of tax ............................... -- -- 13.4
------- ------- -------

Adjusted Net Earnings ............................................... $ 296.4 $ 168.5 $ 295.2
======= ======= =======

BASIC NET EARNINGS PER COMMON SHARE:
Reported net earnings attributable to
common stock before accounting change ........................ $ 1.27 $ .79 $ 1.19
Cumulative effect of a change in accounting principle, net of tax -- (.08) (.01)
------- ------- -------
Net earnings attributable to common stock ....................... 1.27 .71 1.18
Goodwill amortization, net of tax ............................... -- -- .06
------- ------- -------

Adjusted net earnings attributable to common stock .............. $ 1.27 $ .71 $ 1.24
======= ======= =======

DILUTED NET EARNINGS PER COMMON SHARE:
Reported net earnings attributable to
common stock before accounting change ........................ $ 1.26 $ .78 $ 1.17
Cumulative effect of a change in accounting principle, net of tax -- (.08) (.01)
------- ------- -------
Net earnings attributable to common stock ....................... 1.26 .70 1.16
Goodwill amortization, net of tax ............................... -- -- .06
------- ------- -------

Adjusted net earnings attributable to common stock .............. $ 1.26 $ .70 $ 1.22
======= ======= =======

Weighted average common shares outstanding:
Basic ........................................................... 232.6 238.2 238.4
Diluted ......................................................... 234.7 241.1 242.2






F-11



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

GOODWILL

The change in the carrying amount of goodwill is as follows:



YEAR ENDED JUNE 30
---------------------
2003 2002
------ ------
(IN MILLIONS)


Net beginning balance..................................................... $675.6 $699.7
Goodwill impairment loss upon adoption of new accounting principle..... -- (20.6)
Restructuring write-off of Gloss.com acquisition goodwill.............. -- (20.1)
Goodwill acquired during the period.................................... 19.7 16.6
------ ------
Net ending balance ....................................................... $695.3 $675.6
====== ======


OTHER INTANGIBLE ASSETS

Other intangible assets consist of the following:

JUNE 30, 2003
--------------------------------------------
GROSS CARRYING ACCUMULATED TOTAL NET
VALUE AMORTIZATION BOOK VALUE
-------------- ------------ ----------
(IN MILLIONS)

License agreements............ $ 32.4 $ 7.9 $ 24.5
Trademarks and other.......... 46.7 6.7 39.9
Patents....................... 1.6 0.6 1.0
-------- ------- --------
Total......................... $ 80.7 $ 15.3 $ 65.4
======== ======= ========

JUNE 30, 2002
--------------------------------------------
GROSS CARRYING ACCUMULATED TOTAL NET
VALUE AMORTIZATION BOOK VALUE
-------------- ------------ ----------
(IN MILLIONS)

License agreements............ $ 15.0 $ 6.2 $ 8.8
Trademarks and other.......... 15.2 6.7 8.5
Patents....................... 1.6 0.5 1.1
-------- ------- --------
Total......................... $ 31.8 $ 13.4 $ 18.4
======== ======= ========

Pursuant to the adoption of SFAS No. 142 and effective July 1, 2001, trademarks
have been classified as indefinite lived assets and are no longer amortized, and
are evaluated periodically for impairment. The cost of other intangible assets
is amortized on a straight-line basis over their estimated useful lives. The
aggregate amortization expenses related to amortizable intangible assets for the
years ended June 30, 2003, 2002 and 2001 were $1.9 million, $1.5 million and
$9.6 million, respectively.

LONG-LIVED ASSETS

In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets in question may not be recoverable. An impairment would be recorded in
circumstances where undiscounted cash flows expected to be generated by an asset
are less than the carrying value of that asset.





F-12



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ACCUMULATED OTHER COMPREHENSIVE INCOME

The components of accumulated other comprehensive income (loss) ("OCI") included
in the accompanying consolidated balance sheets consist of the following:



YEAR ENDED JUNE 30
---------------------------
2003 2002 2001
------ ------ ------
(IN MILLIONS)


Net unrealized investment gains (losses), beginning of year $ (0.1) $ 2.9 $ 13.9
Unrealized investment gains (losses) ....................... 1.4 (5.0) (18.3)
Provision for deferred income taxes ........................ (0.6) 2.0 7.3
------ ------ ------
Net unrealized investment gains (losses), end of year ...... 0.7 (0.1) 2.9
------ ------ ------

Net derivative instruments, beginning of year .............. (9.1) (2.0) --
Gain (loss) on derivative instruments ...................... (1.6) (16.1) 8.8
Provision for deferred income taxes ........................ 0.5 5.5 (3.1)
Reclassification to earnings during the year ............... 13.3 5.3 (12.0)
Provision for deferred income taxes on reclassification .... (4.6) (1.8) 4.3
------ ------ ------
Net derivative instruments, end of year .................... (1.5) (9.1) (2.0)
------ ------ ------

Net minimum pension liability adjustments, beginning of year (20.3) (12.4) --
Minimum pension liability adjustments ...................... (30.8) (11.6) (19.4)
Provision for deferred income taxes ........................ 10.5 3.7 7.0
------ ------ ------
Net minimum pension liability adjustments, end of year ..... (40.6) (20.3) (12.4)
------ ------ ------

Cumulative translation adjustments, beginning of year ...... (63.0) (109.0) (71.0)
Translation adjustments .................................... 51.3 46.0 (38.0)
------ ------ ------
Cumulative translation adjustments, end of year ............ (11.7) (63.0) (109.0)
------ ------ ------

Accumulated other comprehensive income (loss) .............. ($53.1) ($92.5) ($120.5)
====== ====== ======


Of the $1.5 million, net of tax, derivative instruments loss recorded in OCI at
June 30, 2003, $3.2 million, net of tax, related to foreign currency derivatives
that the Company estimates will be classified to earnings as losses during the
next twelve months assuming exchange rates at the time of settlement are equal
to the forward rates as of June 30, 2003. Offsetting the aforementioned was a
$1.7 million, net of tax, gain relating to treasury lock agreements that expire
in September 2003 which will be settled upon the issuance of new debt, if
completed. Any realized gain or loss to be received or paid by the Company will
be amortized in interest expense over the life of the new debt.

REVENUE RECOGNITION

Generally, revenues from merchandise sales are recorded at the time the product
is shipped to the customer. The Company reports its sales levels on a net sales
basis, which is computed by deducting from gross sales the amount of actual
returns received and an amount established for anticipated returns. As a percent
of gross sales, returns were 5.2% in fiscal 2003 and 4.9% in each of fiscal 2002
and 2001.

ADVERTISING AND PROMOTION

Costs associated with advertising are expensed during the year as incurred.
Global advertising expenses, which primarily include television, radio and print
media, and promotional expenses, such as products used as sales incentives, were
$1,425.6 million, $1,326.2 million and $1,255.3 million in fiscal 2003, 2002 and
2001, respectively. These amounts include expenses relating to purchase with
purchase and gift with purchase promotions that are reflected in net sales and
cost of sales. Advertising and promotional expenses included in operating
expenses were $1,227.3 million, $1,122.0 million and $1,060.8 million in fiscal
2003, 2002, and 2001, respectively.



F-13



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RESEARCH AND DEVELOPMENT

Research and development costs, which amounted to $60.8 million, $61.3 million
and $57.3 million in fiscal 2003, 2002 and 2001, respectively, are expensed as
incurred.

RELATED PARTY ROYALTIES AND TRADEMARKS

Under agreements covering the Company's purchase of trademarks for a percentage
of related sales, royalty payments totaling $20.3 million, $16.5 million and
$16.0 million in fiscal 2003, 2002 and 2001, respectively, have been charged to
expense. Such payments were made to Mrs. Estee Lauder. During fiscal 1996, the
Company purchased a stockholder's rights to receive certain U.S. royalty
payments for $88.5 million, which was fully amortized by November 2000. In
fiscal 2001, $6.6 million was amortized as a charge to expense.

STOCK COMPENSATION

The Company observes the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," ("SFAS No. 123") by continuing to apply the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB No. 25").

The Company applies the intrinsic value method as outlined in APB No. 25 and
related interpretations in accounting for stock options and share units granted
under these programs. Under the intrinsic value method, no compensation expense
is recognized if the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of the grant.
Accordingly, no compensation cost has been recognized on options granted to
employees. SFAS No. 123 requires that the Company provide pro forma information
regarding net earnings and net earnings per common share as if compensation cost
for the Company's stock option programs had been determined in accordance with
the fair value method prescribed therein. The Company adopted the disclosure
portion of SFAS No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure" requiring quarterly SFAS No. 123 pro forma disclosure. The
following table illustrates the effect on net earnings and earnings per common
share as if the fair value method had been applied to all outstanding awards in
each period presented.



YEAR ENDED JUNE 30
------------------------------
2003 2002(i) 2001(ii)
------- ------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)


Net earnings attributed to common stock, as reported ..... $ 296.4 $ 168.5 $ 281.8
Deduct: Total stock-based employee compensation expense
determined under fair value method for all awards,
net of related tax effects ....................... 22.9 2.7 24.4
------- ------- -------
Pro forma net earnings, attributable to common stock ..... $ 273.5 $ 165.8 $ 257.4
======= ======= =======

EARNINGS PER COMMON SHARE:

Net earnings per common share - Basic, as reported ....... $ 1.27 $ .71 $ 1.18
======= ======= =======
Net earnings per common share - Basic, pro forma ......... $ 1.18 $ .70 $ 1.08
======= ======= =======

Net earnings per common share - Diluted, as reported ..... $ 1.26 $ .70 $ 1.16
======= ======= =======
Net earnings per common share - Diluted, pro forma ....... $ 1.16 $ .68 $ 1.06
======= ======= =======


- -----------
(i) Beginning in fiscal 2002, the pro forma charge for compensation cost
related to stock options granted will be recognized over the service
period. The service period represents the period of time between the date
of grant and the date each option becomes exercisable without consideration
of acceleration provisions (e.g. retirement, change of control, etc.).

(ii) In fiscal 2001, the Company determined the pro forma charge for
compensation cost assuming all options were immediately vested upon the
date of grant.



F-14



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:

YEAR ENDED JUNE 30
-------------------------------
2003 2002 2001
------- ------- -------
Average expected volatility........... 31% 31% 31%
Average expected option life.......... 7 years 7 years 7 years
Average risk-free interest rate....... 4.2% 4.9% 5.9%
Average dividend yield................ .6% .5% .5%

CONCENTRATION OF CREDIT RISK

The Company is a worldwide manufacturer, marketer and distributor of skin care,
makeup, fragrance and hair care products. Domestic and international sales are
made primarily to department stores, specialty retailers, perfumeries and
pharmacies. The Company grants credit to all qualified customers and does not
believe it is exposed significantly to any undue concentration of credit risk.

For the fiscal years ended June 30, 2003, 2002 and 2001, the Company's three
largest customers accounted for an aggregate of 24%, 25% and 28%, respectively,
of net sales. No single customer accounted for more than 10% of the Company's
net sales during fiscal 2003 or 2002. One department store group accounted for
11% of the Company's net sales in the fiscal year ended June 30, 2001. In the
same year, another department store group accounted for 10% of the Company's net
sales.

Additionally, as of June 30, 2003 and 2002, the Company's three largest
customers accounted for an aggregate of 28% of its outstanding accounts
receivable.

MANAGEMENT ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses
reported in those financial statements. Actual results could differ from those
estimates and assumptions.

DERIVATIVE FINANCIAL INSTRUMENTS

Effective July 1, 2000, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities."
These statements established accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133, as amended, requires the
recognition of all derivative instruments as either assets or liabilities in the
statement of financial position measured at fair value.

In accordance with the provisions of SFAS No. 133, as amended, the Company
recorded a non-cash charge to earnings of $2.2 million, after tax, to reflect
the change in time-value from the dates of the derivative instruments' inception
through the date of transition (July 1, 2000). This charge is reflected as the
cumulative effect of a change in accounting principle in fiscal 2001 in the
accompanying consolidated statements of earnings.





F-15



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RECENTLY ISSUED ACCOUNTING STANDARDS

In May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" ("SFAS No. 150"). SFAS No. 150 established standards for
classifying and measuring certain financial instruments with characteristics of
both liabilities and equity. It specifically requires that mandatorily
redeemable instruments, instruments with repurchase obligations which embody,
are indexed to, or obligate the repurchase of, the issuer's own equity shares,
and instruments with obligations to issue a variable number of the issuer's own
equity shares, be classified as a liability. Initial and subsequent measurements
of the instruments differ based on the characteristics of each instrument and as
provided for in the statement. SFAS No. 150 is effective for all freestanding
financial instruments entered into or modified after May 31, 2003 and otherwise
became effective at the beginning of the first interim period beginning after
June 15, 2003. The Company has adopted this statement effective for all
instruments entered into or modified after May 31, 2003 and will adopt the
statement for any existing financial instruments in the first quarter of fiscal
2004. Based on the provisions of this statement, beginning in fiscal 2004, the
Company will be classifying the $6.50 Cumulative Redeemable Preferred Stock as a
liability and the related dividends will be characterized as interest expense.
Restatement of financial statements for earlier years presented is not
permitted. The adoption of this statement will result in the inclusion of the
dividends on the preferred stock (equal to $23.4 million per year) as interest
expense. While the inclusion will impact net earnings, net earnings attributable
to common stock and earnings per common share will be unaffected. Given that the
dividends are not deductible for income tax purposes, the inclusion of the
preferred stock dividends as interest expense will cause an increase in the
Company's effective tax rate. The adoption of SFAS No. 150 will have no impact
on the Company's financial condition.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" ("SFAS No. 148"). SFAS No. 148
provides alternative methods of transition for a voluntary change to the fair
value method of accounting for stock-based employee compensation as originally
defined by SFAS No. 123. Additionally, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosure in both the annual
and interim financial statements about the method of accounting for stock-based
compensation and the effect of the method used on reported results. The
transitional requirements of SFAS No. 148 are effective for all financial
statements for fiscal years ending after December 15, 2002. The Company adopted
the disclosure portion of this statement for the fiscal quarter ended March 31,
2003. The application of the disclosure portion of this standard has no impact
on the Company's consolidated financial position or results of operations. The
FASB recently indicated that it will require stock-based employee compensation
to be recorded as a charge to earnings pursuant to a standard on which it is
currently deliberating. The FASB anticipates issuing an Exposure Draft in the
fourth quarter of 2003 and a final statement in the second quarter of 2004. The
Company will continue to monitor the FASB's progress on the issuance of this
standard as well as evaluate its position with respect to current guidance.

NOTE 3 -- PUBLIC OFFERINGS

During October 2001, a member of the Lauder family sold 5,000,000 shares of
Class A Common Stock in a registered public offering. The Company did not
receive any proceeds from the sale of these shares.

NOTE 4 -- ACQUISITION OF BUSINESSES AND LICENSE ARRANGEMENTS

On April 30, 2003, the Company completed the acquisition of the Paris-based
Darphin group of companies that develops, manufactures and markets the "Darphin"
brand of skin care and makeup products. The initial purchase price, paid at
closing, was funded by cash provided by operations, the payment of which did not
have a material effect on the Company's results of operations or financial
condition. An additional payment is expected to be made in fiscal 2009, the
amount of which will depend on future net sales and earnings of the Darphin
business.

At various times during fiscal 2003, 2002 and 2001, the Company acquired
businesses engaged in the wholesale distribution and retail sale of Aveda
products, as well as other products, in the United States and other countries.
In fiscal 2002, the Company purchased an Aveda wholesale distributor business in
Korea and acquired the minority interest of its Aveda joint venture in the
United Kingdom.



F-16



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In fiscal 2001, the Company purchased a wholesale distributor business in
Israel, a majority interest of the wholesale distributor business in Chile and
created a joint venture in Greece in which the Company owns a controlling
majority interest. In fiscal 2002, the Company acquired the remaining minority
interest of its joint venture in Chile.

The aggregate purchase price for these transactions, which includes acquisition
costs, was $50.4 million, $18.5 million, and $16.0 million in fiscal 2003, 2002
and 2001, respectively, and each transaction was accounted for using the
purchase method of accounting. Accordingly, the results of operations for each
of the acquired businesses are included in the accompanying consolidated
financial statements commencing with its date of original acquisition. Pro forma
results of operations, as if each of such businesses had been acquired as of the
beginning of the year of acquisition, have not been presented, as the impact on
the Company's consolidated financial results would not have been material.

Subsequent to year-end, the Company acquired the Rodan & Fields skin care line
(see Note 20).

In May 2003, the Company entered into a license agreement for fragrances and
beauty products under the "Michael Kors" trademarks with Michael Kors L.L.C. and
purchased certain related rights and inventory from American Designer
Fragrances, a division of LVMH.

NOTE 5 -- RESTRUCTURING AND SPECIAL CHARGES

During the fourth quarter of fiscal 2003, the Company recorded a special pre-tax
charge of $22.0 million, or $13.5 million after-tax, equal to $.06 per diluted
common share, in connection with the proposed settlement of a legal proceeding
brought against a number of defendants including the Company (see Note 15). The
amount of the charge in this case is significantly larger than similar charges
the Company has incurred individually or in the aggregate for legal proceedings
in any prior year.

During the fourth quarter of fiscal 2002, the Company recorded a restructuring
charge related to repositioning certain businesses as part of its ongoing
efforts to drive long-term growth and increase profitability. The restructuring
focused on cost reduction opportunities related to the Internet, supply chain,
globalization of the organization and distribution channel refinements. The
Company committed to a defined plan of action, which resulted in an aggregate
pre-tax charge of $117.4 million, of which $59.4 million is cash related. On an
after-tax basis, the aggregate charge was $76.9 million, equal to $.32 per
diluted share.

Specifically, the charge includes the following:

o INTERNET. In an effort to achieve strategic objectives, reduce costs and
improve profitability, the Company outsourced Gloss.com platform
development and maintenance efforts to a third-party provider.
Additionally, Gloss.com closed its San Francisco facility and consolidated
its operations in New York. As a result, included in the charge is a $23.9
million provision for restructuring the Gloss.com operations, including
benefits and severance packages for 36 employees as well as asset
write-offs. The Company also took a $20.1 million charge to write-off the
related Gloss.com acquisition goodwill.

o SUPPLY CHAIN. Building on previously announced supply chain initiatives,
the Company restructured certain manufacturing, distribution, research and
development, information systems and quality assurance operations in the
United States, Canada and Europe, which included benefits and severance
packages for 110 employees. A charge of $23.7 million was recorded related
to this effort.

o GLOBALIZATION OF ORGANIZATION. The Company continued to implement its
transition, announced in fiscal 2001, to a global brand structure designed
to streamline the decision making process and increase innovation and
speed-to-market. The next phase of this transition entailed eliminating
duplicate functions and responsibilities, which resulted in charges for
benefits and severance for 122 employees. The Company recorded a charge of
$27.1 million associated with these efforts.



F-17



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

o DISTRIBUTION. The Company evaluated areas of distribution relative to its
financial targets and decided to focus its resources on the most productive
sales channels and markets. As a result, the Company closed its operations
in Argentina and the remaining customers are being serviced by the
Company's Chilean affiliate. The Company began closing all remaining
in-store "tommy shops" and other select points of distribution. The Company
recorded a $22.6 million provision related to these actions, which included
benefits and severance for 85 employees.

Following is a summary of the charges as recorded in the consolidated statement
of earnings for fiscal 2002:

RESTRUCTURING
------------------------------
NET COST OF OPERATING
SALES SALES EXPENSES TOTAL
------ ------- --------- ------
(IN MILLIONS)

Internet .................... $ -- $ -- $ 44.0 $ 44.0
Supply chain ................ -- -- 23.7 23.7
Globalization of organization -- -- 27.1 27.1
Distribution ................ 6.2 0.8 15.6 22.6
------ ------ ------ ------
TOTAL CHARGE ................ $ 6.2 $ 0.8 $110.4 117.4
====== ====== ======
Tax effect .................. (40.5)
------
NET CHARGE .................. $ 76.9
======

The restructuring charge was recorded in other accrued liabilities or, where
applicable, as a reduction of the related asset. During fiscal 2003 and 2002,
$32.2 million and $9.3 million, respectively, related to this restructuring was
paid. As of June 30, 2003 and 2002, the restructuring accrual balance was $21.9
million and $54.1 million, respectively, and the Company expects to settle a
majority of the remaining obligations by the end of fiscal 2004 with certain
additional payments made ratably through fiscal 2006.

During the fourth quarter of fiscal 2001, the Company recorded one-time charges
for restructuring and special charges related to repositioning certain
businesses as part of the Company's ongoing efforts to drive long-term growth
and increase profitability. The restructuring and special charges focused on
four areas: product fixtures for the jane brand; in-store "tommy shops";
information systems and other assets; and global brand reorganization. The
Company committed to a defined plan of action, which resulted in an aggregate
pre-tax charge of $63.0 million, of which $35.9 million is cash related. On an
after-tax basis, the aggregate charge was $40.3 million, equal to $.17 per
diluted share.

Specifically, the charge included the following:

o jane. jane switched from its traditional wall displays to a carded program.
The charge included a $16.1 million write-down of existing jane product
fixtures and the return of uncarded product from virtually all of the
distribution outlets in the United States.

o "tommy shops". The Company restructured the in-store "tommy shops" to
focus on the most productive locations and decided to close certain shops
that underperformed relative to expectations. As a result, the Company
recorded a $6.3 million provision for the closing of 86 under-performing
in-store tommy's shops, located in the United States, and for related
product returns.

o INFORMATION SYSTEMS AND OTHER ASSETS. In response to changing technology
and the Company's new strategic direction, the charge included a $16.2
million provision for costs associated with the reevaluation of supply
chain systems that the Company no longer utilized and with the elimination
of unproductive assets related to the change to standard financial systems.

o GLOBAL BRAND REORGANIZATION. The Company recorded $20.8 million related to
benefits and severance packages for 75 management employees who were
affected by the reconfiguration to a global brand structure and another
$3.6 million related to infrastructure costs.



F-18



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Following is a summary of the charges as recorded in the consolidated statement
of earnings for fiscal 2001:



RESTRUCTURING
-----------------------------
NET COST OF OPERATING SPECIAL
SALES SALES EXPENSES CHARGES TOTAL
----- ------- --------- ------- -----
(IN MILLIONS)

jane ............................... $ 5.7 $ 1.5 $ 4.8 $ 4.1 $16.1
"tommy shops" ...................... 2.3 (0.4) 4.4 -- 6.3
Information systems and other assets -- -- 4.6 11.6 16.2
Global brand reorganization ........ -- -- 23.8 0.6 24.4
----- ----- ----- ----- -----
TOTAL CHARGE ....................... $ 8.0 $ 1.1 $37.6 $16.3 63.0
===== ===== ===== =====
Tax effect ......................... (22.7)
-----
NET CHARGE ......................... $40.3
=====


The restructuring charge was recorded in other accrued liabilities or as a
reduction of fixed assets. During fiscal 2003, 2002 and 2001, $4.7 million,
$26.7 million and $0.7 million, respectively, was paid. As of June 30, 2003 and
2002, the remaining obligation was $2.6 million and $7.1 million, respectively,
with remaining payments expected to be made ratably through fiscal 2004.

NOTE 6 -- INCOME TAXES

The provision for income taxes is comprised of the following:

YEAR ENDED JUNE 30
--------------------------------
2003 2002 2001
------ ------ ------
(IN MILLIONS)

Current:
Federal .......................... $ 34.8 $ 38.3 $ 72.3
Foreign .......................... 84.0 92.2 89.3
State and local .................. 5.2 6.5 7.7
------ ------ ------
124.0 137.0 169.3
------ ------ ------

Deferred:
Federal .......................... 33.5 (13.2) 3.7
Foreign .......................... 1.9 (8.9) 0.5
State and local .................. 1.1 (0.5) 0.5
------ ------ ------
36.5 (22.6) 4.7
------ ------ ------
$160.5 $114.4 $174.0
====== ====== ======





F-19



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation between the provision for income taxes computed by applying the
statutory Federal income tax rate to earnings before income taxes and minority
interest and the actual provision for income taxes is as follows:

YEAR ENDED JUNE 30
------------------------------
2003 2002 2001
------ ------ ------
(IN MILLIONS)

Provision for income taxes at statutory rate $170.4 $116.1 $169.2
Increase (decrease) due to:
State and local income taxes, net of
Federal tax benefit .................. 4.1 3.9 5.3
Effect of foreign operations ........... (1.0) (0.9) (2.9)
Domestic royalty expense not
deductible for U.S. tax purposes ..... -- -- 1.6
Other nondeductible expenses ........... 1.7 3.2 3.8
Tax credits ............................ (12.5) (2.1) --
Other, net ............................. (2.2) (5.8) (3.0)
------ ------ ------
Provision for income taxes ................. $160.5 $114.4 $174.0
====== ====== ======

Effective tax rate ......................... 33.0% 34.5% 36.0%
====== ====== ======

Significant components of the Company's deferred income tax assets and
liabilities as of June 30, 2003 and 2002 were as follows:



2003 2002
------ ------
(IN MILLIONS)


Deferred tax assets:
Deferred compensation and other payroll related expenses ... $ 55.4 $ 53.3
Inventory obsolescence and other inventory related reserves 55.9 58.5
Pension plan reserves ...................................... 7.1 26.2
Postretirement benefit obligations ......................... 22.9 25.9
Various accruals not currently deductible .................. 76.4 72.0
Net operating loss and credit carryforwards ................ 16.3 1.5
Other differences between tax and financial statement values 8.0 9.4
------ ------
242.0 246.8
Valuation allowance for deferred tax assets ................ (2.9) (1.5)
------ ------
Total deferred tax assets ............................... 239.1 245.3
------ ------

Deferred tax liabilities:
Depreciation and amortization .............................. (84.0) (60.2)
Other differences between tax and financial statement values (0.4) --
------ ------
Total deferred tax liabilities .......................... (84.4) (60.2)
------ ------
Total net deferred tax assets ........................ $154.7 $185.1
====== ======


As of June 30, 2003 and 2002, the Company had current net deferred tax assets of
$116.0 million and $112.4 million, respectively, which are included in prepaid
expenses and other current assets in the accompanying consolidated balance
sheets, and noncurrent net deferred tax assets of $38.7 million and $72.7
million, respectively.

Federal income and foreign withholding taxes have not been provided on $476.6
million, $473.5 million and $476.4 million of undistributed earnings of
international subsidiaries at June 30, 2003, 2002 and 2001, respectively. The
Company intends to permanently reinvest these earnings in its foreign
operations, except where it is able to repatriate these earnings to the United
States without any material incremental tax provision.



F-20



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2003 and 2002, certain international subsidiaries had tax loss
carryforwards for local tax purposes of approximately $14.7 million and $10.2
million, respectively. With the exception of $3.9 million of losses with an
indefinite carryforward period as of June 30, 2003, these losses expire at
various dates through fiscal 2008. Deferred tax assets in the amount of $2.9
million and $1.5 million as of June 30, 2003 and 2002, respectively, have been
recorded to reflect the tax benefits of the losses not utilized to date. A full
valuation allowance has been provided since, in the opinion of management, it is
more likely than not that the deferred tax assets will not be realized.

Earnings before income taxes and minority interest include amounts contributed
by the Company's international operations of $393.1 million, $283.4 million and
$307.2 million for fiscal 2003, 2002 and 2001, respectively. Some of these
earnings are taxed in the United States.

NOTE 7 -- OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of the following:

JUNE 30
----------------
2003 2002
------ ------
(IN MILLIONS)

Advertising and promotional accruals ......... $266.2 $213.5
Employee compensation ........................ 195.9 169.9
Restructuring and special charges ............ 46.5 61.2
Other ........................................ 195.4 182.0
------ ------
$704.0 $626.6
====== ======

NOTE 8 -- DEBT

The Company's short-term and long-term debt and available financing consist of
the following:



DEBT AT AVAILABLE FINANCING AT
JUNE 30 JUNE 30
------------------- ------------------------------------------
COMMITTED UNCOMMITTED
------------------ --------------------
2003 2002 2003 2002 2003 2002
-------- -------- -------- -------- -------- --------
(IN MILLIONS)

Commercial paper with an average
interest rate of 1.81% in fiscal 2002 ... $ -- $ 130.0 $ -- $ -- $ 750.0 $ 620.0
6% Senior Notes, due January 15, 2012 .... 257.1 248.9 -- -- -- --
2% Japan loan payable, due in installments
through April 2003 ...................... -- 5.8 -- -- -- --
1.45% Japan loan payable, due on
March 28, 2006 .......................... 25.2 25.0 -- -- -- --
Other long-term borrowings ............... 1.3 -- -- -- -- --
Other short-term borrowings .............. 7.8 0.8 -- -- 156.6 22.9
Revolving credit facility ................ -- -- 400.0 400.0 -- --
Shelf registration for debt securities ... -- -- -- -- 500.0 150.0
-------- -------- -------- -------- -------- --------
291.4 410.5 $ 400.0 $ 400.0 $1,406.6 $ 792.9
======== ======== ======== ========
Less current maturities .................. (7.8) (6.6)
-------- --------
$ 283.6 $ 403.9
======== ========


Historically, outstanding commercial paper had been classified as long-term debt
based upon the Company's intent and ability to refinance maturing commercial
paper on a long-term basis. It is the Company's policy to maintain backup
facilities to support the commercial paper program and its classification as
long-term debt. During fiscal 2003, the Company repaid all of its outstanding
commercial paper obligations.



F-21



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of June 30 2003, the Company had outstanding $257.1 million of 6% Senior
Notes due January 2012 ("6% Senior Notes") consisting of $250.0 million
principal, an unamortized debt discount of $1.0 million, and an $8.1 million
adjustment to reflect the fair value of an outstanding interest rate swap. The
6% Senior Notes, when issued in January 2002, were priced at 99.538% with a
yield of 6.062%. Interest payments are required to be made semi-annually on
January 15 and July 15 of each year. In May 2003, the Company entered into an
interest rate swap agreement with a notional amount of $250.0 million to
effectively convert the fixed rate interest on our outstanding 6% Senior Notes
to variable interest rates based on LIBOR.

During fiscal 1998, the Company entered into a 2% loan payable in Japan.
Principal repayments of 350.0 million yen, approximately $2.9 million at current
rates, were made semi-annually through 2003. As of June 30, 2003, this loan had
been repaid.

As of June 30, 2003, other long-term borrowings consisted primarily of several
term loans held by the Darphin group of companies, which was acquired by the
Company in April 2003 (see Note 4). These loans have various maturities through
July 2007 with variable and fixed interest rates ranging from 2.5% to 5.8%.

The Company maintains uncommitted credit facilities in various regions
throughout the world. Interest rate terms for these facilities vary by region
and reflect prevailing market rates for companies with strong credit ratings.
During fiscal 2003 and 2002, the monthly average amount outstanding was
approximately $1.4 million and $12.9 million, respectively, and the annualized
monthly weighted average interest rate incurred was approximately 5.4% and 4.1%,
respectively.

Effective June 28, 2001, the Company entered into a five-year $400.0 million
revolving credit facility, expiring on June 28, 2006, which includes an annual
fee of .07% on the total commitment. At June 30, 2003 and 2002, the Company was
in compliance with all related financial and other restrictive covenants,
including limitations on indebtedness and liens.

The Company also had an effective shelf registration statement covering the
potential issuance of up to $500.0 million and $150.0 million in debt securities
at June 30, 2003 and 2002, respectively.

NOTE 9 -- FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

The company addresses certain financial exposures through a controlled program
of risk management that includes the use of derivative financial instruments.
The Company primarily enters into foreign currency forward exchange contracts
and foreign currency options to reduce the effects of fluctuating foreign
currency exchange rates. The Company, if necessary, enters into interest rate
derivatives to manage the effects of interest rate movements on the Company's
aggregate liability portfolio. The Company categorizes these instruments as
entered into for purposes other than trading.





F-22



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

All derivatives are recognized on the balance sheet at their fair value. On the
date the derivative contract is entered into, the Company designates the
derivative as (i) a hedge of the fair value of a recognized asset or liability
or of an unrecognized firm commitment ("fair value" hedge), (ii) a hedge of a
forecasted transaction or of the variability of cash flows to be received or
paid related to a recognized asset or liability ("cash flow" hedge), (iii) a
foreign-currency fair-value or cash-flow hedge ("foreign currency" hedge), (iv)
a hedge of a net investment in a foreign operation, or (v) other. Changes in the
fair value of a derivative that is highly effective as (and that is designated
and qualifies as) a fair-value hedge, along with the loss or gain on the hedged
asset or liability that is attributable to the hedged risk (including losses or
gains on firm commitments), are recorded in current-period earnings. Changes in
the fair value of a derivative that is highly effective as (and that is
designated and qualifies as) a cash-flow hedge are recorded in other
comprehensive income, until earnings are affected by the variability of cash
flows (e.g., when periodic settlements on a variable-rate asset or liability are
recorded in earnings). Changes in the fair value of derivatives that are highly
effective as (and that are designated and qualify as) foreign-currency hedges
are recorded in either current-period earnings or other comprehensive income,
depending on whether the hedge transaction is a fair-value hedge (e.g., a hedge
of a firm commitment that is to be settled in a foreign currency) or a cash-flow
hedge (e.g., a foreign-currency-denominated forecasted transaction). If,
however, a derivative is used as a hedge of a net investment in a foreign
operation, its changes in fair value, to the extent effective as a hedge, are
recorded in accumulated other comprehensive income within equity. Furthermore,
changes in the fair value of other derivative instruments are reported in
current-period earnings.

For each derivative contract entered into where the Company looks to obtain
special hedge accounting treatment, the Company formally documents all
relationships between hedging instruments and hedged items, as well as its
risk-management objective and strategy for undertaking the hedge transaction.
This process includes linking all derivatives that are designated as fair-value,
cash-flow, or foreign-currency hedges to specific assets and liabilities on the
balance sheet or to specific firm commitments or forecasted transactions. The
Company also formally assesses, both at the hedge's inception and on an ongoing
basis, whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items. If
it is determined that a derivative is not highly effective, or that it has
ceased to be a highly effective hedge, the Company will be required to
discontinue hedge accounting with respect to that derivative prospectively.

FOREIGN EXCHANGE RISK MANAGEMENT

The Company enters into forward exchange contracts to hedge anticipated
transactions as well as receivables and payables denominated in foreign
currencies for periods consistent with the Company's identified exposures. The
purpose of the hedging activities is to minimize the effect of foreign exchange
rate movements on costs and on the cash flows that the Company receives from
foreign subsidiaries. Almost all foreign currency contracts are denominated in
currencies of major industrial countries and are with large financial
institutions rated as strong investment grade by a major rating agency. The
Company also enters into foreign currency options to hedge anticipated
transactions where there is a high probability that anticipated exposures will
materialize. The forward exchange contracts and foreign currency options entered
into to hedge anticipated transactions have been designated as cash-flow hedges.
As of June 30, 2003, these cash-flow hedges were highly effective, in all
material respects.





F-23



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As a matter of policy, the Company only enters into contracts with
counterparties that have at least an "A" (or equivalent) credit rating. The
counterparties to these contracts are major financial institutions. The Company
does not have significant exposure to any one counterparty. Exposure to credit
loss in the event of nonperformance by any of the counterparties is limited to
only the recognized, but not realized, gains attributable to the contracts.
Management believes risk of loss under these hedging contracts is remote and in
any event would not be material to the Company's consolidated financial results.
The contracts have varying maturities through the end of June 2004. Costs
associated with entering into such contracts have not been material to the
Company's consolidated financial results. The Company does not utilize
derivative financial instruments for trading or speculative purposes. At June
30, 2003, the Company had foreign currency contracts in the form of forward
exchange contracts and option contracts in the amount of $476.7 million and
$57.7 million, respectively. The foreign currencies included in forward exchange
contracts (notional value stated in U.S. dollars) are principally the Euro
($114.0 million), Swiss franc ($61.9 million), Japanese yen ($56.0 million),
British pound ($49.8 million), Canadian dollar ($37.7 million), South Korean won
($37.6 million) and Australian dollar ($30.6 million). The foreign currencies
included in the option contracts (notional value stated in U.S. dollars) are
principally the Swiss franc ($21.9 million), Canadian dollar ($21.0 million) and
Euro ($11.7 million). At June 30, 2002, the Company had foreign currency
contracts in the form of forward exchange contracts in the amount of $227.2
million. The foreign currencies included in these contracts (notional value
stated in U.S. dollars) are principally the Japanese yen ($70.7 million), Euro
($31.7 million), British pound ($26.2 million), Australian dollar ($16.0
million), Swiss franc ($11.8 million), Danish krone ($11.6 million) and Canadian
dollar ($10.5 million).

INTEREST RATE RISK MANAGEMENT

The Company enters into interest rate derivative contracts to manage the
exposure to fluctuations of interest rates on its funded and unfunded
indebtedness, as well as cash investments, for periods consistent with the
identified exposures. All interest rate derivative contracts are with large
financial institutions rated as strong investment grade by a major rating
agency.

In May 2003, the Company entered into an interest rate swap agreement with a
notional amount of $250.0 million to effectively convert fixed interest on the
existing 6% Senior Notes to a variable interest rate based on LIBOR. The
interest rate swap was designated as a fair value hedge. As of June 30, 2003,
the fair value hedge was highly effective, in all material respects.

Information regarding the interest rate swap is presented in the following
table:

YEAR ENDED OR AT JUNE 30, 2003
----------------------------------------
WEIGHTED AVERAGE
NOTIONAL ---------------------------
(IN MILLIONS) AMOUNT PAY RATE RECEIVE RATE
- --------------------------------------------------------------------------------
Interest rate swap $ 250.0 3.21% 6.00%
- --------------------------------------------------------------------------------

Additionally, in May 2003, the Company entered into a series of treasury lock
agreements on a notional amount totaling $195.0 million at a weighted average
all-in rate of 4.53%. These treasury lock agreements expire in September 2003
and are used to hedge the exposure to a possible rise in interest rates prior to
the anticipated issuance of new debt, if completed. The agreements will be
settled upon the issuance of the new debt and any realized gain or loss to be
received or paid by the Company will be amortized in interest expense over the
life of new debt. The treasury lock agreements were designated as cash flow
hedges. As of June 30, 2003, the cash flow hedges were highly effective, in all
material respects.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:

Cash and cash equivalents:
The carrying amount approximates fair value, primarily because of
the short maturity of cash equivalent instruments.



F-24



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-term debt:
The fair value of the Company's long-term debt was estimated based on
the current rates offered to the Company for debt with the same
remaining maturities. Included in such amount, where applicable, is the
fair value of the Company's commercial paper.

Cumulative redeemable preferred stock:
The fair value of the cumulative redeemable preferred stock is
estimated utilizing a cash flow analysis at a discount rate equal to
rates available for debt with terms similar to the preferred stock.

Foreign exchange and interest rate contracts:
The fair value of forwards, swaps, options and treasury rate locks is
the estimated amount the Company would receive or pay to terminate the
agreements.

The estimated fair values of the Company's financial instruments are as follows:



JUNE 30
-------------------------------------------
2003 2002
------------------- --------------------
CARRYING FAIR CARRYING FAIR
(IN MILLIONS) AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------- -------- ------- -------- --------

NONDERIVATIVES
Cash and cash equivalents........................ $ 364.1 $364.1 $ 546.9 $ 546.9
Long-term debt, including current portion........ 291.4 320.9 410.5 415.6
Cumulative redeemable preferred stock............ 360.0 389.8 360.0 374.9

DERIVATIVES
Forward exchange contracts....................... (6.5) (6.5) (14.8) (14.8)
Foreign currency option contracts................ 3.6 3.6 -- --
Interest rate swap contract...................... 8.1 8.1 -- --
Treasury rate lock contracts..................... 2.6 2.6 -- --



NOTE 10 -- PENSION, DEFERRED COMPENSATION AND POSTRETIREMENT BENEFIT PLANS

The Company maintains pension plans covering substantially all of its full-time
employees for its U.S. operations and a majority of its international
operations. Several plans provide pension benefits based primarily on years of
service and employees' earnings. In certain instances, the Company adjusts
benefits in connection with international employee transfers.

RETIREMENT GROWTH ACCOUNT PLAN (U.S.)

The Retirement Growth Account Plan is a trust-based, noncontributory defined
benefit pension plan. The Company's funding policy consists of an annual
contribution at a rate that provides for future plan benefits and maintains
appropriate funded percentages. Such contribution is not less than the minimum
required by the Employee Retirement Income Security Act of 1974, as amended,
("ERISA") and subsequent pension legislation and is not more than the maximum
amount deductible for income tax purposes.

RESTORATION PLAN (U.S.)

The Company also has an unfunded, nonqualified domestic benefit Restoration Plan
to provide benefits in excess of Internal Revenue Code limitations.

INTERNATIONAL PENSION PLANS

The Company maintains International Pension Plans, the most significant of which
are defined benefit pension plans. The Company's funding policies for these
plans are determined by local laws and regulations.



F-25



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

POSTRETIREMENT BENEFITS

The Company maintains a domestic contributory postretirement benefit plan which
provides certain medical and dental benefits to eligible employees. Employees
hired after January 1, 2002 will not be eligible for retiree medical benefits
when they retire. Certain retired employees who are receiving monthly pension
benefits are eligible for participation in the plan. Contributions required and
benefits received by retirees and eligible family members are dependent on the
age of the retiree. It is the Company's practice to fund these benefits as
incurred. The cost of the Company-sponsored programs is not significant.

Certain of the Company's international subsidiaries and affiliates have
postretirement plans, although most participants are covered by
government-sponsored or administered programs.

The significant components of the above mentioned plans as of and for the year
ended June 30 are summarized as follows:



OTHER THAN
PENSION PLANS PENSION PLANS
--------------------------------------- ----------------
U.S. INTERNATIONAL POSTRETIREMENT
----------------- ----------------- ----------------
(IN MILLIONS) 2003 2002 2003 2002 2003 2002
------ ------ ------ ------ ------ ------

CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year ............ $310.3 $280.4 $154.7 $131.5 $ 43.7 $ 43.2
Service cost .................................... 15.1 13.5 8.5 7.9 2.2 1.8
Interest cost ................................... 21.2 20.6 8.1 7.2 3.2 2.9
Plan participant contributions .................. -- -- 1.1 0.9 0.1 0.1
Actuarial loss (gain) ........................... 19.8 10.8 18.9 3.6 14.5 (1.9)
Foreign currency exchange rate impact ........... -- -- 15.0 13.8 -- --
Benefits paid ................................... (11.5) (14.9) (6.0) (10.2) (1.9) (1.9)
Plan amendments ................................. 3.8 (0.1) -- -- -- (0.5)
Settlements and curtailments .................... -- -- (9.3) -- -- --
------ ------ ------ ------ ------ ------
Benefit obligation at end of year .................. 358.7 310.3 191.0 154.7 61.8 43.7
------ ------ ------ ------ ------ ------

CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year ..... 201.8 179.7 116.3 104.6 -- --
Actual return on plan assets .................... 9.3 (9.5) (13.2) (0.9) -- --
Foreign currency exchange rate impact ........... -- -- 9.9 10.5 -- --
Employer contributions .......................... 77.8 46.5 16.4 11.4 1.8 1.8
Plan participant contributions .................. -- -- 1.1 0.9 0.1 0.1
Settlements and curtailments .................... -- -- (3.6) -- -- --
Benefits paid from plan assets .................. (11.5) (14.9) (6.0) (10.2) (1.9) (1.9)
------ ------ ------ ------ ------ ------
Fair value of plan assets at end of year ........... 277.4 201.8 120.9 116.3 -- --
------ ------ ------ ------ ------ ------

Funded status ...................................... (81.3) (108.5) (70.1) (38.4) (61.8) (43.7)
Unrecognized net actuarial loss (gain) ............. 128.1 104.4 73.4 37.2 6.4 (8.1)
Unrecognized prior service cost .................... 7.6 4.0 2.4 2.5 (0.2) (0.2)
Unrecognized net transition (asset) obligation ..... -- (1.5) 0.3 0.6 -- --
------ ------ ------ ------ ------ ------
Prepaid (accrued) benefit cost ..................... $ 54.4 ($ 1.6) $ 6.0 $ 1.9 ($55.6) ($52.0)
====== ====== ====== ====== ====== ======

AMOUNTS RECOGNIZED IN THE BALANCE SHEETS CONSIST OF:
Prepaid benefit cost ............................ $101.5 $ 39.5 $ 12.9 $ 10.1 $ -- $ --
Accrued benefit liability ....................... (56.4) (47.3) (60.6) (40.1) (55.6) (52.0)
Intangible asset ................................ 0.7 0.2 0.5 1.0 -- --
Minimum pension liability ....................... 8.6 6.0 53.2 30.9 -- --
------ ------ ------ ------ ------ ------
Net amount recognized ........................... $ 54.4 ($ 1.6) $ 6.0 $ 1.9 ($55.6) ($52.0)
====== ====== ====== ====== ====== ======




F-26



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



OTHER THAN
PENSION PLANS PENSION PLANS
------------------------------------------------------------ --------------------------
U.S. INTERNATIONAL POSTRETIREMENT
---------------------------- --------------------------- --------------------------
2003 2002 2001 2003 2002 2001 2003 2002 2001
------ ------ ------ ------ ------ ------ ------ ------ ------


WEIGHTED-AVERAGE ASSUMPTIONS
Pre-retirement discount rate . 5.75% 7.00% 7.50% 2.75- 2.75- 3.00- 5.75% 7.00% 7.50%
7.00% 7.00% 7.25%

Postretirement discount rate . 4.75% 5.75% 6.00% -- -- -- -- -- --

Expected return on assets .... 8.50% 9.00% 9.00% 4.50- 4.50- 5.00- N/A N/A N/A
8.25% 8.25% 8.50%

Rate of compensation 3.00- 4.50- 5.00- 1.75- 1.75- 2.00- N/A N/A N/A
increase .................... 9.50% 11.00% 11.50% 4.00% 4.00% 5.50%

COMPONENTS OF NET PERIODIC
BENEFIT COST (IN MILLIONS)
Service cost, net ............ $ 15.1 $ 13.5 $ 12.3 $ 8.5 $ 8.0 $ 8.0 $ 2.2 $ 1.8 $ 1.9
Interest cost ................ 21.2 20.6 19.7 8.1 7.2 6.7 3.2 2.9 3.0
Expected return on assets .... (18.3) (17.3) (16.2) (9.2) (8.3) (7.4) -- -- --
Amortization of:
Transition (asset) obligation (1.5) (1.5) (1.4) 0.3 0.2 0.2 -- -- --
Prior service cost .......... 0.2 0.4 0.4 0.2 0.2 0.2 -- -- --
Actuarial loss (gain) ....... 5.1 2.6 1.1 1.5 1.0 0.9 (0.1) (0.4) (0.2)
Settlements and curtailments -- -- -- 2.3 -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Net periodic benefit cost .... $ 21.8 $ 18.3 $ 15.9 $ 11.7 $ 8.3 $ 8.6 $ 5.3 $ 4.3 $ 4.7
====== ====== ====== ====== ====== ====== ====== ====== ======


Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates for fiscal 2003 would have had the following
effects:



ONE-PERCENTAGE-POINT ONE-PERCENTAGE-POINT
(IN MILLIONS) INCREASE DECREASE
-------------------- --------------------


Effect on total service and interest costs $0.7 ($0.6)
---- -----
Effect on postretirement benefit obligations $6.8 ($6.1)
---- -----



The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the Company's pension plans at June 30 are as follows:



PENSION PLANS
---------------------------------------------------------------
RETIREMENT GROWTH
ACCOUNT RESTORATION INTERNATIONAL
----------------- ---------------- -----------------
(IN MILLIONS) 2003 2002 2003 2002 2003 2002
---- ---- ---- ---- ---- ----

Projected Benefit Obligation....... $286.6 $244.7 $72.1 $65.6 $191.0 $154.7
Accumulated Benefit Obligation..... 238.7 191.5 56.4 47.3 160.7 127.9
Fair Value of Plan Assets.......... 277.4 201.8 -- -- 120.9 116.3





F-27



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

International pension plans with accumulated benefit obligations in excess of
the plans' assets had aggregate projected benefit obligations of $137.8 million
and $113.3 million, aggregate accumulated benefit obligations of $119.1 million
and $97.2 million and aggregate fair value of plan assets of $68.9 million and
$66.3 million at June 30, 2003 and 2002, respectively.

401(K) SAVINGS PLAN (U.S.)

The Company's 401(k) Savings Plan ("Savings Plan") is a contributory defined
contribution plan covering substantially all regular U.S. employees who have
completed the hours and service requirements, as defined by the plan document.
Effective January 1, 2002, regular full-time employees are eligible to
participate in the Plan on the first day of the second month following their
date of hire. The Savings Plan is subject to the applicable provisions of ERISA.
The Company matches a portion of the participant's contributions after one year
of service under a predetermined formula based on the participant's contribution
level and years of service. The Company's contributions were approximately $9.1
million in fiscal 2003 and $6.7 million for the fiscal years ended June 30, 2002
and 2001. Shares of the Company's Class A Common Stock are not an investment
option in the Savings Plan and the Company does not use such shares to match
participants' contributions.

DEFERRED COMPENSATION

The Company accrues for deferred compensation and interest thereon and for the
increase in the value of share units pursuant to agreements with certain key
executives and outside directors. The amounts included in the accompanying
consolidated balance sheets under these plans were $109.2 million and $95.7
million as of June 30, 2003 and 2002, respectively. The expense for fiscal 2003
was $17.4 million and for fiscal 2002 and 2001 was $11.6 million in each year.

NOTE 11 -- POSTEMPLOYMENT BENEFITS OTHER THAN TO RETIREES

The Company provides certain postemployment benefits to eligible former or
inactive employees and their dependents during the period subsequent to
employment but prior to retirement. These benefits include health care coverage
and severance benefits. Generally, the cost of providing these benefits is
accrued and any incremental benefits were not material to the Company's
consolidated financial results.

NOTE 12 -- $6.50 CUMULATIVE REDEEMABLE PREFERRED STOCK, AT REDEMPTION VALUE

As of June 30, 2003, the Company's authorized capital stock included 23.6
million shares of preferred stock, par value $.01 per share, of which 3.6
million shares are outstanding and designated as $6.50 Cumulative Redeemable
Preferred Stock. The outstanding preferred stock was issued in June 1995 in
exchange for nonvoting common stock of the Company owned by The Estee Lauder
1994 Trust.

Holders of the $6.50 Cumulative Redeemable Preferred Stock are entitled to
receive cumulative cash dividends at a rate of $6.50 per annum per share payable
in quarterly installments. Such dividends have preference over all other
dividends of stock issued by the Company. Shares are subject to mandatory
redemption on June 30, 2005 at a redemption price of $100 per share. Following
such date and so long as such mandatory redemption obligations have not been
discharged in full, no dividends may be paid or declared upon the Class A or
Class B Common Stock, or on any other capital stock ranking junior to or in
parity with such $6.50 Cumulative Redeemable Preferred Stock and no shares of
Class A or Class B Common Stock or such junior or parity stock may be redeemed
or acquired for any consideration by the Company. Under certain circumstances,
the Company may redeem the stock, in whole or in part, prior to the mandatory
redemption date. Holders of such stock may put such shares to the Company at a
price of $100 per share upon the occurrence of certain events.

The Company recorded the $6.50 Cumulative Redeemable Preferred Stock at its
redemption value of $360.0 million and charged this amount, net of the par value
of the shares of nonvoting common stock exchanged, to stockholders' equity in
fiscal 1995.



F-28



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 -- COMMON STOCK

As of June 30, 2003, the Company's authorized common stock consists of 650
million shares of Class A Common Stock, par value $.01 per share, and 240
million shares of Class B Common Stock, par value $.01 per share. Class B Common
Stock is convertible into Class A Common Stock, in whole or in part, at any time
and from time to time at the option of the holder, on the basis of one share of
Class A Common Stock for each share of Class B Common Stock converted. Holders
of the Company's Class A Common Stock are entitled to one vote per share and
holders of the Company's Class B Common Stock are entitled to ten votes per
share.

Information about the Company's common stock outstanding is as follows:

CLASS A CLASS B
--------- ---------
(SHARES IN THOUSANDS)

BALANCE AT JUNE 30, 2000 .............. 124,181.7 113,679.3
Acquisition of treasury stock ......... (0.9) --
Conversion of Class B to Class A ...... 189.0 (189.0)
Stock option programs ................. 806.2 --
--------- ---------
BALANCE AT JUNE 30, 2001 .............. 125,176.0 113,490.3
Acquisition of treasury stock ......... (1,500.0) --
Conversion of Class B to Class A ...... 5,077.8 (5,077.8)
Stock option programs ................. 436.3 --
--------- ---------
BALANCE AT JUNE 30, 2002 .............. 129,190.1 108,412.5
Acquisition of treasury stock ......... (11,245.2) --
Conversion of Class B to Class A ...... 950.0 (950.0)
Share grants .......................... 4.0 --
Share units converted ................. 0.8 --
Stock option programs ................. 1,094.0 --
--------- ---------
BALANCE AT JUNE 30, 2003 .............. 119,993.7 107,462.5
========= =========


On September 18, 1998, the Company's Board of Directors authorized a share
repurchase program to repurchase a total of up to 8.0 million shares of Class A
Common Stock in the open market or in privately negotiated transactions,
depending on market conditions and other factors. In October 2002, the Board of
Directors authorized the repurchase of up to 10.0 million additional shares of
Class A Common Stock increasing the total authorization under the share
repurchase program to 18.0 million shares. As of June 30, 2003, approximately
13.8 million shares have been purchased under this program.

NOTE 14 -- STOCK PROGRAMS

The Company has established the Fiscal 2002 Share Incentive Plan, the Fiscal
1999 Share Incentive Plan, the Fiscal 1996 Share Incentive Plan and the
Non-Employee Director Share Incentive Plan (collectively, the "Plans") and,
additionally, has made available stock options and share units that were, or
will be, granted pursuant to these Plans and certain employment agreements.
These stock-based compensation programs are described below.

Total net compensation expense attributable to the granting of share units and
the increase in value of existing share units was $1.4 million and $0.7 million
in fiscal 2003 and 2001, respectively. Total net compensation income
attributable to the granting of share units and the related decrease in value of
existing share units was $0.2 million in fiscal 2002.




F-29



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SHARE INCENTIVE PLANS

The Plans provide for the issuance of 30,750,000 shares to be awarded in the
form of stock options, stock appreciation rights and other stock awards to key
employees and stock options, stock awards and stock units to non-employee
directors of the Company. As of June 30, 2003, 6,457,000 shares of Class A
Common Stock were reserved and were available to be granted pursuant to the
Plans. The exercise period for all stock options generally may not exceed ten
years from the date of grant. Pursuant to the Plans, stock option awards in
respect of 6,651,200, 2,175,300 and 2,709,500 shares were granted in fiscal
2003, 2002 and 2001, respectively, and share units in respect of 57,800, 50,000
and 43,100 shares were granted in fiscal 2003, 2002 and 2001, respectively.
During 2003, approximately 800 share units were converted into shares of Class A
Common Stock. During fiscal 2002, 40,700 share units were cancelled without the
issuance of any shares, but the value of such units was transferred to a
deferred compensation account. Generally, the stock option awards become
exercisable at various times through January 2007, while the share units will be
paid out in shares of Class A Common Stock at a time to be determined by the
Company.

In addition to awards made by the Company, certain outstanding stock options
were assumed as part of the October 1997 acquisition of Sassaby. Of the 221,200
originally issued options to acquire shares of the Company's Class A Common
Stock, 14,100 were outstanding as of June 30, 2003, all of which were
exercisable and will expire through May 2007.

EXECUTIVE EMPLOYMENT AGREEMENTS

The executive employment agreements provide for the issuance of 11,400,000
shares to be awarded in the form of stock options and other stock awards to
certain key executives. The Company has reserved 661,600 shares of its Class A
Common Stock pursuant to such agreements as of June 30, 2003. In accordance with
such employment agreements approximately 1,400 share units were granted in
fiscal 2003 and 900 share units were granted in fiscal 2002 and 2001. The
reserve is solely for dividend equivalents on units granted pursuant to one of
the agreements. Most of the stock options granted pursuant to the agreements are
exercisable and expire at various times from November 2005 through July 2009.
The share units will be paid out in shares of Class A Common Stock at a time to
be determined by the Company, but no later than 90 days subsequent to the
termination of employment of the executive.

A summary of the Company's stock option programs as of June 30, 2003, 2002 and
2001, and changes during the years then ended, is presented below:



2003 2002 2001
---------------------- ---------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
(SHARES IN THOUSANDS) SHARES PRICE SHARES PRICE SHARES PRICE
- --------------------------------------- ---------- --------- ---------- --------- ---------- ---------


Outstanding at beginning of year....... 24,843.5 $35.10 23,393.2 $34.55 21,914.1 $33.14
Granted at fair value............... 6,651.2 32.02 2,175.3 39.07 2,709.5 42.80
Exercised........................... (1,094.0) 15.16 (435.4) 17.85 (806.0) 16.50
Cancelled or Expired................ (858.5) 43.10 (289.6) 46.38 (424.4) 48.19
--------- --------- ---------
Outstanding at end of year............. 29,542.2 34.93 24,843.5 35.10 23,393.2 34.55
========= ========= =========

Options exercisable at year-end........ 16,425.6 32.31 13,149.5 27.59 8,497.6 21.69
========= ========= =========
Weighted-average fair value of
options granted during the year..... $ 12.35 $ 16.02 $ 17.01
========= ========= =========





F-30



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summarized information about the Company's stock options outstanding and
exercisable at June 30, 2003 is as follows:



OUTSTANDING EXERCISABLE
---------------------------------- -----------------------
EXERCISE AVERAGE AVERAGE AVERAGE
PRICE RANGE OPTIONS (a) LIFE (b) PRICE (c) OPTIONS (a) PRICE (c)
- -------------------- ----------- -------- --------- ----------- ---------


$ 3.10 14.1 4.3 $ 3.10 14.1 $ 3.10
$13.00 to $20.813 2,668.8 2.4 13.08 2,668.8 13.08
$21.313 to $30.52 5,960.1 4.1 23.88 5,478.9 23.37
$31.875 to $47.625 14,541.2 7.6 36.14 4,371.3 37.30
$49.75 to $53.50 6,358.0 6.1 51.77 3,892.5 52.14
-------- --------
$ 3.10 to $53.50 29,542.2 34.93 16,425.6 32.31
======== ========


- ----------
(a) Shares in thousands.
(b) Weighted average contractual life remaining in years.
(c) Weighted average exercise price.


Subsequent to June 30, 2003, the Company granted options under the terms of the
Plans described above to purchase an additional 2,211,200 of the Company's Class
A Common Stock with an exercise price equal to fair market value on the date of
grant. In addition, subsequent to June 30, 2003 the Company granted
approximately 58,500 share units to a key executive pursuant to the terms of the
Fiscal 2002 Share Incentive Plan.

NOTE 15 -- COMMITMENTS AND CONTINGENCIES

Total rental expense included in the accompanying consolidated statements of
earnings was $147.8 million in fiscal 2003, $142.8 million in fiscal 2002 and
$120.9 million 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 Estee 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 Company has responded
to the objection. Revlon also may appeal the decision to the Court of Appeals
for the Federal Circuit.




F-31



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In July 2003, the Company entered into a settlement agreement with the
plaintiffs, the other manufacturer defendants and the department store
defendants in a consolidated 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 wrongdoing 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 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 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 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 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 proceedings incident to the
ordinary course of its business. In management's opinion, the outcome of pending
legal proceedings, separately and in the aggregate, will not have a material
adverse effect on the Company's business or consolidated financial results.

NOTE 16 -- NET UNREALIZED INVESTMENT GAINS

Under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," available-for-sale securities are recorded at market value.
Unrealized holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported as a
component of stockholders' equity until realized. The Company's investments
subject to the provisions of SFAS No. 115 are treated as available-for-sale and,
accordingly, the applicable investments have been adjusted to market value with
a corresponding adjustment, net of tax, to net unrealized investment gains in
accumulated other comprehensive income. Included in accumulated other
comprehensive income was an unrealized investment gain (net of deferred taxes)
of $0.7 million at June 30, 2003 and an unrealized investment loss (net of
deferred taxes) of $0.1 million at June 30, 2002.

NOTE 17 -- STATEMENT OF CASH FLOWS

SUPPLEMENTAL DISCLOSURE OF SIGNIFICANT NON-CASH TRANSACTIONS

As a result of stock option exercises, the Company recorded tax benefits of $7.9
million, $2.9 million and $7.2 million during fiscal 2003, 2002 and 2001,
respectively, which are included in additional paid-in capital in the
accompanying consolidated financial statements.

As of June 30, 2003, the Company had a current asset and an equal and offsetting
increase in long-term debt of $8.1 million reflecting the fair market value of
an interest rate swap which was classified as a fair value hedge of the 6%
Senior Notes (see Note 8).



F-32



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 -- SEGMENT DATA AND RELATED INFORMATION

Reportable operating segments, as defined by SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," include components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker (the "Chief
Executive") in deciding how to allocate resources and in assessing performance.
As a result of the similarities in the manufacturing, marketing and distribution
processes for all of the Company's products, much of the information provided in
the consolidated financial statements is similar to, or the same as, that
reviewed on a regular basis by the Chief Executive. Although the Company
operates in one business segment, beauty products, management also evaluates
performance on a product category basis.

While the Company's results of operations are also reviewed on a consolidated
basis, the Chief Executive reviews data segmented on a basis that facilitates
comparison to industry statistics. Accordingly, net sales, depreciation and
amortization, and operating income are available with respect to the manufacture
and distribution of skin care, makeup, fragrance, hair care and other products.
These product categories meet the Financial Accounting Standards Board's
definition of operating segments and therefore, additional financial data are
provided below. The "other" segment includes the sales and related results of
ancillary products and services that do not fit the definition of skin care,
makeup, fragrance and hair care.

The Company evaluates segment performance based upon operating income, which
represents earnings before income taxes, minority interest and net interest
income or expense. The accounting policies for each of the reportable segments
are the same as those described in the summary of significant accounting
policies, except for depreciation and amortization charges, which are allocated,
primarily, based upon net sales. The assets and liabilities of the Company are
managed centrally and are reported internally in the same manner as the
consolidated financial statements, thus no additional information is produced
for the Chief Executive or included herein.

YEAR ENDED JUNE 30
-----------------------------------
2003 2002 2001
-------- -------- --------
(IN MILLIONS)
SEGMENT DATA
NET SALES:
Skin Care..................... $1,893.7 $1,703.3 $1,660.7
Makeup........................ 1,909.4 1,790.5 1,721.6
Fragrance..................... 1,059.6 1,017.3 1,085.1
Hair Care..................... 228.9 215.8 180.7
Other......................... 26.0 23.0 27.6
-------- -------- --------
5,117.6 4,749.9 4,675.7
Restructuring................. -- (6.2) (8.0)
-------- -------- --------
$5,117.6 $4,743.7 $4,667.7
======== ======== ========
DEPRECIATION AND AMORTIZATION:
Skin Care..................... $ 62.2 $ 58.3 $ 48.6
Makeup........................ 69.2 60.0 64.1
Fragrance..................... 35.5 36.0 32.6
Hair Care..................... 7.1 6.5 9.6
Other......................... 0.8 1.2 1.4
-------- -------- --------
$ 174.8 $ 162.0 $ 156.3
======== ======== ========





F-33



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



YEAR ENDED JUNE 30
--------------------------------
2003 2002 2001
-------- -------- --------
(IN MILLIONS)

OPERATING INCOME:
Skin Care................................ $ 273.2 $ 248.4 $ 266.9
Makeup................................... 198.0 183.2 212.5
Fragrance................................ 32.1 13.4 63.6
Hair Care................................ 14.8 13.7 13.1
Other.................................... (1.0) 0.1 2.5
-------- -------- --------
517.1 458.8 558.6
Reconciliation:
Restructuring and special charges........ (22.0) (117.4) (63.0)
Interest expense, net.................... (8.1) (9.8) (12.3)
-------- -------- --------
Earnings before Income Taxes, Minority
Interest and Accounting Change......... $ 487.0 $ 331.6 $ 483.3
======== ======== ========

GEOGRAPHIC DATA

NET SALES:
The Americas............................. $2,953.4 $2,878.2 $2,857.8
Europe, the Middle East & Africa......... 1,506.4 1,261.1 1,221.8
Asia/Pacific............................. 657.8 610.6 596.1
-------- -------- --------
5,117.6 4,749.9 4,675.7
Restructuring............................ -- (6.2) (8.0)
-------- -------- --------
$5,117.6 $4,743.7 $4,667.7
======== ======== ========

OPERATING INCOME:
The Americas............................. $ 246.7 $ 222.9 $ 299.9
Europe, the Middle East & Africa......... 227.7 179.9 201.8
Asia/Pacific............................. 42.7 56.0 56.9
-------- -------- --------
517.1 458.8 558.6
Restructuring and special charges........ (22.0) (117.4) (63.0)
-------- -------- --------
$ 495.1 $ 341.4 $ 495.6
======== ======== ========


JUNE 30
--------------------------------
2003 2002 2001
-------- -------- --------
(IN MILLIONS)


Total Assets:
The Americas............................. $2,272.7 $2,467.1 $2,379.9
Europe, the Middle East & Africa......... 831.1 703.3 610.3
Asia/Pacific............................. 246.1 246.1 228.6
-------- -------- --------
$3,349.9 $3,416.5 $3,218.8
======== ======== ========

LONG-LIVED ASSETS (property, plant
and equipment):
The Americas............................. $ 446.2 $ 458.4 $ 445.2
Europe, the Middle East & Africa......... 132.2 99.6 70.5
Asia/Pacific............................. 29.3 22.7 13.0
-------- -------- --------
$ 607.7 $ 580.7 $ 528.7
======== ======== ========





F-34



THE ESTEE LAUDER COMPANIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19 -- UNAUDITED QUARTERLY FINANCIAL DATA

The following summarizes the unaudited quarterly operating results of the
Company for the years ended June 30, 2003 and 2002:



QUARTER ENDED
-------------------------------------------------
SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30 TOTAL YEAR
------------ ----------- --------- --------- ----------
(IN MILLIONS, EXCEPT PER SHARE DATA)


FISCAL 2003
Net sales ............. $ 1,242.5 $ 1,412.7 $ 1,239.4 $ 1,223.0 $ 5,117.6
Gross profit .......... 885.4 1,041.3 922.8 932.4 3,781.9
Operating income ...... 114.4 170.0 127.8 82.9 495.1
Net earnings .......... 73.4 109.6 83.8 53.0 319.8
Basic EPS ............. .29 .45 .34 .21 1.27
Diluted EPS ........... .28 .44 .33 .20 1.26

FISCAL 2002
Net sales ............. $ 1,194.8 $ 1,298.2 $ 1,121.7 $ 1,129.0 $ 4,743.7
Gross profit .......... 849.5 954.9 803.4 862.5 3,470.3
Operating income (loss) 152.9 143.5 81.1 (36.1) 341.4
Net earnings (loss) ... 97.1(a) 90.1 50.7 (25.4) 212.5(a)
Basic EPS ............. .30(a) .35 .19 (.13) .71(a)
Diluted EPS ........... .30(a) .35 .19 (.13) .70(a)


(a) Net earnings for the Quarter ended September 30, 2001 includes a one-time
charge of $20.6 million or $.08 per common share, attributable to the
cumulative effect of adopting SFAS No. 142, "Goodwill and Other Intangible
Assets."


NOTE 20 -- UNAUDITED SUBSEQUENT EVENT

Pursuant to the Company's authorized share repurchase program, subsequent to
June 30, 2003, the Company purchased an additional 0.4 million shares of Class A
Common Stock for $12.3 million bringing the cumulative total of acquired shares
to 14.2 million under this program.

Subsequent to June 30, 2003, the Company acquired the Rodan & Fields skin care
line. The initial purchase price, paid at closing, was funded by cash provided
by operations, the payment of which did not have a material effect on the
Company's results of operations or financial condition. The Company expects to
make additional payments between fiscal 2007 and 2011 based on certain
conditions.





F-35



INDEPENDENT AUDITORS' REPORT ON SCHEDULE


The Board of Directors and Stockholders
The Estee Lauder Companies Inc.:

Under date of August 8, 2003, we reported on the consolidated balance sheets of
The Estee Lauder Companies Inc. and subsidiaries as of June 30, 2003 and 2002,
and the related consolidated statements of earnings, stockholders' equity and
comprehensive income, and cash flows for the years then ended, which are
included in this filing on Form 10-K. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedule (Schedule II - Valuation and
Qualifying Accounts) for 2003 and 2002 in this filing on Form 10-K. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.

In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.


/s/ KPMG LLP

New York, New York
August 8, 2003






S-1



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE


To The Estee Lauder Companies Inc.:

We have audited, in accordance with auditing standards generally accepted in the
United States, the financial statements of The Estee Lauder Companies Inc. and
subsidiaries included in this Annual Report on Form 10-K and have issued our
report thereon dated August 10, 2001. Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. This
schedule (Schedule II - Valuation and Qualifying Accounts) is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in our audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.


Arthur Andersen LLP
New York, New York
August 10, 2001



This is a copy of the audit report previously issued by Arthur Andersen LLP in
connection with our filing on Form 10-K for the fiscal year ended June 30, 2001.
This audit report has not been reissued by Arthur Andersen LLP in connection
with this filing on Form 10-K. See Exhibit 23.2 for further discussion.







S-2



THE ESTEE LAUDER COMPANIES INC.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED JUNE 30, 2003
(IN MILLIONS)



- ------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------
(1) (2)
BALANCE CHARGED TO CHARGED TO BALANCE
AT BEGINNING COSTS AND OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- -------------------------------------- ------------ ---------- ---------- ---------- ---------


Reserves deducted in the balance sheet
from the assets to which they apply:

ALLOWANCE FOR DOUBTFUL ACCOUNTS:

Year ended June 30, 2003 $ 30.6 $ 31.5 -- $ 30.3(a) $ 31.8
====== ====== ====== ======

Year ended June 30, 2002 $ 26.8 $ 28.6 -- $ 24.8(a) $ 30.6
====== ====== ====== ======

Year ended June 30, 2001 $ 31.7 $ 20.7 -- $ 25.6(a) $ 26.8
====== ====== ====== ======

ACCRUED RESTRUCTURING AND SPECIAL CHARGES:

Year ended June 30, 2003 (b) $ 61.2 $ 22.0 -- $ 36.7 $ 46.5
====== ====== ====== ======

Year ended June 30, 2002 (b) $ 35.2 $ 62.3 -- $ 36.3 $ 61.2
====== ====== ====== ======

Year ended June 30, 2001 (b) $ -- $ 35.9 -- $ 0.7 $ 35.2
====== ====== ====== ======


- ----------
(a) Includes amounts written-off, net of recoveries.
(b) Included in other accrued liabilities.


S-3




THE ESTEE LAUDER COMPANIES INC.

INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
------- -----------

3.1 Restated Certificate of Incorporation, dated November 16, 1995.

3.2 Certificate of Amendment to Restated Certificate of Incorporation
(filed as Exhibit 3.1 to our Quarterly Report on Form 10-Q for
the quarter ended December 31, 1999).*

3.3 Amended and Restated By-laws (filed as Exhibit 3.2 to our
Quarterly Report on Form 10-Q for the quarter ended December 31,
1999).*

4.1 Indenture, dated as of November 5, 1999, between the Company and
State Street Bank and Trust Company, N.A. (filed as Exhibit 4 to
Amendment No. 1 to our Registration Statement on Form S-3 (No.
333-85947) on November 5, 1999).*

4.2 Officers' Certificate, dated January 10, 2002, defining certain
terms of the 6% Senior Notes due 2012 (filed as Exhibit 4.2 to
our Quarterly Report on Form 10-Q for the quarter ended December
31, 2001(the "FY 2002 Q2 10-Q")).*

4.3 Global Note for the 6% Senior Notes due 2012 (filed as Exhibit
4.3 to the FY 2002 Q2 10-Q).*

10.1 Stockholders' Agreement, dated November 22, 1995.

10.1a Amendment No. 1 to Stockholders' Agreement (filed as Exhibit 10.1
to our Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996).*

10.1b Amendment No. 2 to Stockholders' Agreement (filed as Exhibit 10.2
to our Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996).*

10.1c Amendment No. 3 to Stockholders' Agreement (filed as Exhibit 10.2
to our Quarterly Report on Form 10-Q for the quarter ended March
31, 1997 (the "FY 1997 Q3 10-Q")).*

10.1d Amendment No. 4 to Stockholders' Agreement (filed as Exhibit
10.1d to our Annual Report on Form 10-K for the year ended June
30, 2000 (the "FY 2000 10-K")).*

10.1e Amendment No. 5 to Stockholders' Agreement (filed as Exhibit
10.1e to our Annual Report on Form 10-K for the year ended June
30, 2002 (the "FY 2002 10-K")).*

10.2 Registration Rights Agreement, dated November 22, 1995.

10.2a First Amendment to Registration Rights Agreement (filed as
Exhibit 10.3 to our Annual Report on Form 10-K for the fiscal
year ended June 30, 1996).*

10.2b Second Amendment to Registration Rights Agreement (filed as
Exhibit 10.1 to the FY 1997 Q3 10-Q).*

10.2c Third Amendment to Registration Rights Agreement (filed as
Exhibit 10.2c to our Annual Report on Form 10-K for the year
ended June 30, 2001 (the "FY 2001 10-K")).*

10.3 Fiscal 1996 Share Incentive Plan.+

10.4 Fiscal 1999 Share Incentive Plan (filed as Exhibit 4(c) to our
Registration Statement on Form S-8 (No. 333-66851) on November 5,
1998).* +

10.5 The Estee Lauder Companies Retirement Growth Account Plan. +

10.6 The Estee Lauder Inc. Retirement Benefits Restoration Plan (filed
as Exhibit 10.6 to our Annual Report on Form 10-K for the fiscal
year ended June 30, 1999)).* +

10.7 Executive Annual Incentive Plan (filed as Exhibit 10.2 to our
Quarterly Report on Form 10-Q for the quarter ended December 31,
1998).* +

10.8 Employment Agreement with Leonard A. Lauder (filed as Exhibit
10.8 to the FY 2001 10-K).* +

10.8a Amendment to Employment Agreement with Leonard A. Lauder (filed
as Exhibit 10.8a to the FY 2002 10-K).* +

10.8b Option Agreement, dated November 16, 1995, with Leonard A. Lauder
(Exhibit B to Mr. Lauder's 1995 employment agreement). +

10.9 Employment Agreement with Ronald S. Lauder (filed as Exhibit 10.1
to our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000).* +





THE ESTEE LAUDER COMPANIES INC.

INDEX TO EXHIBITS


10.9a Amendment to Employment Agreement with Ronald S. Lauder (filed as
Exhibit 10.9a to the FY 2002 10-K).* +

10.9b Option Agreement, dated November 16, 1995, with Ronald S. Lauder
(Exhibit B to Mr. Lauder's 1995 employment agreement). +

10.10 Employment Agreement with Fred H. Langhammer (filed as Exhibit
10.10 to the FY 2000 10-K).* +

10.10a Amendment to Employment Agreement with Fred H. Langhammer (filed
as Exhibit 10.10a to the FY 2001 10-K).* +

10.10b Amendment to Employment Agreement with Fred H. Langhammer (filed
as Exhibit 10.10b to the FY 2002 10-K).* +

10.10c Share unit and Option Agreement with Fred H. Langhammer. +

10.11 Employment Agreement with Daniel J. Brestle (filed as Exhibit
10.11 to the FY 2001 10-K).* +

10.11a Amendment to Employment Agreement with Daniel J. Brestle (filed
as Exhibit 10.11a to the FY 2002 10-K).* +

10.11b Option Agreement, dated November 16, 1995, with Daniel J. Brestle
(Schedule A to Mr. Brestle's 1995 employment agreement).+

10.12 Employment Agreement with William P. Lauder (filed as Exhibit
10.1 to our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2003).* +

10.13 Employment Agreement with Patrick Bousquet-Chavanne (filed as
Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001).* +

10.13a Amendment to Employment Agreement with Patrick Bousquet-Chavanne
(filed as Exhibit 10.13a to the FY 2002 10-K).* +

10.14 Form of Deferred Compensation Agreement (interest-based) with
Outside Directors (filed as Exhibit 10.14 to the FY 2001 10-K).*+

10.15 Form of Deferred Compensation Agreement (stock-based) with
Outside Directors (filed as Exhibit 10.15 to the FY 2001 10-K).*+

10.16 Non-Employee Director Share Incentive Plan (filed as Exhibit 4(d)
to our Registration Statement on Form S-8 (No. 333-49606) filed
on November 9, 2000).* +

10.17 Fiscal 2002 Share Incentive Plan (filed as Exhibit 4(d) to our
Registration Statement on Form S-8 (No. 333-72684) on November 1,
2001).* +

21.1 List of significant subsidiaries.

23.1 Consent of KPMG LLP.

23.2 Notice regarding consent of Arthur Andersen LLP.

24.1 Power of Attorney.

31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 (CEO).

31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 (CFO).

32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CEO).
(furnished)

32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CFO).
(furnished)

- ----------
* Incorporated herein by reference.

+ Exhibit is a management contract or compensatory plan or arrangement.