Consolidated Financial Results for Fiscal 2006

May 9, 2006

For Immediate Release
Company Name:

Fuji Heavy Industries Ltd.

Name of Stock Exchange:Tokyo Stock Exchange (First section)

Code No.

:

7270

Location of Head Office:

Tokyo, Japan

URL:

http://ir.fhi.co.jp/index.html

Representative:

Mr. Kyoji Takenaka, President and CEO

Contact for Inquiries:

Mr. Shunji Yonekura, General Manager of Administration Department
Tel: (03) 3347-2005

Date of the Board of Directors Meeting Held for the Approving the Financial Results: May 9, 2006
㧙 (Code No.: – )Name of the Parent Company:

Percentage of the Shares Held by the Parent Company: 㧙 %Adoption of US Generally Accepted Accounting Principles: No

1. Performance in Fiscal 2006 (from April 1, 2005 to March 31, 2006)
Note that all amounts have been rounded off to the nearest million yen, unless otherwise
specified.
(1) Consolidated Results of Operations(Unit: Millions of yen, except for per share figures)

Net sales

Operating income

Ordinary income¥ 46,768

Fiscal 2006

¥ 1,476,368(2.1 %)¥ 58,339

Fiscal 2005

¥ 1,446,491(0.5 %)¥ 42,017 (-16.5 %)Net income(38.8 %)

(7.3 %)¥ 43,572 (-23.0 %)Ratio ofRatio of
Net income per Net income per Return on
ordinary
ordinaryshare, basic share, diluted
equity income to total income to net
(Yen)
(Yen)
(%)
assets (%)
sales (%)

Fiscal 2006

¥ 15,611 (-14.4 %)¥ 20.66¥ 20.66

3.3 %

3.5 %

3.2 %

Fiscal 2005

¥ 18,238 (-52.8 %)¥ 23.27¥ 23.27

3.9 %

3.2 %

3.0 %

Notes:

1. Equity income (loss) from investments in : Fiscal 2006
affiliated companies

Fiscal 2005

2. Average number of shares outstanding: ¥ (378) million: Fiscal 2006

: 750,332,110 sharesFiscal 2005

: 778,995,784 shares

during the year
3. Accounting change: ¥ 1,446 million: See “Change of Accounting Policy” section

4. Percentage figures in the net sales, operating income, ordinary income and net income columns
represent changes from prior year.

- 1 -(2) Financial Position(Unit: Millions of yen, except for per share figures)

Shareholders’ equity Shareholders’ equity
to total assets (%)
per share (Yen)

Total assets

Shareholders’ equity

Fiscal 2006

¥ 1,348,400¥ 465,522

34.5 %¥ 649.41

Fiscal 2005

¥ 1,357,459¥ 471,149

34.7 %¥ 604.51

Note:

Number of shares outstanding at end of : Fiscal 2006

: 716,672,587 sharesthe year: 779,207,882 sharesFiscal 2005

(3) Cash Flows(Unit: Millions of yen)

Cash flows fromoperating activities

Cash flows frominvesting activities

Cash flows fromfinancing activities

Cash and cash
equivalents at endof the year

Fiscal 2006

¥ 137,485¥ (75,775)¥ (88,885)¥ 112,366

Fiscal 2005

¥ 57,327¥ (89,761)¥ 26,199¥ 131,685(4) Scope of Consolidation and Application of the Equity Method
Consolidated subsidiaries:

68

Non-consolidated subsidiaries accounted for by the equity method:10

Affiliated companies accounted for by the equity method:

1(5) Changes in Scope of Consolidation and Application of the Equity Method
Consolidated subsidiaries:
Newly included:
Newly excluded:––

Companies accounted for by the equity
method:Newly included:
6
Newly excluded:–

2. Projections for Fiscal 2007 (from April 1, 2006 to March 31, 2007)(Unit: Millions of yen, except for per share figures)

Net sales

Ordinary income

Net income

Half year¥

710,000¥ 16,000¥ 13,000Full year¥ 1,550,000¥ 50,000¥ 30,000

Reference: Projected net income per share (full year): ¥ 41.86
The above projections are made based on available information and assumptions as of May 9, 2006,
and are subject to the uncertainties of future operations. Therefore, actual results could differ materiallyfrom those anticipated. The assumptions used for the above projections are stated on page 8.

-2-

1. Condition of the FHI GroupAs of March 31, 2006, the FHI Group consisted of Fuji Heavy Industries Ltd., 115 subsidiaries, and 9 affiliated companies
primarily engaged in four operations related to the Subaru automotive, industrial products, aerospace and otherbusinesses, producing a wide range of products.
The flow chart below illustrates the relationship that each subsidiary and affiliate maintains with the parent company.

Fuji Heavy Industries Ltd. (Manufacturing & Sales)<Automobiles><Industrial Products><Aerospace>(Other)Manufacturing Units*1

Ichitan Co., Ltd.

*1

Fuji Machinery Co., Ltd.

*1

Subaru Of Indiana Automotive, Inc.

Manufacturing Units*1*1

Kiryu Industrial Ltd.

*3

Two Non-consolidated subsidiary

Robin Manufacturing U.S.A. Inc.

Sales and Manufacturing

Sales and Manufacturing

Sales and Manufacturing*1

Fuji Robin Industries Ltd.

*1

*3

Two Non-consolidated subsidiaries*3

One Non-consolidated subsidiaries*5

Two Affiliates*5

Three Affiliates

Service-related and others*1*2

Subaru Finance Co., Ltd.

Service-related

Other 10 consolidated subsidiaries*3 Robin Service Co., Ltd.

Service-related and others

Service-related and others*3

Fuji Aircraft Maintenance Co., Ltd.

*1

Subaru Kosan Co., Ltd.

Other two non-consolidated subsidiaries*2

Subaru System*2

FUJI HOUREN Co., Ltd.

*2

Subaru Living*3

Fuji Ecology*5

One Affiliates

Service Co., Ltd.

TUG INTERNATIONAL Co., Ltd.

Three other subsidiaries within the scope of equity method*3

Seven Non-consolidated subsidiaries*4

Higashi-ohgishima Logistics Center Co., Ltd.

*5

Two Affiliates

Yusoki Kogyo K.K.

Service Co., Ltd.

Systems Co., Ltd.
Other five non-consolidated
subsidiaries

Reserch Organs*1 FICS*1

Fuji Heavy Industries U.S.A. Inc.

*1

Subaru Research & Development, Inc.

Corporation

Sales Units*1

Subaru of America, Inc.

*1

Subaru Canada, Inc.

*1

Tokyo Subaru Inc.

*1

Osaka Subaru Inc.

*1

Nagoya Subaru Car Co.

*2

SUBARU AUTO ACCESSORIES Co., Ltd.

*3

10 Non-consolidated subsidiaries

Sales Units
Sales Units*3

Fuji Special Purpose Vehicle Co., Ltd.

*2

Robin America Inc.

*3

Daiwa Shoko K.K.

*3

Robin Europe GMBH
Other three non-consolidated subsidiaries

Other 41 consolidated subsidiaries

Customers*1 Consolidated subsidiaries*2 subsidiaries within the scope of equity method*3 Non-consolidated subsidiaries*4 Affiliates within the scope of equity method*5 Other affiliates-3-2. Management Policies
1. Basic Management Policies
The corporate philosophy of Fuji Heavy Industries Ltd. (FHI) consists of the following three principles:
1. FHI will strive to create advanced technologies on an ongoing basis and provide customers with distinctive
products that ensure the highest levels of quality and customer satisfaction.
2. FHI will aim to continuously promote harmony among people, society, and the environment while
contributing to the prosperity of society.
3. FHI will look to the future with a global perspective and aim to be a vibrant and progressive company.
Based on its corporate philosophy, FHI intensify its efforts to achieve the vision of “being an appealing
company with a strong market presence”, and “building a highly profitable business structure with automobile
business at its core”. The Company’s most important management objective is to provide unique and highquality products in our automobile, aerospace, industrial products, eco technologies, and other divisions that
only the Subaru brand and FHI are capable of providing. Through these corporate activities, the FHI Group isconcentrating on developing and moving forward together with society and being an enterprise that
accomplishes a high level of satisfaction and trust of all stakeholders, including shareholders and customers.
2. Basic Policy Regarding the Distribution of Profits
FHI views shareholders’ return as a crucial managerial task and follows a basic policy of maintaining stablelong-term dividends while taking comprehensive consideration of such factors as its earnings and its dividend
payout ratio. FHI intends to use retained earnings to improve balance sheet as well as allocate these funds tothe investment of its R&D, production, and strengthening its sales network for the attainment of further future
growth and development. The limit on the number of times dividends are paid has been amended according to
the enforcement of the new Corporate Law, but FHI intends no particular changes, so will keep the current
arrangements in place.
3. Management tasks for the Company
There are three major tasks that FHI has to focus on.
The first issue is that FHI will concentrate on achieving the target of revised FDR-1, at the timing of the final
fiscal year of this mid-term business plan, which aims to restructure and strengthen our management basis.
The second one is to make our new business alliance with Toyota Motor Corporation a success by working out
the details to realize the specific synergies. The third one is to formulate a new mid-term business plan startingfrom next year for future growth under a new environment.
Regarding the first issue, we will continue to promote our Total Cost Structure Revolution (TSR) activities that
we have been working on since last fiscal year, and while dealing with the pressure of increases in material
costs, we will endeavor to reduce R&D , SG&A and other expenses in order to enhance our capability of overall
cost competitiveness. To strengthen our sales force, we will consolidate relatively small Subaru distributors inJapan from April 2006 onwards then restructure our dealerships’ management to allocate extra back –office
staffs to direct sales force in an effort to enhance sales efficiency. By doing all these, we will conduct reforms ofsales quality centered on customer satisfaction (CS). Meanwhile, in the United States, our US distributor(Subaru of America, Inc.; SOA, a wholly-owned subsidiary in U.S.) is scheduled to start site control program,which SOA will invest in dealership stores directly to strengthen our sales force. We will also actively develop
and cultivate business in emerging markets in the CIS countries and Eastern Asia.
Furthermore, each internal company is working to make additional improvements such as strengthening thesales force being addressed as the first issue; for example, the Industrial Products Company established adomestic sales company.

For achieving to improve asset turnover and streamline our corporate structure, we are aiming to raise
profitability of the group as a whole. To be more precise, we will work to utilize assets of the entire group
efficiently by clarifying the functions of affiliated companies, allocating appropriate personnel, creating anorganization and framework for prompt operations and making management more streamlined.
To address the second key issue – the alliance with Toyota – we will execute plans to produce Toyota
vehicles at SIA (Subaru of Indiana Automotive Inc.), our wholly-owned US manufacturing subsidiary andparticipate in development practice with no delay, through these activities, we assimilate Toyota’s excellent
know-how and utilize this to contribute to increases in Subaru’s productivity and enhancement of productdevelopment. We will also build a rock-solid alliance by cultivating relationship in areas other than production
and development, and further deepening mutual confidence.
By carrying out the first and second key issues described above, we will firm up our management base while
also building a business plan for the future as the third key issue. At the Subaru Automotive Division, we will
introduce products with higher quality and more cost competitiveness in a timely fashion, by means of actively
conducting product development unique to Subaru that is suited to the new era of an environment while also
increasing the speed and efficiency of development with customers’ values as our foundation.
Strengthening our domestic and overseas sales force is also an urgent issue, and we will set up an
investment plan required for distributors’ hardware in addition to further promotion of streamlining.
In order to execute important theme of developing human resources, we will build specific plans such as
training activities of employees for qualified sales and service that give customers true satisfaction.
Each Company is keeping the foundations for improving profitable performance. In particular, the Aerospace
Company will realize stable profitability in order to secure reliable investment returns by focusing on the highest
level of quality, delivery times and price in large projects implemented at once. The Industrial ProductsCompany is pursuing to secure effective and competitive production capabilities from a global perspective for
expanding overseas sales market. The Eco Technologies Company will consider the restructuring of its
business foundation with a view to strategic alliances with other companies.
At the same time, we will strive to be an appealing company with a strong market presence by making ourbest effort throughout the growth and development of entire group in order to meet everyone’s expectations ofbeing a company that actively engages in CSR activities and is trusted by all stakeholders including
shareholders and customers.
4. Approach Regarding the Reduction of Investment Units FHI acknowledges that arranging an environment conducive to investment by investors is also a key issue.
 Though FHI has not made any decisions regarding the actual steps or timing of the lowering of investment
units, this will be considered a mid- to long-term theme while closely watching share prices.

3. Operating Results and Financial Condition
1. Overview of Fiscal 2006
Although there were some factors reducing revenue such as a reduction in the number of vehicles shipped inJapan and the end of consignment production of Isuzu vehicles by Subaru of Indiana Automotive Inc. (SIA),
consolidated sales rose ¥29.9 billion, or 2.1%, to ¥1,476.4 billion due to an increase in the number of vehicles
sold overseas stemming from a net increase in B9 TRIBECA that fully went on sale last June, sales in divisions
other that the Automotive Division, such as the Aerospace Division, outstripping those of the previous year andexchange rates also having an impact.
Despite factors such as a deterioration in the sales mix lowering income, operating income rose ¥16.3 billion,or 38.8%, to ¥58.3 billion due to a reduction in various expenses such as lower production costs and more
efficient research and development process. Factors such as a reduction in amortization of the consolidation
adjustment led to ordinary income rising ¥3.2 billion, or 7.3%, to ¥46.8 billion. While gains from the write-down
on investment securities increased, net income decreased ¥2.6 billion, or 14.4%, to ¥15.6 billion, due to therecording of premium severance payments accompanying the implementation of voluntary retirement program,the recording of losses from the cancellation of a joint development project with General Motors Corporation(GM) and an increase in the tax burden.
Results by Business Segment
Automobile Division
Although the Impreza, which underwent a major facelift last June, has performed solidly thanks toparticipation in the WRC (FIA World Rally Championship) including Rally Japan 2005, outstripping the previous
year’s sales for the second consecutive year, this was unable to cover the ground lost due to a decline in thesale of our flagship model Legacy and the termination of sales of the Traviq last year. As a result, domestic
passenger car (excluding minicars) decreased by 6,000, or 6.1%, to 98,000 vehicles sold.
Minicar sales also fell by 18,000, or 11.7%, to 132,000 units due to a significant decline in sales of the R2 with
its faded new-car effect and a fall in sales of the Sambar.
As a result, sales in Japan fell 24,000 units, or 9.4%, to 230,000 units.
In North American market, despite a decline in the Legacy and a significant fall in consignment production
from GM-affiliated Saab Automobile, sales volume remained around the same level as the previous year at
210,000 units due to a net increase in the B9 Tribeca that fully went on sale last June and an increase in salesof the Impreza. 
Sales in Europe rose by 4,000 units, or 7.0%, to 65,000 amid continued solid performance of the Foresterwith sales particularly growing in emerging markets such as Russia and Northern Europe.
Despite a decline in Legacy sales, the Impreza and Forester outstripped the figures for the previous year, andsales in Australia rose by 1,000 units, or 3.1%, to 37,000.
 As a result, total overseas sales rose by 14,000 units, or 4.2%, to 341,000 units.
The combined sales volume for Japan and overseas markets amounted to 571,000 units, up 10,000 units, or
1.8%, year on year.
In addition to this situation, although there were some factors lowering revenue, such as the end of
consignment production in the US manufacturing subsidiary, sales rose ¥9.2 billion, or 0.7%, to ¥1,332.8 billion
due to changes in overseas sales units mix and favorable exchange rate movements. Operating income rose
¥10.6 billion (25.9%) to ¥51.6 billion due to a reduction in various expenses such as lower production costs andmore efficient research and development process.

Industrial Products Division 
Sales rose from the previous year’s level due to an increase in sales of engines for pump and power
generator. Overseas, we have inquiries from all around the world regarding the principal EX series ofenvironmentally friendly high-performance gasoline engines, and orders for power generator engines haveincreased particularly sharply from major industrial clients in the US, while sales of engines for agricultural
machinery have also been good in Europe. In addition to an increase in sales of engines for leisure products for
the Asian market, sales continued to rise significantly from the previous year.
As a result of active sales efforts inside and outside Japan, the total number of units sold inside and outside
Japan reached record levels in fiscal 2005, and total sales rose ¥5.4 billion, or 11.5%, to ¥52.6 billion.
Operating income also increased significantly by ¥1.2 billion, or 140.0%, to ¥2.0 billion.

Aerospace Division
As for sales for the Japan Defense Agency, in addition to the delivery of AH-64D combat helicopters and thestart of the delivery of prototypes of next-generation fixed wing surveillance and transport aircraft (PX/CX), thestart of the delivery of unmanned surveillance systems led to sales greatly exceeding those of the previous year.
In the commercial sector, the number of existing products delivered to Boeing also increased significantly withthe worldwide recovery of airline demand. Furthermore, sales increased from the previous year due to the startof production of primary wings for the Eclipse 500 small business jet and the start of development sales of the787 next-generation passenger aircraft that is currently under development. A new plant was constructed in
Handa city, Aichi Prefecture with an eye to full production of products for the 787.
In fiscal 2005, new large projects greatly contributed increasing performance, and total sales significantly
increased by ¥22.3 billion, or 37.6%, reaching the record level of ¥81.8 billion. Operating income also increased
significantly by ¥2.6 billion, to ¥2.8 billion.
Other Businesses
Sales rose in the Eco Technologies Company as a result of sales of Fuji Mighty sanitation trucks rising fromthe previous year due to the direct operation of distributors in the Kansai region and the introduction of the Fuji
Mighty LP871 jointly developed with ShinMaywa Industries, together with increased sales of wind-power
generation systems.
However, the withdrawal from business by domestic subsidiary Yusoki Kogyo K.K. had a great impact, andoverall sales fell by ¥8.1 billion, or 34.4%, to ¥15.5 billion, while operating income improved by ¥1.8 billion to¥1.2 billion (a loss of ¥600 million was recorded the previous year).

Results by Geographic Region(Japan)Although the sales units for domestic market fell in the automotive business, increased exports to Europe, theMiddle East, Australia and China, and an improvement in sales outside the automotive business led to sales
increasing by ¥16.9 billion, or 1.5%, to ¥1,145.6 billion. Despite factors such as deterioration in the sales mix
lowering operating income, it raised ¥16.5 billion (40.7%) to ¥57.0 billion due to a reduction in various expenses
such as lower production costs and favorable exchange rate movements.
(North America)
Although there were some factors lowering revenue, such as the end of consignment production in the US
manufacturing subsidiary, a net increase in the sales of the B9 Tribeca and an increase in the sales units of the
Impreza led to sales increasing to ¥574.7 billion, up ¥27.9 billion, or 5.1%. Operating income improved by ¥8.6
billion to ¥2.0 billion (from a loss of ¥6.7 billion in the previous year) due to a difference in sales units mix and areduction in various expenses such as production costs.
(Other regions)
Sales in Europe rose by ¥800 million, or 5.3%, to ¥16.2 billion, due to an increase in sales of parts andaccessories accompanying the growth in units shipped from Japan. However, owing to deterioration of
the parts and accessories sales mix, operating income slipped ¥58 million, or 15.8%, to ¥300 million.
Cash Flows
Cash and cash equivalents (hereinafter, cash) at the end of the period under review amounted to ¥112.4
billion, a year on year decrease of ¥19.3 billion.
 The factors accounting for this change in cash were as follows:
Cash flows from operating activities  Net cash provided by operating activities rose ¥80.2 billion to ¥137.5 billion, with the principle sourcesof cash being net income before tax and other adjustments totaling ¥28.7 billion, depreciation amounting
to ¥80.1 billion, and a ¥16.6 billion increase in accounts payable.
Cash flows from investing activities  Although the previous year’s revenue from the redemption of compulsory deposits amounting to¥29.4 billion was not present, the cash required by investing activities was increased by ¥14.0 billion to¥75.8 billion, due to a ¥26.3 billion increase in revenue from the recovery of loans receivable and a ¥17.1
billion decrease in expenditure for the acquisition of tangible fixed assets (property, plant and equipment).
Cash flows from financing activities  Net cash required by financing activities was down ¥115.1 billion to ¥88.9 billion due to a ¥39.0 billion
increases in expenditure from the acquisition of treasury stock, a ¥34.6 billion reduction in revenue fromlong-term borrowings and the fact that the ¥20.0 billion of revenue from the issuance of bonds last fiscal
year was not present.
2. Forecast for Fiscal 2006
Although the Japanese economy is showing signs of strength due to a recovery in consumer spending
and capital expenditure, the overall demand in the automotive market has reached the point of saturation.
With many other causes for concern in the American economy, we are faced with continually rising material
prices including oil, and areas for concern regarding exchange rates and interest rates. Based on thesefactors, the business environment surrounding FHI remains unpredictable.
Against this backdrop, the outlook for the next fiscal year is as follows:

Consolidated Forecast
Net sales: ¥1,550.0 billion (up 5.0% year-on-year)
Ordinary income: ¥50.0 billion (up 6.9% year-on-year)
Net income: ¥30.0 billion (up 92.2% year-on-year)
Forecast for the Parent Company
Net sales: ¥990.0 billion (up 1.4% year-on-year)
Ordinary income: ¥31.0 billion (down 25.1% year-on-year)
Net income: ¥14.0 billion (up 36.3% year-on-year)* Consolidated performance projections are based on information currently available to the Company. Risks
and uncertainties such as the global economic situation, market trends and exchange rate fluctuations aretaken into account, and the forecast results are believed to be logical. As actual results may differ
significantly from these forecasts, please refrain from basing investing and other decisions solely on these
forecasts.

3. Business Risks
Items regarding business performance, financial standing and consolidated financial statements shownwithin this financial report that may have a material effect on the decisions of investors are shown below.
Statements within this document pertaining to the future are based on the judgment of the Group at theend of the consolidated fiscal year under review, and the following list does not include all risks related to
the FHI Group.
(1) Economic trends
Economic trends in countries and regions that form the principle markets of the Group could have aneffect on the performance of the Group. Economic recession and reduced demand, in addition tointensifying price competition not only in Japan but also in North America, which is a principle market of
the Group, could have an adverse effect on sales and profitability of the goods and services provide by
the Group.
(2) Exchange rate fluctuations
The Group’s operating income increased by ¥16.3 billion, or 38.8%, to ¥58.3 billion this consolidated
fiscal year, and exchange rate fluctuations had a strong effect on this.
Overseas sales make up 59.1% of all sales, and items denominated in local currencies such as the US
dollar are included in sales, operating income and assets, which are converted to yen when preparing
the consolidated financial statements.
In the event the exchange rates actually used for conversion greatly differ from the exchange rates
assumed when providing an outlook for the year, a strong yen has a negative impact on the Group’s
performance and financial condition, while a weak yen has positive impact.
In order to minimize the risks such as exchange rate the company performs hedge operations
utilizing forward-exchange contracts to suit the situation. However, sharp fluctuations on the final day of
the fiscal year may have an effect on derivative valuation losses and lead to significant changes in nonoperating income.
(3) Dependence on certain businesses
The FHI Group is made up of the automotive business in addition to other businesses such as theaerospace business and industrial products business, but as the automotive business stands out withrespect to scale, the performance and financial condition of the entire group may be significantly affected
if the demand, market conditions or competition with other companies in the automotive businessexceed predictable levels.
(4) Market evaluation fluctuations
The most important aspect of stably improving FHI’s performance is the development, manufacture
and release of new products at the right time by planning products based on market trends andcustomers’ needs. If the market’s evaluation of new products such as new automobile models falls shortof our sales targets, or if existing products become obsolete more quickly than expected, the Group’s
performance and financial condition may be significantly affected.
(5) Procurement of particular materials and components
The Group procures materials and components from multiple suppliers; however, in some cases weare dependent on certain suppliers. The Group’s performance and financial condition may besignificantly affected if procurement is not possible at a stable cost, turnaround time or quality due to atight supply and demand situation.

(6) Protection of intellectual property
The Group will protect its intellectual property regarding technology and know-how in order todifferentiate our products. However, the Group’s performance and financial condition may besignificantly affected by reduced sales or legal expenses if a third party produces similar products bywrongfully using the Group’s intellectual property or if protection is limited to a particular region.

(7) Product defects
The Group places the highest priority on safety in the development, manufacture and sale of products
and services, but defects in goods and services and the possibility of recalls occurring cannot becompletely ruled out. If a large-scale recall is implemented, a large cost is incurred and this could havea significant effect on the business performance and financial standing of the Group. We are insured
for product liability, but some risks cannot be covered by this insurance.
(8) Liabilities for severance and retirement benefits
The Group’s expenses and liabilities for employees’ severance and retirement benefits are calculated
based on assumptions such as an actuarially established discount rate for liabilities for severance andretirement benefits and expected returns on pension plan assets. However, the Group’s performanceand financial condition may be affected in the future if the actual results differ from the assumptions.
(9) Legal regulations on the environment, etc.
We are subject to a variety of legal regulations inside and outside Japan regarding limits on emissions,promotion of energy saving, noise, recycling, levels of emissions of pollutants from manufacturing plants
and safety of automobiles, etc. Future increases in costs resulting from the strengthening of such legal
regulations could have an effect on the performance of the Group.
(10) Impact of disasters, wars, terrorism, strikes, etc.
Natural disasters such as major earthquakes and typhoons, diseases, wars and terrorism could
hinder the business activities of the Group, and lead to delays or stoppages in procurement of materials
and parts, production, sales and distribution of products, and the provision of services. If such delays or
stoppages are prolonged, they could have an effect on the business performance and financial standingof the Group.

Consolidated Balance Sheets(Unit: Millions of yen)

Fiscal 2006

Fiscal 2005

Changes(as of March 31,
2006)(as of March 31,
2005)

Increase/(Decrease)

619,183

649,070(29,887)

65,524
104,972
37,444
216,396
118,41432,99245,604(2,163)40,742
116,278
87,003
175,087
128,20234,85968,158(1,259)24,782(11,306)(49,559)
41,309(9,788)(1,867)(22,554)(904)

Fixed assets

729,217708,389

20,828Property, plant and equipment, net
Buildings and structures
Machinery, equipment and vehicles
Land
Construction in progress
Other

555,973
128,727
184,582
172,338
7,396
62,930543,726
129,376
183,946
170,809
12,891
46,704

12,247
(649)
636
1,529
(5,495)
16,226

Intangible assets

38,211

43,211(5,000)Investments and other assets
Investment securities
Long-term loans
Deferred tax assets
Other
Allowance for devaluation of investments
Allowance for doubtful accounts

135,033
80,316
8,141
23,612
25,312䋭(2,348)

121,452
71,114
5,976
24,481
22,632(41)(2,710)13,581
9,202
2,165
(869)
2,680
41
362

1,348,400

1,357,459(9,059)ASSETS
Current assets
Cash and time deposits
Notes and accounts receivable, tradeMarketable securities
Inventories
Short-term loans
Deferred tax assets
Other
Allowance for doubtful accounts

Total assets- 11 -

(Unit: Millions of yen)

Fiscal 2006

Fiscal 2005

Changes(as of March 31,
2006)(as of March 31,
2005)

Increase/(Decrease)

Current liabilities
Notes and accounts payable, trade
Short-term borrowings
Commercial paper
Current portion of bonds
Accrued income taxes
Accrued expenses
Accrued bonus
Accrued warranty claims
Other628,113
211,412
195,507
8,000
20,50011,472
61,744
15,42723,49680,555

610,311
190,790
220,295
22,00010,3008,872
74,326
15,277
20,49047,961

17,802
20,622(24,788)(14,000)
10,2002,600(12,582)
150
3,006
32,594Long-term liabilities
Bonds
Long-term debts
Deferred tax liabilities on revaluation of land
Accrued pension and severance liability
Accrued directors’ severance and retirement
benefits
Consolidation adjustments
Other

252,501
80,00070,072703
52,322

272,532
100,500
59,095478
59,002(20,031)(20,500)
10,977225(6,680)971
2,995
45,4381,150
12,352
39,955(179)(9,357)
5,483

880,614882,843(2,229)

2,264

3,467

(1,203)

153,795
160,071
189,996290
21,145(18,230)(41,545)

153,795
160,071
178,022421
16,945(35,874)(2,231)

䋭䋭
11,974(131)
4,200
17,644(39,314)

Total shareholders’ equity

465,522471,149(5,627)

Total liabilities and shareholders' equity

1,348,400

1,357,459(9,059)LIABILITIES ANDSHAREHOLDERS' EQUITY

Total liabilities
Minority interest in consolidated subsidiaries
Shareholders' equity
Common stock
Capital surplus
Retained earnings
Revaluation reserve for land
Net unrealized holding gains on securities
Translation adjustments
Less treasury stock, at cost

- 12 -

Consolidated Statements of Income(Unit: Millions of yen)

Changes

Fiscal 2006

Fiscal 2005

(ended March 31, 2006)(ended March 31, 2005)

Increase/(Decrease)AmountRatio of
Total (%)

AmountRatio of
Total (%)

Amount1,476,368
1,125,293
351,075

100.0
76.2
23.8

1,446,491
1,107,718
338,773

100.0
76.6
23.4

29,877
17,57512,302292,736
58,33919.8
4.0

296,756
42,01720.5
2.9(4,020)16,322Non-operating income
Interest and dividend income
Amortization of consolidation
adjustments
Equity income from affiliated companies
Other

12,356
3,421

0.8

14,0962,393

1.0(1,740)1,028

Non-operating expenses
Interest expenses
Loss on revaluation of derivatives
Equity loss from affiliated companies
Other
Ordinary income

23,927
3,181
2,983
㧙
17,763
46,768

1.6

Extraordinary gains
Gain on sale of fixed assets
Gain on sale of investment securities
Other

9,253
3,872
5,274
107

Extraordinary losses
Loss on sale and disposal of
fixed assets
Loss on sale of investment securities
Impairment loss on fixed assets
Additional retirement payments
Loss on termination of development
projects
Loss on devaluation of inventories
Loss on compensation to suppliers
Loss on discontinued operations
Other
Income before income taxes and minority
interest
Income taxes-current
Income taxes-deferred
Minority interest in income of consolidated
subsidiaries
Net income

27,347

Net sales
Cost of sales
Gross profit
Selling, general and administrative
expenses
Operating income

3,296
1,446
4,193

6,868
㧙
4,835

(3,572)
1,446
(642)

12,541
2,437
3,132
378
6,594
43,572

0.9

0.6

2,261
1,417
541
303

0.2

6,992
2,455
4,733
(196)

1.9

24,767

1.7

2,580

3.2

3.0

11,386
744
(149)
(378)
11,169
3,196

4,273
2,253
4,064
7,991

6,169
㧙
㧙
㧙

(1,896)
2,253
4,064
7,991

7,094
㧙
㧙
㧙
1,672

㧙
8,122
4,174
3,467
2,835

7,094
(8,122)(4,174)(3,467)(1,163)28,674
13,231
(303)

1.9
0.8
(0.0)

21,066
5,913(3,264)

1.5
0.4
(0.2)

7,608
7,318
2,961

(135)
15,611

(0.0)
1.1

(179)
18,238

(0.0)
1.3

44
(2,627)- 13 -

Consolidated Statements of Retained Earnings(Unit: Millions of yen)

Fiscal 2006

Fiscal 2005

(ended March 31, 2006)(ended March 31, 2005)

160,071

160,107(Capital surplus)
Balance at beginning of the year
Decrease
Loss on disposal of treasury stock

㧙

㧙

36

36

Balance at end of the year

160,071160,071(Retained earnings)
Balance at beginning of the year

178,022

165,192

Increase
Increase in the number of companies
accounted for by the equity method
Net income
Other

15,61131

Decrease
Dividends
Bonus to directors and statutory auditors
Loss on disposal of treasury stock

7,015
111
8

3,466

1,496
19,10818,238343

20,077

7,134

7,013
157
77

7,247

189,996

Balance at end of the year

- 14 -

178,022

Consolidated Statements of Cash Flows(Unit: Millions of yen)

1. Cash flows from operating activities
Income before income taxes and minority interest
Depreciation and amortization
Increase in allowance for doubtful accounts
Increase (decrease) in accrued warranty claims
Decrease in accrued pension and severance liability
Interest and dividend income
Amortization of consolidation adjustments(non-operating income and extraordinary gains)
Equity income from affiliated companies
Interest expenses
Loss on revaluation of derivatives
Equity loss from affiliated companies
Gain on sale of fixed assets
Gain on sale of investment securities
Loss on sale and disposal of fixed assets
Loss on sale of investment securities
Impairment loss on fixed assets
Additional retirement payments
Loss on termination of development projects
Loss on compensation to suppliers
Loss on discontinued operations
Decrease in notes and accounts receivable, trade
Increase in inventories
Increase in notes and accounts payable, trade
Increase in deposits received
Other, net
Sub totalInterest and dividends received
Interest paid
Additional retirement payments
Income taxes paid
Bonus paid to directors and statutory auditors
Net cash provided by operating activities
2. Cash flows from investing activities
Purchase of marketable securities
Proceeds from sale of marketable securities
Purchases of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchases of intangible assets
Purchases of investment securities
Proceeds from sale of investment securities
Disbursement of loans receivableCollection of loans receivable
Proceed from withdrawal of restricted collateral cash
Price adjustment of investment in subsidiaries
Other, net
Net cash used in investing activities- 15 -

Fiscal 2006

Fiscal 2005

(ended March 31,(ended March 31,

2006)

2005)

Changes
Increase/(Decrease)

28,67480,073542
1,040(6,859)(3,421)21,06671,010732(6,437)(2,730)(2,393)

7,608
9,063
(190)
7,477
(4,129)(1,028)(3,296)(31,675)

28,379(1,446)
3,181
2,983
㧙
(3,872)(5,274)
4,273
2,253
4,064
7,991
7,094
㧙
㧙
13,893(9,944)
16,55523,964(7,884)
154,584
3,126(2,920)(7,991)(9,201)(113)
137,485

㧙
2,437
3,132
378
(1,417)
(541)
6,169
㧙
㧙
㧙
㧙
4,174
3,467
5,353
(11,272)
33
㧙
2,225
63,711
2,406(2,432)
㧙
(6,197)(161)
57,327(1,446)
744
(149)
(378)
(2,455)(4,733)(1,896)
2,253
4,064
7,991
7,094
(4,174)(3,467)
8,540
1,328
16,522
23,964(10,109)
90,873720(488)(7,991)(3,004)48
80,158(9,489)21,908(120,875)
38,115(5,127)(9,063)13,092(124,989)
127,450
㧙
(7,087)290(75,775)(37,119)
50,474(137,998)
36,411(8,009)(7,690)5,395(122,633)
101,195
29,390㧙823(89,761)

27,630(28,566)
17,123
1,704
2,882(1,373)
7,697(2,356)
26,255(29,390)(7,087)(533)
13,986

3. Cash flows from financing activities
Net decrease in short-term borrowings
Net increase (decrease) in commercial paper
Proceeds from long-term debts
Repayments on long-term debts
Issuance of bonds
Redemption of bonds
Purchase of treasury stock
Proceeds from disposal of treasury stock
Dividends paid
Other, net
Net cash (used in) provided by financing activities
4. Effect of exchange rate changes on cash and cash
equivalents

5. Net decrease in cash and cash equivalents
6. Cash and cash equivalents at beginning of the year
7. Cash and cash equivalents at end of the year

- 16 -(4,538)(14,000)
15,301(28,996)㧙
(10,300)(39,352)30(7,015)(15)(88,885)(1,102)
12,00049,867(37,166)
20,000(10,000)(399)
24(7,013)(12)
26,199(3,436)(26,000)(34,566)
8,170(20,000)(300)(38,953)6(2)(3)(115,084)

7,856(19,319)
131,685
112,366(1,481)(7,716)
139,401
131,685

9,337(11,603)(7,716)(19,319)

Basis of Consolidated Financial Statements andSummary of Significant Accounting Policies
1. Scope of Consolidation and Application of the Equity Method(1) Consolidated subsidiaries:

68

Domestic subsidiaries:

49

Foreign subsidiaries:

19

Fuji Robin Industries Ltd., Ichitan Co., Ltd., TOKYOSUBARU, Inc. and 46 other subsidiaries
Subaru of Indiana Automotive, Inc., Subaru ofAmerica, Inc. and 17 other subsidiaries(2) Companies accounted for by the equity method: 11
Domestic companies:
10
Subaru Auto Accessory Co., Ltd., Subaru Systemservice Co., Ltd., Subaru Tecnica International Inc.,and 7 other companies
1
Robin America Inc.
Foreign companies:

2. Changes in Scope of Consolidation and Application of the Equity Method(1) Consolidated subsidiaries:
Increase:
Decrease:––(2) Companies accounted for by the equity method:
Increase:
6
Decrease:–
From this fiscal year, Subaru Tecnica International Inc., Robin America Inc., and 4 othercompanies have been accounted for by the equity method due to their increased influence on the
consolidated financial statements.

3. Fiscal Year-end of Consolidated Subsidiaries
The fiscal year-end of the consolidated domestic subsidiaries is the same as that of the parent company,
while the fiscal year-end of the consolidated foreign subsidiaries is December 31. Although these foreignsubsidiaries are included based on their fiscal year ended December 31, significant transactions that
incurred for the period between December 31 and March 31 are reflected in the consolidated financial
statements.

- 17 -

4. Accounting Policies(1) Method and basis for valuation of significant assets(1) Marketable securities and investment securities:
Held-to-maturity debt securities: The amortized interest cost method (the straight-line method)
Other securities:a) Securities for which fair market value is available: Stated at fair value as of the balance sheet
date with unrealized holding gains and losses included as a component of shareholders’equity until realized. Realized gains and losses on sale of securities are principally
computed using the moving-average method.
b) Securities for which fair market value is not available: Stated principally at cost as
determined by the moving-average method, after devaluation for any permanent impairment.
(2) Derivative financial instruments: Stated at fair value.
(3) Inventories:
Finished products: Stated principally at cost determined by the moving-average method.
Other inventories: Stated principally at cost determined by the first-in, first-out method.

(2) Depreciation/Amortization method of fixed assets(1) Property, plant and equipment:
Depreciation of the property, plant and equipment of the Company and consolidated domestic
subsidiaries is principally computed by the declining-balance method, except for the buildings(excluding building improvements) acquired on or after April 1, 1998, for which the straight-line
method is applied. Depreciation of the property, plant and equipment of consolidated foreignsubsidiaries is computed by the straight-line method in accordance with the accounting
principles generally accepted in each country.
Estimated useful lives for depreciable assets are as follows:
Building and structures:
Machinery, equipment and vehicles:

7~50 years
2~11 years(2) Intangible assets:
Goodwill is amortized by the straight-line method based on the accounting principles generally
accepted in the respective countries of domicile. However, goodwill of the consolidated
subsidiary in the U.S. is not amortized in accordance with SFAS 142, while other identifiableintangible assets are amortized by the straight-line method.
Computer software used internally by the Company and consolidated subsidiaries is amortizedby the straight-line method over the relevant economic useful lives (3 or 5 years).

- 18 -

(3) Basis for significant accruals and reserves(1) Allowance for doubtful accounts:
Allowance for doubtful accounts is provided based on the amount calculated as the actual ratioof bad debt for ordinary receivables, and an amount required for uncollectible account for
specific doubtful receivables.
(2) Allowance for devaluation of investments:
Allowance for devaluation of investments is provided for losses from decrease in the value ofinvestment securities for which fair value is not available and investments in non-consolidated
subsidiaries and affiliated companies based on the evaluation of the investees’ financial
conditions, such as net assets and the probability of recovering the value.
(3) Accrued bonus:
Accrued bonus is recorded based on the estimated future payments pro-rated for employee
services received during the fiscal year.
(4) Accrued warranty claims:
The Company and consolidated subsidiaries provide for accrued warranty claims on products
sold based on their past experiences of warranty services and estimated future warranty costs.
(5) Accrued pension and severance liability:
Accrued pension and severance liability for employees is provided based on the estimatedamounts of projected pension and severance obligation and fair value of plan assets at end of
the fiscal year. Prior service cost is being amortized as incurred by the straight-line method overthe periods (14 to 18 years), which is shorter than the average remaining service periods of theeligible employees. Actuarial gains and losses is amortized from the following fiscal year by thestraight-line method over the periods (primarily 18 years), which are shorter than the averageremaining service periods of the eligible employees.
(6) Accrued directors’ severance and retirement benefits:
Directors and statutory auditors of the Company and consolidated subsidiaries are entitled toreceive lump-sum payments at the time of severance or retirement, subject to the approval of theshareholders. The necessary payment for such benefits are accounted for based on the
Company’s and consolidated subsidiaries’ internal rules in order to prepare the payment of such
benefits. This is the allowance based on Article 43 of the Japanese Commercial Code
Enforcement Regulation.

(4) Basis for translation of foreign currency accounts
Monetary assets and liabilities denominated in foreign currencies are translated into Japanese yen at
the exchange rates prevailing at each balance sheet date with the resulting gain or loss included in
the accompanying consolidated statements of income.
Assets and liabilities of foreign subsidiaries and affiliated companies are translated into Japanese yenat the exchange rates in effect at the balance sheet date of the foreign subsidiaries and affiliatedcompanies, except for common stock and capital surplus, which are translated at historical rates.
Revenue and expense accounts are translated at the average exchange rates during the current year.
The resulting foreign currency translation adjustments are included in “Translation adjustments” inshareholders’ equity and minority interest in the accompanying consolidated balance sheets.

- 19 -

(5) Revenue recognition
Revenues of the Aerospace Division’s production contracts with the production term exceeding one
year and the amount exceeding ¥ 5,000 million are recognized by the percentage-of-completion
method.

(6) Accounting for leases
Finance leases which do not transfer ownership of the leased assets to the lessees are accounted
for as operating leases.

(7) Accounting for hedging activities(1) Method of hedge accounting:Principally, the deferred hedge accounting method is applied.
For interest rate swap contracts used as hedges and which meet certain hedging criteria, the net
amount to be paid or received under the interest rate swap contract is added to or deducted fromthe interest on the assets or liabilities for which the swap contract is executed.
(2) Derivative financial instruments qualifying as a hedge, along with the related transactions, assets
and liabilities are as follows:
Financial instrument
Interest swaps

Transactions, assets and liabilities
Borrowings(3) Hedge policy:
The risk exposures to movements in interest rates are hedged according to the Company’s andconsolidated subsidiaries’ risk management policy.
(4) Method for evaluating hedge effectiveness:
Evaluation of hedge effectiveness is not considered necessary as the terms and notionalamounts of these hedge instruments are the same as those of the related transactions, assets
and liabilities, and therefore they are assumed to be highly effective in offsetting movements ininterest rates at their inception as well as during their term.

(8) Accounting for consumption taxes
Consumption taxes are excluded from the related transaction amounts and are accounted forseparately.

5. Valuation of Assets and Liabilities of Consolidated Subsidiaries
Assets and liabilities of the consolidated subsidiaries are presented using the fair value method.

- 20 -

6. Amortization of Consolidation Adjustments
Consolidation adjustments are amortized by the straight-line method over 5 years. However,consolidation adjustments (credit side) that arose from making Subaru of Indiana Automotive, Inc., awholly owned subsidiary of the Company, are amortized differently. The portion that clearly corresponds
to the forecast future losses has been amortized according to the generation of such losses, and theremaining portion of the consolidation adjustment has been amortized by the straight-line method over 5
years.

7. Appropriation of Retained Earnings
Consolidated Statements of Retained Earnings are prepared based on the actual appropriation made forthe years.

8. Definition of Cash and Cash Equivalents for the Statements of Cash Flows
Cash and cash equivalents for the purpose of presentation in the statements of cash flows consist of
cash on hand, time deposits, and highly liquid short-term investments with negligible risk of changes invalue due to their short maturities of three months or less.

Change of Accounting Policy
Accounting standard of impairment loss on fixed assets
From the fiscal year ended March 31,2006, the Company and the consolidated subsidiaries adopted the
new accounting standard for impairment of fixed assets (“Opinion Concerning Establishment of AccountingStandard for Impairment of Fixed Assets” issued by the Business Accounting Deliberation Council on
August 9, 2002) and the implementation guidance for the accounting standard for impairment of fixed
assets (the Financial Accounting Standard Implementation Guidance No. 6 issued by the AccountingStandards Board of Japan on October 31, 2003).
As a result of this change, "Income before income taxes and minority interest" decreased by ¥3,263 million.
(Impairment loss on fixed assets of the Consolidated Statements of Income is ¥4,064 million in which ¥801
million of the consolidated subsidiaries in America is included.)
An accumulated impairment loss is recorded as direct deduction in the book value of respective assets.

- 21 -

Additional Information
Amortization of Consolidation Adjustments (Credit Side)On January 1, 2003, the Company acquired Isuzu’s share of Subaru of Indiana Automotive, Inc. (SIA),
to make SIA a wholly owned subsidiary of the Company, and SIA was assigned to produce certain Isuzu
vehicles as well as Subaru vehicles.
Acquisition cost of the Isuzu’s share of SIA was determined in consideration of certain losses on thedisposal of fixed assets, losses on cancellation of operating leases, and losses related to personnel
reduction, incurring during and after the consigned production activities. Consequently, the consolidation
adjustments (credit side) arose.
The portion of the consolidation adjustments that clearly corresponds to the forecasted future losses
has been amortized according to the generation of those losses, and the remaining portion has beenamortized by the straight-line method over 5 years.
The Company revised this amortization schedule followed by settlement of actual loss with Isuzu
according to the Master Agreement for Cancellation of the Joint Venture Relationship and Consignment of
Production, December 20, 2002.
As a result, the consolidation adjustments (Credit side) are ¥1,949 million as of March 31, 2006, andthey are to be amortized completely by the next fiscal year.
As a result of this settlement, the consolidation adjustments account (credit side) decreased by ¥ 7,087
million and the amortization of consolidation adjustments (non-operating income) decreased by ¥ 1,221
million in the fiscal year ended March 31,2006.

Transfer to the government of substitutional portion of employee pension fundAs stipulated in Japanese Defined Benefit Pension Insurance Law, the Tokyo Subaru Employees’
Pension Fund (a multi-employer welfare pension fund), of which certain consolidated subsidiaries are
members, obtained an approval from the Minister of Health, Labor and Welfare for exemption from thebenefit obligations related to future employee service in respect of substitutional portion on October 28,
2005. The pension fund is currently in the process of transferring the obligations related to past employee
service to the government.
The amount to be transferred (the minimum reserve obligations) to the government as of March 31,
2006, was estimated ¥5,400 million. Had the amount been transferred at the end of current fiscal year, an
extraordinary gain of approximately ¥2,300 million would have been recognized in the following fiscal year,in accordance with the provisions of Article 44 – 2 of “Practice Guidelines of Accounting for Retirement
Benefits (Interim Report)” (JICPA Accounting Systems Committee Report No. 13).

- 22 -

Notes to Consolidated Financial Statements(Consolidated Balance Sheet)
1. Pledged assets and secured liabilities
Pledged assets and secured liabilities are as follows:(1) Pledged assets(Unit: Millions of yen)

Fiscal 2006
Notes and accounts receivable, trade291

11,66531,318[10,879]

41,064[18,471]

16,021

22,330[16,012][22,029]

41,51545,270[1,493][1,893]180

271¥ 89,325¥ 120,600[28,384][42,393]

Buildings and structures
Machinery, equipment and vehicles
Land
Other fixed assets
Total

Fiscal 2005

(2) Secured liabilities(Unit: Millions of yen)
Short-term borrowings¥ 45,934¥ 62,382[2,112][6,621]

11,625

13,079[7,230][7,739]㧙

300

Long-term debts
Bonds
Total

¥ 57,559¥

75,761[9,342][14,360]

Note: The above amounts in parentheses represent a mortgage of the factory foundation and therelated liabilities.

2. Accumulated depreciation for property, plant and equipment(Unit: Millions of yen)

Fiscal 2006

Fiscal 2005

¥ 686,418¥ 630,632

3. Consolidation adjustments included in intangible assets(Unit: Millions of yen)
Fiscal 2006
Fiscal 2005¥

- 23 -

55¥

115

4. The Company’s guarantees for the indebtedness from financial institutes(Unit: Millions of yen)
Fiscal 2006
Fiscal 2005¥

41,451¥40,408

5. The balance of assets transferred to the special purpose company is ¥18,174 million which isaccounts receivable of the Aerospace Division

6. The unexecuted balance of overdraft facilities and lending commitments at a consolidated
subsidiary (Subaru Finance Co., Ltd.) is as follows:(Unit: Millions of yen)
Fiscal 2006
Total overdraft facilities and lending commitments
Less amounts currently executed
Unexecuted balance¥ 14,310
2,788¥ 11,522

Fiscal 2005
¥ 12,350
7,510¥ 4,840

A portion of the overdraft facilities and lending commitments above is subject to credit considerations as
documented in the customer contracts. Therefore, the total balance above is not always executable.

7. The unexecuted balance of commitments for borrowings by the Company and consolidated
subsidiaries (Subaru of America, Inc. and Subaru Europe N.V./S.A.) are as follows:(Unit: Millions of yen)
Fiscal 2006

Fiscal 2005

Total commitments
Less amounts currently executed¥ 81,174㧙

¥ 86,434
10,000Unexecuted balance¥ 81,174¥ 76,434

8. Certain consolidated subsidiaries revalued land used for business pursuant to Law Concerning
Revaluation of Land (the “Law”) (promulgated on effective March 31, 1998) and recorded therevaluation reserve for land in the consolidated shareholders’ equity.
Method of revaluation: Revaluation was performed by adjusting the amount appraisedin accordance with municipal property tax pursuant to Article 2,
Paragraph 3 of the implementation orders of the “Law”(promulgated on effective March 31, 1998).
Date of revaluation:
March 31, 2002
Unrecorded gain on revaluation at March 31, 2006: ¥ 463 million(Fiscal 2005 is ¥ 393 million.)- 24 -

9. Number of shares issued at end of the year (common stock)
Fiscal 2006
782,865,873 sharesFiscal 2005
782,865,873 shares

10. Number of treasury stock owned at end of the year (common stock)
Fiscal 2006
66,193,286 sharesFiscal 2005
3,761,911 shares(Consolidated Statement of Income)
1. Research and development cost included in general and administrative expenses and cost of
sales(Unit: Millions of yen)
Fiscal 2006
Fiscal 2005¥

46,893¥52,962

2. Contents of extraordinary gains and losses
Fiscal 2006
The company accounts for impairment loss with regard to the following assets.
Use
Manufacturing facility

Location
America

Category
Structures, Machinery andequipment
Buildings and structures,
machinery and equipments, andland

Asset for business ofdealership

Wakayama pref. and 3other locations

Real estate for leasebusiness

Gunma pref.

Buildings

Underutilized real estate

Hokkaido pref. and 3 otherlocationsLand, buildings and structures,and other

The operating properties for dealers are grouped by each company, the leased property andunused property are grouped on a property by property basis, and the operating properties of a
subsidiary in America are grouped by each product.

- 25 -

Amounts by each account title are as follows;(Unit: Millions of yen)
Fiscal 2006
Buildings and structures
Machinery and equipments
Land and other
Total

¥
¥
¥
¥

1,672
782
1,610
4,064

- “Loss on termination of development projects”, which is a part of “Extraordinary losses” consistedof the following two components:(1) A joint development project for new model vehicle
In light of the termination of the Strategic Alliance between the Company and General Motors(GM), the Company and GM agreed to terminate the joint development project for cross overvehicles with SAAB Automobile AB. As a result, the Company has recorded an extraordinary
loss of ¥3,633 million on the joint project costs already incurred. As the Company has sinceidentified certain project asset to be used for another model development, the loss has been
reduced by ¥1,980 million compared to the amount recorded in the consolidated financial
statements for the semi-annual period of 2006.
(2) New software system development project
The Company started to develop a software operating system which was expected to support
its business processes from order entry to delivery. However, the Company has concluded
that the new system would not be as cost as effective as it was originally planned. As a result,
the Company terminated the development project and has recorded an extraordinary loss of¥3,461 million from the termination.
- Included in “Other” of ¥1,672 million, which is a part of “Extraordinary losses” is a loss of ¥1,656
million for the environmental remediation cost related to soil improvement that has been accrued
as a result of the decision by Yusoki Kogyo K.K., a consolidated subsidiary, to close a part of its
plants.

Fiscal 2005
- “Loss on devaluation of inventories” in extraordinary losses is recorded because the prospective
realization of the “Work in process” of Aerospace Division’s certain project has become uncertain
due to a substantial delay in schedule of the project.
- “Loss on compensation to suppliers” in extraordinary losses is recorded based on the anticipatedcompensation loss for suppliers’ development costs which arose from the Company’s partial
rescheduling of a certain development plan in Automotive Division.
- “Loss on discontinued operations” in extraordinary losses is due to the termination of theoperation of Trailer, Train Parts, and other productions in Yusoki Kogyo K.K.
- “Other” in extraordinary losses amounting to ¥2,835 includes ¥2,796 million of loss, which is theamount after offsetting ¥27,603 million of losses related to operating lease equipments in Subaru
of Indiana Automotive, Inc. (SIA), against ¥24,807 million of amortization of the consolidation
adjustments (credit side), arose form making SIA a wholly owned subsidiary of the Company.

- 26 -

(Consolidated Statement of Retained Earnings)
Fiscal 2006
Increase of retained earnings-other in the consolidated statement of retained earnings
mainly represents “Comprehensive income” from a consolidated subsidiary in the U.S.,
based on generally accepted accounting principal in the U.S.
Fiscal 2005
Increase of retained earnings-other in the consolidated statement of retained earnings
represents “Comprehensive income” from a consolidated subsidiary in the U.S., basedon generally accepted accounting principal in the U.S.

(Consolidated Statement of Cash Flows)
1. Breakdown of the ending balances of cash and cash equivalents out of balance sheet amountsof each related account at end of the year is as follows:
Fiscal 2006
(Unit: Millions of yen)

Cash and time deposits
Marketable securities
Short-term loans
Cash and cash equivalents

Balance sheet
amounts¥ 65,524¥ 37,444¥118,414

Cash andcash equivalents¥ 65,447
33,681
13,238¥112,366

Fiscal 2005
(Unit: Millions of yen)

Cash and time deposits
Marketable securities
Short-term loans
Cash and cash equivalents

Balance sheet
amounts¥ 40,742¥ 87,003¥128,202

Cash andcash equivalents¥ 40,449
72,82818,408¥131,685

2. Significant non-cash transaction
Fiscal 2006
None.
Fiscal 2005
On August 2004, the Company executed the share exchange agreement and made Yusoki
Kogyo K.K. a wholly owned subsidiary of the Company. As a result of the share exchange,
consolidation adjustments increased by ¥ 833 million and treasury stock decreased by ¥ 942
million.

- 27 -

(Securities and Investments)
I. Fiscal 2006

1. Other investment securities (available-for-sale securities) for which fair market value areavailable (as of March 31, 2006)(Unit: Millions of yen)

Acquisition cost

Book value

Difference

20,162

55,67135,509

35

344

309

20,19756,01535,818

223

196

(27)

Government and municipal bonds

11,297

11,154(143)

Corporate bonds

3,632

3,572

(60)

1,335

1,314

(21)

Sub-total

16,487

16,236

(251)

Total

36,68472,25135,567(Book value exceeding acquisition cost)(1) Equity securities(2) Debt securities
Other
Sub-total(Book value not exceeding acquisition cost)(1) Equity securities(2) Debt securities(3) Other

2. Other investment securities sold in fiscal 2006 (from April 1, 2005 to March 31, 2006)
Sales amount
615,171(Unit: Millions of yen)
Loss on sale – total
2,313

Gain on sale – total
5,475

Note: The above sales amount includes sales of short-term investments in commercial paper and otheramounting ¥580,171 million.

- 28 -

3. Book value of major marketable securities without available fair market value (except for otherinvestment securities stated in 1 above) (as of March 31, 2006)(1) Other marketable securities:(Unit: Millions of yen)

Money management fund:
Unlisted stocks (excluding over-the-counter stocks):¥ 33,679¥ 1,469

Note: The Company and consolidated subsidiaries recognize ¥ 16 million in loss on devaluation of securities in
the current year.
For purpose of recording the loss on devaluation of securities, the Company and consolidated
subsidiaries consider all securities whose fair market value has fallen below 50 % of the book value tobe permanently impaired, and records the relevant loss on devaluation. For securities whose fair market
value has declined between 30 % to 50 % in relation to book value, the Company and consolidated
subsidiaries specifically consider the probability of recovery of the fair value, and records a loss ondevaluation in an amount deemed sufficient.

4. Schedule of redemption for other investment securities with maturity and held-to-maturity debt
securities (as of March 31, 2006)(Unit: Millions of yen)

Within 1 year

1 to 5 years

5 to 10 years

Over
10 years(1) Debt securities
Government and municipal bonds

2,846

7,086

693

529

Corporate bonds(2) Other
Total

743
174
3,763

2,632
469
10,187

196
175
1,064

496
1,025

- 29 -

䋭

II. Fiscal 2005
1. Other investment securities (available-for-sale securities) for which fair market value areavailable (as of March 31, 2005)(Unit: Millions of yen)

Acquisition cost

Book value

Difference

20,761

49,21428,453

100

100

0

2,500

2,501

1

36

181

145

4,281

4,282

1

27,67856,27828,600

256

205

(51)

Government and municipal bonds

6,656

6,627

(29)

Corporate bonds

4,740

4,724

(16)

501

500

(1)

2,344

2,338

(6)

Sub-total

14,497

14,394

(103)

Total

42,17570,67228,497(Book value exceeding acquisition cost)(1) Equity securities(2) Debt securities
Government and municipal bonds
Corporate bonds
Other(3) Other
Sub-total(Book value not exceeding acquisition cost)(1) Equity securities(2) Debt securities

Other(3) Other

2. Other investment securities sold in fiscal 2005 (from April 1, 2004 to March 31, 2005)(Unit: Millions of yen)
Sales amount
Gain on sale – total
Loss on sale – total
640,095
633
56
Note: The above sales amount includes sales of short-term investments in commercial paper andother amounting ¥584,226 million.

- 30 -

3. Book value of major marketable securities without available fair market value (except for heldto-maturity debt securities stated in 1 above) (as of March 31, 2005)(1) Other marketable securities:
Money management fund:Commercial paper:
Unlisted stocks (excluding over-the-counter stocks):
Negotiable certificated deposit:
Beneficiary rights to the trust:Held-to-maturity debt securities:(Unit: Millions of yen)
¥ 47,688¥ 19,838¥ 6,544¥ 5,000¥ 2,579¥6

Note: The Company and consolidated subsidiaries recognize ¥ 23 million in loss on devaluation of
securities in the current year.
For purpose of recording the loss on devaluation of securities, the Company and consolidated
subsidiaries consider all securities whose fair market value has fallen below 50 % of the bookvalue to be permanently impaired, and records the relevant loss on devaluation. For
securities whose fair market value has declined between 30 % to 50 % in relation to bookvalue, the Company and consolidated subsidiaries specifically consider the probability ofrecovery of the fair value, and records a loss on devaluation in an amount deemed sufficient.

4. Schedule of redemption for other investment securities with maturity and held-to-maturity debt
securities (as of March 31, 2005)(1) Debt securities
Government and municipal bonds
Corporate bonds
Other(2) Other
Total(Unit: Millions of yen)Over
5 to 10 years
10 yearsWithin 1 year

1 to 5 years

1,412
4,195

3,393
2,747

1,420
262

501
22

21,805
5,763
33,175

䋭

䋭

䋭

425
6,565

54
1,736

359
882

- 31 -

Segment Information(1) Business segment information
Fiscal 2006 (from April 1, 2005 to March 31, 2006)(Unit: Millions of yen)

Industrial

Elimination

Consolidated

and corporate

total

Automobiles

products

Aerospace

Other

Total

1,329,161

52,436

81,787

12,984

1,476,368

㧙I. Sales and operating
income (loss)
Sales(1) Outside customer

3,688

116

35

2,518

6,357

(6,357)

1,476,368
㧙Total sales
Operating cost andexpense1,332,849

52,552

81,822

15,502

1,482,725(6,357)

1,476,368

1,281,290

50,51479,027

14,271

1,425,102(7,073)

1,418,029

Operating income
II. Assets,
depreciation/amortization
expense and capital
expenditure

51,559

2,038

2,795

1,231

57,623716

58,339Assets1,110,445
Depreciation/Amortization
74,431
expense56,621

147,557

68,435

1,383,058(34,658)

1,348,400

1,795

1,941

1,906

80,073

㧙

80,073

Capital expenditure

1,195

7,605

668

119,289㧙

119,289(2) Inter-segment

109,821

Fiscal 2005 (from April 1, 2004 to March 31, 2005)(Unit: Millions of yen)

Industrial

Elimination

Consolidated

and corporate

total

Automobiles

products

Aerospace

Other

Total

1,319,603

46,81459,434

20,6401,446,491

㧙I. Sales and operating
income (loss)
Sales(1) Outside customer

4,069

307

40

2,994

7,410

(7,410)1,446,491
㧙Total sales
Operating cost andexpenseOperating income(loss)
II. Assets,
depreciation/amortization
expense and capital
expenditure

1,323,672

47,121

59,474

23,634

1,453,901(7,410)1,446,491

1,282,730

46,272

59,27924,224

1,412,505(8,031)

1,404,474

40,942

849

195

(590)

41,396621

42,017

AssetsDepreciation/Amortization
expense1,136,372

57,611

127,548

74,4491,395,980(38,521)1,357,459

64,630

1,999

1,912

2,469

71,010㧙

71,010135,972

1,013

2,614

8,160

147,759

㧙

147,759(2) Inter-segment

Capital expenditureNotes: 1. Definition of business segments
Business segments are defined based on product line and market.
2. Main products by each business segment
Business segment

Main products

Automobiles

Legacy, Impreza, Forester, B9Tribeca, R1, R2, Pleo, Samber

Industrial products

Robin engines, power generators, Pump

Aerospace

Aircraft, parts of space-related devises- 32 -

OtherGarbage collection car, Specialized vehicles, real estate lease

3.All operating costs and expenses are allocated to each business segment.
4.All figures in elimination and corporate represents elimination.
5. Change of accounting policy
As stated in "Change of Accounting Policy", the Company and consolidated subsidiaries adopted theaccounting standard for impairment of fixed assets from this fiscal year. As a result of this change,
asset of “Automobile” segment decreased by¥ 3,167 million and asset of “Other” segment decreasedby ¥ 96 million.

(2)

Segment information by geographic area
Fiscal 2006 (from April 1, 2005 to March 31, 2006)

I. Sales and operating income(loss)Sales(1) Outside customer(2) Inter-segment
Total sales
Operating cost and expense
Operating income
II. Assets

Japan

North
AmericaOther888,117
257,456
1,145,573
1,088,584
56,9891,006,951

572,4122,298
574,710572,740
1,970
368,541

15,839313
16,152
15,843
309
2,716

Total

1,476,368
260,067
1,736,435
1,677,167
59,268
1,378,208

Fiscal 2005 (from April 1, 2004 to March 31, 2005)

Japan
I. Sales and operating income
Sales(1) Outside customer(2) Inter-segment
Total sales
Operating cost and expense
Operating income (loss)
II. Assets

886,793
241,860
1,128,653
1,088,136
40,5171,080,303

North
AmericaOther544,7532,027
546,780
553,458(6,678)307,858

14,945391
15,336
14,969
367
2,439

Total

1,446,491
244,278
1,690,769
1,656,563
34,206
1,390,600(Unit: Millions of yen)
Elimination
andConsolidated
corporate
total

㧙(260,067)(260,067)(259,138)(929)(29,808)

1,476,368
㧙
1,476,368
1,418,029
58,3391,348,400(Unit: Millions of yen)
Elimination
andConsolidated
corporatetotal

㧙(244,278)(244,278)(252,089)
7,811(33,141)

1,446,491
㧙
1,446,491
1,404,474
42,017
1,357,459

Notes: 1. Geographic areas are based on geographical proximity.
2. Principal countries or districts in each geographic area:
North America: United States and Canada
Other:

Europe3. All operating costs and expenses are allocated to each segment.
4. All figures in elimination and corporate represents elimination.
5. Change of accounting policy
As stated in "Change of Accounting Policy", the Company and consolidated subsidiaries adopted theaccounting standard for impairment of fixed assets from this fiscal year. As a result of this change, assetof “Japan” segment decreased by ¥ 3,263 million.

- 33 -

(3) Overseas sales
Fiscal 2006 (from April 1, 2005 to March 31, 2006)

Overseas sales
Consolidated net sales
Percentage of overseas sales overconsolidated sales (%)(Unit: Millions of yen)North
America
616,437

Europe128,777

Other
127,016

Total
872,230
1,476,368

41.8 %

8.7 %

8.6 %

59.1 %

Fiscal 2005 (from April 1, 2004 to March 31, 2005)

Overseas sales
Consolidated net sales
Percentage of overseas sales overconsolidated sales (%)
Notes:(Unit: Millions of yen)North
America
593,249

Europe117,826

Other
108,357

Total
819,432
1,446,491

41.0 %

8.2 %

7.5 %

56.7 %

1. Geographic areas are based on geographical proximity.
2. Principal countries or districts in each geographic area:
North America:

United States and Canada

Europe:Germany, Switzerland and England

Other:

Australia

3. Overseas sales are sales outside of Japan by the Company and consolidated subsidiaries.
4. Change of accounting policy
None࡮Notes to be abbreviated on this immediate release(1) The following footnotes are not presented herein for they will be disclosed in the EDINET filing:- Leases information- Derivative transactions(2) The following footnote information will be disclosed as “additional earnings announcement
information,” as soon as such information becomes available:- Accrued pension and severance benefits- Income taxes- 34 -

Production, Accepted Orders and Sales Results Information(1) Production
Actual production during the current year by each segment is as follows:(Unit: Millions of yen, except for Automobiles)

Fiscal 2006
From April 1, 2005
to March 31, 2006
135,974
449,746585,720
49,531
100,765
9,982

Segments
Automobiles

Mini-carsCompact cars
Sub-total
Industrial products
Aerospace
Other

Change fromprior year (%)(16.2)
6.0
(2.3)
12.5
54.3
(42.3)

Notes: 1. Amounts are based on sales prices and inter-segment transactions are eliminated.
2. The above amounts exclude consumption taxes.

(2) Accepted orders
Accepted orders in the current year by each segment are as follows (automobiles and industrial
products are produced based on order forecasts):(Unit: Millions of yen)Segments
Aerospace
Other
Total
Note:

Fiscal 2006 (From April 1, 2005 to March 31, 2006)
Change from
Change fromAccepted orders
prior year (%)
Order balance
prior year (%)
117,64575.7 %
164,155
27.9 %
10,750(26.0 %)
2,491
66.0 %
128,395
57.6 %
166,646
28.4 %

The above amounts exclude consumption taxes.

(3) Sales results
Sales results for the current year by each segment are as follows:(Unit: Millions of yen)Segments
Automobiles
Industrial products
Aerospace
Other
Total

Fiscal 2006
From April 1, 2005
to March 31, 2006
1,329,161
52,436
81,787
12,984
1,476,368

Change fromprior year (%)
0.7 %12.0 %
37.6 %(37.1 %)
2.1 %Notes: 1. Amounts are based on sales prices and inter-segment transactions are eliminated.
2. The above amounts exclude consumption taxes.

- 35 -

Significant subsequent events
The share exchange to make Fuji Machinery Co., Ltd. a wholly owned subsidiary
Fuji Machinery Co., Ltd., a consolidated subsidiary, accounts for approximately 90% of its sales to Fuji
Heavy Industries Ltd. (the Company). In order to enhance group management, the company, at its Board of
Directors’ meeting on May 9, 2006, approved a share exchange (under the simplified share exchange
method), in which Fuji Machinery Co., Ltd. will become a wholly owned subsidiary, and it executed a shareexchange agreement with Fuji Machinery Co., Ltd.
1. Principal terms and conditions of the share exchange(1) Timetable
May 9, 2006:

Board of Directors’ approval of share exchange agreement
Execution of share exchange agreement

June 28, 2006:

General meeting of shareholders of Fuji Machinery Co., Ltd. to vote on the
proposed share exchange

October 1, 2006: Closing date of share exchange (Deadline to submit stock certificate)
The company will conduct this share exchange in accordance with the simplified share exchange
provision in Article 796 of the Corporate Law, without seeking the approval at a shareholders’ meeting.
(2) Share exchange ratio

Share exchange ratio

The company (Future 100%

Fuji Machinery Co., Ltd. (Future

parent company)

wholly-owned subsidiary)

1

0.52

Note: Basis of determining the share exchange ratio
The Company and Fuji Machinery Co., Ltd. individually engaged third party appraisers to analyze theexchange ratio. The analysis was performed based on the market stock prices, the comparable-company
comparisons, and the discounted cash flows. The Company and Fuji Machinery Co., Ltd. have agreed to theabove ratio, taking into consideration the results of such third party appraisals and certain other factors.

(3) Share transfer payment in connection with the share exchange
No share transfer payment will be paid in connection with the share exchange.

2. Operations following the closing of the share exchange(1) Company name, nature of business, management, and location of the head office
There will be no change as a result of the share exchange.

(2) Common stock of the company
There will be no change in the amount of common stock of the Company because the Company
intends to re-issue its treasury stock for all the shares to be exchanged.

(3) Effect on the results of the Company’s operation
The Company expects the share exchange will have no material effect on its results of operations.

- 36 -

<Reference for FY2006 Consolidated Financial Results>(MAY 9, 2006)

Fuji Heavy Industries Ltd.

(in 100 millions of yen)(in thousands of units)

RESULTS
FY2005RESULTS
FY2006Apr.2004 to Mar.2005

Apr.2005 to Mar.2006

Net Sales

14,465
6,271
8,194

Domestic
Overseas
Margin Percentage

2.9%

2.1 %
(3.7) %
6.4 %

583

38.8 %

420
3.0%

436
1.3%

468

182

156

Domestic sales

Overseas sales
North America
EuropeOther
Total sales
SIA Isuzu SUVs

13

6.9 %

300

92.2 %

Gain factors

Foreign exchange
Reduction in costs
Decrease of expenses
and others
Decrease in R&D expenses

254
104
150
328
210
61
57
582

Small Cars
Minicars

500(14.4) %Gain factors

108
853
511
530
4,122

(14.3) %1.9%

132 Increase in sales mix
128 Reduction in costs

107
27

86
61

Loss factors

Decrease in sales mix

Capital investment
Depreciation and amortization
R&D expenses
Interest bearing debt
Performance of operation

500

7.3 %

Loss factors

Exchange rate YEN/US$

5.0 %
5.9 %
4.3 %

3.2%

1.1%

Net income
Change of operating income
by factors

15,500
6,400
9,100
3.2%

3.2%

Ordinary income
Margin Percentage

Apr.2006 to Mar.2007

14,764
6,041
8,722
4.0%

Operating income
Margin Percentage

FORECAST
FY2007

112
562
575
469
3,741
Net sales to increase
Net income to decrease
Best net sales
230
98
132
341
210
65
67
571
-

244 Increase of expenses
and others
Increase in R&D expenses
Foreign exchange(9.4) %
(6.1) %
(11.7) %4.2 %(0.2) %
7.0 %
17.4 %(1.8) %

110
930
605
540
3,700
Net sales to increase
Net income to increase
Best net sales
264
97
167
347
220
65
62
611

-

* Figures of Total Sales are the sum of retail sales units of the Japanese subsidiary dealers,
wholesale units of the overseas subsidiary distributors, and wholesale units of FHI to other distributors/dearlers.
* Exchange rate is the non-consolidated sales rate of FHI.

-

96
71
50

14.5 %(0.8) %
25.8 %
1.8 %
4.9 %
1.0 %
(7.3) %
6.9 %-