Non-consolidated Financial Results for Fiscal 2005

May 12, 2005

For Immediate Release
Company Name

: Fuji Heavy Industries Ltd.

Name of Stock Exchanges : Tokyo Stock Exchange (First Section)
Code No.

: 7270Location of Head Office: Tokyo, JapanURL: http://www.fhi.co.jp/fina/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 Approving the Financial Results: May 12, 2005
The Scheduled Commencement Date of Dividend Payments: June 27, 2005
Date of the Regular Shareholders Meeting: June 24, 2005
Provision for Interim Dividends: Provision exists
Number of Shares in Unit Share System: 1,000 shares

1. Performance in Fiscal 2005 (from April 1, 2004 to March 31, 2005)
Note that all amounts for fiscal 2005 have been rounded off to the nearest million yen, whereas
all amounts for fiscal 2004 have been rounded down to the nearest million yen, unlessotherwise specified.
(1) Results of Operations(Unit: Millions of yen, except for per share figures)
Net sales

Operating income

Ordinary income

Fiscal 2005

¥ 949,511(1.3 %)¥ 35,436(17.6 %)

¥ 31,304(9.9 %)

Fiscal 2004

¥ 936,911(2.7 %)¥ 30,143(-39.9 %)¥ 28,496(-38.7 %)Net income

Net income
per share,
basic (Yen)

Ratio ofRatio ofordinary
ordinary
Net income Return on
equity income to total income to net
per share,(%)
assets (%)
sales (%)
diluted (Yen)

Fiscal 2005

¥ 2,503 (-86.8 %)¥ 3.14¥ 3.14

0.5 %

3.3 %

3.3 %

Fiscal 2004

¥ 19,012¥ 24.86¥ 24.39

3.9 %

3.1 %

3.0 %

(0.7 %)

Notes: 1. Average number of shares
outstanding during the year
2. Accounting change: Fiscal 2005
Fiscal 2004

: 779,291,864 shares: 760,753,377 shares: See “Change of Accounting Policy” section

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

- 41 -

(2) Dividends(Unit: Yen, except for per year figures)
Cash dividends per share

Fiscal 2005
Fiscal 2004

¥ 9.00¥ 9.00

Semiannual

Year-end

Cash dividends
per year(Millions ofyen)¥ 4.50¥ 4.50¥ 4.50¥ 4.50¥ 7,016¥ 7,009

Cash dividends per
year to Shareholders’equityDividend
payout ratio
(%)

(%)

286.6%
36.2%

1.4 %
1.4 %

(3) Financial Position

Total assets

Fiscal 2005
Fiscal 2004

¥ 938,003¥ 947,124(Unit: Millions of yen, except for per share figures)
Shareholders’Shareholders’Equity to total
Shareholders’equity per shareassetsequity(Yen)(%)¥ 507,091¥ 504,566

54.1 %
53.3 %¥ 650.46¥ 647.76

Notes: 1. Number of shares outstanding at
end of the year

: Fiscal 2005
Fiscal 2004

: 779,503,962 shares: 778,785,713 shares

2. Number of treasury stock at endof the year

: Fiscal 2005
Fiscal 2004

: 3,361,911 shares: 4,080,160 shares

2. Projections for Fiscal 2006 (from April 1, 2005 to March 31, 2006)

Net sales(Unit: Millions of yen, except for per share figures)
Fiscal 2006 cash dividends per share
Ordinary income Net income
Semiannual

Half year
Full year¥ 450,000¥ 944,000¥ 10,000¥ 29,000¥ 7,000¥ 10,000

4.50-

Year-end

4.50

9.00

Reference: Projected net income per share (full year): ¥ 12.83
The above projections are made based on available information and assumptions as of May 12,
2005, and are subject to the uncertainties of future operations. Therefore, actual results could
differ materially from those anticipated. The assumptions used for the above projections arestated on page 9.

- 42 -

Non-consociated Balance Sheets
Fiscal 2005

Fiscal 2004

(as of March 31,
2005)(as of March 31,
2004)

Increase/(Decrease)380,755

408,744(27,989)

17,193
2,048
122,11954,556
27,585
6,668
49,783
1,294
23,335
1,812
17,25420,891
34,9771,282(42)

25,336
2,585
120,090
75,85031,774
4,988
51,1401,580
15,305
2,248
16,04524,65831,4375,746(44)(8,143)(537)
2,029(21,295)(4,189)1,679(1,358)
(286)
8,030
(436)
1,208
(3,768)3,539(4,464)
2

Fixed assets

557,248538,380

18,868Property, plant and equipment, net
Buildings
Structures
Machinery and equipment
Aircrafts
VehiclesTools
Land
Construction in progress

237,626
51,644
6,778
81,81171
1,325
10,01082,2093,778

241,788
51,5486,920
88,002
107
1,465
11,17980,2742,289(4,162)95(142)(6,192)(36)(140)(1,170)
1,934
1,489

Intangible assets
Industrial rights
SoftwareOther

22,797110
17,567
5,120

20,117
11
13,219
6,886

2,679
98
4,348
(1,767)

Investments and other assets
Investment securities
Investments in subsidiaries and affiliatedcompanies
Investment securities, other than stock
Investments in subsidiaries and affiliatedcompanies, other than stockLong-term loans
Long-term prepaid expenses
Deferred tax assets
Other
Allowance for devaluation of investments
Allowance for doubtful accounts

296,825
53,401

276,474
42,48020,351
10,920146,728
27

138,336
32

8,392
(6)

453
66,4782,825
29,073
8,089(4,597)(5,652)453
60,2793,102
31,985
7,827(280)(7,746)

—
6,198
(278)
(2,913)261(4,317)2,094

938,003

947,124(9,121)

Changes

ASSETS
Current assets
Cash and time deposits
Notes receivable, trade
Accounts receivable, tradeMarketable securities
Finished products
Raw materials
Work in process
Supplies
Advances paid
Prepaid expenses
Deferred tax assets
Accounts receivable, other
Short-term loans
Other
Allowance for doubtful accounts

Total assets- 43 -

(Unit: Millions of yen)
Fiscal 2005

Fiscal 2004

(as of March 31,
2005)(as of March 31,
2004)

Increase/(Decrease)

Current liabilities
Notes payable, trade
Accounts payable, trade
Short-term borrowings
Current portion of long-term debts
Current portion of bonds
Accounts payable, otherAccrued expenses
Accrued income taxes
Advance received
Deposits received
Income in advanceAccrued bonus
Accrued warranty claims
Notes payable for acquisition of fixed assets
Other

280,405
3,439
167,674
16,040
3,715
10,00017,551
34,204
—
4,758
1,202
165
9,798
8,140
718
3,001

304,489
3,762
172,465
25,040
7,018
10,00014,716
41,196
447
1,885
699
132
11,417
9,180
2,075
4,449

(24,084)(324)(4,791)(9,000)(3,304)—
2,834(6,993)
(447)
2,873
503
32
(1,619)(1,041)(1,358)(1,449)Long-term liabilities
Bonds
Long-term debts
Long-term accounts payable, other
Long-term deposits received
Accrued pension and severance liability
Accrued directors’ severance and retirement
benefits
Other

150,507
100,000
10,565515
1,466
37,781138,068
90,000
4,794
1,675
1,404
40,067

12,43910,0005,770(1,159)61(2,286)

179
1

127
—

52
1

430,912442,557(11,645)

153,795
160,071160,071
179,168
7,901
—
—
687
85,33585,245
16,262(2,205)

153,795
160,070
160,070
183,892
7,901
6,000
1,000
—
78,33590,656
9,579(2,771)———(4,724)—(6,000)(1,000)687
7,000(5,411)
6,682
566

Total shareholders’ equity

507,091

504,566

2,524

Total liabilities and shareholders’ equity

938,003

947,124(9,121)

Changes

LIABILITIES ANDSHAREHOLDERS’ EQUITY

Total liabilities
Shareholders’ equity
Common stock
Capital surplus
Capital reserve
Retained earnings
Legal reserve
Dividends reserve
Retirement reserve
Advanced depreciation reserve
General reserve
Unappropriated retained earnings
Net unrealized holding gains on securities
Less treasury stock, at cost

- 44 -

Non-consolidated Statements of Income
Fiscal 2004

Fiscal 2005

(Unit: Millions of yen)
Changes(ended March 31, 2005) (ended March 31, 2004)

Increase/(Decrease)AmountRatio oftotal (%)

AmountRatio oftotal (%)

AmountNet sales
Cost of sales
Gross profit

949,511761,093
188,418

100.0
80.2
19.8

936,911750,315
186,596

100.0
80.1
19.9

12,59910,777
1,822

Selling, general and administrative
expenses
Operating income

152,982
35,436

16.1
3.7

156,452
30,14316.7
3.2(3,470)5,292

Non-operating income
Interest and dividends income
Other

7,740
2,270
5,470

0.8

6,804
1,863
4,940

0.7

936
407
529

Non-operating expenses
Interest expenses
Loss on revaluation of derivatives
Other
Ordinary income

11,872
1,610
3,132
7,130
31,304

1.2

8,451
1,601
—
6,850
28,496

0.9

3,421
9
3,132
280
2,807

Extraordinary gains
Gain on sale of fixed assets
Gain on sale of investment securities
Reversal of allowance for doubtful
accounts
Reversal of allowance for losses on
guarantees
Reversal of allowance for devaluation of
investments
Gain on prior period adjustment
Extraordinary losses
Loss on sale and disposal of
fixed assets
Loss on sale of investment securities
Loss on devaluation of securities
Allowance for devaluation of
investments

Loss on devaluation of inventories
Loss on compensation to suppliers
Income before income taxes
Income taxes-current
Income taxes-deferred
Net income
Unappropriated retained earnings
brought forward
Loss on disposal of treasury stock
Interim dividends
Unappropriated retained earnings
at end of the year

957
485
220

3.3
0.1

6,687
1,479
4,036

3.0
0.7

(5,730)(995)(3,816)

2

75

(73)

—

47

(47)

250

—

250

—

1,049

(1,049)29,540

3.1

5,832

0.6

23,7072,248
4
10,425

4,968
390
193

(2,721)(386)
10,231

4,567
8,122
4,174
2,721
3,062
(2,844)
2,503

280
—
—
29,3518,691
1,646
19,012

4,287
8,122
4,174
(26,630)(5,630)(4,490)(16,510)

0.3
0.3
(0.3)
0.3

3.1
0.9
0.2
2.0

86,365
115
3,508

75,148—3,504

11,216115
385,24590,656(5,412)- 45 -

Proposed Appropriation of Retained Earnings(Unit: Millions of yen)

Fiscal 2005

Fiscal 2004

Changes(ended March 31,
2005)(ended March 31,
2004)

Increase/(Decrease)

85,24590,656(5,412)

Reversal of dividends reserve

—

6,000

(6,000)

Reversal of retirement reserve

—

1,000

(1,000)85,24597,656(12,412)

3,507

3,504

3

Directors’ bonuses[Statutory auditors]

55
[7]

100
[14]

(45)
[(7)]

Advanced depreciation reserve

—

687

(687)

Other reserve

—

7,000

(7,000)81,68386,365(4,683)

Unappropriated retained earnings
at end of the year

Total
Planned appropriations:
Dividends to shareholders

Retained earnings to be carried forward

Notes: 1.Cash dividend per share is 9 yen for fiscal 2005, which includes interim dividend of 4.5 yen.
2. Advanced depreciation reserve is based on Special Tax Treatment Law.

- 46 -

Summery of Significant Accounting Policies
1. Method and Basis for Valuation of Marketable Securities and Investment Securities(1) Held-to-maturity debt securities: The amortized interest cost method (the straight-line
method)(2) Investments in subsidiaries and affiliated companies: Stated at cost determined by themoving-average method.
(3) Other securities:*

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 ofshareholders’ equity until realized. Realized gains and losses on sale of securities arecomputed using the moving-average method.

*

Securities for which fair market value is not available: Stated at cost as determined by
the moving-average method, after devaluation for any permanent impairment.

2. Method and Basis for Valuation of Derivative Instruments
Derivative financial instruments are stated at fair values.

3. Method and Basis for Valuation of Inventories(1) Finished products: Stated at cost determined by the moving-average method (the first-in,
first-out method is used for certain items).
(2) Raw materials, work in process and supplies: Stated at cost determined by the first-in, firstout method (the moving-average method is used for certain items).
4. Depreciation/Amortization Method of Fixed Assets(1) Property, plant and equipment:
Depreciation of the property, plant and equipment is computed by the declining-balancemethod, except for the buildings (excluding building improvements) acquired on or after
April 1, 1998, for which the straight-line method is applied.
Estimated useful lives for depreciable assets are as follows:
Building and structures:
Machinery, equipment and vehicles:

7~50 years
4~11 years(2) Intangible assets:
Intangible assets are amortized by the straight-line method. Computer software usedinternally by the Company is amortized by the straight-line method over the relevant
economic useful lives (3 or 5 years).

5. Method for Valuation of Deferred Assets
Bond issuing costs are expensed as incurred.
- 47 -

6. Basis for Significant Accruals and Reserves(1) Allowance for doubtful accounts:
Allowance for doubtful accounts is provided based on the amount calculated at the actual
ratio of bad debt for ordinary receivables, and an amount required for uncollectible accountfor specific doubtful receivables.
(1) Allowance for devaluation of investments:
Allowance for devaluation of investments is provided for losses from decrease in the valueof investment securities for which fair value is not available and investments in 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 provides for accrued warranty claims on products sold based on its pastexperiences 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 endof the fiscal year. Prior service cost is being amortized as incurred by the straight-line
method over the periods (18 years), which is shorter than the average remaining service
periods of the eligible employees. Actuarial gains and losses is amortized from thefollowing fiscal year by the straight-line method over the periods (18 years), which areshorter than the average remaining service periods of the eligible employees.
(6) Accrued directors’ severance and retirement benefits:
Directors and statutory auditors of the Company are entitled to receive lump-sum payments
at the time of severance or retirement, subject to the approval of the shareholders. The
liabilities for such benefits are determined based on the Company’s internal rules. This is
the allowance based on Article 43 of the Japanese Commercial Code Enforcement
Regulation.
7. Basis for translation of foreign currency accounts
Monetary assets and liabilities denominated in foreign currencies are translated into Japanese yenat the exchange rates prevailing at each balance sheet date with the resulting gain or loss includedin the accompanying statements of income.

8. 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-ofcompletion method.

- 48 -

9. Accounting for Leases
Finance leases which do not transfer ownership of leased assets to lessees are accounted for
as operating leases.

10. Other Matters Concerned with Basis for Presentation of the Financial Statements(1) Accounting for consumption taxes
Consumption taxes are excluded from the related transaction amounts and are accounted
for separately.
(2) Treatment of fractional figure
All amounts for fiscal 2005 have been rounded off to the nearest million yen, whereas allamounts for fiscal 2004 have been rounded down to the nearest million yen, unlessotherwise specified.

- 49 -

Change of Accounting Policy
Method of Hedge accounting
Previously, for foreign exchange contracts used as hedges and which meet certain hedging
criteria, the Company translated hedged foreign currency receivables using the contracted
forward rates, for forward exchange contracts hedging future transactions, the Company
deferred recognition of gains or losses resulting from changes in fair value of the foreignexchange contracts until related gains or losses on the hedged items are recognized. However,
the Company stopped applying the hedge accounting from this fiscal year.
The reason for the change is that the Company reconsidered appropriateness of application of
the hedge accounting in connection with reviewing the hedge policy and the management
activities for foreign exchange contracts.
As a result of this change, operating income increased by ¥ 1,282 million and ordinary income
and income before income taxes decreased by ¥ 1,814 million as compared with amounts
assumed by application of previous hedge accounting policy.

Additional information
The Introduction of Size-Based Corporation Tax System
Due to introduction of “Size-Based Corporation Tax System” for the enterprise taxes,
Accounting Standards Board of Japan issued Practical Solutions Report No.12, “Practical
Solution on Presentation for Size-Based Components of Corporate Enterprise Tax on Income
Statement” on February 13, 2004, which prescribes new accounting standard for enterprisetaxes. In compliance with the report, the value-added and the capital components of theenterprise taxes are included in selling, general and administrative expenses from this fiscal
year.
As a result, selling, general and administrative expenses increased by ¥822 million, andoperating income, ordinary income and income before income taxes decreased by the sameamount as compared with previous fiscal year.

- 50 -

Notes to Non-consolidated Financial Statements(Balance Sheet)
1. Accumulated depreciation for property, plant and equipment is ¥ 444,359 million.
2. Pledged assets and secured liabilities
Pledged assets are as follows:(Unit: Millions of yen)
¥ 16,512

Buildings and structures¥ [16,512]
21,981

Machinery and equipment[21,981]
1,196

Land

[1,196]¥ 39,688

Total¥ [39,688]

Secured liabilities are as follows:(Unit: Millions of yen)
Current portion of long-term debts

¥

3,700

¥ [3,700]
Long-term debts

7,010[7,010]Total¥ 10,710¥ [10,710]

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

3. Balance with affiliated companies is as follows:(Unit: Millions of yen)
Notes and accounts receivable, trade¥ 77,369

Short-term loans¥ 34,977

Long-term loans¥ 64,168

Other assets – total¥ 10,298

Notes and accounts payable, trade¥ 20,781

Accrued expenses¥ 10,745

Other liabilities – total¥ 3,827

4. Number of issuing shares is as follows:
Number of shares authorized
Number of shares issued at end of the year
shares- 51 -

Common Stock 1,500,000,000 shares
Common Stock782,865,873

5. Contingent liabilities
The Company’s guarantees for the indebtedness from financial institutes and thecontribution from investors are as follows:(Unit: Millions of yen)

Subaru Finance Co., Ltd.
Subaru of Indiana Automotive, Inc.

¥ 121,150¥ 42,549

Yusoki Kogyo K.K.
Employees
Subaru Kosan Co., Ltd. and 5 other entities¥ 5,802¥ 24,466¥ 3,546¥ 197,513

Total

In addition, the Company’s guarantees for the indebtedness of the affiliated companies are¥ 53 million.

6. The unexecuted balances of commitments for borrowings are as follows:(Unit: Millions of yen)

Total commitments
Less amounts currently executed
Unexecuted balance¥ 53,000¥ 10,000¥ 43,000

7. Number of treasury stock owned at end of the year is 3,361,911 shares of common stock.

8. Limitation on dividends
Net unrealized gains on securities of ¥ 16,262 million are restricted from dividends pursuant to
Article 124, No.3 of the Japanese Commercial Code Enforcement Regulation.

- 52 -

(Statement of Income)
1. Major components of selling, general and administrative expenses are as follows:(Unit: Millions of yen)

Packing and freight cost

¥ 12,696

Sales incentives¥ 20,913

Advertisement cost

¥ 23,499

Selling expenses over SG&A
General and administrative expenses over
SG&A

55 %
45 %

2. Research and development costs are ¥ 52,854 million.
3. Gain on sale of fixed assets is as follow:(Unit: Millions of yen)

Land
Machinery and equipment and other

¥ 474
11
¥ 485

Total

4. Loss on sale and disposal of fixed assets is as follow:(Unit: Millions of yen)

Buildings
Machinery and equipment
Vehicles
Tools
Other

¥ 420
1,187
88
199
354
¥ 2,248

Total

5. Transaction with affiliated companies is as follow:(Unit: Millions of yen)

Net sales
Non-operating income (lease payments)
Non-operating income (miscellaneous revenue)¥ 571,661¥ 2,112¥ 1,695

6. “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.
7. “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.

- 53 -

(Securities and Investments)
Investments in subsidiaries and affiliated companies for which fair market value are available as ofMarch31, 2005
(Unit: Millions of yen)
Fair market
valueBook value
Difference
Investment in subsidiaries
1,759
5,679
3,920
Total

1,759

- 54 -

5,679

3,920

(Leases)
1. Finance leases without transfer of ownership
Acquisition cost, accumulated depreciation/amortization and net book value of leased assets:(Unit: Millions of yen)
Accumulated
Net book value
depreciation/
at end of theamortizationyear

Acquisition cost

Vehicles

13

2

11

Tools

3,816

2,299

1,517

13

6

7

3,842

2,307

1,535

SoftwareTotal
The future minimum lease payments:(Unit: Millions of yen)

Due within one year¥780

Due after one year

876

Total

¥ 1,656

Rents paid, depreciation/amortization expense and interest expense portion:(Unit: Millions of yen)Rents paid

¥ 1,045

Depreciation/Amortization
expense¥967

Interest expense portion¥

67

Method of depreciation/amortization:
The straight-line method over the lease term with no residual value
Method of computing interest:
Interest has been computed as the difference between the total lease payments and thevalue of leased assets and has been allocated to each period using the effective interest
method.
2. Operating leases
The future minimum rent payments:(Unit: Millions of yen)

Due within one year¥

Due after one year

30
8

Total

¥

- 55 -

38

(Income Taxes)
1. Significant components of the deferred tax assets and liabilities are as follows:(Unit: Millions of yen)
Fiscal 2005
As of March 31, 2005
Deferred tax assets
Loss on devaluation of securities
Accrued pension and severance liabilities
Accrued bonus
Allowance for doubtful accounts
Accrued warranty claims
Allowance for devaluation of investments
Loss on devaluation of inventories
Accrued enterprise taxes
Other
Total

¥ 19,296
14,417
3,968
2,306
3,297
1,862
4,513
96
8,109
57,864

Deferred tax liabilities
Net unrealized holding gains on investment securities
Advanced depreciation reserve
Total(11,069)(468)(11,537)

Net deferred tax assets¥ 46,327

2. A reconciliation of the statutory income tax rate in Japan to the Company’s effective income tax
rate is as follows:
Fiscal 2005
from April 1, 2004
to March 31, 2005
Statutory income tax rate in Japan(Reconciling items)
Entertainment and other non-deductible expenses
Non-taxable dividends received
Inhabitant taxes per capita
Adjustment of past corporate income taxes
Special deduction on corporate income taxes
Other
Effective income tax rate

Directors’ and statutory auditors’ change
It was announced on March 31, 2005.

- 56 -

40.5 %
5.5
(6.8)
1.6
9.2
(37.9)(4.1)
8.0 %