2003 ANNUAL REPORT
Year ended August 31, 2003

FAST RETAILING CO., LTD.

Our Mission
FAST RETAILING CO., LTD., is a modern
Japanese company that owns andoperates the UNIQLO casual clothing
brand. Our mission is to inspire theworld to dress casual.

1

Our Products
UNIQLO clothes can be worn anywhere, at anytime, and by anyone. Our goal is to continue
offering fashionable, superior-quality basic casual wear at the lowest possible prices.
We want people of all ages to enjoy wearing our basic casual clothes for their fabric, color, and style. From our warm,
light-weight but highly functional fleece jackets to our women’s merino rib turtleneck sweaters in 12 different colors,
we cater for one and all. Autumn 2003 also saw the launch of men’s shirts made from choice European fabric andcashmere sweaters made from premium Inner Mongolian cashmere.

2

Our Production
FAST RETAILING maintains close control of all stages—from product planning, fabricdevelopment and procurement, and manufacturing to distribution and sales.
Based on customer feedback from stores, our in-house team of professionals at the UNIQLO Design Studio develops
products that are manufactured by our trusted partner factories in China. Our Japanese technical experts—the Takumi
team—have more than 30 years of experience. They provide on-site training to ensure consistent, top-class quality.
Our new Strategic Fabric Team will build close relationships with fabric manufacturers worldwide and develop
innovative materials.

3Our Stores
We at UNIQLO put our customers’ needs ahead of our own. As the most direct link to ourcustomers, our stores are at the very heart of our business.
We have a network of more than 600 stores spanning the whole of Japan. The majority of our stores are free-standing,roadside outlets located in suburban areas. But you can also spot our UNIQLO logo in shopping centers and on
downtown streets. By offering families a place where they can enjoy shopping together, our stores have becomea familiar part of everyday life in Japan.

4Our Employees
A merit-based organization, FAST RETAILING fairly evaluates each employee’s ability andperformance regardless of age, gender, or nationality.
The quality of our products and customer service depends heavily on the caliber of our employees. Therefore,
nurturing and training our staff is of the utmost importance. A good example of our emphasis on each employee’s
ability is the superstar (SS) store manager system. Under this system, we give SS store managers considerable
discretion in store operations. As an incentive, managers receive a share of store profits, which can be considerable
when their store performs well. We look forward to the day when all of our managers become superstars.

5Our Ambition
We aim to become the world’s top casual clothing company.
We have consistently set our sights high because we strongly believe that there is no life without growth and no
success without expansion. We have already gained valuable experience by setting up operations in the United
Kingdom and China, and our strategy is to enter other Asian markets and the U.S. market in the near future. We arelooking to use our excess cash for possible mergers and acquisitions that will achieve synergies with our UNIQLO
operations. Our ambition is to become a corporate group with sales of ¥1 trillion by 2010.

Worldwide Apparel Specialty StoresCompany Name

Gap
Limited Brands
Hennes & Mauritz
Inditex
Liz Claiborne
Next
FAST RETAILING
Polo Ralph Lauren
Benetton GroupTommy Hilfiger
MatalanAbercrombie & Fitch
Talbots
EspritAmerican Eagle Outfitters

U.S.
U.S.
Sweden
Spain
U.S.
U.K.
Japan
U.S.
Italy
U.S.
U.K.
U.S.
U.S.
Hong kong
U.S.

Fiscal Year

Billions of Yen

FY 2002

1,693.4
989.3
739.2
507.0
435.5
407.3
309.8
285.8
254.1
221.2
188.9
186.9
186.9
186.0
171.4

FY 2002
FY 2002
FY 2002
FY 2002
FY 2003
FY 2003
FY 2003
FY 2002
FY 2003
FY 2003
FY 2003
FY 2002
FY 2003
FY 2002

Note: Yen amounts have been translated using the approximate Tokyo foreign exchange
market rate as of August 29, 2003.
6

Social Contribution and Environmental Projects
Regardless of its performance, a company should consider more than just business. As well as always giving
our best in business, we must also make positive contributions to society.
Fleece-Recycling Program

Initiatives for the Mentally and Physically Challenged

We collect and recycle used UNIQLOFAST RETAILING supports the Special

fleeces from our customers. As of October

Olympics Japan, which promotes the

2003, we had collected more than 126,000

participation of people with mental anditems. These are then made into suchphysical disabilities in sports and in society

products as soundproofing materials andas a whole. Under Japanese law, at least

sheets for construction sites. FAST

1.8% of a company’s workforce must

RETAILING is not just about manufacturing

comprise employees with disabilities. As ofand retailing. We seek to take ourAugust 2003, employees with disabilities

operations one step further and, to that end,

made up 6.8% of UNIQLO’s staff. As awill continue striving to develop recycling

company seeking to create clothes thatmethods for clothing other than fleeces.

everyone can wear, FAST RETAILING also
wants to create a workplace in which
everyone can work.
Photograph provided by Special
Olympics Nippon

Seto Inland Sea Olive Foundation

Uniforms for Japan’s Olympic Team

Teshima, an island situated in the Seto

Following on from the 2002 WinterInland Sea, has lost a great deal of its

Olympics in Salt Lake City, FAST

greenery due to contamination from the

RETAILING will again make—free ofillegal dumping of toxic industrial waste.

charge—Japan’s official team uniform for

Kohei Nakabo and Tadao Ando establishedthe 2004 Summer Olympics in Athens. To

the Seto Inland Sea Olive Foundation inbe created by designer Kenzo Takada

2000 with the aim of planting one million

based on the concept of Show Your Colors,

trees, mainly olive, on Teshima and otherthe uniform will allow members of Japan’s

islands of the Inland Sea. We have set up

Olympic squad to express their

donation boxes at all UNIQLO stores toindividuality.

give customers the chance to contribute to
the foundation, and we match the amountof money collected.
Photograph provided by Sugano Kenji

7

Consolidated Financial Highlights
FAST RETAILING CO., LTD. and consolidated subsidiaries
Fiscal years ended August 31

Millions of yen except per share data
2003

2002

2001

Thousands of
U.S. dollars
except per share data

% change

2003

2003 vs 2002

For the Year:Net sales ........................................................

¥309,789¥344,171¥ 418,561$2,644,379–10.0%

Operating income ...........................................

41,30850,418102,081352,608–18.1

Net income .....................................................

20,93327,851

59,192

178,685–24.8¥1,119.28

$1.73

–24.7

ROE (%) ..........................................................

15.9%

23.2%

65.3%

Per share data (yen and U.S. dollars):
Net income .................................................

¥203.05¥269.54

Adjusted ..................................................

55.00

55.00

60.00

0.47

—

Unadjusted ..............................................

55.00

90.00

120.000.47—

Cash and cash equivalents .............................

¥123,733¥ 107,263¥ 157,379$1,056,193+15.4

Total assets ....................................................

219,855

210,922249,766

1,876,697+4.2

Total shareholders’ equity ...............................

140,505

123,632

116,476

1,199,359+13.6

Number of issued and outstanding shares ......

106,073,656

106,073,656

53,036,828

622

585

519

Cash dividends:

At year-end:

Total number of stores(including franchise stores) .............................

Note: U.S. dollar amounts have been translated for convenience only at the rate of ¥117.15=US$1, the approximate exchange rate prevailingon August 31, 2003.

Highlights of the Year
• Net sales of ¥309.8 billion and operating income of ¥41.3 billion exceeded initial estimates despite lower
revenues and earnings.
• Second-half revenues and earnings were up from the same period of the previous year, with net sales rising
3.7%, to ¥144.4 billion, and operating income increasing 50.5%, to ¥18.1 billion.
• Monthly sales at existing stores posted the first year-on-year increase in 23 months in August 2003.
• Annual dividends were maintained at ¥55.00 per share, for a payout ratio of 26.7%.
• The decision was made to acquire an ownership interest in U.S. company Theory LLC and a stake in Link
International Co., Ltd. (September 2003).
8• Our first stores in Shanghai, China, were opened, while our U.K. store network was strategically downsized.

FORWARD-LOOKING STATEMENTS
Statements in this annual report, other thanthose of historical fact, are forward-looking
statements about the future performanceof FAST RETAILING that are based on
management’s assumptions and beliefs inlight of information currently available, andinvolve known and unknown risks anduncertainties. Actual events and results may
differ materially from those anticipated inthese statements.

A Message from the Chairman
I want to share with you my ambition of making FAST RETAILING

challenges we face and to turn my business aims into reality. I ama corporate group with sales of ¥1 trillion by 2010. As that aim

confident our tireless efforts to build a competitive company thatsuggests, our corporate strategy going forward is one of achieving

aims high will see UNIQLO become a worldwide brand.

positive growth and expanding our horizons.
Whether a company or an individual, I firmly believe that we have

November 2003

to make every effort to create and mold our own future. There is noother way to be highly successful in whatever it is we are doing.
And, if we embark on something, we might as well make a successof it. Setting high goals helps us to grow and that, in turn, leads togreater success. That is and always has been our underlying
business concept.

Tadashi Yanai
Chairman & Chief Executive Officer

Having said that I want to make FAST RETAILING a ¥1 trillion
corporate group by 2010, of course there are several hurdles that
we must overcome to realize that goal.
One is to enhance the appeal of our UNIQLO clothes in theJapanese market. Another is to develop our operations overseas.
And, we need to move into new business areas that have clear
synergies with our UNIQLO operations and promote ourdiversification.
By getting over these hurdles, FAST RETAILING should succeed
in generating higher income levels and attaining rapid growth.
I strongly believe that there is no life without growth and no
success without expansion. I plan to continue tackling head-on the9An Interview with the President
Q. You became president of FAST RETAILING about a year ago.

10

Second, because we have full control over our integrated system

How did the Company meet its targets for fiscal 2003, ended

from production through sales, we can maintain gross profit margins

August 31, 2003?

simply by adjusting manufacturing output. In fiscal 2003, the gross

A. Even though revenues and earnings were down from the previous

profit margin improved from 43.7% in the previous year to 44.2%.

fiscal year, we exceeded our initial estimates, with consolidated net

Moreover, in the second half it rose 2.9 percentage points year onsales of ¥309.8 billion and operating income of ¥41.3 billion in fiscal

year, to 45.7%. Not only did we improve the gross profit margin, but

2003. We were able to meet our targets for sales, gross margins,

we also reduced consolidated inventories 32.7% from the previous

and SG&A expenses thanks to three key factors.

year-end—a considerable achievement.

First, changing our product strategy had a favorable impact on

And third, we made cost control one of our top priorities in fiscal

sales. In particular, we attracted larger numbers of women in their

2003. Our goal was to secure higher profit despite net sales of ¥300

30s by offering products with a fashion flavor. There has also been

billion—down from the fiscal 2001 peak of ¥400 billion. In thatan upward trend in customer numbers year on year at existing

respect, a ¥4.2 billion reduction in SG&A expenses year on year wasstores since April 2003.

another major achievement.

Q. You mentioned that changing your product strategy helped

September 2003, we set up the Strategic Fabric Team. This teamboost sales. What concrete changes have you made?

will look to establish relationships with world-class fabric producers

A. We freshened up our offerings by expanding our lineups of

to create new quality, reasonably priced clothes in the way thatfashionable items, which attracted more female customers to our

UNIQLO is famous for.

stores. As a result, the women’s clothing category, accounted for

As for our stores, we want managers and sales staff to focus more

25.0% of net sales, up 2.9 percentage points from the previous

aggressively on attaining sales and profit growth. All store managers

fiscal year.

are being encouraged to set numerical performance targets for their

Sales of women’s clothing are climbing steadily, putting us on
track to realize our medium-term target of growing the category to
account for more than 30% of net sales.

stores. We are also enhancing our training for store managers andsupervisors through the UNIQLO University program.
Regarding our operational infrastructure, we are steadily
implementing our G4 Project. The aim is to build production

Q. In fiscal 2004, FAST RETAILING is expected to post increased

adjustment systems to avoid product shortages or oversupply. The

revenues and earnings for the first time in three years. What are

G4 project is not simply about installing new operational software

your strategies for the year ahead?

systems but involves a review of all operational flows from scratch.

A. We aim to expand market shares for both men’s and women’sIn summer 2003, several new systems developed at head officeclothing. In addition, we will make greater inroads into thecame online. And, we plan the staged renewal of other operational

underwear and loungewear markets by launching new products,

systems over the next few years.

such as bras. In women’s clothing, we will work to complete our
UNIQLO WOMEN collection by continuing to develop appealing

Q. Which products have been popular with customers in thelineups that strike a balance between basic casuals and more2003 fall/winter season so far?

fashionable items. Regarding men’s clothing, last year we ran out of

A. This season, we experimented with some new, actually quite

stock of some basic summer items. This was a timely reminder ofoutstanding garments. For example, cashmere sweaters that hit

how popular basic items are among our male customers and how

stores this fall. Sales have already surpassed initial estimates,

key these items are to our overall product lineup. With that in mind,

despite the fact that this is the first time UNIQLO stores have carried

this year’s focus for men’s clothing will be to enhance the quality of

cashmere sweaters. We estimate that we have already won aboutbasic items by selecting only the best fabrics and designs. In

20% of Japan’s cashmere sweater market. Not only have we11

ensured quality by using only the finest cashmere yarn from Inner
Mongolia, but we are offering the sweaters at extremely low prices—spring/summer women’s collection.
Also, our flexible inventory control system minimizes the risk

only ¥7,900 for a men’s sweater and ¥4,900 for a women’s short-of being left with unsold stock. We control inventories of both

sleeved turtleneck. Our strategy is to create demand by making

fashionable items and basic items by analyzing weekly sales andthese lines affordable to customers who have never worn cashmere.

inventory data in detail. If a particular product isn’t selling well, we
either bring forward scheduled price discounts or halt production.

Q. By incorporating some fashion elements into your women’s

12clothing, do you increase the risk of unsold merchandise?

Q. Does FAST RETAILING have less of an advantage in the

A. No, I don’t think so. On the whole, companies that handle fashion

casual clothing market than it used to?

garments do tend to carry excess inventory. While some of ourA. Although competition in the casual wear market is becoming

clothes have a fashion flavor, they remain first and foremost basic

fiercer every year as more foreign companies enter the Japanesecasuals that customers of any age group can wear. And thanks tomarket, we will not sacrifice quality in a bid to lower prices. In fact,

brisk sales, we were left with no excess inventory from our 2003

our integrated system from production through sales still gives us aconsiderable competitive edge by enabling us to rapidly develop

Q. Is the UNIQLO baby-wear line selling well?

and bring to market high-quality, low-priced basic casuals that meet

A. Baby-wear sales have been brisk since we launched the line incustomer needs.

summer 2002. At the approximately 200 UNIQLO stores that sellOver the past few years, our casual wear has become extremely

baby clothes, the growing popularity of the products has boosted

popular in the Japanese market. But, there is always more to do. We

customer visits. By further enhancing our baby-wear lineups, we aim

continue to work hard to create new basic casuals that break the

to attract more young mothers in their 20s and 30s. Looking ahead,mold by offering outstanding quality at unheard-of prices.

we are confident that baby-wear will continue to draw customers.

Q. What level of sales is needed at existing stores to achieve

Q. FAST RETAILING opened only 32 new UNIQLO stores innonconsolidated net sales of ¥330 billion in fiscal 2004?

Japan in the second half of fiscal 2003. What are your store

A. We estimate that 1.1% year-on-year sales growth at existing

opening plans for the current fiscal year?

stores will produce nonconsolidated net sales of ¥330 billion. In

A. We intend to resume a steady pace of store openings, with a net

fiscal 2003, sales at existing stores were down 19.7% year on year

increase of 50 stores planned for fiscal 2004. We expect to open 90

due to decreases of 9.3% in the number of customers visiting storesnew stores and to close 40, giving a total of 645 stores at the end of

and 11.5% in average sales per customer for the full fiscal year.

fiscal 2004. Let me point out that none of our stores are making a

In the second half of the year, however, the decline in customer

loss. However, we do need to look at raising store efficiency. Large-

numbers bottomed out year on year, edging down 0.2%, while thescale stores with sales floors between 700 and 1,000 square meters

decrease in average sales per customer was only 8.5%. In fiscal

are much more effective for marketing new underwear and2004, we aim to attract more customers by enhancing the appeal

loungewear lines and boosting the share of women’s wear.

of our clothes and implementing effective sales campaigns.

However, of a total 595 stores at the end of August 2003, only about

Despite the ongoing decline in sales per customer, our pricing

200 were large-scale stores. We are therefore mainly opening new,strategy remains unchanged. The prices of some new products

large-scale stores. Specifically, we are focusing on scrapping small

made from premium fabrics, such as cashmere sweaters, Italian finestores with sales floors less than 500 square meters or parking formerino sweaters, and men’s shirts made from high-quality fabrics

less than 30 vehicles and then building large-scale stores nearby.

produced in Europe, are slightly higher. However, our standard

Almost all of the 40 stores to be closed this year come under thisprices remain the same, at ¥1,000, ¥1,900, and ¥2,900.

scheme.

13

Q. How are you motivating your staff to become more results

In the United Kingdom, we downsized our operations to 5 storesoriented and how do you see the employee franchise store

by closing 16 stores in June 2003. We realized that we had given too

system contributing?

much priority to the goal of opening 50 stores in three years. We

A. Our superstar store manager system is one merit-based scheme

therefore decided to change our strategy, contracting the businessin place. And, we are also hoping to encourage more managers toand focusing on the profitability of each store. Once that solid

consider employee franchises. Store manager Toshiji Yanaga

foundation is established, we can again look to expand our U.K.

opened our first employee franchise store in Kurume Kamitsu inoperations. Sales at the remaining five stores are firm, and we

October 2003. Although he is the only person participating in the

expect the U.K. subsidiary to post a profit in fiscal 2004.

employee franchise store system, there are several candidates who

Based on our experience in the United Kingdom, we will expand

may take advantage of the system in the current fiscal year.

our operations in China gradually, paying close attention to the

Ultimately, we would like to see each and every one of our 600 store

performance of each store with a view to realizing overall profitability

managers become franchisees. But to ensure the success of thein fiscal 2005. At the end of fiscal 2003, we had five stores insystem, we know we must assess potential franchisees carefully. So

Shanghai, and we believe there is substantial growth potential forfor now, we are targeting around 10 to 20% of store managers to

our casual wear operations in the Chinese market.

become franchisees over about the next five years.

In the medium term, we have also set our sights on entering the
U.S. market and other Asian markets. However, at present our

Q. What is FAST RETAILING’s strategy in overseas markets,priority is to turn a profit at our U.K. and Chinese businesses.

including the United Kingdom and China?

14

A. We want to continue taking on the challenge of establishing a

Q. What was the thinking behind the Company’s decision topresence overseas. Just as foreign competitors are entering theacquire U.S.-based Theory LLC in collaboration with Link

Japanese market, we are developing our operations abroad. This isInternational Co., Ltd.?

because we believe that if we can’t win in world markets, then we

A. We decided to acquire an ownership interest in Theory because

can’t be truly competitive in our domestic market either. With this inof its strong profitability and potential for growth. Launched in New

mind, over the next few years we hope to enter the U.S. market andYork in 1996, the theory apparel brand has become popular among

to build a greater presence in other Asian markets.

modern contemporary men and women in the U.S. and Japan, and ithas annual combined sales of more than ¥20 billion.
In Japan, Link is the licensee for the theory brand. In September
2003, FAST RETAILING and Link agreed to jointly acquire anannual earnings equally between retained earnings to ensure stable
growth, active investment and M&A in related businesses, andhigher shareholder dividends.

ownership interest in Theory. Under this agreement, Link will own
89.0% of Theory’s stock and FAST RETAILING will take a 47.1%

November 2003

stake in Link. As a result, Link will become an affiliate of FASTRETAILING accounted for by the equity method.
We will work with Link to develop theory into a global brand. FASTRETAILING not only aims to develop a network of directly managed
theory stores in the United States based on Theory’s existing
wholesale operations, but it also intends to break into Europeanand Asian markets. In the medium term, we may even consider

Genichi Tamatsuka

collaborating with Theory with a view to launching new brands.

President & Chief Operating Officer

In addition, Theory’s local connections and expertise in the U.S.
apparel industry will provide FAST RETAILING with a usefulbridgehead into the U.S. market.

Q. With respect to FAST RETAILING’s year-end cash balance of¥120 billion, what are the Company’s investment plans andpolicy on returning profits to shareholders?
A. Cash and cash equivalents at the end of fiscal 2003 stood at¥123.7 billion. FAST RETAILING aims to increase its corporate value
by pursuing M&A or investments targeting companies that canachieve synergies with its UNIQLO operations and help reach its
sales target of ¥1 trillion by 2010. To those ends, we will allocate

15

UNIQLO’s Business Model

60 Factories in China

Factory

Factory

Share Sales andProduction Information

FAST RETAILING

Products

617* Stores in Japan
Conventional-Type Stores
New Large-Type Stores

FAST RETAILING
Raw
Materials

5* Stores in U.K.

Shanghai Offices
Production Management
Quality Control

Takumi Team

8* Stores in Shanghai

Customers

Direct Sales
Catalog & Internet Sales

Customer Center

Material
Manufacturers

Headquarters
Direct Contact

Merchandising
Promotion & Marketing
Distribution & Inventory Control
Store Operation Support

UNIQLO Design Studio* As of November 30, 2003
16

Factors Underlying UNIQLO’s High Profitability

Operating =Net Sales–(1. standard prices – 2. discount)
IncomeNet Sales

Purchasing Costs(3. raw material costs + 4. sewing and knitting costs + other purchasing costs)–

SG&A Expenses(5. personnel + 6. rents + other SG&A expenses)

1. standard prices

Most prices are set at ¥1,000, ¥1,900, or ¥2,900, and we will maintain these as our standard prices. For example:
T-shirts, ¥1,000; fleece jackets, ¥1,900; chino pants, ¥2,900.

2. discountWe have two types of discount sales: limited-period sales and clearance sales.

limited-period sales“Limited-period sales” are price reductions aimed at attracting customers. These discounts are only offered for specified
periods, such as “weekends only.” Following this discount period, prices return to standard.

clearance sales“Clearance sales” are price reductions aimed at reducing slow-moving inventories. We take on 100% of the risk for
products ordered from factories in China. Our flexible production management system allows us to increase or
decrease output levels to reflect sales information. Consequently, we are able to minimize the deterioration of the grossprofit margin resulting from clearance sales.

Purchasing Costs 3. raw material costs

We are able to minimize raw material costs through the economies of scale represented by our network of 600 stores inJapan—the largest in the industry. In addition, we are able to reduce materials costs by guaranteeing 100% purchase of
raw materials ordered. For example, by industry standards, sales on a scale of 100,000 items for one product would beclassified as a major hit product. However, this figure does not represent large-scale sales for FAST RETAILING;
100,000 items is less than 10 items per store on an SKU (Stock Keeping Unit) basis:
100,000 items ÷ 581 stores ÷ (5 colors X 4 sizes) = 8.6 items
Furthermore, our size enables us to conduct direct price negotiations with major international fabric manufacturers. It
also allows us to aggressively pursue joint development of new materials, such as highly functional “air-tech” material.

SG&A Expenses

4. sewing and knitting
costs

We minimize sewing and knitting costs by improving efficiency and taking on 100% of the risk for production at
consignment factories. We actively transfer technology to consignment production factories in China, which we viewas long-term partners. The Takumi team at our offices in Shanghai is a group of Japanese technical experts whoare highly experienced in such areas as sewing and plant management. These employees go directly to consignment
production factories and pass on the textile technology expertise they have acquired in Japan over 30-45 years toyoung Chinese technicians. Through such hands-on initiatives, we are working to improve the product quality andefficiency of consignment production plants.

5. personnel

Part-time employees at stores account for most of personnel expenditure. We have been able to standardize store
operations as a result of our stores’ uniform layout, displays, shelves, and fitting rooms and our limited store types(conventional-type: 500m2; new large-type: 800m2). This allows us to run UNIQLO stores with minimum numbers of
personnel.

6. rents

Since the majority of our stores are free-standing, roadside outlets in suburban areas, the ratio of rents to sales is kept
low. And, when we open stores in urban areas or in shopping centers, we conduct detailed preliminary sales
simulations to ensure that we avoid excessive rent burdens.

17Corporate History
March 1949

November 1997

April 2001

• Men’s Shop Ogori Shoji founded as a private enterprisein Ube City, Yamaguchi Prefecture.

• The Company’s sales network grew to more than 300
direct-run stores (309) and 11 franchise stores.

May 1963

February 1998

• Joined with the Japanese Olympic Committee in an
official sponsorship.
• The Company’s sales network grew to more than 500
direct-run stores (507) and 12 franchise stores.

• Ogori Shoji Co., Ltd., established, with capital of¥6 million, as a successor to the original business.

• Head Office constructed in Yamaguchi City, Yamaguchi
Prefecture, to further enhance central management
functions and operational efficiency.
• To strengthen in-house merchandise development,
Osaka Office and Tokyo Office closed and integrated
into a single office set up in Shibuya.

June 1984• The first UNIQLO store, specializing in casual clothing,
opened in Hiroshima City (UNIQLO Fukuromachi store;
closed in August 1991).

• The Company’s name changed from Ogori Shoji to
FAST RETAILING, a name that succinctly expresses its
business philosophy.

March 1994
• To maximize efficiency, central management functions,previously dispersed, transferred to the Company’s
newly constructed Head Office in Ube City, Yamaguchi
Prefecture.

• Established FAST RETAILING (JIANGSU) APPAREL
CO., LTD., a 71.43% equity subsidiary, as thecornerstone of future business development in China.

September 2001
November 1998

September 1991

August 2001

• The first downtown store opened in the fashionable
Harajuku district of Tokyo.

• Opened four stores in the United Kingdom, in
Knightsbridge, Wimbledon, Uxbridge, and Romford.

April 2002
February 1999
• The Company’s stock listed on the First Sectionof the Tokyo Stock Exchange.

• To bolster product development capabilities, UNIQLO
Design Studio established as an independent
organization with approximately 50 designers andpattern makers from FAST RETAILING.

April 1999
• Shanghai Office established to further enhance
production management operations.

September 2002

April 1994

September 1999

• The Company’s sales network grew to more than 100
direct-run stores (109) and 7 franchise stores.

• Guangzhou Office established.
• Trial run of catalog sales conducted to explore thedevelopment of new sales avenues.

• Spun off food products project to establish FR FOODS
CO., LTD.
• Opened Shinjuku-sanchome store, with a strongemphasis on women’s clothing.
• Began operations in China by opening two storesin Shanghai.

April 2000

November 2002

• The Company’s sales network grew to more than 400
direct-run stores (417) and 12 franchise stores.
• To promote merchandising and marketing and to carryout operations more efficiently, new Tokyo Officeestablished integrating merchandising functions fromthe Yamaguchi Prefecture Head Office and the Tokyo
Design Office.

• Started full-fledged operation of food business under
the SKIP brand name.
• Opened large-type store in Sannomiya, Kobe, which
will become the Company’s flagship store in westernJapan.

July 1994• The Company’s stock listed on the Hiroshima Stock
Exchange (which was abolished in 2000).

February 1996
• FAST RETAILING entered into a joint venture with
Nichimen Corp. and local capital in Shandong
Province, China. FAST RETAILING took a 28.75%
equity interest in the venture, with the aim of securing
a reliable supply of products.

June 2000
March 1996
• The Company’s sales network grew to more than 200
direct-run stores (205) and 10 franchise stores.

• Established FAST RETAILING (U.K.) LTD.
• Prepared to set up shops in train stations, through atie-up with East Japan Railway Co. and its related
KIOSK stores.

November 1996
• Tokyo Office opened in Shibuya, Tokyo, to reinforce
the Company’s in-house product planning anddevelopment capabilities.

April 1997
• The Company’s stock listed on the Second Sectionof the Tokyo Stock Exchange.
18

August 2003
• UNIQLO (U.K.) LTD. established as part of therestructuring of U.K. operations.

September 2003
• Decided to acquire an ownership interest in U.S.
company Theory LLC and to become a shareholder of
Link International Co., Ltd.

October 2000
• Internet online sales business launched to foster newsales channels and improve customer convenience.

November 2003
• The Company’s network of UNIQLO stores in Japangrew to more than 600 direct-run stores (603) and
14 franchise stores.

Financial Section

SIX-YEAR FINANCIAL SUMMARY ............................................................. 20
MANAGEMENT’S DISCUSSION AND ANALYSIS ..................................... 21
CONSOLIDATED BALANCE SHEETS ....................................................... 26
CONSOLIDATED STATEMENTS OF INCOME ........................................... 28
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY .............. 29
CONSOLIDATED STATEMENTS OF CASH FLOWS .................................. 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .......................... 31
INDEPENDENT AUDITORS’ REPORT ....................................................... 37

19

Six-Year Financial Summary
FAST RETAILING CO., LTD. and consolidated subsidiaries
Fiscal years ended August 31
Millions of yen except per share data and other data
2001
2000

2003

2002

1999

1998

¥309,789
41,30820,93315.9%¥344,171
50,41827,851
23.2%¥418,561
102,081
59,192
65.3%¥228,986
60,62834,51470.2%¥111,082
14,344
6,817
22.9%¥83,121
6,840
2,924
11.9%

¥ 203.05
1,378.58¥ 269.54
1,215.43¥1,119.28
2,203.45¥1,303.35
2,446.34¥ 259.51
1,270.47¥111.49991.58

55.00
55.00
26.7%

55.00
90.00
20.1%

60.00
120.0010.7%

37.50
150.00
11.5%

6.75
27.00
10.5%

2.50
10.00
9.0%

Net cash provided by (used in) operating activities*.................
Net cash used in investing activities* ......................................
Net cash used in financing activities*......................................
Depreciation and amortization ....................................................
Capital expenditures ....................................................................

¥ 35,768(10,118)(10,179)
2,364
11,633¥(19,361)(9,927)(20,431)
1,942
11,020¥ 80,581(13,199)(10,955)
1,571
13,474¥68,790(5,085)(3,766)
805
6,218

¥

At year-end:
Cash and cash equivalents .........................................................
Total assets** ...............................................................................
Total shareholders’ equity** ........................................................
Equity ratio (%).............................................................................
Long-term debt ............................................................................
Debt-equity ratio (%)....................................................................

¥123,733
219,855
140,505
63.9%——¥107,263
210,922
123,632
58.6%
4,000
4.7%

¥157,379
249,766
116,476
46.6%
7,000
6.0%

¥ 99,670
151,60764,75542.7%
10,00015.4%¥39,768
73,552
33,61845.7%
10,00030.6%¥14,204
47,84826,00954.4%——

Other data:
Number of shares outstanding.................................................... 106,073,656
Total number of stores ...............................................................
622
Direct-run stores in Japan ...............................................
[582]
Franchise stores in Japan ................................................
[14]
Overseas stores ..............................................................
[26]
Total sales floor space (m2) .........................................................
335,849m2
Number of full-time employees ..................................................
1,844

106,073,656
585
[558]
[12]
[15]
305,504m2
1,853

53,036,828
519
[507]
[12]
[—]
263,713m2
1,598

26,518,414
433
[421]
[12]
[—]
186,801m2
1,265

26,461,005
368
[357]
[11]
[—]
157,424m2
1,055

26,229,924
336
[325]
[11]
[—]
143,487m2
950

For the year:
Net sales .....................................................................................
Operating income ........................................................................
Net income...................................................................................
ROE (%)........................................................................................
Per share data (yen):
Net income .............................................................................
Shareholders’ equity ..............................................................
Cash dividends:
Adjusted............................................................................
Unadjusted........................................................................
Dividend payout ratio (%).......................................................

* Statements of cash flows are disclosed from the fiscal year ended August 31, 2000.
** Due to changes in regulations relating to financial statements, treasury stock, which was recorded in “Investments and other assets” in the balance sheets
until the fiscal year ended August 31, 2001, is recorded as a deduction item in “Shareholders’ equity”.

20

—
—
—
741
3,363

¥

—
—
—
653
6,127

Management’s Discussion and Analysis
In overseas and new businesses, the U.K. subsidiary opened 6 stores and had 21

STORE NETWORK
Basic Strategy
FAST RETAILING will aggressively open new stores with a view to establishingstores at May 31, 2003, its fiscal year-end. However, 16 of those stores were closed

a 1,000-store network in Japan in the near future. However, in undertaking ourand our newly launched food subsidiary opened one store.

in June. In China, a new market for us, our apparel subsidiary opened five stores,

network expansion activities we will not compromise on profitability; each new store

Total sales floor space at fiscal year-end rose 30,345 square meters, to 335,849

has to satisfy stringent profitability benchmarks. Our network development strategy

square meters. Thanks to efforts to expand the size of existing stores, the average

is focused on opening free-standing stores at suburban roadside locations in areas

sales floor space per operational store increased 1.9% from the previous fiscal year,

where UNIQLO has yet to have a presence. These stores have low ratios of rent toto 545 square meters.

sales, which make them highly profitable. We attract customers to these roadsidestores by inserting fliers in newspapers to advertise such sales campaigns as

Number of stores opening and closures in Japan

weekend-only discounts. As we develop our store network, we also aim to increase
store size to accommodate expanded lineups of such products as underwear andwomen’s and children’s clothing. In line with its scrap-and-build strategy, FASTRETAILING is opening stores based on a new standard sales floor space of 800
square meters while closing its existing 500-square-meter-type stores. As a result ofStores opened ....................................
Stores closed .....................................
Net increase ....................................

2003

2002

2001

2000

1999

76
53
23

77
26
51

111
25
86

67
3
64

38
6
32

Note: The above figures are for direct-run UNIQLO stores only.

such efforts in recent years, the ratio of large-scale stores in the domestic network
has been steadily increasing, accounting for one-third at fiscal year-end.
At our stores in the United Kingdom and China, we offer lineups with roughly thesame standard prices as at our UNIQLO stores in Japan. In June 2003, we closed
16 U.K. stores that were performing poorly and focused management resources on
the 5 remaining stores. We do not plan any further store openings in the United
Kingdom in fiscal 2004, ending August 2004. Instead, our main goal is to achieve
profitability in our U.K. operations in the current year. In China, where we launched
our first stores in September 2002, we will carefully assess profitability before
opening additional stores.
Store Openings and Closures
In Japan, we opened 76 direct-run
UNIQLO stores and closed 53, giving a

Breakdown of Total
Direct-Run Stores by Region
China: 5

FR FOODS: 1
Hokkaido – Tohoku: 58

Kanto: 226

growth in store numbers was the result ofJapan: 582

openings that emphasized profitability andKansai: 102

and-build policy focused on increasing

franchise stores, for a total of 595 stores.

2002

2001

2000

1999

9
1
8
2
–1
1
3
6
5
34

11
28
6
5
0
1
0
15
–
66

7
54
9
11
3
1
1
–
–
86

5
41
5
10
1
0
2
–
–
64

4
16
2
10
1
–1
0
–
–
32

RESULTS OF OPERATIONSNet Sales
In fiscal 2003, ended August 31, 2003, FAST RETAILING posted a ¥34.4 billion, or
10.0% decrease in consolidated net sales, to ¥309.8 billion. Nonconsolidated sales

Chubu: 91

the aggressive implementation of a scrap-

had 581 direct-run UNIQLO stores and 14

2003

Note: The above figures are for direct-run UNIQLO stores only.

fiscal 2003. This comparatively low annual

average store size. At fiscal year-end, we

Hokkaido – Tohoku ............................
Kanto .................................................
Chubu ................................................
Kansai ................................................
Chugoku ............................................
Shikoku ..............................................
Kyushu – Okinawa ..............................
United Kingdom .................................
China ..................................................
Total ...............................................

U.K.: 21

net increase of 23 direct-run stores ina more conservative approach to store

Net increase (decrease) in stores by region

were down 11.7% from the previous fiscal year, to ¥301.8 billion. While new store
openings gave a net increase of 23 domestic direct-run UNIQLO stores at yearend, sales at existing stores fell 19.7% year on year. However, second-half

Total Stores:
608

Chugoku: 23
Shikoku: 18
Kyushu – Okinawa: 63(As of the end of fiscal 2003)

nonconsolidated sales were up 1.7% from the same period of the previous year,to ¥139.8 billion. Although this turnaround was partly attributable to new store
openings, the slowdown of the year-on-year decline in sales at existing stores in the21second half also contributed to the upturn. In fact, we substantially reduced the
26.8% drop in first-half sales at existing stores to 8.7% in the second half. Year-on-

Gross Profit Margin
The gross profit margin increased 0.5 percentage points, to 44.2%. Compared withyear monthly sales at existing stores increased for the first time in 23 months ingross profit margins of 43.7% in the previous fiscal year and 42.9% in the first half

August 2003. In addition, the decrease in average sales per customer year on yearof fiscal 2003, it is particularly noteworthy that in the second half the gross profit

at direct-run stores slowed from 12.8% in the first half to 8.5% in the second half.

margin improved to 45.8%. For three consecutive half-year periods through the first

We also saw a recovery in customer numbers at direct-run stores—from a 7.5%

half of fiscal 2003, sales remained well below targets. During that time, increased

year-on-year decrease in the first half to an 8.1% increase in the second half—

price discounts associated with the disposal of end-of-season surplus inventory

thanks to successful sales campaigns and enhanced product appeal targetingor inventory carried over from previous years’ seasons led to an unavoidable

mainly the women’s clothing category.

deterioration in gross margins. In the second half of fiscal 2003, however, we wereOverseas, our U.K. subsidiary registered sales of ¥6.8 billion in its second year ofable to minimize such price discounts thanks to higher-than-expected second-halfoperations. In fiscal 2003, our subsidiary in China and our food business subsidiarysales that prevented inventory surpluses and to disposals of carry-over inventory

began operations, posting sales of ¥0.6 billion and ¥0.7 billion, respectively.

that had been implemented by the end of the first half.

By product category, although overall sales decreased, sales in the women’s
clothing category, accounting for 25.0% of total sales, and the children’s clothing
category, representing 6.5%, rose as a result of enhanced product appeal.

SG&A Expenses
The Company reduced selling, general and administrative (SG&A) expenses ¥4.2
billion, to ¥95.8 billion. This success was due to enhanced operational efficiency
made possible by the stabilization of sales and an across-the-board review ofSales by product category
Millions of yen
2003

Children’s clothing .......................................... ¥ 20,193
Women’s clothing............................................
77,587
Outerwear .......................................................
18,312
Sweaters ........................................................
12,930
Cut & sewn .....................................................
69,150
Shirts ..............................................................
18,771
Slacks (pants) ..................................................
29,532
Accessories and underwear ............................
56,850Subtotal ....................................................... 303,325
Products supplied to franchise stores .............
3,906
Administrative charges ....................................
1,375
Fees from in-store alterations ..........................
529
Food business ................................................
654
Net sales ..................................................... ¥309,789

expenses that heightened all employees’ cost awareness. However, the ratio of

2002

2001

¥ 19,818
76,07726,017
15,66586,66622,93432,78359,182
339,142
3,676
1,087
266
–
¥344,171¥ 23,701
99,411
24,79918,498109,495
28,162
36,94372,539413,548
4,280
584
149
–
¥418,561

SG&A expenses to net sales rose 1.9 percentage points, to 30.9%, because of thedecline in sales. Personnel costs decreased ¥2.3 billion, to ¥34.1 billion, while theratio to net sales edged up 0.4 percentage points, to 11.0%. Advertising andpromotion cost were maintained at roughly the same level as in the previous fiscal
year, edging down ¥0.4 billion, at ¥19.3 billion. In our view, reducing expenditure on

Year-on-Year Sales Trend
at Existing Stores(UNIQLO Stores in Japan)

Net Sales(Billions of yen)

418.6

(%)

67.7
344.2

41.7

309.8
18.9

Notes: 1. Products supplied to franchise stores represent sales of merchandise to franchises.
2. Administrative charges are royalty income received from franchises.
3. Fees from in-store alterations comprise income from fitting and mending, such as hemming.
4. The above figures do not include consumption tax.

229.0

0

–19.7
– 28.6
111.1

FY

22

’99

’00

’01

’02

’03

FY

’99

’00

’01

’02

’03

advertising and promotion at a time when sales were trending downward would likely

The Company recorded extraordinary losses of ¥6.8 billion, mainly due to costs

have led to a steeper decline in sales. Rents increased ¥2.2 billion, to ¥23.9 billion,

associated with the downsizing of our U.K. store network of ¥4.7 billion, whichmainly due to costs associated with new store openings and the enlargement of

included losses on closure of stores and payment of severance benefits.

existing stores, which were undertaken as part of our scrap-and-build activities.

As a result of the abovementioned, net income was down 24.8%, to ¥20.9 billion,
or 6.8% of net sales. However, this figure was above our initial estimate of ¥20.2
billion. ROA was 9.7% and ROE was 15.9%.

Breakdown of SG&A expenses
2003
Millionsof yen

2002

% of
sales

%
changeMillionsof yen

% of
sales

2001
%
changeMillionsof yen

% of
sales

%
changeLIQUIDITY AND FINANCIAL CONDITION

Personnel ............ ¥34,103 11.0% –6.4% ¥36,452 10.6% –3.8% ¥37,891 9.1% +79.3%

Assets, Liabilities, and Shareholders’ Equity
In the consolidated balance sheets, total assets were up ¥8.9 billion at the end

Advertising andpromotion cost ...

19,276

6.2–2.0

19,6705.7+3.1

19,083 4.6+90.2

of fiscal 2003. Current assets and fixed assets both increased, while liabilities

Rents ..................

23,943

7.8 +10.1

21,754

6.3 +21.7

17,872 4.3+72.7

Depreciation andamortization .......

2,272

0.7 +17.7

1,931

0.6 +22.9

1,571 0.4

+95.0

Others .................

16,1605.2 –19.9

20,1805.9

21,324 5.0 +123.3

decreased due to debt repayment. As a result, retained earnings and shareholders’equity grew. On the assets side, particularly noteworthy were a rise in cash and a–5.4

Total.................... ¥95,757 30.9% –4.2% ¥99,987 29.1% +2.3% ¥97,741 23.4% +88.4%

reduction in inventories.
Total current assets increased ¥3.9 billion, to ¥170.5 billion. Cash and marketablesecurities amounted to ¥123.7 billion, up ¥16.5 billion from the previous year-end.
This improvement was largely due to net cash provided by operating activities ofOperating Income and Net Income
Operating income decreased 18.1%, to ¥41.3 billion, or 13.3% of net sales.

¥35.8 billion. Despite a net increase of 35 stores at fiscal year-end, inventories

However, operating income exceeded our initial estimates of ¥37.3 billion. Moreover,policy of trying to sell all products by the end of each retail season, not only did we

operating income was up 50.5% year on year in the second half.

rapidly dispose of inventories carried over from the previous fiscal year, we sold out

decreased ¥10.1 billion from the previous year-end, to ¥20.9 billion. Based on our

all of fiscal 2003 products before the end of their respective retail seasons. Total
current liabilities declined ¥4.1 billion from the previous year-end, to ¥78.5 billion.

Year-on-Year Monthly Trends
at Existing Stores in FY03
(UNIQLO Stores in Japan)

Gross Profit Margin
for Fiscal Half Years

Net Income and
Net Income per Share(%)(%) 49.0(Billions of yen)

9.6
6.7
1.6

–9.1

–10.1

–10.3 –9.3

–12.5
–12.2 –14.9
–15.7
–13.5

–11.0

–20.2 –17.8 –17.3 –17.4–24.3 –20.8–9.1 –9.6

–2. 7

46.4

70.2
65.3

45.8

–5.8

–8.0 –8.7

34.5
44.3

27.9

30.4
20.9

–19.3

42.9

42.9

–28.5 –25.8
–30.7

(%)

1,119.28

0
–3.1
–6.3

(Yen)

59.2
1,303.35

1.0 1.8–7.6 –8.7

ROA and ROE

269.54259.51
6.8

29.1

22.9

23.2

11.2

12.1

15.9
203.059.7–30.0

Sep. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May. Jan. Jul. Aug.

Sales
Customer Numbers
Sales per Customer

FY ’01/1st ’01/2nd ’02/1st ’02/2nd ’03/1st ’03/2nd

FY ’99Net Income

’00

’01

’02

Net Income per Share

’03

FY

’99

ROE

’00

’01

’02

’03

ROA

23

This decrease was primarily due to the repayment of ¥1.8 billion in short-term debt

DIVIDEND POLICY

and a ¥4.9 billion reduction in accounts payable, to ¥43.2 billion, which reflected

We paid a dividend of ¥35.00 per share for the second half of the year ended August

lower sales. As a result, the current ratio was 217.2%.

31, 2003, for a full-year dividend of ¥55.00 per share. The consolidated payout ratio

Fixed assets rose ¥5.0 billion, to ¥49.3 billion. The Company accounted for a ¥2.0

was 26.7%. In the current fiscal year, ending August 31, 2004, we anticipate abillion increase in buildings and structures, lease deposits, and construction assistancedividend payout of ¥100.00 per share and a payout ratio of 30.9%. Looking ahead,fund receivables from the previous year-end, to ¥40.8 billion, which was associatedwe will seek to achieve an equal allocation of annual earnings to maintain sufficientwith the opening of 88 new stores. Meanwhile, the repayment of ¥4.0 billion of long-internal funds for sustained growth; to invest aggressively in related new businesses,

term debt resulted in a ¥3.9 billion reduction in long-term liabilities, to ¥0.8 billion.

including M&A; and to return profits to shareholders through higher dividends.

Total shareholders’ equity was up ¥16.9 billion, to ¥140.5 billion, and theshareholders’ equity ratio rose from 58.6% at the end of the previous fiscal year,

OUTLOOK

to 63.9%.

In the current fiscal year, ending August 31, 2004, FAST RETAILING expects to postits first full-year increases in revenues and earnings for three years. We anticipate

Cash FlowsNet cash provided by operating activities totaled ¥35.8 billion, mainly attributable toconsolidated net sales of ¥335.2 billion, operating income of ¥59.0 billion, and net

income before income taxes of ¥34.8 billion, which more than compensated forits subsidiaries for fiscal 2004 are as follows.

income of ¥32.9 billion. Separate performance forecasts for the parent company andWe estimate that the parent company, which is responsible for UNIQLO

income taxes paid of ¥10.1 billion.
Net cash provided by operating activities offset net cash used in investing activities ofoperations in Japan, will achieve growth in revenues and earnings, with net sales¥10.1 billion, which was primarily related to new store openings and other investments,of ¥330.0 billion, operating income of ¥59.6 billion, and net income of ¥33.6 billion.

and ¥10.2 billion net cash used in financing activities, which was associated withWe expect to achieve this growth by increasing existing store sales 1.1% and by

repayments of ¥6.0 billion and dividends paid of ¥4.1 billion.

expanding our store network. In our scrap-and-build program, we plan to open 90

Consequently, cash and cash equivalents at end of year rose ¥16.5 billion, tostores and close 40, for a net increase of 50 stores. As well as revenue growth, we
expect the gross profit margin to continue its second-half recovery and improve to¥123.7 billion.

46.1%.

Total Assets andCash and Cash Equivalents(Billions of yen)

Inventories(Billions of yen)

249.8
210.9

30.4

31.0

Shareholders’ Equity andEquity Ratio

Dividend Payout Ratio(Billions of yen)

(%)

116.5
151.6

123.6
58.6

63.9
20.1

20.9

20.6

157.4

26.7

140.5

219.9

45.7

46.6
42.7

123.7
64.8

107.3

99.7

10.5

11.5

10.7

10.0

73.6

33.6
39.8

FY ’99Total Assets

24

’00

’01

’02

’03

Cash and Cash Equivalents

FY

’99

’00

’01

’02

’03

FY

’99

’00

Shareholders’ Equity

’01

’02
Equity Ratio

’03

FY

’99

’00

’01

’02

’03

FAST RETAILING has three consolidated subsidiaries: UNIQLO (U.K.) LTD., which

Breakdown of consolidated outlook for fiscal 2004

has assumed control of U.K. operations from FAST RETAILING (U.K.) LTD.; FASTRETAILING (JIANGSU) APPAREL CO., LTD. (FRJS), which is responsible for
operations in China; and FR FOODS CO., LTD., which undertakes food-related
operations in Japan. And, in September 2003 an agreement was reached whereby
we will become a shareholder of Link International Co., Ltd. (Link), and make Link anaffiliate accounted for by the equity method. However, because details had not been
finalized as of December 2003, the impact of making Link an affiliate has not been
allowed for in performance forecasts for fiscal 2004. In U.K. operations, we aim torealize a profit of ¥90 million in the current fiscal year by drastically reducing

UNIQLO businessBillions of yen

Consolidated

Net sales ............... ¥335.2
Net income/loss ....
32.9
Store openings(net increase) ....... 107 (49)Stores at
fiscal year-end ....
657

Food business

Japan

U.K.

China

¥330.0
33.6

¥2.2
0.1

¥1.0
–0.2

¥2.0
–0.6

90 (50)0 (–16)3 (1)

14 (14)

631

5

6

15

Note: The above figures are for direct-run stores only.

headquarters costs while focusing management resources on the five stores left afterrecord deficits in the current fiscal year, given that both subsidiaries are in their

Acquisition of Theory
In September 2003, FAST RETAILING and Link agreed to jointly acquire an

second year of operation and continue to carry substantial cost burdens associatedownership interest in the U.S. company Theory LLC, maker of the well-knownwith prior investment for store openings and advertising and promotion. We aim toapparel brand theory. One of the top brands targeting modern contemporary men

realize profitability in both of those operations in fiscal 2005.

and women, theory enjoys annual combined sales of more than ¥20.0 billion in thedownsizing the store network in June 2003. FRJS and FR FOODS are expected toUnited States and Japan. We decided to acquire an ownership interest in Theory
because of its profitability and potential for growth. We will work with Link to develop

Consolidated outlook for fiscal year ending August 31, 2004

theory into a global brand. And, we will consider collaborating with Theory with a
AnnualBillions of yen

Year-on-year% change

Net sales ..................... ¥335.2+8.2%
Gross profit .................
154.5 +12.7
SG&A expenses ..........
95.5
–0.3
Operating income ........
59.0 +42.8
Net income..................
32.9 +57.3
Store openings(net increase) ..............
107 (49)

First
half

Year-on-year% change

Second Year-on-year
half% change¥178.9
82.8
47.5
35.3
19.7

+8.2%
+16.6
–0.7
+52.2
+65.5

¥156.3 +8.2%
71.7 +8.5
48.0 +0.1
23.7 +30.8
13.3 +46.5

47 (13)view to launching new brands. FAST RETAILING is also looking at the possibility ofusing Theory’s local connections and expertise as a bridgehead into the U.S. market.
FAST RETAILING invested ¥6.7 billion in Link and became a 47.1% shareholder. In
addition, Link and FAST RETAILING provided Theory with a joint debt guarantee of$99 million.

60 (36)

Nonconsolidated outlook for fiscal year ending August 31, 2004
AnnualBillions of yen

Year-on-year% change

Net sales ..................... ¥330.0+9.4%
Gross profit .................
152.4 +13.1
SG&A expenses ..........
92.8
+5.1
Operating income ........
59.6 +28.2
Net income..................
33.6 +78.0
Store openings(net increase) ..............
90 (50)

First
half

Year-on-year% change

Second Year-on-year
half% change¥176.5
81.8
46.1
35.7
20.1

+9.0%
+16.9
+5.1
+36.7
+78.0

¥153.5 +9.8%
70.6 +9.0
46.7 +5.2
23.9 +17.3
13.5 +83.0

39 (21)51 (29)25

Consolidated Balance Sheets
FAST RETAILING CO., LTD. and consolidated subsidiaries
August 31, 2003 and 2002

2003

2002

Thousands of
U.S. dollars (Note 2)
2003¥ 76,447
47,286
4,277
(3)
4,274
20,8674,365
13,863
3,435
170,537¥ 67,772
39,491
3,143
(5)
3,138
30,995294
19,2295,678
166,597$ 652,557
403,636
36,509(26)
36,483
178,122
37,260118,335
29,322
1,455,715

Less—Accumulated depreciation ....................................................................................................
Net property and equipment ......................................................................................................

2,052
19,011300
255
21,618(6,898)14,7202,052
18,916390
317
21,675(5,765)
15,91017,516
162,279
2,561
2,177
184,533(58,882)
125,651

Intangible assets .................................................................................................................................

3,352

784

28,613

Investments and other assets:
Investments in securities (Note 4) .....................................................................................................
Investments in subsidiaries and affiliates ..........................................................................................
Lease deposits .................................................................................................................................
Construction assistance fund receivables (Note 14) .........................................................................
Deferred tax assets (Note 6) ............................................................................................................
Other ................................................................................................................................................
Total investments and other assets ............................................................................................
Total assets ..........................................................................................................................

584
876
12,114
16,402
128
1,142
31,246¥219,855

64
1,332
11,156
14,310139
630
27,631¥210,922

4,985
7,478
103,406
140,008
1,093
9,748
266,718$1,876,697

Millions of yen

ASSETS
Current assets:
Cash (Note 3) ..................................................................................................................................
Marketable securities (Notes 3 and 4) ..............................................................................................
Trade notes and accounts receivable ..............................................................................................
Less—Allowance for doubtful accounts ...........................................................................................
Net trade receivables .................................................................................................................
Inventories (Note 5) ..........................................................................................................................
Deferred tax assets (Note 6) ............................................................................................................
Forward exchange contracts ...........................................................................................................
Other ...............................................................................................................................................
Total current assets ..............................................................................................................
Property and equipment:
Land ................................................................................................................................................
Buildings and structures ..................................................................................................................
Furniture and equipment ..................................................................................................................
Construction in progress .................................................................................................................

See accompanying notes to consolidated financial statements.

26

Millions of yen

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilities:
Short-term debt (Note 7) .................................................................................................................
Accounts payable ............................................................................................................................
Accrued income taxes (Note 6) ........................................................................................................
Net deferred unrealized gain on forward exchange contracts ...........................................................
Other ...............................................................................................................................................
Total current liabilities .................................................................................................................

2003

¥

—
43,236
7,750
13,862
13,68278,530

2002

¥

1,809
48,146—
19,22913,40382,587

Thousands of
U.S. dollars (Note 2)
2003

$

—
369,065
66,155
118,327
116,791
670,338

Long-term liabilities:
Long-term debts (Note 8) ................................................................................................................
Other ...............................................................................................................................................
Total long-term liabilities .............................................................................................................
Total liabilities .............................................................................................................................

—
820
820
79,350

4,000
703
4,703
87,290

—
7,000
7,000
677,338

Shareholders’ equity:
Capital (Note 10) ..............................................................................................................................
Additional paid-in capital (Note 10) ..................................................................................................
Retained earnings (Note 11) ............................................................................................................
Net unrealized holding gain on securities .........................................................................................
Foreign currency translation adjustments .........................................................................................
Treasury stock, at cost (Note 12) .....................................................................................................
Total shareholders’ equity ....................................................................................................

3,274
11,579141,406
181
92(16,027)
140,505

3,274
11,579124,686
181(67)(16,021)
123,632

27,947
98,8391,207,051
1,545
785(136,808)
1,199,359¥219,855¥210,922$1,876,697

Commitments and contingencies (Note 14)

Total liabilities and shareholders’ equity ................................................................................

27

Consolidated Statements of Income
FAST RETAILING CO., LTD. and consolidated subsidiaries
For the Years Ended August 31, 2003, 2002 and 2001

2003

Millions of yen
2002

2001

Thousands of
U.S. dollars (Note 2)
2003

Net sales .........................................................................................................................
Cost of sales ...................................................................................................................
Gross profit .................................................................................................................

¥309,789
172,724
137,065¥344,171
193,766
150,405¥418,561
218,739
199,822$2,644,379
1,474,383
1,169,996

Selling, general and administrative expenses (Notes 9 and 15) ....................................
Operating income ........................................................................................................

95,75741,30899,98750,41897,741102,081817,388352,608

374
142
(332)
(178)
(627)
(1,288)(4,665)17(6,557)34,751

677
353
(407)
(65)
(709)
—
—
179
28
50,446

1,062
—
(137)
(52)
(75)
(439)
—
93
452
102,533

3,192
1,212
(2,834)(1,519)(5,352)(10,995)(39,821)145(55,972)
296,636

17,873(4,055)
13,818¥ 20,933

19,8782,717
22,595¥ 27,851

44,151(810)
43,341¥ 59,192

152,565(34,614)
117,951$ 178,685

2003

Yen
2002

2001

U.S. dollars (Note 2)
2003¥203.05—¥269.54—¥1,119.28—

Other income (expenses):
Interest and dividend income ......................................................................................
Foreign currency exchange gain ..................................................................................
Interest expenses (Notes 7 and 8) ...............................................................................
Loss on closure of stores ............................................................................................
Loss on disposal of fixed assets ..................................................................................
Loss on termination of leases ......................................................................................
Loss on liquidation of subsidiary ..................................................................................
Other, net (Note 9) ......................................................................................................
Income before income taxes ..................................................................................
Income taxes (Note 6):
Current ........................................................................................................................
Deferred ......................................................................................................................
Net income ............................................................................................................

Primary net income per share ...........................................................................................
Diluted net income per share ............................................................................................
See accompanying notes to consolidated financial statements.

28

$1.73
—

Consolidated Statements of Shareholders’ Equity
FAST RETAILING CO., LTD. and consolidated subsidiaries
For the Years Ended August 31, 2003, 2002 and 2001
Millions of yen

Balance at August 31, 2000 ..............................................
Cumulative effect of changes in accounting principle .....
Net income ....................................................................
Cash dividends (Note 11) ...............................................
Directors’ bonuses (Note11) ..........................................
Net change during the year ............................................
Increase in treasury stock (Note 12) ...............................
Balance at August 31, 2001 ..............................................
Effect of newly consolidated subsidiary ..........................
Net income ....................................................................
Cash dividends (Note 11) ...............................................
Directors’ bonuses (Note 11) .........................................
Net change during the year ............................................
Increase in treasury stock (Note 12) ...............................
Balance at August 31, 2002 ..............................................
Net income ....................................................................
Cash dividends (Note 11) ...............................................
Directors’ bonuses (Note 11) .........................................
Net change during the year ............................................
Increase in treasury stock (Note 12) ...............................
Balance at August 31, 2003 ..............................................

CapitalAdditional
paid-in capital

Retainedearnings¥3,274
—
—
—
—
—
—
3,274
—
—
—
—
—
—
3,274
—
—
—
—
—
¥3,274¥11,579——————
11,579——————
11,579—————¥11,579¥ 51,556
59,192(5,818)(360)——
104,570(354)
27,851(6,732)(649)——
124,686
20,933(4,068)(145)——¥141,406

Net unrealized
holding gain
on securities

Foreign currencytranslation
adjustments

Treasurystock, at cost

¥ —
700
—
—
—
—
—
700
—
—
—
—
(519)
—
181
—
—
—
—
—
¥181

¥ —
—
—
—
—
—
—
—
—
—
—
—
(67)
—
(67)
—
—
—
159
—
¥92

¥ (1,654)—————(1,993)(3,647)—————(12,374)(16,021)
—
—
—
—
(6)
¥(16,027)

Total¥ 64,755
700
59,192(5,818)(360)(1,993)
116,476(354)
27,851(6,732)(649)(586)(12,374)
123,632
20,933(4,068)
(145)
159
(6)
¥140,505

Thousands of U.S. dollars (Note 2)

Balance at August 31, 2002 .......................................
Net income .............................................................
Cash dividends (Note 11) ........................................
Directors’ bonuses (Note 11) ...................................
Net change during the year .....................................
Increase in treasury stock (Note 12) .........................
Balance at August 31, 2003 .......................................

CapitalAdditional
paid-in capital

Retainedearnings

Net unrealized
holding gain
on securities$27,947—————$27,947$98,839—————$98,839$1,064,329
178,685(34,725)(1,238)$1,545————$1,207,051—$1,545

Foreign currencytranslation
Treasury
adjustments
stock, at cost$(572)
—
—
—
1,357
—
$785

Total

$(136,757) $1,055,331—
178,685—(34,725)—(1,238)
—
1,357
(51)
(51)
$(136,808) $1,199,359

See accompanying notes to consolidated financial statements.

29

Consolidated Statements of Cash Flows
FAST RETAILING CO., LTD. and consolidated subsidiaries
For the Years Ended August 31, 2003, 2002 and 2001

2003

Millions of yen
2002

2001

Thousands of
U.S. dollars (Note 2)
2003¥ 34,751¥ 50,446¥102,533$ 296,636Interest and dividend received .....................................................................................................
Interest paid .................................................................................................................................
Income taxes paid .......................................................................................................................
Refund of income taxes ...............................................................................................................
Net cash provided by (used in) operating activities .................................................................

2,364
(5)
–
(374)
332
(28)
—
2,437
626
(1,179)10,262469(4,871)
(477)
(145)
10
44,172374(350)(10,124)
1,696
35,768

1,942
(3)
(106)
(677)
407
(95)
—
—
709
541
(647)
(2,312)(15,367)(1,733)(649)—
32,456677(421)(52,073)—(19,361)

1,571
(21)
106
(1,062)
137
(87)
85
—
75
(1,862)(9,770)(512)
20,699
4,777
(360)
—
116,309
1,062(139)(36,651)—
80,581

20,179(43)—(3,192)
2,834
(239)
—
20,802
5,344(10,064)
87,597
4,004(41,579)(4,072)(1,238)86
377,055
3,193(2,988)(86,419)
14,477305,318

Cash flows from investing activities:
Purchase of investment securities ................................................................................................
Purchase of property and equipment ...........................................................................................
Proceeds from sale of property and equipment ...........................................................................
Payments for lease deposits ........................................................................................................
Collections of lease deposits ........................................................................................................
Payments for construction assistance fund receivables ................................................................
Collections of construction assistance fund receivables ...............................................................
Purchase of intangible fixed assets ..............................................................................................
Investments in subsidiaries ..........................................................................................................
Other, net ....................................................................................................................................
Net cash used in investing activities .......................................................................................

(299)(3,574)13(1,596)642(3,816)
1,724(2,645)(758)
191(10,118)—(5,151)—(2,291)633(2,938)1,505(640)(1,215)170(9,927)(865)(6,456)—(3,024)220(3,993)
840
(14)
—
93
(13,199)(2,552)(30,508)111(13,624)5,480(32,574)
14,716(22,578)(6,470)1,631(86,368)(1,955)(4,000)(6)

1,809(3,000)(12,365)—(6,732)(143)(20,431)(867)(50,586)
157,379
470¥107,263—(3,000)(2,251)258(5,818)(144)(10,955)
1,282
57,70999,670—¥157,379(16,688)(34,144)(52)—(34,776)(1,229)(86,889)(623)
131,438
915,604
9,151$1,056,193

Cash flows from operating activities:
Income before income taxes ........................................................................................................
Adjustments to reconcile income before income taxes to net cash
provided by (used in) operating activities:
Depreciation and amortization ...............................................................................................
Decrease in allowance for doubtful accounts .........................................................................
Increase (decrease) in accrued pension liability ......................................................................
Interest and dividend income .................................................................................................
Interest expenses ..................................................................................................................
Foreign currency exchange gain ............................................................................................
Write-down of investment securities ......................................................................................
Loss on liquidation of subsidiary ............................................................................................
Loss on disposal of fixed assets ............................................................................................
(Increase) decrease in trade receivables ................................................................................
(Increase) decrease in inventories ..........................................................................................
(Increase) decrease in other assets ........................................................................................
Increase (decrease) in trade payables ....................................................................................
Increase (decrease) in accrued expenses and other liabilities .................................................
Bonuses to directors .............................................................................................................
Other .....................................................................................................................................

Cash flows from financing activities:
Net increase (decrease) in short-term debt ..................................................................................
Repayments of long-term debt ....................................................................................................
Purchase of treasury stock ..........................................................................................................
Proceeds from sale of treasury stock ...........................................................................................
Dividends paid .............................................................................................................................
Other ...........................................................................................................................................
Net cash used in financing activities ......................................................................................
Effect of exchange rate changes on cash and cash equivalents ..................................................
Net change in cash and cash equivalents ......................................................................................
Cash and cash equivalents at beginning of year (Note 3) .............................................................
Cash and cash equivalents of newly consolidated subsidiaries ...................................................
Cash and cash equivalents at end of year (Note 3) ........................................................................
See accompanying notes to consolidated financial statements.

30(4,074)(144)(10,179)(73)
15,398107,263
1,072¥123,733

Notes to Consolidated Financial Statements
FAST RETAILING CO., LTD. and consolidated subsidiaries

1 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(c) Cash and Cash Equivalents(a) Basis of Presentation

For the purpose of the cash flows, the Company considers all highly liquid
investments with insignificant risk of changes in value, with maturities ofgenerally three months or less when purchased, to be cash equivalents.

The accompanying consolidated financial statements have been prepared fromthe accounts maintained by Fast Retailing Co., Ltd. (“the Company”) in accordancewith the provisions set forth in the Japanese Commercial Code and in conformity
with accounting principles and practices generally accepted in Japan, and its
foreign subsidiaries in conformity with those of the countries of their domicile.
These may differ in some material respects from accounting principles andpractices generally accepted in countries and jurisdictions other than Japan.
The consolidated financial statements, including the notes to the consolidated
financial statements, presented herein have been compiled from the consolidated
financial statements filed with the Ministry of Finance as required by the Security
and Exchange Law of Japan (“the MOF Report”), and certain reclassifications
have been made in the MOF Report and additional information which is not
required under accounting principles generally accepted in Japan is included forthe convenience of readers outside Japan.
(b) Basis of Consolidation

The consolidated financial statements include the accounts of the Company andthe following subsidiaries.

Company

Fast Retailing (U.K.) Ltd.
FR Foods Co., Ltd.
Fast Retailing (Jiangsu) Apparel Co., Ltd.

Ownership
percentage

100%
100%
83%

FR Foods Co., Ltd. began its operations in November 2002, and its accounts
have been included in the accompanying consolidated financial statements
since then.
Fast Retailing (Jiangsu) Apparel Co., Ltd. began its operations in September
2002 in the People’s Republic of China. The accompanying consolidated
financial statements include accounts of its sales division, as the Company isentitled to profit and loss attributable to the sales operations for which the Company
has responsibility pursuant to the joint venture contract entered into between the
Company and Jiangsu Chenfeng Group Co., Ltd., a joint venture partner.
All the significant intercompany accounts and transactions have been
eliminated in consolidation.

(d) Short-term Investments and Investments in Securities

Securities are to be classified into one of the following three categories andaccounted for as follows:• Securities that the Company held with the objective of generating profits on
short-term differences in price are classified as trading securities and measured
at fair value, with unrealized holding gains and losses included in earnings.
• Securities that the Company has the positive intent and ability to hold tomaturity are classified as held-to-maturity securities and measured atamortized cost.
• Securities classified as neither trading securities nor held-to-maturity securities
are classified as available-for-sale securities and measured at fair value, witheither unrealized holding gains and losses excluded from earnings and reported
as net unrecognized holding gain or loss in a separate component of shareholders’equity until realized, or with unrealized holding losses included in earnings andunrealized gains excluded from earnings and reported as unrecognizedholding gains in a separate component of shareholders’ equity until realized.
The Company measured available-for-sale securities at fair value and reported
unrealized holding gains and losses as “Net unrealized holding gain or loss on
securities” in a separate component of shareholders’ equity. Available-for-salesecurities without fair values are carried at cost. In computing realized gain or
loss, cost of available-for-sale securities was principally determined by themoving-average method.
(e) Inventories

Inventories are stated at cost, cost being determined by the specificidentification method.
(f) Property, Plant and Equipment

Property and equipment is stated at cost. Depreciation is computed by the
declining-balance method for the Company and its domestic subsidiaries andprincipally by the straight-line method for overseas subsidiaries over thefollowing estimated useful lives of the respective assets.
Buildings and structures
10 to 50 years
Furniture and equipment
5 to 8 years
31(g) Leases

Under Japanese “Accounting Standards for Leases”, a finance lease thattransfers ownership of the property to the lessee by the end of the lease term
shall be classified as a capital lease and shall be recorded as an asset and an
obligation, and other than such finance lease is permitted to be classified as an
operating lease. The Company classified all other finance leases as operatingleases, and lease expense is charged to expense over the lease term as it
becomes payable.
(h) Income Taxes

Deferred income taxes are accounted for under the asset and liability method in
accordance with “Accounting Standards for Deferred Income Taxes” issued by
the Business Accounting Deliberation Council. Under the asset and liability
method of the standard, deferred tax assets and liabilities are recognized for the
expected future tax consequences attributable to differences between thefinancial statement carrying amount of existing assets and liabilities and theirrespective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in whichthose temporary differences are expected to be recovered or settled.

above, translated at related contract rates. Gains or losses resulting from thetranslation of foreign currencies, including gains and losses on settlement, arecredited or charged to income as incurred.
The financial statements of the consolidated foreign subsidiaries aretranslated into the reporting currency of yen as follows: all assets and liabilities
are translated at the rates of exchange in effect at the balance sheet date;shareholders’ equity accounts are translated at historical rates; income andexpenses are translated at the rates of exchange in effect at the balance sheet
date; and a comprehensive adjustment resulting from translation of assets,
liabilities and shareholders’ equity is reported as “Foreign currency translation
adjustments”, a separate component of shareholders’ equity.
(l) Derivative Financial Instruments

In principle, net assets and liabilities arising from derivative financial transactions
are measured at fair value, with unrealized gain or loss included in earnings.
Hedging transactions that meet the criteria of hedge accounting as regulated in“Accounting Standards for Financial Instruments” are accounted for using
deferral hedge accounting, which requires the unrealized gains or losses to bedeferred as a liability or asset until gains or losses relating to the hedge arerecognized.

(i) Retirement and Severance Benefits

Retirement and severance benefits for employees are provided based on the
projected benefit obligation and the pension assets.
(j) Revenue Recognition

The Company recognizes sales revenue upon sale of merchandise to customers
where title of the merchandise transfers to the customers.
(k) Foreign Currency Translation

Foreign currency transactions are translated into yen on the basis of the rates
in effect at the transaction date or, if only the relation between foreign currencytransactions and related firm forward exchange contracts meets the criteria ofhedge accounting as regulated in “Accounting Standards for Financial
Instruments”, those covered by firm forward exchange contracts can betranslated at such contract rates. At year-end, monetary assets and liabilities
denominated in foreign currencies are translated into yen at the rates of
exchange in effect at the balance sheet date, except for those, as described32(m) Net Income Per Share

Effective September 1, 2002, the Company adopted “Earnings Per Share”
issued by the Accounting Standards Board of Japan (ASBJ). Under thisstandard, net income per share is based on the weighted average number ofshares of common stock outstanding during the respective years. On a diluted
basis, both net income and shares outstanding are adjusted assuming exerciseof rights relevant to potential shares. If the Company computed the net income
per share in accordance with the standards prior to the adoption of the aforementioned “Earnings Per Share”, net income per share for the fiscal year ended
August 31, 2003 would be ¥205.80.

2 BASIS OF FINANCIAL STATEMENT TRANSLATION

5 INVENTORIESThe accompanying consolidated financial statements are expressed in yen and,solely for the convenience of the reader, have been translated into the UnitedStates (U.S.) dollars at the rate of ¥117.15=$1, the approximate exchange rate
prevailing on the Tokyo Foreign Exchange Market as of August 31, 2003. Thistranslation should not be construed as a presentation that any amounts shown
could be converted into U.S. dollars.

Inventories as of August 31, 2003 and 2002 are summarized as follows:

Cash and cash equivalents as of August 31, 2003 and 2002 consist of thefollowing:Thousands of
U.S. dollars
2003

Millions of yen
2003
2002

Cash ...................................................................... ¥ 76,447
Marketable securities .............................................
47,286
Cash and cash equivalents .................................... ¥123,733¥ 67,772
39,491¥107,263$ 652,557
403,636$1,056,193

4 SHORT-TERM INVESTMENTS AND INVESTMENTS IN SECURITIESInvestments in securities as of August 31, 2003 and 2002 are classified asavailable-for-sale securities. A summary of cost, unrealized holding gross gains,
unrealized holding gross losses and aggregate fair value by major type of securities
is as follows:
Millions of yen
2003

2002

Cost

Gross
gains

Gross
lossesAggregate
fair value

Available-for-salesecurities:
Equity securities ... ¥ 362
Mutual funds ...... 37,786
Others ................
9,448¥47,596

¥228
–
72
¥300

¥(6)
–
(21)
¥(27)

¥584
37,786
9,499¥47,869

Cost

Gross
gains

Gross Aggregate
losses fair value¥
63
39,491–¥39,554

¥7
–
–
¥7

¥(6)
–
–
¥(6)

Thousands of U.S. dollars
2003

Available-for-salesecurities:
Equity securities ....... $ 3,090
Mutual funds ............ 322,544
Others ...................... 80,649$406,283

Merchandise ..........................................................
Supplies ................................................................

¥20,511356¥20,867¥30,699296¥30,995

Thousands of
U.S. dollars
2003$175,083
3,039$178,122

6 INCOME TAXES

3 CASH AND CASH EQUIVALENTS

Cost

Millions of yen
2003
2002

Gross
gains

Gross
lossesAggregate
fair value$1,946–614$2,560$(51) $ 4,985–
322,544(179)
81,084$(230) $408,613¥
64
39,491–¥39,555

The Company and subsidiaries are subject to a number of taxes based on
income. The aggregate normal tax rate for the Company was approximately
41.8% for the years ended 2003, 2002 and 2001.
Reconciliations between the normal income tax rate and the effective income
tax rate as a percentage of income before income taxes are as follows:
Normal income tax rate .........................................
Change in valuation allowance ...............................
Other ......................................................................
Effective income tax rate.........................................

2003

2002

2003

41.8%
(1.8)
(0.2)
39.8%

41.8%
2.1
0.9
44.8%

41.8%
–
0.5
42.3%

The tax effects of temporary differences that give rise to significant portions of
the deferred tax assets and liabilities as of August 31, 2003 and 2002 arepresented below:
Millions of yen
2003
2002

Total gross deferred tax assets:
Inventories ..........................................................
Accrued business tax .........................................
Accrued bonus ...................................................
Accrued loss on liquidation of subsidiary.............
Operating loss carryforward ................................
Other ..................................................................
Valuation allowance ................................................

Total gross deferred tax liabilities:
Refundable business tax.....................................
Net unrealized holding gain on securities ............
Net deferred tax assets...........................................

Thousands of
U.S. dollars
2003

¥

–
645
800
2,863
567
317
5,192
(576)
4,616

¥

233
–
291
–
1,199
217
1,940
(1,199)
741

$

–
5,506
6,829
24,4384,840
2,706
44,319(4,916)39,403

–
(123)
(123)
¥4,493

(178)
(130)
(308)
¥ 433

–
(1,050)(1,050)$38,353

33

Net deferred tax assets as of August 31, 2003 and 2002 are reflected in the
consolidated balance sheets under the following captions:
Millions of yen
2003
2002

Deferred tax assets — current ...............................
Deferred tax assets — noncurrent .........................
Net deferred tax assets ..........................................

¥4,365128¥4,493

¥294
139
¥433

Thousands of
U.S. dollars
2003$37,260
1,093$38,353

The Company changed the effective tax rate utilized to calculate deferred tax
assets and liabilities that are expected to be realized after September 1, 2004
from 41.8% to 40.5%. The change was caused due to promulgation of the
Local Tax Reform Act on March 31, 2003. The change in the effective tax rate
does not have a material impact on deferred tax assets and net income for the
fiscal year ended August 31, 2003.

Unsecured bank borrowing as of August 31, 2002 amounted to ¥1,809 million.
The weighted average interest rate on short-term debt outstanding as ofAugust 31, 2002 was 4.29%. The borrowing was repaid during the year ended
August 31, 2003.

8 LONG-TERM DEBTS
Long-term debts are summarized as follows:
Millions of yen
2003
2002

¥–

¥4,000Thousands of
U.S. dollars
2003

$–

9 RETIREMENT AND SEVERANCE BENEFITSThe Company had a defined benefit pension plan (tax qualified pension plan)
to provide retirement and severance benefits to substantially all employees.
At August 31, 2002, the Company terminated a defined benefit pension plan
through providing a defined contribution plan. Defined benefits were notprovided under the successor plan.

34

Service cost ......................................
Interest cost ......................................
Expected return on plan assets .........
Amortization of transition obligation ...
Amortization of actuarial loss .............
Net periodic pension cost ..............

2003

Millions of yen
2002

2001

Thousands of
U.S. dollars
2003

¥–
–
–
–
–
¥–

¥126
15
(8)
–
58
¥191

¥ 98
11
(6)
58
35
¥196

$–
–
–
–
–
$–

The entire transition difference of ¥58 million arising from the adoption of the
new accounting standard was amortized in the year ended August 31, 2001,
and amortized cost was included in “Other income (expenses)–Other”.
Actuarial assumptions used to determine costs and projected benefit
obligations are principally as follows:
Discount rate ...................................................
Expected rate of return on plan assets ............

7 SHORT-TERM DEBT

Unsecured loans from Japanese banks
1.88% to 1.95% interest, due 2003 .....................

Net periodic benefit cost for the defined benefit pension plan is as follows:

2003

2002

2001

–
–

3.0%
2.0%

3.0%
2.0%

10 COMMON STOCKThe Japanese Commercial Code (JCC) had required that at least 50% of theissue price of new shares, with minimum of the par value thereof, were
designated as stated capital. Proceeds in excess of the amount designated asstated capital are credited to additional paid-in capital.
Effective October 1, 2001, the JCC was amended to eliminate the provision ofcommon stock par value resulting in all common stock being recorded with nopar value. Under the amended JCC, at least 50% of the issue price of newshares is designated as stated capital, and proceeds in excess of the amountdesignated as stated capital are credited to additional paid-in capital.
The Company has authorized for issuance of 300 million shares of common stockwith no par value as of August 31, 2003. Issued and outstanding shares and change
in shares for the years ended August 31, 2003, 2002 and 2001 are summarized
as follows:
Issued andoutstanding shares

Balance as of August 31, 2000 ......................................................
Issued upon stock split ..............................................................
Balance as of August 31, 2001 ......................................................
Issued upon stock split ..............................................................
Balance as of August 31, 2002 ......................................................
Balance as of August 31, 2003 ......................................................

26,518,414
26,518,414
53,036,828
53,036,828
106,073,656
106,073,656

11 LEGAL RESERVE AND DIVIDENDS
The JCC had provided that an amount equal to at least 10% of appropriationsof retained earnings to be paid in cash, such as cash dividends and directors’
bonuses, be appropriated as a legal reserve until such reserve equals 25% ofstated capital. The legal reserve is not available for dividends but may be used
to reduce a capital deficit by resolution of the shareholders’ meeting or may betransferred to capital by resolution of the Board of Directors.
Effective October 1, 2001, the JCC was amended to require an amount ofequal to at least 10% of appropriations of retained earnings to be paid in cash
be appropriated as a legal reserve until the total of additional paid-in capital andlegal reserve equals 25% of stated capital. In addition to reduction of a deficit
and transfer to stated capital, either additional paid-in capital or legal reserve
may be available for dividends by resolution of the shareholders’ meeting to theextent that the amount of total additional paid-in capital and legal reserve
exceeds 25% of stated capital.
Cash dividends and appropriations to the legal reserve charged to retained
earnings during the years ended August 31, 2003, 2002 and 2001 represent
dividends and directors’ bonuses paid out during those periods and the related
appropriations to the legal reserve. The accompanying consolidated financial
statements do not include any provision for dividends of ¥35 ($0.30) per share,
aggregating ¥3,560 million ($30,388 thousand), or related appropriations for
directors’ bonuses amounting to ¥280 million ($2,390 thousand). These
dividends and appropriations were approved by shareholders at the annual
shareholders’ meeting held on November 26, 2003 in respect of the fiscal year
ended August 31, 2003.

12 TREASURY STOCKThe JCC had imposed certain restrictions on acquisition and disposal oftreasury stock.
Effective October 1, 2001, the JCC eliminated the provisions of theserestrictions and allowed repurchase of treasury stock to the extent of
distributable funds appropriated by resolution of the shareholders’ meeting.
In addition, the shareholders may request the Company to repurchase theirshares less than a trading unit (100 shares) upon request pursuant to theprovision of the JCC. The shares less than a trading unit cannot be publicly
traded and have not been given to exercise voting rights.

The changes in shares of treasury stock for the years ended August 31, 2003,
2002 and 2001 are summarized as follows:

Balance as of August 31, 2000 ...........................
Repurchase of common stock ........................
Treasury stock issued .....................................
Two-for-one common stock split .....................
Balance as of August 31, 2001 ...........................
Repurchase of common stock ........................
Two-for-one common stock split .....................
Balance as of August 31, 2002 ...........................
Repurchase of common stock ........................
Balance as of August 31, 2003 ...........................

SharesMillions of yen

48,20088,200(8,800)48,200175,800
2,002,479
2,176,963
4,355,242
1,700
4,536,942¥ 1,654
2,169
(176)
–
3,647
12,374–
16,021
6¥16,027

Thousands of
U.S. dollars$

0136,756
52$136,808

13 STOCK OPTION PLAN
The shareholders’ meeting held on November 26, 1999 approved that theCompany may purchase 50,600 shares of common stock within the period from
November 26, 1999 to the closing of the next ordinary shareholders’ meetingwith an aggregate purchase cost cap of ¥2,500 million for the stock option plan.
Certain officers and certain other employees may be granted options topurchase the common stock at an exercise price at the lower of 102.5% of theaverage purchase cost or market price at the grant date. An eligible person can
exercise 50% of the granted options from November 27, 2001 to November 26,
2002 and can exercise 100% from November 27, 2002 to August 31, 2004.
In accordance with the shareholders’ approval, the Company purchased 48,200
shares for ¥1,654 million in 2000.
The shareholders’ meeting held on November 28, 2000 approved that theCompany may purchase 88,500 shares of common stock within the period from
November 28, 2000 to the closing of the next ordinary shareholders’ meetingwith an aggregate purchase cost cap of ¥4,000 million ($33,543 thousand) for
the stock option plan. Certain officers and certain other employees may be
granted options to purchase the common stock at an exercise price at the lowerof 102.5% of the average purchase cost or market price at the grant date. An
eligible person can exercise 100% of the granted options from November 29,
2002 to August 31, 2005. In accordance with the shareholders’ approval, theCompany purchased 88,100 shares for ¥2,169 million in 2001.

35

At the shareholders’ meeting held on November 29, 2001, a stock option plan
was approved. Under this plan, certain directors and certain employees may be
granted options to purchase common stock of 106,100 shares in total at an
exercise price at the higher of 102.5% of the market price at the date of grant or
the average market price of the preceding month. Those eligible can exercise
the options when the market price exceeds 150% of the exercise price for atleast 10 business days within the term of exercise, which is from November 30,
2003 to August 31, 2006.

14 COMMITMENTS AND CONTINGENCIESThe Company has the following contingent liabilities as of August 31, 2003:
Year ended August 31, 2003

Loan guarantees for:
Employees’ benefit society ................................................
Franchise store..................................................................

Millions of yen¥1260

Thousands of
U.S. dollars

$102
512

Construction assistance fund receivables represent an interest free loan
granted to real estate owners to construct stores that will be leased by theCompany.
The Company transferred the construction assistance fund receivables toa trust bank during 1999. This transfer contains a recourse provision that theCompany has an obligation to repurchase the transferred construction
assistance fund receivables if the landowner fails to repay. The total outstandingtransferred construction assistance fund receivables to a trust bank amounted
to ¥1,406 million ($12,001 thousand) as of August 31, 2003.

16 FINANCIAL INSTRUMENTS
The Company is exposed to market risks arising from fluctuations in foreign
currency exchange rates. The Company entered into forward exchange
contracts for the purpose of hedging these risk exposures. Forward exchange
contracts are utilized to manage foreign currency exchange rate risk fromreceivables, payables and forecasted transactions which are denominated inforeign currency.
The Company has no derivative financial instruments for trading purposes.
In addition, the Company may be exposed to losses in the event of nonperformanceby counterparties to financial instruments, but it is not expected that any counterparties will fail to meet their obligations, because most of the counterparties areauthentic financial institutions. The Company has also developed hedging
policies to control various aspects of derivative financial transactions including
authorization levels, transaction volumes and counterparty credit guidelines.

17 SUBSEQUENT EVENTSAt the Board of Directors’ meeting on September 9, 2003, the Company
decided to acquire, with Link International Co., Ltd. (Link), ownership interest in
the Theory Group, which owns and markets the apparel brand “theory” in the
United States of America. Also, the Company decided to acquire 47.1% ofownership interest in Link. Key provisions of the transaction are as follows:
Investee company
Acquisition cost
Ownership interest
Planned closing date

Link International Co., Ltd.
¥6,700 million
47.1%
November 2003

15 LEASES
Lease payments relating to finance leases accounted for as operating leases forthe years ended August 31, 2003, 2002 and 2001 amounted to ¥4,941 million($42,176 thousand), ¥3,866 million and ¥2,717 million, respectively.
Future minimum lease payments relating to finance leases accounted for as
operating leases as of August 31, 2003 are as follows:Year ending August 31

Millions of yen

2004 .................................................................................... ¥ 4,715
2005 and thereafter ..............................................................
9,649¥14,364

36

Thousands of
U.S. dollars$ 40,248
82,364$122,612

In connection with the above transaction, the Company has provided $99
million of guarantee for Theory Holdings Inc., which was incorporated for the
purpose of acquisition of ownership interest in the Theory Group in the UnitedStates of America.

Report of Independent Auditors
The Board of Directors and Shareholders
Fast Retailing Co., Ltd.

We have audited the accompanying consolidated balance sheets of Fast Retailing Co., Ltd. and consolidated
subsidiaries as of August 31, 2003 and 2002, and the related consolidated statements of income, shareholders’ equity
and cash flows for each of the three years in the period ended August 31, 2003, all expressed in yen. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.
We conducted our audits in accordance with auditing standards, procedures and practices generally accepted andapplied in Japan. Those standards, procedures and practices require that we plan and perform the audit to obtainreasonable 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 consolidated
financial position of Fast Retailing Co., Ltd. and consolidated subsidiaries as of August 31, 2003 and 2002, and theconsolidated results of their operations and their cash flows for each of the three years in the period ended August 31,
2003, in conformity with accounting principles and practices generally accepted in Japan.
The United States dollar amounts in the accompanying consolidated financial statements with respect to the year
ended August 31, 2003 are presented solely for convenience. Our audit also included the translation of yen amounts into
United States dollar amounts and, in our opinion, such translation has been made on the basis described in Note 2 tothe consolidated financial statements.

Tokyo, Japan
November 26, 2003
See Note 1 to the consolidated financial statements which explains the basis of preparation of the consolidated financial statements of Fast Retailing Co., Ltd.
and consolidated subsidiaries under accounting principles and practices generally accepted in Japan.

37

Investor Information(As of August 31, 2003)

Stock Information

Adjusted Stock Price
9,000

(Yen)

8,455

Number of shares authorized .............................................. 300,000,000
7,450

Number of issued and outstanding shares .......................... 106,073,656

7,210
6,750 6,600

Number of shareholders

6,410(including holders of treasury stock) ...................................

9,590

6,000

5,675

4,980

5,225

5,000

4,490 4,370
3,940

Principal Shareholders

3,190

Number ofsharesTadashi Yanai .............................................. 28,297,284

Percentage of
total shares in issue

3,000

3,440

4,270

4,120 3,980

3,910
3,420 3,330

3,170

3,150

2,905

4,460
3,580

3,550 3,460

3,450 3,630
3,210 3,020

2,960 2,930 2,890

2,595

2,430 2,550

2,280 2,270

3,330
2,690

3,530
2,850

3,650

3,820

3,260 3,290

26.68%The Master Trust Bank of Japan, Ltd.
(Trust Account) ...........................................

5,895,500

5.56(Trust Account) ...........................................

4,861,300

4.58

The Chase Manhattan Bank, N.A. London ...

4,783,540

4.51

Japan Trustee Services Bank, Ltd.

02001.9 10

Kazumi Yanai ...............................................

4,781,808

4.51

Koji Yanai ...................................................

4,780,600

4.51Fight & Step Co., Ltd. ..................................

4,750,000

4.48

FAST RETAILING CO., LTD. .........................

4,356,942

4.11

State Street Bank and Trust Company .........

3,673,563

3.46

MASTERMIND Co., Ltd. ...............................

3,610,000

3.40

11

4

6

5

7

8

9

10

11

12 2003.1 2

3

4

Trading Volume
30,0006

5

7

8

Shares (Thousands)

29,201

20,000Shareholder Breakdown

12,195

Number of Number of shares
Percentage ofshareholders(Thousands)
total shares in issue38

3

12 2002.1 2

Individuals and others ...................

9,030

48,65145.86%

Foreign investors ..........................

301

22,88021.57

Other financial institutions .............

90

22,23920.97

Companies and corporations ........

129

9,004

8.49

Securities companies ...................

40

3,299

3.11

Total .........................................

9,590

106,073

100.00%10,047

9,873

10,000 8,545

8,191
6,624

8,750

7,844

7,450

6,667

6,559

7,589

8,299
6,865
4,971

4,282

8,865

5,990
4,592 4,499 4,023

4,034

3,888

0

2001.9 1011

12 2002.1 2

3

4

5

6

7

8

9

10

11

12 2003.1 2

3

4

5

* A stock split on a two-for-one basis was carried out on April 19, 2002, for shareholders as of February 28, 2002.

6

7

8

Corporate Information
Corporate Data (As of August 31, 2003)

Board of Directors and Auditors(As of November 30, 2003)

FAST RETAILING CO., LTD.
Head Office717-1 Oaza Sayama, Yamaguchi City,
Yamaguchi 754-0894, JapanTokyo OfficeNissay Aroma Square, 37-1, Kamata 5-chome,
Ota-ku, Tokyo 144-8721, Japan
EstablishedMay 1, 1963
Paid-in Capital¥3,274 million
Line of Business
Retail chain operator specializing in in-house designed
casual clothing for men, women, and children of all ages.
Operates stores under the name of UNIQLO.

Tadashi Yanai
Chairman & Chief Executive Officer

Genichi Tamatsuka
President & Chief Operating Officer

Akira Tanaka

Shuichi Nakajima

Naoki Otoma

Makoto Hayashi

Managing Director & Chief Financial Officer

Akira Tanaka
Managing Director

Naoki Otoma

Independent Public Auditors
Shin Nihon & Co.

Masatoshi Morita

Masatoshi Morita

Settlement Date
August 31

Number of Shares per Trading Unit
100

Nobuo Domae

Managing Director & Chief Information Officer

Shuichi Nakajima

Transfer Agent
The Mitsubishi Trust & Banking Corp.
1-4-5, Marunouchi, Chiyoda-ku,
Tokyo 100-0005, Japan

Genichi Tamatsuka

Nobuo Domae

Number of Full-Time Employees(parent company only)
1,466

Annual Shareholders’ Meeting
End of November

Tadashi Yanai

Director

Director

Makoto Hayashi
Director (FAST RETAILING (JIANGSU) APPAREL
CO., LTD., CEO)Toshiharu Ura
Standing Corporate Auditor

Kiyomi Iwamura
Standing Corporate Auditor

Consolidated Subsidiaries (As of November 30, 2003)
UNIQLO (U.K.) LTD.
25-27 Shaftesbury Avenue, London W1D 7EG, U.K.
Note: On August 7, 2003, UNIQLO (U.K.) LTD. assumed control of U.K.
operations from FAST RETAILING (U.K.) LTD., which is currently
conducting follow-up operations related to store closures.

FAST RETAILING (JIANGSU) APPAREL CO., LTD.
1 Zhaofeng Road, Kunshan Caoan Development Area,
Jiangsu, China
FR FOODS CO., LTD.
5-17-8, Yotsuya, Fuchu City, Tokyo 183-0035, Japan

Takaharu Yasumoto
Corporate Auditor

Masao Matsui
Corporate Auditor

Tatsuo Kubota
Corporate Auditor39

www.uniqlo.co.jp/english

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