FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000
For the year ended March 31, 2000

Corporate Profile

Established 47 years ago, Fuji Heavy Industries Ltd.
(FHI), is one of Japan’s leading industrial manufacturers,
best known for distributing automobiles under the
Subaru brand. The Company has a long history of technological prowess dating back to its days as an aircraft
manufacturer. FHI is recognized internationally for its allwheel drive (AWD) and horizontally-opposed engine
technologies, as well as its sophisticated, small-size
continuously variable transmission (CVT). During fiscal
2000, ended March 31, 2000, FHI produced its fivemillionth AWD vehicle.
FHI’s corporate philosophy is to achieve a perfectbalance between society and its own individualism as amanufacturer. Throughout the fields of automotive engineering, aerospace, industrial products, ecology andtransport systems, bus manufacturing and prefabricatedhousing, the Company continues to strive in promoting
full-scale global environmental preservation through thedevelopment of distinctive products under stringent
safety standards. FHI will carry through with theseendeavors to pursue its commitment of supplying products which please the customer. In addition, the Company focuses on contributing to the prosperity of society.
Disclaimer Regarding Forward-Looking Statements
Statements herein concerning plans and strategies, expectations or
projections about the future, FHI’s remedial efforts in regard to various
management issues and other statements except for historical statements are forward-looking statements. These forward-looking statements are subject to uncertainties that could cause actual results todiffer materially. These uncertainties include, but are not limited to,
general economic conditions, demand for and prices of FHI’s products,
FHI’s ability to continue to develop and market advanced products,
and currency exchange rates.
FHI disclaims any obligation to update any forward-looking
statements, whether as a result of new information, future eventsor otherwise.

CONTENTS
1 Consolidated Financial Highlights
2 Dear Shareholders
6 New TQF21 and GM Alliance
8 Review of Operations
15 Corporate Responsibilities
16 Management
17 Financial Section
43 Consolidated Subsidiaries and Affiliates
44 Investor Information

Cover:

Consolidated Financial Highlights
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2000, 1999 and 1998

Thousands of
U.S. dollars (Note 3)

Millions of yen

2000

1999

1998

2000

For the Year:Net sales .................................................................
Operating income ....................................................
Net income ..............................................................

¥1,330,125
91,401
31,348¥1,352,520
89,93233,706¥1,303,989
80,43730,708$12,548,349
862,274
295,736

Year-End:
Shareholders’ equity ................................................
Total assets ..............................................................

¥0,206,404
1,038,558¥0,200,220
981,256¥0,168,833
904,571$01,947,208
9,797,717

Per Share of Common Stock (Yen and U.S. Dollars):
Net income ..............................................................

¥0,0051.90¥0,0056.18¥0,0051.33$00,0000.49

Return on equity (ROE) ............................................

15.4%

18.3%

19.3%

Note: U.S. dollar figures have been translated from yen, for convenience only, at the rate of ¥106.00 to US$1, the approximate rate of exchange at March 31, 2000.

Net Sales

Net Income

Net Income per Share

(Billions of yen)(Billions of yen)

(Yen)

(%)
25

70

40

1,400

Equity Ratio

60

1,200

20
30

1,000

50

800

15

40
20

600

30

400

20

10

10

5
200

10
0

0
1996 1997 1998 1999 2000

001996 1997 1998 1999 2000

1996 1997 1998 1999 2000

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

1

1996 1997 1998 1999 2000

Dear Shareholders

FHI was faced with many

Business Overview

challenges during fiscal

In fiscal 2000, apprehension

2000, ended March 31,

as to whether Japan’s

2000. We worked diligently

economy would make a fullto carry out our pledge torecovery remained, despitebuild a stronger Subaru

signs of gradual improve-

image and accomplish

ment. Deterrents included

performance goals. We

record-high unemployment

believe we have fulfilled

and the yen’s appreciation

our promise in most areas

against the dollar. The United

in a number of significant

States and Europe continued

ways. We succeeded in

to post growth. In contrast,

gaining larger followings,

sentiment in Asia was dis-

mainly in the United

couraging, although someStates and Japan, for ourcountries began to reboundLegacy and Forester,slowly.

which underwent full and

FHI recorded consoli-

minor model changes, re-dated net sales of ¥1.3

spectively. At the same

trillion, a 1.7% slip from thetime, we integrated

previous period. An increase

dealerships locatedthroughout major Japa-

Takeshi Tanaka
President and Chief Executive Officer

nese prefectures to em-

in domestic sales of minicars
and higher exports countered the adverse effects of aploy our assets more wisely. We also bolstered ourstronger yen and declining small-car sales. However,financial position throughout the Group.

gains were neutralized by the transfer of Isuzu sales fromFHI continues to pursue its goal of perfecting

Subaru-Isuzu Automotive Inc.’s (SIA’s) consolidated

fundamental performance areas for all models. We

accounts. This resulted from the reclassification of SIA’s

have never been swayed by fleeting fashions but

stock into two different stock classes. We also endeav-

have focused solely on creating vehicles that areored to boost efficiency and widen our profit margin

long lasting and backed by Subaru’s leading-edge

through such measures as reducing cost of sales, thus

technology. Our values and dedication continue tosucceeding in raising operating income 1.6%, to ¥91.4

concentrate on achieving the ultimate in driving

billion. During the period, we wrote off property valuation

technology.

losses at subsidiaries and affiliates to fortify our Groupfinancial position. To compensate for a portion of thiswrite-off, we sold marketable securities. Despite these
efforts, net income dropped 7.0%, to ¥31.3 billion.

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

2

Operational Review

subsidiaries and affiliates, reform FHI management struc-

Despite lackluster economic conditions, the Japaneseture and develop a framework for growth strategies.

automotive industry benefited from a boost in production

Building on the momentum of our original TQF21

supported by higher exports and renewed private-sector

plan, we launched our second medium-term businesscapital spending. In addition, the launch of new products

plan—dubbed New TQF21—on April 1, 2000. The planand full model changes for several existing vehicles

is scheduled for completion by March 31, 2005. New

sparked replacement demand. Despite a 0.3% rise in

TQF21 goes a step further than its predecessor, aiming

domestic automotive demand, we saw demand improve

to turn FHI into “a global player with a premium brand.”

5.6%, to 294,000 units. Sales of minicars, which have an

The plan seeks to differentiate FHI from competitors

engine displacement of under 660 cc—such as the Pleothrough the strategic positioning of AWD products andand Sambar—climbed 14.3%, to 172,000 units. Sales ofuse of hallmark technologies, such as a horizontally-small cars, which have an engine displacement exceed-

opposed six-cylinder engine. From the perspective ofing 660 cc, fell 4.7%, to 121,000 units.

product, New TQF21 emphasizes the refinement of the

In the U.S. market, Subaru sales hit a 12-year high.

Company’s AWD strategy, which encompasses hybrid

Record demand was also seen in Australia. The Legacy,

utility vehicles or “crossover” sports utility vehicles

Impreza and Forester proved popular, reflecting strong(SUVs), and driving performance, with the aim of becom-

sales of our premium models including the Outback,ing a top contender in each business segment. To

Impreza Turbo and Forester Turbo. As a consequence,achieve this goal, we must develop and invest in next-

overseas Subaru sales rose 4.2%, to 275,000 units.

generation technologies. This is an essential step and an
inherent part of attaining growth, but one which comes

Returning Profits to Shareholders

with obvious business risks. To help alleviate such risks,

During the period, we manufactured our five-millionth

we entered into an alliance with General Motors

AWD vehicle. To commemorate this accomplishment, theCorporation (GM).

parent company authorized a ¥1.00 commemorative

Another integral component of New TQF21 isdividend in addition to its year-end dividend of ¥4.00 per

Challenge 30. This initiative aims to increase sales,

common share, raising the annual dividend for fiscal

improve quality, cut costs and raise productivity by 30%

2000 to ¥9.00.

over a five-year period. These will serve as vital indicesto guide FHI management toward improved operations

GLOBAL GROWTH

down the road.

In 1997, we initiated TQF21 (Total Quality Fuji 21), our

AN ENHANCED SALES STRUCTURE

first medium-term business plan. The plan’s ultimate goal

We are implementing measures to augment sales. In

was to transform FHI into an “appealing company withaddition to fortifying mainstay models, we plan tostrong market presence.” To accomplish this, we havedevelop new products and strengthen our brand identity.

been working to leverage products and brand names,

In Japan, we intend to restructure our sales network,

fortify our earnings base, realign our consolidated

improve sales, service and customer satisfaction, and

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

3

Other measures to help strengthen our financial position over the next five years include a ¥44 billion write-offof pension and severance liabilities and write-off of losses
at domestic distributorships, estimated at ¥19.5 billion asof March 31, 2000. In addition, we plan to integrate thehandling of leasing and credit operations, as well as
fortify auto loan services domestically. We intend to
centralize our fund-procurement activities to enable thelow-cost acquisition of capital. To accomplish this, inMarch 2000 we transferred the financial operations ofSubaru Kosan Co., Ltd., to Subaru Finance Co., Ltd.
Becoming a part of the GM family; FHI President and CEO Tanaka
shakes hands with GM’s President and CEO, G. Richard Wagoner, Jr.

EMPHASIZING PERFORMANCE
raise the efficiency of distributorship–division manage-

During the period we introduced a stock option plan forment. In the United States, our distribution infrastructure

employees and management and a performance-based

will benefit from our relationship with GM.

remuneration system for management-level employees,

Production increases are scheduled for SIA and theto enhance the spirit of challenge throughout the Com-

Gunma Manufacturing Division, our main plant in Japan.

pany. To implement the stock option plan, we purchased

Our goal is to establish a production system capable of

2,803,000 shares of our own stock from the open mar-putting out 800,000 units annually. In addition, we willket. Seven directors, 24 members of the executive com-

improve production capacity for our CVT to meetmittee and 261 employees were eligible for stock options

expanding demand in the automotive components

during the period.

business.
ECONOMIES OF SCALEA STRONGER FINANCIAL POSITION

We are working to achieve economies of scale throughTwo other goals of New TQF21 are reducing direct

alliances aimed at making us a global player. On

material costs and bolstering our financial position. We

December 10, 1999, with the approval of our Board of

expect to bring direct materials costs down 15% by fiscal

Directors, we formed a strategic alliance with GM, who2003 and another 7% by fiscal 2005.

now maintains equity in FHI, following a third-party allot-

FHI plans to utilize capital from GM effectively. Short-ment and the acquisition of shares formerly held byterm plans include the repayment of borrowings andNissan Motor Co., Ltd., and its related group companies.

redemption of bonds. Over the long term, we will invest

In this forward-looking alliance, both companies will re-in production facilities and research and development.

spect the other’s autonomy in regards to management,

We also aim to reduce interest-bearing debt to ¥350 bil-while cooperating to achieve steady development andlion by March 31, 2005, from an expected ¥449 billion on

growth. To these ends, FHI and GM will increase the effi-

March 31, 2001.

ciency of R&D by sharing proprietary technologies, work

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

4

private-sector capital investment
recover fully. Instability inthe foreign exchange market
and fears that economic growthin the United States and Europe
is slowing are also concerns. Accordingly, market conditions
in fiscal 2001 are likely to remainharsh and the businessenvironment riddled with
The new six-cylinder Outback scheduled foroverseas launch in fall 2000.

uncertainty.
Nonetheless, fiscal 2001 will be a turning point for

together to fortify competitiveness and expand productFHI. We look forward to offering a richer mix of auto-

lineup, and jointly develop sales networks and efficientmobiles. In key markets throughout the world, a six-

production systems utilizing the facilities of both partners.

cylinder engine will be added to our Outback model.

New TQF21 positions this alliance as a key strategic

Our Impreza is scheduled to undergo a full model

partnership for achieving future goals. Our objectives arechange, first in Japan and then overseas. We also fore-

to remain autonomous while participating as a member

cast sales growth for our Forester models. In addition,of the GM family, and to work steadily to reap the ben-

FHI management will continue efforts to boost opera-

efits of synergies with GM and Suzuki Motor Corporation.

tional efficiency at domestic dealerships. Fiscal 2001 is apivotal year, not only as we look forward to the synergies

ENVIRONMENTAL STRATEGIES

from our alliance but also as we fortify the foundation of

FHI has embarked upon a mission to tackle a number ofour business to carry us toward future expansion.

environmental issues. Our Environmental Committee is

The stage is set for growth. In our efforts to become ataking the initiative to lead the Company in its environ-global player, we are striving to extend FHI’s reach world-

mental activities. We intend to earn ISO 14001 environ-wide. We are confident that we are on the right track; wemental management system certification for selectknow what needs to be done to enhance the value of thedivisions and strengthen environmental awarenessCompany, and we hope that you, our shareholders, willthroughout the Company. Our goal is to achieve zeroremain confident in FHI and continue to extend youremission levels at all factories and to improve thesupport.

environmental soundness of our products.
August 2000

OUTLOOK
While certain sectors of Japan’s economy are picking

Takeshi Tanaka
President and Chief Executive Officer

up, it will be some time before consumer spending and

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

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NEW TQF21 and GM AllianceManagement’s Vision for the 21st Century

Our vision for the 21st century previously focused on FHI becoming an “appealing company with strong market presence.” Owing to recent alliances with GM and Suzuki, our new goal is to become “a global player
with a premium brand.” To bring a higher level of satisfaction to our customers and shareholders, we aim toestablish ourselves within the GM family, supported by our hallmark technologies and superior brand power.
We also intend to bolster our corporate value by focusing on such issues as environmental management andcleanup, and compliance.

Strategic Five-Year Medium-Term Business Plan

Sales Strategies
Through the promotion of a Subaru brand strategy ineach sales region, we will improve the quality of our sales
and services to a level suited to a premium brand. In
addition, we will fortify our customer relations management through the use of IT, raising customer satisfaction
and Group earnings. Furthermore, we will obtain global
sales support from GM.

Challenge 30
Challenge 30, an integral component of New TQF21,
calls for improving sales, quality, costs and productivity
by 30% by the end of fiscal 2005.

Product Strategies

Cutting Costs

1. Brand Identity
Fortify Subaru’s brand identity. Further promote theSubaru name in global markets.

1. SCI-TC30(Simultaneous Cost Innovation-Total Cost 30)• Reduce direct material costs 22% by fiscal 2005.
• Lower cost of sales through increased production
using shared parts with alliance partners GM and
Suzuki.
• Trim parts and components costs by taking advantage of GM’s worldwide purchasing process (WWP)
and through joint purchasing.
• Use common parts and components with Suzuki.

2. Product Appeal
During the five-year period covered by New TQF21, FHI
plans to launch two new versions of current model
vehicles, perform full model changes on four nameplates
and jointly develop new products with its alliancepartners.
R&D and Production Systems
Further promote the development of a concurrent engineering system to better link R&D and production
through digitization, and networking of production technologies and between manufacturing centers. This will
ensure the manufacture of high-quality products exemplary of a premium brand and the establishment of a
production system capable of speedily and efficiently
launching new models.

2. Expenses• Introduce a centralized purchasing system to better
analyze parts procurement methods and orderprocessing.
• Use e-commerce and GM’s WWP.

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

6

Subaru AWD

Six Synergies

CoE—Center of Expertise

FHI expects to benefit in a variety of ways from its
alliance with GM. We will achieve economies of scale andbecome more capable of dealing with global markets as
a part of the GM family. We will capitalize from synergies
by taking advantage of technology sharing, joint products
and sales cooperation. The alliance will also make thestreamlining of operations possible though the sharing ofknow-how and combined production.

FHI is now the GM family’s center of expertise (CoE) in
the areas of all-wheel drive (AWD) technologies andsmall-size continuously variable transmission (CVT)technologies.
GM will assume a leadership role, though family
members will maintain control of their management andresponsibility for R&D in their own field of expertise. This
enables each company to resourcefully utilize its own
assets.

Strengthen Products• Joint R&D• Mutual distribution of products via OEM

Sharing of Technologies• Supply GM with AWD and CVT technologies• Obtain next-generation
environment-related technology

Sales Cooperation• Cooperate in the development ofsales networks in various markets• Collaboration in e-commerce

IT, Financing and Other Aspects• Work together on IT projects
and auto loans• Employee exchanges

Production• Shared usage of production facilities

Reduce Parts Procurement Costs• Joint usage of parts• International teamwork in
the procurement of parts

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

7

Review of Operations

Automobile Division

RESULTS
Domestic
Fiscal 2000 was the year of the Legacy B4.
A product of Subaru’s manufacturing excellence, this model succeeded in establishingitself as a leader among sports sedans andis positioned as a key model in FHI’s lineupof high-driving performance AWD vehicles. In
January 2000, the Forester underwent minorchanges that significantly boosted car buyers’ affinity for this model. The Impreza,another member of the Subaru small-car
family, did not perform as well as its counterparts as it was due for a model change.
Overall demand for small cars shrunk 4.7%,
to 121,000 units. In contrast, demand forminicars rose 14.3%, to 172,000 units, supported by the continued popularity of the
Pleo and Sambar. Accordingly, total domestic shipments in the Automobile division grew
5.6%, to 294,000 units.
Overseas
Sales in the United States reached a 12-year
high, countering the ill effects of the yen’s
appreciation against the dollar in the second
half. In Australia, where Subaru has won many
awards and the Subaru name is synonymouswith driving performance, quality and safety,
demand hit a record high. As a result, sales in
Oceania climbed to 28,000 units. Shipments
in both Europe and Asia topped the previous
year. Among these nameplates, premium
models such as the Outback, Impreza Turboand Forester Turbo, recorded stable demand.
Overseas sales rose 4.2%, to 275,000 units.
Demand was boosted by test-drive campaigns for AWD vehicles and FHI’s distinguished results at the 1999 World Rally
Championships, where it scored more wins
than any other manufacturer.
Worldwide, we shipped 568,000 units
during the period, 4.9% higher than the previous period. Despite increased global

shipments, Automobile division sales slipped
1.5%, to ¥1.2 trillion, owing to the yen’s
appreciation and the popularity of more
affordable models. Automobile sales generated ¥92.3 billion in operating income, 8.1%
more than in the previous year, thanks tocost reduction efforts.
Share of Net Sales

Net Sales(Millions of yen)
1,200,000
1,000,000
800,000

R&D
We spent ¥36.3 billion on R&D in this division, focused specifically on environmental
and driving safety. In Japan in May 2000, welaunched a Legacy Lancaster, sold under the
Outback name in other countries, that features a horizontally-opposed six-cylinder
engine certified for low exhaust emissions.
The U.S. version, under the Outback nameplate, is projected to go on the market inautumn 2000.

600,000
400,000
200,000
0
1998

1999

2000

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

8

Accomplishments in Fiscal 2000
During the period, FHI was honored withseveral prestigious awards from the automotive industry as well as receiving highrecognition. Subaru was named the top
manufacturer, rating higher than 30 othermanufacturers, in the 2000 J.D. Power andAssociates Top Gear UK Customer Satisfaction Study, one of the world’s mostrespected consumer surveys for car owners.
Legacy received first place, while the
Impreza was second. This was the second
consecutive year that Subaru claimed firstand second place. In September 1999, we
took home the award for “Most Improved
Car Company,” given by the Financial Times
Automotive World magazine, based on thepositive, sustainable turnaround in businessperformance and public perception. Our
2000 Subaru Legacy was labeled a “bestpick” in crashworthiness evaluations by the
Insurance Institute for Highway Safety (IIHS)
in the United States. The NRMA/RACV, amajor motoring organization in Australia,
named the Legacy “Best Midsize Car.”Judges from this organization were
impressed by Subaru’s “superb steering andbraking, combined with the tenacious gripof AWD sure-footed handling.” The New
Zealand Herald named the Subaru Legacy“1999 Car of the Year,” having caught theeyes of New Zealand drivers for its “understated, almost modest, quality.”
Marketing Strategies in Fiscal 2000
It goes without saying that our biggest challenge, and our immediate and ongoing
focus, remains customer satisfaction. For
this reason, fiscal 2000 was spent improving
manufacturer quality and after-sales service
at our dealerships to secure a leading position in both these areas. We also endeavoredto fortify the Subaru sales network throughintegration to achieve better sales efficiency.
Overseas, we worked to promote theSubaru brand and increase the number ofloyal drivers by enhancing our corporate identity. We launched a new Legacy in the UnitedStates. In addition, we realigned dealerships
and heightened the quality of our sales network. In Europe, we reemphasized thebrand’s presence in the market and garnereda variety of awards for vehicle performance.

The Legacy B4 proved
popular in fiscal 2000.

The Forester 2000 underwent minor changes thatsignificantly boosted car
buyers’ affinity for the model.

Outlook for Fiscal 2001
The business environment for the automotive
industry is projected to remain harsh. While
Japan’s economy is expected to move
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

9

gradually toward recovery as personal consumption and private-sector capital investment improve, the U.S. and European
economies are expected to record a slowdown in growth and the yen is likely toremain strong against the dollar.
Sales strategies will focus on three key
points outlined in New TQF21. The first is
fortification of our corporate identity. We will
aim to establish the Subaru brand worldwide
by implementing a uniform brand strategy,
backed by high-quality products and superior customer service. Second, we will institute full model changes for our Impreza,
thereby helping increase our impact on the
global market, as well as our market share.
Third, we will increase the number of Subaru
owners to whom we offer after-sales services. As the average period of ownershipbecomes longer, after-sales service will be
an important factor in enabling us tocommunicate with customers.
We will continue along the same lines
overseas, building on the rising popularity of
the Subaru brand and nurturing ourinnovativeness and solidpresence in foreign markets. Customer satisfaction remains a key issue
and we intend tostrengthen our ties withlocal overseas distributors
to enhance service. We
will benefit from theintroduction of new models, supported by comparison test drives, top
placings in World Rally Championship races
and extensive promotional activities.
A significant plus for us in global markets
is our new alliance with GM and Suzuki. In
this age of outright mergers and acquisitions,
our alliance is special in that it allows us tomaintain autonomy. At the same time, it isflexibly tailored to maximize synergies,
achieve economies of scale, facilitate accessto new technologies and leverage theSubaru brand name.

Subaru’s Automotive
Design Concept

performance that enable the driver to avoid
accidents, as well as passive safety, the ability of the car to overcome accidents and protect its occupants.

Our automotive design is backed by two
key concepts, “fueki” and “ryuko”. Fueki
refers to the immutable elements of Subaru
automobiles—in other words those universal
technological traits that are the main elements in determining a car’s
driving performance andSubaru AWD System
Innovative for its Neutral
safety. Ryuko describes theSteering Characteristic
trendy aspects of Subaru
cars, such as their stylish design and optimum features.
Rear-wheel drive system
Vehicle displays oversteer
All automobile design basiwhen exceeding "grip" limit.
cally follows these two concepts and the success of a
product in the market depends highly on whether akeen balance can beachieved between them. Of
these two concepts, we believe that to build
a better vehicle, focus must center on the
improvement of driving performance andsafety, as opposed to becoming engrossedwith transient fashions. Based on the ideathat driving pleasure is a vehicle’s utmost alluring feature, our automotive manufacturing
stresses driving performance, safety and theenvironment. There is no room for compromise in pursuing these three areas, as we
endeavor to bring customers an even better
vehicle.
Driving Performance
Subaru aims to improve driving quality basedon its AWD system.
SafetySubaru is always striving to improve safety,
an indispensable aspect of driving pleasure.
By fully utilizing the superiority of our AWD
system, we are able to achieve excellence inboth active safety, the aspects of a car’s

The Environment
We are actively tackling environmental issues
by striving for better fuel efficiency and purification of emissions.
To ensure the realization of
the goals above, we aremaking various improvements to our factories. For
Subaru AWD
example, we are promoting
Vehicle displays"on-the-rail"
characteristic.
Total Product Management(TPM) at our main manufacFront-wheel drive systemturing plant, the Gunma
Vehicle displays understeer
when exceeding "grip" limit.
Manufacturing Division,
through which we are advocating quality management,
cost reduction and the nurturing of humanresources.
Subaru vehicles are highly appraised inmany countries around the world—recognition of our manufacturing methods. As ameans of asserting our presence in markets
around the world, we will continue to follow
the ideal of improving driving fundamentals,
paving the road for development in a day
and age where there is little distinction between car models and an endless variety ofcar types.

New Ring-Shaped Reinforcement Frames
Achieved by connecting the front, centerand rear pillars to form sturdy rings,
the structure provides a stronger bodyand better driving safety.

New Ring-Shaped
Reinforcement Frames
Sub FrameSide door beams

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

10

Frontal offset
Full-frontal
collision testing collision testingThe 33rd Tokyo Motor Show 1999

Motor Sports

We showcased concept cars and particularly stylish
automobile models at the 33rd Tokyo Motor Show1999, held at the Nippon Convention Center (Makuhari
Messe), from October 20 to November 3, 1999. Our
booth and demonstrations gave visitors a chance towitness our dedication to providing Subaru owners
with the best driving performance possible. We also
outlined our car manufacturing objectives for the 21st
century. Based on our leading-edge AWD technology,
our manufacturing focus will be on driving pleasureand safety, as well as the environment.
We displayed two concept cars at the show. The
FLEET-X was designed using select materials toachieve a lightweight automobile. The exterior panelingis aluminum, with Plexiglass rear and side windows,
and a steel body frame to ensure durability. The modelfeatures a four-cylinder horizontally-opposed engine
and variable torque distribution AWD.
The second concept car we showed was the EL
TEN CUSTOM. This model is equipped with the
Subaru hybrid power system, which consists of ahighly fuel efficient in-line four-cylinder gasoline engine,an i-CVT (intelligent CVT), a built-in transmission withtwo motors and a torque distributor, and a nickelhydrogen fuel cell.

The World Rally Championship in 1999 closed with the
Rally of Great Britain in November. We won a total of
five victories during the season, more than any otherparticipating manufacturer, and racked up 105
manufacturer’s points in all 14 races, coming secondin this area. Richard Burns and Juha Kankkunen were
the key Subaru drivers. These rankings attest to thesuperior performance of Subaru automobiles. FHI
entered its Impreza in all 14 races. The competition car
resembles an Impreza found in any Subaru showroom,with a two-liter engine, based on FHI’s horizontallyopposed four-cylinder power plant, that is turbocharged and intercooled. Subaru’s victories have beenvital to marketing efforts, showing that FHI-manufactured automobiles are superior in both technology anddriving performance.
Showing off Subaru performance atthe World Rally Championship in 1999

FLEET-X

EL TEN CUSTOM

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

11

Industrial Products Division

Results
In fiscal 2000, this division posted record
sales of ¥52.0 billion, a 20.2% rise from theprevious year. Industrial products sold well as
demand was high for small engines used incivil engineering and construction machinery,
as well as for agricultural, forestry and marine
equipment. Orders increased for our newly
designed engines, and shipments of engines
for leisure vehicles to the United States grew.
Concerns over possible power failure withthe dawn of year 2000 sparked demand forgenerators. New orders for OEM products
also climbed. However, reflecting the appreciation of the yen against the dollar, divisional
operating income dropped 11.0%, to ¥1.3
billion.
Activities during the period included theestablishment of a joint venture, Changzhou
Fuji Changchai Robin Gasoline Engine Co.,
Ltd., in the People’s Republic of China(PRC), with Marubeni Auto Sales Corporation
and Changchai Co., Ltd. This joint venture, inwhich we have a 62% equity share, isscheduled to start production in January
2001 and will manufacture and sell engines
for industrial equipment.
R&D spending for this division was ¥1.0
billion. We developed an ultra-low-noise 2kW
power generator and a 25cc, four-stroke
engine, an industry leader in terms of highoutput and light weight.
Strategies for Fiscal 2001
We will work to boost sales of industrial
products, as well as focus on methods toboost our OEM business. The promotion ofmarketing campaigns at dealerships will
improve technical support and overall
service. In addition, we plan to cultivate newclients.

Share of Net Sales

Net Sales(Millions of yen)
60,00050,00040,00030,00020,00010,000
0
1998

1999

2000

Fears of problems
related to Y2K issues
helped fuel power
generator sales.

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

12

Fiscal 2001 will be a crucial year in thedevelopment of our next-generation generalpurpose engine. We intend to trim our
product portfolio by integrating productspecifications, and plan to renew the EY
series side valve engine.
To achieve better performance andhigher quality, and improve our cost competitiveness, we will continue to implement
our Simultaneous Cost Innovation (SCI) program. SCI will also call for the elimination andintegration of certain parts and components.
Under TPM, we intend to continuously promote enhanced quality, lower cost andspeedier delivery in manufacturing.
During fiscal 2001 we plan to fortify
worldwide operations starting with our sales
units, Robin America Inc., Robin EuropeGmbH and Fuji Heavy Industries (Singapore)
Pte. Ltd, as well as our manufacturing unit,
Robin Manufacturing U.S.A., Inc. Our globalization plans also include preparations for thestart-up of our joint venture in the PRC.
Furthermore, we will increase our overseas
parts procurement.
We will tighten our working relationships
with Fuji Robin Industries Ltd. and Fuji
Machinery Co., Ltd., through expanded salesof OEM products. Efforts such as these will
help us to further consolidate our operations
with those of the Robin family, the maker ofRobin-brand industrial products.
OutlookIn fiscal 2001, the economies in Japan andAsia are projected to show gradual recovery,translating into more sales for FHI. However,as concern over the Year 2000 (Y2K) problem has passed, power generator sales inNorth America are forecast to decline. Despite a tough environment, we will expand
sales of Robin-brand products and strive to
become the world’s third-largest manufacturer of general-purpose industrial engines.

Aerospace Division

Results
A decline in orders for components used in
the Boeing 777 and Boeing 737 proved
detrimental to sales in this division in fiscal
2000. Demand from Japan’s Defense
Agency for wing and other section components for the F-2 support jet fighter werestable. We began deliveries of the wing
systems for Raytheon Aircraft Company’s
Hawker Horizon super mid-size business jet.
Overall, sales fell 15.4%, to ¥66.3 billion.
Operating income for this division declined
69.4%, to ¥2.0 billion, owing mainly to the
yen’s appreciation.
A major new R&D project during theperiod consisted of an order from the New
Energy Development Organization (NEDO)
for innovative aircraft wing sections madefrom a number of low-cost composite materials. We continued R&D on compact windpowered generator systems. Expenditures
for R&D during the period were ¥138.4
million.

Share of Net Sales

Net Sales(Millions of yen)
80,000division to attain the goal of ¥100 billion insales as set forth in New TQF21, we must
acquire new projects by focusing on sales
and technology. We plan to receive the fullcooperation of our factories to launch any
new projects as smoothly as possible.
We will continue to streamline operations,in particular the administrative operations
handled at plants and at our headquarters.
We will also work to strengthen our financial
position. A reduction of assets, specificallyinventories and accounts receivable, will
make us more responsive to market
conditions affecting sales and operations.

70,00060,00050,00040,00030,00020,00010,000
0
1998

1999

2000

Strategies for Fiscal 2001
New TQF21 sets forth strategies for growthin this division. These include securing new
businesses, achieving a high level of efficiency and thorough management of profit
margins for individual projects. For the

OutlookIn fiscal 2001, private-sector demand is
expected to decline. However, several key
projects, such as the Boeing 777-200X/
300X, were launched in early 2000. In addition, we have contracted with Bell Helicopter
TEXTRON Inc. of the United States, tomanufacture fuselages for the Bell/Agusta
609 (BA609), the first tiltrotor available forprivate use. Delivery of fuselages isscheduled to begin in fiscal 2003.

Boeing continues to be a significant
part of our aerospace business.
FHI will take charge of fuselage production
for Bell’s BA 609 tiltrotor.
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

13

Other Fields

Results
This division encompasses operations in theareas of ecology and transportation systems,
and bus manufacturing and prefabricatedhousing. Divisional sales in fiscal 2000
increased 13.3%, to ¥38.8 billion. However,operating losses expanded to ¥4.4 billion.
Sales of buses suffered from an unprecedented market slump, neutralizing benefitsof a richer mix of environmental and socialwelfare related products. We began designing houses tailored for the elderly, whichbolstered prefabricated house sales.
Demand for railway passenger cars, including the sleeping car Cassiopeia, and waste
disposal systems, also increased. However,refuse collection vehicle and trailer sales
declined, reflecting stagnant markets forthese products.
R&D in these businesses centers on
three key themes: environmental preservation, Japan’s aging society and automatedlabor. During fiscal 2000, we introduced the
Fuji home-nursing-care room, a roomdesigned specifically to facilitate home nursing care, and security/building maintenancerobots which function as surveillance cameras
while vacuuming floors. In addition, wedeveloped a waste disposal/reclamation
plant and robots for cleaning the water storage tanks used in nuclear power plants. R&D
expenditures in this division were ¥0.9 billion.

Share of Net Sales

Net Sales(Millions of yen)
50,00040,00030,00020,00010,000

0
1998

1999

2000

A robot that cansurvey premises
while cleaning floors.

The CNG non-step bus
with features to assist thephysically challenged.

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

14

Strategies for Fiscal 2001
The ultimate challenge in this division will beto implement our ideals of “selection andfocus” to effectively determine areas of concentration. We aim to expand sales ofminihousing and gable-roofed prefabricatedhousing. Moreover, we are planning a fullfledged entry into the home-nursing-caremarket.
In July 2000, we introduced a completely
new tour bus which meets recently enacted
emissions regulations to be introduced in
2000. In the area of buses for public transportation, we face several tasks including
lowering costs, developing large-scale transportation, and handling environment andsocial-welfare issues. To these ends, we plan
to combine our lighter-weight, low-cost
bus body, with features to accommodate thephysically challenged, with our compressed
natural gas (CNG) technologies.
With construction demand expected torise, we will implement an early sales drivefor prefabricated housing. New sales
avenues will be developed for prefabricatedhouses through expanded product lineup
and rental units.
Thanks to the success of our R&D efforts
in robotics, we plan to make further pursuitsin this area. Inquiries about our recently
developed surveillance/building maintenancerobots and other products are steady, andwe believe this business offers high potential.
Outlook
The implementation of new emissions regulations in July 2000 will likely have someeffect on our bus business. The construction
market is forecast to rebound, supported byan increase in public works projects. In addition, the introduction of the Nursing Insurance System is expected to support firmsales of the Fuji home-nursing-care room.

Corporate Responsibilities

Our Role in Preserving the Environment
FHI is looking for ways to give back to society. Finding
methods to preserve the environment is just one way that
we can give back. Energy consumption and the impact
placed on the environment have grown in tandem with
global economic development. The release of carbon
dioxide into the atmosphere has resulted in global warming; nitrous oxide and sulfur oxide are causing acid rain;
and chlorofluorocarbons (CFCs) are responsible fordamage to the ozone layer. Natural resources will bequickly depleted if we do not find ways to recycle themor alternatives.

Zero Emissions
Achieving zero emission levels at our plants is anotherkey goal we plan to achieve by March 2002. We areundertaking efforts at three plants—the Gunma Manufacturing Division, the Utsunomiya Manufacturing Divisionand the Saitama Manufacturing Division—and hope toattain zero emissions by the end of fiscal 2001. Basedon 1997 figures, annual waste disposal by these threedivisions is about 1,700 tons, 1,900 tons and 250 tons,
respectively.
Recycling
FHI is active in developing techniques that make use ofwaste. We are also implementing a number of recycling
efforts. One of our main recycling activities is collecting
damaged bumpers for recycling. This program waslaunched seven years ago and is now nationwide. As of
March 31, 2000, we had collected a cumulative total of
93,000 bumpers for recycling. The recycled materials areused in automotive parts such as trim.

Helping to Provide Cleaner Air
An issue of particular concern to us is air pollution.
Subaru products are built to meet stricter emissions
standards than those decreed in the Kanto (Tokyo) andKansai (Osaka) regions. Government emissions standards in Japan have been toughened by 70% from the1978 levels. Subaru’s in-house standards top these standards by another 50%, but we continue to strive for
improvements to help keep the environment cleaner andto provide our customers with a more ecologically soundautomobile.
Clean energy vehicles are another field in which
Subaru is hard at work. Technical issues that remain to
be resolved include high operating costs, a short travel
range and the lack of a fuel supply infrastructure. We areconvinced that our development efforts will aid in finding
answers to these problems and lend to the commercialization and general use of such vehicles.

The Aging Society
Japan’s growing population of senior citizens is a serious
issue which influences political, economic and social
systems. We are responding by developing a variety of
products specifically for the elderly. One of our mostinnovative products is the Fuji home-nursing-care room,a modular unit that can be attached to an existing onestory home, making it a lower-cost alternative to building
an addition. In the future, FHI plans to develop moretypes of barrier-free living environments for seniorcitizens.

ISO 14001 Certification
We are in the midst of developing an environmental management system (EMS) which meets the standards set
by the International Organization of Standardization. Our
Gunma Manufacturing Division, Saitama Manufacturing
Division and Utsunomiya Manufacturing Division havealready received ISO 14001 certification. Once we haveestablished an EMS of our own, we will work to apply
these standards throughout all FHI divisions andproduction facilities.

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

15

Management (As of June 29, 2000)

Board of Directors
From far left: Kazuhiro Miyake, Mamoru Morinaga, Takayoshi Yoshihashi, Takeshi Tanaka, Teruo Hanada, Fukuji Inada, Hitoshi Maeda

Executive Officers

Senior Vice Presidents

Vice Presidents( * Representative Director)

Hiromichi Muto
Masayoshi Nagano
Koichi Arasawa
Takeshi Tanaka
Masayasu Oizumi
Takeo Tsumuji
Hideo Wada
Hideshige Gomi
Takao Tsuchiya
Hiroyuki Nakatsubo
Kunitaka Nakahara
Kiyoshi Inoh

Masaru Katsurada
Akira Furuya
Takao Saito
Hiroshi Komatsu
Shunsuke Takagi
Yuichi Masuda
Yutaka Tsukahara
Kyoji Takenaka
Kisaburo Wani
Masatoshi Iwasaki
Edward Pasternak
William Madigan

President and Chief Executive Officer

Takeshi Tanaka*
Senior Executive Vice Presidents

Takayoshi Yoshihashi*
Teruo Hanada*
Executive Vice Presidents

Mamoru Morinaga
Fukuji Inada
Kazuhiro Miyake
Hitoshi Maeda

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

16

Corporate Auditors
Eiichi Hongo
Toshio Hirai
Kunitake Nomura
Hiroshi Takaku

Financial Section

18 Consolidated Five-Year Financial Summary
19 Management’s Discussion and Analysis of Financial
Condition and Results of Operations
24 Consolidated Balance Sheets
26 Consolidated Statements of Income
27 Consolidated Statements of Shareholders’ Equity
28 Consolidated Statement of Cash Flows
29 Notes to Consolidated Financial Statements
42 Report of Independent Certified Public Accountants

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

17

Consolidated Five-Year Financial Summary
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2000, 1999, 1998, 1997, 1996 and 1995

Thousands of
U.S. dollars (Note 3)

Millions of yen

2000

1999

1998

1997

1996

2000

For the Year:Net sales ............................................... ¥1,330,125 ¥1,352,520 ¥1,303,989 ¥1,223,015 ¥1,077,315
Cost of sales .........................................
995,131 1,067,868 1,027,782
994,032
909,255
Gross profit .......................................
334,994
284,652
276,207
228,983
168,060
Selling, general and administrative
expenses .............................................
243,593
194,720
195,770
171,410
143,167
Operating income .............................
91,40189,93280,43757,57324,893
Income before income taxes andminority interest ...................................
64,83968,42356,60947,622
20,886
Net income ............................................
31,34833,70630,70839,596
19,414$12,548,349
9,388,028
3,160,321
2,298,047
862,274
611,689295,736

At Year-End:
Shareholders’ equity .............................. ¥0,206,404 ¥0,200,220 ¥0,168,833 ¥0,149,748 ¥0,107,448 $01,947,208
Total assets ........................................... 1,038,558
981,256
904,571759,030
700,859
9,797,717
Ratio of shareholders’ equity tototal assets (%) ....................................
19.9.
20.4.
18.7.
19.7.
15.3.
Per Share (In yen and U.S. dollars):
Net income
Basic ................................................ ¥0,0051.90. ¥0,0056.18. ¥0,0051.33. ¥0,0067.63. ¥0,0033.17. $00,0000.49.
Diluted ..............................................
48.53.
51.79.
47.18.
66.28.
33.04.
0.46.
Shareholders’ equity ..............................
338.75.
332.41.
282.09.
251.05.
183.56.
3.20.
Other Information:
Depreciation and amortization ............... ¥0,060,190 ¥0,038,708 ¥0,032,574
Capital expenditures (addition to
fixed assets) ........................................
103,92257,56656,419R&D expenses .......................................
40,12338,512
38,231
Number of shares issued at year-end(thousands of shares) ..........................
Number of shareholders* .......................
Number of employees*
Parent only ........................................
Consolidated .....................................

——$00,567,830

—
—

—
—

980,396378,519614,553
49,381

602,333
55,044

598,507
72,107596,484
80,587585,346
83,077

13,66826,914

13,41919,882

13,435
19,113

13,413
18,475

13,604—* As of March 31

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

18

Management’s Discussion and Analysis of Financial Condition
and Results of Operations

All information discussed in this section is either based on
current information known to management, or derived
from FHI’s consolidated financial statements that appear
hereafter in this annual report.

consequence, from the beginning of fiscal year 2000, FHI’s
financial statements only consolidate SIA’s Subaru Product
Division. This reclassification of shares resulted in a ¥192.0
billion drop in the Company’s consolidated sales, but contributed ¥3.5 billion to retained earnings.
Another major accounting change implemented in the
period under review was the adoption of deferred tax
accounting. With deferred tax accounting, the provision forincome taxes is computed based on the pretax income
included in the consolidated statements of income. The
asset and liability approach is used to recognize deferredincome tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Changes in consolidation also affected the Company’s
interest-bearing debt. In fiscal 2000, interest-bearing debt
was up ¥86.0 billion, or 23.7%, to ¥449.0 billion. However,as illustrated in the Company’s cash flows from financing
activities, FHI’s debt clearance exceeded borrowings by¥69.7 billion during the period.

Disclaimer
In reading this analysis, certain factors, in particular thenotable increase in consolidated subsidiaries and other key
factors mentioned in the introduction to this section, must
be kept in mind. Year-on-year calculations are merelycomparisons with last year’s fiscal results and do not takethese factors into account. The Company is confident thisis not indicative of fiscal 2000 performance but rather
merely illustrates the transition which FHI experienced
during the term.
Introduction
During fiscal 2000, ended March 31, 2000, we implemented several measures to increase investor confidence
in FHI, including compliance with new accounting procedures introduced as part of Japan’s financial and accounting “Big Bang.” These measures also ensure time-efficient
disclosure of the Group’s financial position and other steps
which help portray a clearer picture of our operations.
In light of the new accounting standards for consolidation which went into effect in fiscal 2000, FHI consolidated
46 subsidiaries previously accounted for under the equity
method, bringing the total number of its consolidated subsidiaries and affiliates to 72. Reflecting the addition of consolidated subsidiaries to FHI’s accounts and its
subsequent effect on certain line items, fiscal 2000 results
may vary in certain areas when compared with results inprevious fiscal periods.
Another factor to consider when reviewing the financial
statements in this annual report is the reclassification of
SIA stock. FHI maintains 51% of SIA’s equity, with theremaining 49% held by Isuzu Motor Ltd. SIA stock wasconverted into two categories, with Class F shares
representing the Subaru Product Division. As a

Overview of Fiscal 2000
Automotive Market Environment
The world’s automotive markets are merging into a single,
global market, owing to a series of major cross-borderaffiliations since 1998. As a consequence, ensuring cost
performance and superior technology has become essential in remaining competitive in the worldwide automotive
market. In line with this, Japan’s automotive industry, which
crucially affects the nation’s economy in terms of employment and capital expenditures, is also being forced torestructure.
The U.S. automotive market continued to record highsales, though there are concerns of a slowdown. The
European Union (EU) car market is comparable in size tothat of the United States. The introduction of the euro isstandardizing pricing throughout the region and othermoves are bringing about environmental and safety

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

19

Non-Consolidated Operational Statistics (Number of vehicles)
2000

1999

1998

1997

1996

Domestic Units:
Legacy ...................................................................... 67,972
Impreza .................................................................... 25,654
Forester .................................................................... 25,985
Others ......................................................................
308

63,49933,531
24,4891,438

55,00137,04940,032
2,184

90,98041,9187,494
4,512

88,791
44,864—
6,011

Subtotal .................................................................... 119,919
Minicars .................................................................... 177,842

122,957
156,186

134,266
144,366

144,904
201,640

139,666
211,385

Total .......................................................................... 297,761

279,143

278,632

346,544

351,051

Export Units:
Legacy ...................................................................... 34,304
Impreza .................................................................... 58,530
Forester .................................................................... 83,928
Others ......................................................................
029,53054,861
81,385439

27,85752,25158,005819

23,816
52,66032
2,085

18,87535,256—
4,428

Subtotal .................................................................... 176,762
Minicars ....................................................................
760

166,2152,152

138,932
3,337

78,593
4,719

58,5593,293

Total .......................................................................... 177,522

168,367

142,269

83,312

61,852

Parts Production for Use Overseas ......................... 103,001(SIA Portion) .............................................................. 98,861
U.S. Unit Sales:
Legacy ...................................................................... 87,267
Impreza .................................................................... 19,356
Forester .................................................................... 50,183
Others ......................................................................
—

100,440
98,464

110,689
105,237

107,386
104,586

83,96581,44588,66019,04140,132—

92,91324,242
15,988640

94,95024,687—
1,111

74,191
24,415—
1,801

Total .......................................................................... 156,806

147,833

133,783

120,748

100,407

U.S. Production Units:
Legacy ...................................................................... 93,070

104,229

102,180

98,74780,660* Domestic and Export Units are aggregate figures for fiscal 2000.
* U.S. Unit Sales and U.S. Production Units are the aggregate figures for the calendar year from January 1999 through December 1999.

standards, making the EU a promising market for automotive manufacturers. At the same time, these changes arealso expected to intensify competition. Asia is anothermarket that the industry is watching closely, as economic
recovery begins to take hold in more regions.
A common factor throughout these regions affecting
automotive companies is the enactment of more stringent
regulations regarding the environmental soundness andsafety of products. To achieve lower emissions, automotive
manufacturers will be forced to spend more on R&D. It is
recognized that only companies capable of bearing theburden of higher R&D spending will be able to remaincompetitive.

Amid this environment, FHI automotive sales rose
4.9%, to 568,000 units, translating into ¥1.2 trillion, a 1.5%
fall from a year earlier.
Toward the 21st Century
In response to the changing environment, FHI introduced
its second medium-term plan, New TQF21, on April 1,
2000. Another major development during the period—one
that will support the Company’s accelerated growth—is its
equity alliance with GM.
The future profitability of FHI’s Automobile division relies
on several factors, including:

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

20

• Enhancement of brand identity
and market penetration• Increased production• Reduced cost of sales• Improved customer satisfaction• Launch of new products• Establishment of a niche market• Efficient use of assets
Globalization and integration willcontinue to change the automotive
industry. Consequently, competitionis likely to intensify further. FHI isconfident the steps it is taking andthe synergies from the alliances it
has formed will help it to remaincompetitive in the new marketplace.

Net Sales(Millions of yen)
1,500,000

1,200,000

900,000

600,000

300,000

0Japan
Outside Japan
Total

1998

1999

2000

708,851
595,138
1,303,989

738,945
613,575
1,352,520

903,697
426,428
1,330,125

Operating Income
and Profit Margin(Millions of yen)(%)

100,000

5

80,000

4

Cost of sales for the period
dropped 6.8%, to ¥995.1 billion, andaccounted for 74.8% of net sales, as
opposed to 79.0% in the previous
year. Selling, general and administrative (SGA) expenses increased by
25.1%, to ¥243.6 billion, reflecting a168.8% rise in salaries and bonuses,to ¥55.8 billion, and an expansion inother SGA expenses of 105.5%, to¥76.2 billion, mainly owing to the
new consolidation of dealerships inJapan. Because of this and small
increases in advertising and R&D
expenses, SGA expenses accounted
for 18.3% of net sales, higher than
the 14.4% a year earlier.

Results of Operations
60,0003
FHI’s performance for fiscal 2000
Foreign Currency Exchange
40,0002
remained in line with the previous
Risks
year. The Company posted consoliFHI is sensitive to fluctuating rates in
20,0001
dated net sales of ¥1.3 trillion, inchforeign currency exchange markets.
00
ing down 1.7% from the previous
The relevant risks may positively or
1998
1999
2000
year. The decline reflects a drop in
negatively affect the Company’s asOperating income
80,43789,93291,401
Operating profit margin 2.6%
2.7%
2.9%
SIA sales owing to the omission ofsets, liabilities, sales proceeds andIsuzu sales following the reclassificacosts. Such risks are categorizedtion of SIA stock. However, a 6.8% decline in cost of sales
into translation and transaction risks.
and higher unit sales contributed to a 1.6% rise in operatTranslation risk is the risk that FHI’s financial statements
ing income, to ¥91.4 billion. Net income dipped 7.0%, toare exposed to as a consequence of changes in the pre¥31.3 billion.
vailing exchange rates between the Japanese yen and theAutomobile division sales dropped 1.5%, to ¥1,175
currencies of other countries in which FHI does business.
billion, and operating income rose 8.1%, to ¥92.3 billion.
The Company used the average exchange rate for the year
Industrial Products sales climbed 19.5%, to ¥52.0 billion,
to calculate the revenues and expenses of its overseas
and operating income decreased 11.0%, to ¥1.3 billion.
subsidiaries and used the year-end rate to calculate theSales at FHI’s Aerospace division fell 15.4%, to ¥66.3
assets and liabilities of its overseas subsidiaries. Althoughbillion and divisional operating income declined 69.4%, toexchange rates between the yen and other currencies may¥2.0 billion. Sales in Other Fields grew 15.3%, to ¥38.8
fluctuate, significantly impacting comparisons with priorbillion, but the division posted an operating loss of ¥4.4
periods, this does not necessarily reflect actual results ofbillion.
operations and is only a reporting consideration.

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

21

Transaction risk is the risk that2000 stemmed primarily from cash
Current Ratio(Millions of yen)(%)
FHI’s cost and liabilities currency
generated by operations. During the
1.25
750,000
structure will deviate from that of its
period, FHI witnessed a dip in its
1.00
600,000
sales proceeds and assets. In princurrent ratio to 0.85, from 0.96 atciple, transactions between FHI and
the end of the previous fiscal term,
0.75
450,000
its overseas subsidiaries are done inas current liabilities significantly
0.50
300,000
the local currency of their respective
outweighed current assets. Thiscountries. The parent company
reflects an increase in short-term
150,000
0.25
bears the majority of impact fromborrowings and a drop in liquid00transaction risk.
assets, which consist of cash and
1998
1999
2000
Current
assets498,638
562,312
520,724
During the period under review,
time deposits, marketable
Current liabilities
510,840
585,915
615,961
Current
ratio
0.98%
0.96%
0.85%
exports by the parent company
securities, and notes and accounts
accounted for 44.1% of net sales,
receivable.
Cash Flow andwith 58% of these transactions conCapital expenditures in fiscal
Capital Expenditures(Millions of yen)
ducted in foreign currencies. Of the2000 increased 80.5% from the
100,000
total foreign currency-denominatedprevious year, to ¥103.9 billion,
80,000transactions, 95.7% were in U.S.
mainly due to inclusion of leased
dollars.
vehicles held by SOA and Subaru
60,000FHI employs foreign exchange
Kosan. Spending for facilities and40,000
forward contracts and foreign curequipment is not likely to grow inrency option contracts to hedge
fiscal 2001 and will be funded by
20,000against foreign exchange risks recapital procured from GM through0
sulting from import and export
our equity alliance.
1998
1999
2000
transactions of components, parts
R&D expenses for the period
Cash flow
63,282
72,41491,538Net income
30,70833,706
31,348and products. The parent company
were¥40.1 billion, up 4.2% from32,57438,70860,190Depreciation
Capital expenditures
56,41957,566
103,922
utilized forward and option con¥38.5 billion in the previous period,
tracts to hedge risk for about 85%
representing 3.0% of net sales. Weof the US$2.01 billion in sales denominated in U.S. dollars,plan to utilize GM capital in the future to fund spending inin fiscal 2000, which consisted mainly of exports to North
this area.
America.
Furthermore, to minimize foreign currency exchangeAssets, Liabilities and Shareholders’ Equity
related risks, we have taken steps to localize operations in
Total assets increased ¥57.3 billion, or 5.8%, to ¥1.0 trillion
the United States. In the calendar year 1999, 72.8% of all
as of March 31, 2000, mainly owing to the increase in conparts, components and materials used in the 93,070 units
solidated subsidiaries. Principal contributors consisted ofproduced at SIA in the United States were procured locally. property, plant and equipment; securities investments;
intangibles; and deferred income taxes. However, the yen’s
Liquidity andappreciation against the U.S. dollar during the period
Capital Resources
stunted asset growth.
FHI strives to ensure adequate financing and liquidity for its
Current assets, in contrast, declined ¥41.6 billion, or
operations, while endeavoring to strengthen its balance
7.4%, to ¥520.7 billion. This reflected decreases in cash
sheet. Funding of capital expenditures and R&D in fiscal
and time deposits, inventories, short-term loans receivable

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

22

and other current assets, as well as
Environmental Accounting
Interest-Bearing Debt
(Millions of yen)(%)
an increase in allowance for doubtful
Environmental accounting, or green
300,000200
accounts. Liquid assets, which
accounting, is an important tool in
240,000160
comprise cash and time deposits,
developing a comprehensive envimarketable securities, and notesronmental management system.
180,000120
and accounts receivable, trade,
These accounting methods and120,000
80
shrank from the previous year.
environmental guidelines, outlined by
Investments and other assets grew
the Environment Agency, offer a
60,00040
13.1%, to ¥101.2 billion, primarily
method by which industries can00
the result of a 50.1% rise in securiquantify and document their
1998
1999
2000
Short-term debt
185,433
233,555
294,552
ties investments, which offset a
possible environmental impact. In
Long-term debt
171,225
129,471
154,493
Debt-equity
ratio
110.9%
96.5%
145.7%
sharp drop in investments in nonaddition, they offer transparency of
consolidated subsidiaries andenvironmental costs and liabilities.
Shareholders’ Equity andaffiliates.
In fiscal 2000, FHI expensed
Equity Ratio(Millions of yen)(%)
Total current and long-term¥1.7 billion for measures to alleviate
250,000
25
liabilities rose ¥65.0 billion, or 8.6%,
any impact which FHI’s operations
200,00020
to ¥824.8 billion at March 31, 2000.
may have on the environment. Key
The principal factor behind this inmeasures during the term included
150,000
15
crease was a rise in short-term
waste management, energy conser100,000
10borrowings, which consisted mainly
vation and pollution prevention.
of bank loans. Among long-term
Another ¥17.0 billion was expensed
50,0005liabilities, the rise was attributablefor future environmental cleanup00
primarily to a 25.2% increase inrelated measures, including R&D,
1998
1999
2000
Shareholders’ equity 168,833
200,220
206,404
accrued severance indemnities andtraining and education on environEquity ratio
18.7%
20.4%
19.9%
19.4% growth in long-term debt andmental issues, facilities improvement
other. Interest-bearing debt, or theand expenditures to keep operations
total of short-term borrowings, the current portion of longin compliance with ISO 14001 environmental management
term debt and long-term debt, climbed 23.7%, or ¥86.0
system standards. In addition, ¥720 million was expensed
billion, to ¥449.0 billion, due to the consequences of newly
for contributions and other monies to aid environmental
consolidated subsidiaries.
cleanup.
Shareholders’ equity rose by ¥6.2 billion, or 3.1%, to¥206.4 billion. Retained earnings grew 125.7%, or ¥29.6
Effectiveness of Response tobillion. This growth is offset by debt balance of the translathe Year 2000 (Y2K) Issue
tion adjustments of ¥28.3 billion due to the transfer of thisFHI recognized the Y2K issue as a key managementbalance from assets to shareholders’ equity in accordance
concern and took decisive steps Groupwide to ensure thatwith new accounting standards. The ratio of shareholders’
it could manage any resulting problems. The Company
equity to total assets was 19.9%, down from 20.4% at thehas ascertained that none of its products, current or otherend of fiscal 1999. Shareholders’ equity per share, based
wise, were affected by the Y2K issue. In addition, FHI didon the number of shares outstanding at March 31, 2000,
not experience any related system, facility or equipment
was ¥335.86, compared with ¥332.41 a year earlier.
malfunctions.

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

23

Consolidated Balance Sheets
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIESAs of March 31, 2000 and 1999

Thousands of
U.S. dollars (Note 3)

Millions of yen

ASSETS

2000

1999

2000

Current assets:
Cash and time deposits (Notes 4 and 8) .............................................
Marketable securities (Notes 4, 5 and 8) .............................................
Notes and accounts receivable, trade .................................................
Allowance for doubtful accounts .........................................................
Inventories (Notes 6 and 8) .................................................................
Short-term loans receivable (Notes 4 and 8) ........................................
Deferred income taxes (Note 9) ...........................................................
Other current assets (Note 8) ..............................................................

¥0,074,509
63,006
119,448(2,159)154,839
70,55917,377
23,145¥(090,578
58,831
110,235(1,321)
168,000
98,315
8,716
28,958$(0,702,915
594,396
1,126,868(20,368)
1,460,745
665,651
163,934
218,350

Total current assets ....................................................................

520,724562,3124,912,491

Property, plant and equipment (Notes 7 and 8) ...................................
Less accumulated depreciation ...........................................................

943,934(527,296)

772,000(468,716)

8,905,038(4,974,491)

416,638

303,284

3,930,547

27,302
6,304
—
7,560
18,712
10,978
10,40823,006(3,074)18,185
16,676(22,626)
18,937
21,146559
1,232
35,749(392)

257,566
59,472—
71,321
176,528
103,566
98,188217,038(29,000)

101,196

89,466954,679

Translation adjustments .....................................................................

—

26,194—

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

¥1,038,558¥(981,256$(9,797,717

Investments and other assets:
Securities investments (Notes 5 and 8) ...............................................
Investments in non-consolidated subsidiaries and affiliates .................
Allowance for equity investments ........................................................
Long-term loans receivable .................................................................
Goodwill .............................................................................................
Intangibles, net ...................................................................................
Deferred income taxes (Note 9) ...........................................................
Other assets (Note 8) ..........................................................................
Allowance for doubtful accounts .........................................................

The accompanying notes are an integral part of these statements.

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

24

Thousands of
U.S. dollars (Note 3)

Millions of yen

LIABILITIES AND SHAREHOLDERS’ EQUITY

2000

1999

2000

Current liabilities:
Short-term borrowings (Note 8) ...........................................................
Current portion of long-term debt (Note 8) ..........................................
Notes and accounts payable ..............................................................
Accrued expenses ..............................................................................
Accrued income taxes ........................................................................
Other current liabilities .........................................................................

¥0,240,331
54,221
194,469
84,055
17,87225,013¥168,047
65,508205,783108,22118,087
20,269$(2,267,274
511,519
1,834,613
792,972
168,604
235,971

Total current liabilities ..................................................................

615,961

585,915

5,810,953

154,49325,12829,170208,791

129,471
20,07424,318173,863

1,457,481
237,057
275,188
1,969,726

Minority interest in consolidated subsidiaries ..................................

7,402

21,25869,830Shareholders’ equity (Note 10):
Common stock, ¥50 par value
Authorized — 1,500,000,000 shares
Issued 2000 — 0,614,552,540 shares ..........................................
Issued 1999 — 0,602,332,902 shares ..........................................
Additional paid-in capital .....................................................................
Retained earnings ...............................................................................
Less treasury stock, at cost ................................................................
Translation adjustments ......................................................................

88,115—94,55953,129(1,145)(28,254)—
85,121
91,56723,535(3)—

831,274—
892,066
501,217(10,802)(266,547)

206,404

200,220

1,947,208¥1,038,558¥(981,256$(9,797,717

Long-term liabilities:
Long-term debt (Note 8) .....................................................................
Accrued severance indemnities ...........................................................
Other ..................................................................................................

Contingent liabilities (Note 13)
Total liabilities and shareholders’ equity ...............................

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

25

Consolidated Statements of Income
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2000, 1999 and 1998

Thousands of
U.S. dollars (Note 3)

Millions of yen

2000

Net sales ..........................................................................
Cost of sales ....................................................................

1999

1998

¥1,330,125 ¥1,352,520 ¥1,303,989
995,131 1,067,868 1,027,782

Gross profit ....................................................................
Selling, general and administrative expenses(Note 11) ..........................................................................
Operating income ..........................................................

2000$12,548,349
9,388,028

334,994

284,652

276,2073,160,321

243,593
91,401

194,720
89,932

195,770
80,4372,298,047
862,274

2,569(10,422)
12,092(5,356)(6,569)4,641(11,981)8(2,032)(4,019)3,478(11,665)
1876(9,631)

24,236(98,321)
114,075(50,528)(61,972)(2,440)(9,855)—(6,581)(4,317)—383(4,192)(2,759)—(107)(4,021)(23,019)(92,972)—(62,084)(26,562)(21,509)(23,828)(250,585)

Income before income taxes andminority interest ...................................................

64,83968,42356,609611,689

Income taxes (Note 9)
Current ..........................................................................
Deferred .........................................................................

36,151(2,621)

33,772(4,207)

23,341(2,050)341,047(24,726)

Income before minority interest ......................................
Minority interest in consolidated subsidiaries .............

33,53031,30939

29,56538,858(5,152)

21,29135,318(4,610)316,321295,368368¥0,031,348 ¥0,033,706 ¥0,030,708$00,295,736

Yen

U.S. dollars (Note 3)

Other income (expenses):
Interest and dividend income .........................................
Interest expenses ...........................................................
Gain on sale of marketable securities .............................
Foreign exchange gains (losses) .....................................
Loss on devaluation of securities ...................................
Loss on disposal of property, plant andequipment, net ............................................................
Write-down of land ........................................................
Equity (losses) gains of affiliates ......................................
Other, net .......................................................................

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

Per share data (Note 2):
Net income—Basic ........................................................
Net income—Diluted ......................................................
Cash dividends ..............................................................

¥51.90.
48.53.
9.00.

The accompanying notes are an integral part of these statements.

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

26

¥56.18.
51.79.
8.00.

¥51.33.
47.18.
7.00.

$0.49.
0.46.
0.09.

Consolidated Statements of Shareholders’ Equity
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2000, 1999 and 1998

Thousands

Millions of yen

Number ofsharesissuedCommonstock

Retainedearnings
Treasury(Accumulated stock,
deficit)at costBalance, March 31, 1997 .....................................................................
Cash dividends ..................................................................................
Payment of bonuses to directors and statutory auditors ....................
Shares issued upon conversion of convertible bonds ........................
Accumulated deficit of subsidiaries newly included in consolidationand companies newly applied equity method ..................................
Net decrease of treasury stock ..........................................................
Net income ........................................................................................

596,484¥83,618 ¥90,070

Balance, March 31, 1998 .....................................................................
Cash dividends ..................................................................................
Payment of bonuses to directors and statutory auditors ....................
Shares issued upon conversion of convertible bonds ........................
Retained earnings of subsidiaries newly included in consolidation .....
Net increase of treasury stock ...........................................................
Net income ........................................................................................

598,507

84,13890,588

3,826

983

979

Balance, March 31, 1999 .....................................................................
Accumulated foreign currency transaction adjustment
transferred from assets ....................................................................
Foreign currency translation adjustment ............................................
Cumulative effect of changes in accounting for income taxes ............
Stock class change of Subaru-Isuzu Automotive Inc. ........................
Merger of a consolidated subsidiary ..................................................
Cash dividends ..................................................................................
Payment of bonuses to directors and statutory auditors ....................
Shares issued upon conversion of convertible bonds ........................
Accumulated deficit of subsidiaries newly included in consolidation ...
Treasury stock held by subsidiaries newly included in consolidation ...
Net income ........................................................................................

602,333

Balance, March 31, 2000 .....................................................................

614,553

2,023

520

Additional
paid-in
capital¥(23,937)(6,270)(194)¥0,0(3)

Accumulatedtranslation
adjustment

Total
shareholders’equity¥(0,0—.

¥149,748(6,270)
(194)
1,038

518
(6,198)(6,198)1
30,7081
30,708(5,891)(4,201)
(212)

(2)

—

168,833(4,201)
(212)
1,962
133
(1)
33,706(3)—

200,220(2(26,194)(2,060)((26,194)(2,060)
6,582
3,495
2,282
(5,122)(209)
5,903(8,699)(1,142)
31,348¥(28,254)¥206,404

133(1)33,706
85,121

91,567

740

37

46

11,480

2,957

2,946

23,535

6,582
3,495
2,199
(5,122)(209)(8,699)(1,142)
31,348¥88,115 ¥94,559¥53,129¥(1,145)

Thousands of U.S. dollars (Note 3)

Balance, March 31, 1999 .....................................................................
Accumulated foreign currency transaction adjustment
transferred from assets ....................................................................
Foreign currency translation adjustment ............................................
Cumulative effect of changes in accounting for income taxes ............
Stock class change of Subaru-Isuzu Automotive Inc. ........................
Merger of a consolidated subsidiary ..................................................
Cash dividends ..................................................................................
Payment of bonuses to directors and statutory auditors ....................
Shares issued upon conversion of convertible bonds ........................
Accumulated deficit of subsidiaries newly included in consolidation ...
Treasury stock held by subsidiaries newly included in consolidation ...
Net income ........................................................................................

$803,028 $863,840

Balance, March 31, 2000 .....................................................................

$831,274 $892,066

349

434

27,897

27,792$222,028 $00,0(28) $00000—.

$1,888,868(247,113)(19,434)(247,113)(19,434)
62,09532,972
21,528(48,321)(1,972)
55,689(82,066)(10,774)
295,736$501,217 $(10,802) $(266,547)$1,947,208

62,09532,972
20,745(48,321)(1,972)(82,066)(10,774)
295,736

The accompanying notes are an integral part of these statements.

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

27

Consolidated Statement of Cash Flows
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Year ended March 31, 2000

Millions of yen

Thousands of
U.S. dollars (Note 3)

2000

2000

¥064,839$0,611,689

60,1902,440
9,855(12,091)
6,548
12,7193,572(1,440)(37,774)(13,725)
95,133567,830
23,01992,971(114,066)
61,773
119,991
33,698(13,585)(356,358)(129,481)
897,481

Cash flows from investing activities:
Purchase of property, plant and equipment .........................................................
Proceeds from sale and disposal of property, plant and equipment .....................
Payment for securities investments .....................................................................
Payment for purchase of marketable securities ...................................................
Proceeds from sale of marketable securities .......................................................
Purchase of intangible assets ..............................................................................
Addition to loans receivable ................................................................................
Collection of loans receivable ..............................................................................
Other, net ............................................................................................................
Net cash used for investing activities ...........................................................

(98,429)
21,734(11,064)(1,171)
12,343(3,018)(56,109)62,647(4,854)(77,921)(928,575)
205,038(104,377)(11,047)
116,443(28,472)(529,330)
591,009(45,792)(735,103)

Cash flows from financing activities:
Proceeds from long-term debt ............................................................................
Repayment of long-term debt .............................................................................
Proceeds from issuance of bonds .......................................................................
Redemption of bonds .........................................................................................
Proceeds from issuance of commercial paper .....................................................
Decrease in short-term borrowings .....................................................................
Payment of cash dividends .................................................................................
Net cash used for financing activities ...........................................................
Effect of exchange rate change on cash and cash equivalents .....................
Net decrease in cash and cash equivalents ......................................................

31,670(33,816)
10,300(42,474)
30,000(65,340)(5,122)(74,782)(2,218)(59,788)298,774(319,019)
97,170(400,698)
283,019(616,415)(48,321)(705,490)(20,925)(564,037)

Cash flows from operating activities:
Income before income taxes and minority interest ...............................................
Adjustments to reconcile income to net cash provided by operating activities:
Depreciation and amortization ........................................................................
Loss on sale and disposal of property, plant and equipment, net ....................
Write-down of land .........................................................................................
Gain on sale of marketable securities ..............................................................
Loss on devaluation of securities ....................................................................
Decrease in notes and accounts receivable, trade ..........................................
Decrease in inventories ...................................................................................
Decrease in notes and accounts payable........................................................
Income taxes paid ..........................................................................................
Other, net .......................................................................................................
Net cash provided by operating activities ....................................................

Cash and cash equivalents:
Balance at beginning of year ...............................................................................
Decrease from exclusion of a division of a subsidiary due to conversion of
the subsidiary’s stock ........................................................................................
Amount applicable to subsidiaries newly included in consolidation ......................
Balance at end of year ....................................................................................

145,907

1,376,481(10,635)
33,285¥108,769(100,330)
314,009$1,026,123

Supplemental information on cash flows:
Cash paid during the period for interest ..............................................................
Conversion of convertible bonds .........................................................................

¥011,067
5,903$0,104,406$0,055,689

The accompanying notes are an integral part of these statements.

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

28

Notes to Consolidated Financial Statements
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIESMarch 31, 2000

1. BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS:
Fuji Heavy Industries Ltd. (the “Company”) and its subsidiaries in Japan maintain their records and prepare theirfinancial statements in accordance with accounting principles and practices generally accepted in Japan, while
its foreign subsidiaries maintain their records and prepare
their financial statements in conformity with those of thecountries of their domicile.
The accompanying consolidated financial statements arebasically an English version of those which were preparedin accordance with accounting principles and practices
generally accepted in Japan, which are different in certain
respect to the application and disclosure requirement ofInternational Accounting Standards, and filed with theJapanese Minister of Finance and the Tokyo Stock
Exchange as required by the Securities and Exchange Law
of Japan. The statements of shareholders’ equity havebeen prepared to provide additional information. Certain
reclassifications of accounts and modifications have been
made in the accompanying financial statements to facilitate
understanding by readers outside of Japan. In addition, thenotes to the consolidated financial statements include
information, which is not required under accounting principles and practices generally accepted in Japan, but ispresented herein as additional information.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
retained earnings increased by ¥3,495 million (US$32,972
thousand) as follows.

Consolidation:
The consolidated financial statements include theaccounts of the Company and its significant subsidiaries.
All significant intercompany transactions and balances
have been eliminated in consolidation. The fiscal year-endof the consolidated subsidiaries is the same as that of theparent company except for foreign consolidated subsidiaries whose fiscal year ends December 31. Significant
transactions incurred between December 31 and March
31 are reflected in the consolidated financial statements.
Up to March 31, 1999, investments in non-consolidated
subsidiaries and significant affiliates have been accounted
for under the equity method. Consolidated net income
includes the Company’s equity in the current net income ofsuch companies after elimination of unrealized intercompany profits. For the year ended March 31, 2000, however,the new accounting standard for consolidation in Japan
was applied and the number of consolidated subsidiaries
rose to 72, of which 46 subsidiaries are newly included in
the consolidation, the latter had all been accounted forunder the equity method for the year ended March 31,
1999.
Subaru-Isuzu Automotive, Inc. (SIA), a subsidiary in the
United States of which 51% is owned by Fuji Heavy
Industries Ltd. (FHI), and the other 49% owned by Isuzu
Motors Ltd., had been consolidated in the Company’s
financial statements on a fully consolidated basis with its
profit/loss allocated to FHI based on the share of common
stock (51%). For the year ended March 31, 2000, due tothe conversion of its stock into two classes to represent
the Subaru Product Division and the Isuzu Product Divisionrespectively, effective January 1, 1999, only the Subaru
Products Division of SIA was consolidated in FHI. The
Isuzu Product Division of SIA and Isuzu Transport Inc., asubsidiary of SIA, were therefore excluded from theCompany’s consolidated financial statements. As a resultof this change, consolidated sales decreased by ¥191,965
million (US$1,810,991 thousand), although consolidated

Increase (Decrease)
Millions of yen

Thousands of
U.S. dollars

Current assets*1 ............................................ ¥(42,339) $(399,425)
Non-current assets*1 ................................
(13,733)(129,556)
1
Total assets* ............................................
(56,072)(528,981)(34,816)(328,453)
Current liability*1 ............................................
Non-current liability*1 ................................
(8,483)(80,028)
1
Total liabilities* .......................................
(43,299)(408,481)
Minority interest*1 .........................................
(22,269)(210,085)
Translation adjustments (includedin the shareholders’ equity)*1 ........
6,020
56,792
Net sales*2 .......................................................... (191,965) (1,810,991)
Operating profit*2 .........................................
(4,513)(42,575)(3,848)(36,302)
Income before income taxes*2 .......
Net income*2 ....................................................
13
123
Retained earnings*3 ...................................
3,495
32,972*1. The amounts represent the balance of the Isuzu Product Division asof December 31,1999.
*2. The amounts represent the balance of the Isuzu Product Division forthe year ended December 31,1999.
*3. The amount represents the difference between 51% of the total SIA
and the balance of the Subaru Product Division as of December
31,1999.

Investments in insignificant non-consolidated subsidiaries and affiliates not accounted for under the equity
method are carried at cost.
The difference between the cost and underlying net
equity of investments in subsidiaries and affiliated companies is allocated to identifiable assets based on fair value atthe date of acquisition. The unassigned residual value ofthe excess of the cost over the underlying net equity isrecognized as goodwill, and is amortized over a period offive years on a straight-line basis.

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

29

Research and development costs are expensed as
incurred and amounted to ¥40,123 million ($378,519
thousand), ¥38,512 million and ¥38,231 million for the years
ended March 31, 2000, 1999 and 1998, respectively.

All assets and liabilities of subsidiaries acquired on orafter April 1, 1999, which include not only the parent
company’s interest in the subsidiary but also the minority
interest portion, are valued based on fair values at the date
the parent company acquires control over the subsidiary.
The investment cost of the parent company is allocated tothe identifiable assets and liabilities of the subsidiary; theunallocated cost is recorded as goodwill.

Marketable securities and securities investments:
Securities which are listed on stock exchanges are statedat the lower of cost or market value, cost being determined by the moving average method. Securities which
are not listed on stock exchanges are stated at cost, as
determined by the moving average method, after
devaluation for any permanent impairment.

Cash equivalents:
Cash and cash equivalents include all highly liquid investments, generally with original maturities of three months or
less, that are readily convertible to known amounts of cash
and are so near maturity that they present only an insignificant risk of changes in value.

Inventories:
Finished products are stated mainly at cost determinedby the moving average method. Raw materials, work inprocess and supplies are stated at cost principally
determined by the first-in, first-out method.

Translation of foreign currency accounts:
Up until the fiscal year ended March 31, 1999, current andnon-current accounts denominated in foreign currencies
held by the Company and its subsidiaries in Japan are
principally translated into yen at historical exchange rates.
Revenues and expenses denominated in foreign currencies
are translated at exchange rates prevailing during the year.
The resulting translation gains and losses are taken into
income currently. For the year ended March 31, 2000,
however, current monetary assets and liabilities denominated in foreign currencies held by the Company and its
subsidiaries in Japan are translated into yen at appropriate
year-end current rates. The effect of this change was minor.
All asset and liability accounts of foreign subsidiaries
and affiliates are translated into Japanese yen at theexchange rates in effect at the balance sheet date of theforeign subsidiaries, except for common stock and capitalsurplus, which are translated at historical rates. Revenue
and expense accounts are also translated at exchange
rates prevailing during the year. The resulting translation
adjustments are reflected in the consolidated balance
sheet as “Translation adjustments”. For the year ended
March 31, 1999, they were included in the assets category, however for the year ended March 31, 2000, thesehave been reclassified to Shareholders’ equity to conformwith the revised Japanese accounting regulations.

Property, plant and equipment:
Property, plant and equipment are stated at cost. Significant renewals and additions are capitalized; maintenanceand repairs, and minor renewals and improvements arecharged to income as incurred.
Depreciation of property, plant and equipment is principally computed on the declining-balance method for theparent company and Japanese subsidiaries, and on thestraight-line method for foreign subsidiaries at rates basedon the estimated useful lives of the assets according to
general class, type of construction and use.
Pension and retirement plan:
On terminating employment, employees of the parent
company and subsidiaries in Japan are entitled, undermost circumstances, to lump-sum indemnities or pensions
as described below, based on current rates of pay, lengthof service, and conditions under which the termination
occurs. The minimum payment is an amount based onvoluntary retirement. In addition to the minimum payment
based on voluntary retirement, employees receive additional benefits for retirement due to age limit, death orother defined reasons. The parent company and subsidiaries in Japan recorded the accrued severance indemnities
for employees which represent 40% of the liability which
would be payable if all employees voluntarily terminate theirservices at the balance sheet date.
The parent company and some subsidiaries in Japan
have noncontributory funded defined benefit pension plans.
The plan of the parent company covers 80% of retirement
and severance benefits for employees who terminate
employment at age fifty or over. The contributions to thepension plan include current service costs and amortizationof prior service costs over a period of eight years.
Some subsidiaries in Japan have contributory funded
defined benefit pension plans, which are pursuant to theJapanese Welfare Pension Insurance Law. The contributory pension plans cover a portion of the governmental

Revenue recognition:
Revenue from sales of vehicles and parts is generally
recognized when such products are shipped to dealers or
customers. Provisions for sales allowances and incentives
are recognized at the time of the sale.
Revenue from operating leases is recognized on astraight-line basis over the lease term.
Other costs:
The Company provides for accrued warranty claims on its
products sold based on its past experience of guarantee
work performed on claims actually received and estimatedwarranty costs to be incurred in the future at the time ofsale.

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

30

based on the pretax income included in the consolidated
statement of income. The asset and liability approach isused to recognize deferred tax for expected future tax
consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities. Valuation allowances are recorded to reduce deferred
tax assets when it is more likely than not that a tax benefit
will not be realized. The cumulative effect, as of April 1,
1999, of the accounting change resulting from the adoption of deferred tax accounting was directly credited toretained earnings in the amount of ¥6,582 million ($62,095
thousand).

welfare pension program, under which the contributions
are made by the companies and their employees, andan additional portion representing the substituted noncontributory pension plan.
Retirement benefits to directors and statutory auditors
are subject to approval at a meeting of shareholders andare charged to income when paid.
Accounting for leases:
Under Japanese accounting standards for leases, financing leases are, in principle, accounted for on a similar basis
to sales or purchases by lessors or lessees, respectively.
However, financing leases which do not transfer ownershipof leased assets to lessees as stipulated in lease contracts
can be accounted for as operating leases if certain “as if
capitalized” information is disclosed in the notes to thelessor’s or lessee’s financial statements. Therefore, as alessee, the Company charges periodic lease payments toexpense when paid.

Net income per share:
Basic net income per share (EPS) is computed based on
the average number of shares of common stock outstanding during each year. Diluted EPS assumes the dilution that
could occur if securities or other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock.

Income taxes:
Up to March 31, 1999, deferred income taxes pertaining totemporary differences were recognized only insofar as they
relate to the elimination of unrealized intercompany profit
and the adjustment of allowances for doubtful accounts forconsolidation purposes.
Deferred tax accounting, similar to IAS 12, was newly
adopted from the beginning of the year ended March 31,
2000, in accordance with the revised Japanese accounting
regulations. The provision for income taxes is computed

Reclassifications:
Translation adjustments previously included in assets or
liabilities have been reclassified to Shareholders’ equity toconform with the fiscal 2000 presentation in accordancewith the revised Japanese accounting regulations. In
addition, certain reclassifications within the financial statements for the years ended March 31, 1999 and 1998 havebeen made to conform to the presentation for the year
ended March 31, 2000.

3. U.S. DOLLAR AMOUNTS:
The United States dollar amounts included in the accompanying consolidated financial statements and related
notes represent the arithmetic results of translating Japanese yen into U.S. dollars on the basis of ¥106 to U.S. $1,
the exchange rate at March 31, 2000. The U.S. dollar

amounts are included solely for the convenience of thereader, and these translations should not be construed as
representations that the yen amounts actually represent, or
have been or could be converted into, U.S. dollars.

4. CASH AND CASH EQUIVALENTS:
Cash and cash equivalents as of March 31, 2000 and 1999 comprise the following:Thousands of
U.S. dollars

Millions of yen

Cash and time deposits ...............................................................................
Marketable securities ...................................................................................
Short-term loans receivable ..........................................................................
Less maturity over three months ..................................................................
Cash and cash equivalents ..........................................................................

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

31

2000

1999

2000

¥074,509
63,00670,559208,074(99,305)¥108,769¥090,578
58,831
98,315
247,724(101,817)¥145,907$0,702,915
594,396665,651
1,962,962(936,839)$1,026,123

5. MARKETABLE SECURITIES AND INVESTMENT SECURITIES:The carrying value and unrealized gains (or losses) of marketable equity securities and other securities, which have amarket value, at March 31, 2000, are as follows;
Millions of yen

Current:
Marketable equity securities ...........................................................................................
Debt securities ...............................................................................................................
Other securities ..............................................................................................................
Non-current:
Marketable equity securities ...........................................................................................
Debt securities ...............................................................................................................
Other securities ..............................................................................................................

Carrying value

Unrealized
gains (losses)¥22,255—
257
22,512¥2,829
—
(47)
2,782

14,442
166
282
14,890¥37,402

2,556
4
(4)
2,556
¥5,338

Thousands of U.S. dollars

Current:
Marketable equity securities ...........................................................................................
Debt securities ...............................................................................................................
Other securities ..............................................................................................................
Non-current:
Marketable equity securities ...........................................................................................
Debt securities ...............................................................................................................
Other securities ..............................................................................................................

Carrying value

Unrealized
gains (losses)$209,952—
2,425
212,377$26,688—(443)
26,245

136,245
1,566
2,661
140,472$352,849

24,11338(38)
24,113$50,358

6. INVENTORIES:
Inventories at March 31, 2000 and 1999 comprise:
Thousands of
U.S. dollars

Millions of yen

Finished products .........................................................................................
Work in process ...........................................................................................
Raw materials ..............................................................................................
Supplies .......................................................................................................

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

32

2000

1999

2000

¥085,689
55,523
11,6801,947¥154,839¥083,063
60,052
22,6482,237¥168,000$0,808,387
523,802110,188
18,368$1,460,745

7. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at March 31, 2000 and 1999 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

Buildings and structures ...............................................................................
Machinery and vehicles ................................................................................
Other ...........................................................................................................
Less accumulated depreciation ....................................................................
Land ............................................................................................................
Construction in progress ..............................................................................
Total .............................................................................................................

2000

1999

2000

¥219,818
431,062
166,115
816,995(527,296)
120,757
6,182¥416,638¥164,976
344,800
146,737
656,513(468,716)
98,124
17,363¥303,284$2,073,755
4,066,623
1,567,122
7,707,500(4,974,491)
1,139,217
58,321$3,930,547

8. SHORT-TERM BORROWINGS AND LONG-TERM DEBT:
Short-term borrowings at March 31, 2000 and 1999 comprise the following:Thousands of
U.S. dollars

Millions of yen

Bank loans, with average interest rate of 1.6% per annum ...........................
Commercial paper, with average interest rate of 0.01% ................................

2000

1999

2000

¥210,331
30,000¥240,331¥168,047—¥168,047$1,984,255
283,019$2,267,274

Long-term debt at March 31, 2000 and 1999 consisted of the following:Thousands of
U.S. dollars

Millions of yen

Loans principally from banks and insurance companies, due through 2026
with average interest rate of 3.0% per annum ............................................
Unsecured 3.0% convertible bonds in U.S. dollars, due March 31, 2000 .....
Unsecured 1.8% convertible bonds due 2003, convertible currently
at ¥633.3 ($6.03) for one common share, redeemable before due date ......
Unsecured 8.75% bonds in U.S. dollars, due November 17, 1999 ...............
Unsecured 0.9% convertible bonds due 2003, convertible currently
at ¥513 ($4.89) for one common share, redeemable before due date .........
Unsecured 2.25% bonds due July 31, 2002 ................................................
Unsecured 2.10% bonds due January 31, 2001 ..........................................
Unsecured 2.10% bonds due August 29, 2003............................................
Unsecured 2.3% bonds due September 30, 2005 .......................................
Unsecured 1.76% bonds, due April 30, 2004 ...............................................
Secured 1.8% bonds of a consolidated subsidiary, due July 7, 2005 ...........
Less—Portion due within one year ...............................................................

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

33

2000

1999

2000

¥127,573—¥075,762
13$1,203,518
—

2,042
—

2,095
42,474

19,264—

18,79920,00010,00010,00010,00010,000300
208,71454,221¥154,493

24,63520,00010,00010,00010,000——
194,979
65,508¥129,471

177,349
188,679
94,34094,34094,34094,3402,830
1,969,000
511,519$1,457,481

Annual maturities of long-term bank loans at March 31, 2000, were as follows:2001 ..................................................................................................................................
2002 ..................................................................................................................................
2003 ..................................................................................................................................
2004 ..................................................................................................................................
2005 ..................................................................................................................................
2006 and thereafter ............................................................................................................

Millions of yen

Thousands of
U.S. dollars¥054,221
36,572
43,21540,66020,646
13,400¥208,714$0,511,519
345,019
407,689
383,585
194,773
126,415$1,969,000

The following assets as of March 31, 2000 and 1999, are pledged as collateral for certain loans:Thousands of
U.S. dollars

Millions of yen

Cash and time deposits .............................................................................. .
Marketable securities ...................................................................................
Inventories ...................................................................................................
Short-term loans receivable ..........................................................................
Other current assets .....................................................................................
Property, plant and equipment .....................................................................
Securities investments ..................................................................................
Other assets ................................................................................................

2000

1999

2000

¥000,300542
2,470
52,5092,316
141,300
3,146
1,911¥204,494¥0,00—.
—
2,714——
84,006
2,929—¥89,649$0,002,830
5,113
23,302495,368
21,8491,333,019
29,67918,029$1,929,189

9. INCOME TAXES:
The company is subject to a number of taxes based on income which, in aggregate, resulted in normal statutory tax rates
of approximately 41.8% and 47.4% for the years ended March 31, 2000 and 1999, respectively.
Reconciliation of the differences between the statutory tax rate and the effective income tax rate for the year ended
March 31, 2000, was as follows:
Statutory tax rate .........................................................................................
Increase (reduction) in taxes resulting from:
Valuation allowance provided ...................................................................
Non-deductible expenses ........................................................................
Lower tax rates applicable to foreign subsidiaries .....................................
Other .......................................................................................................
Effective income tax rate ..............................................................................

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

34

41.8%
9.0
0.9
(0.3)
0.3
51.7%

Significant components of the deferred tax assets and liabilities on March 31, 2000, are as follows:
Millions of yen

Thousands of
U.S. dollars

Deferred tax assets:
Operating loss carry forwards for tax purposes ..............................................................
Inter-company profit included in inventories....................................................................
Accrued pension and severance costs ...........................................................................
Accrued expenses .........................................................................................................
Accrued enterprise tax ...................................................................................................
Accrued bonuses ...........................................................................................................
Accrued warranty claims ................................................................................................
Devaluation of land ........................................................................................................
Valuation reserve for equity investment ...........................................................................
Inter-company profit included in property, plant and equipment......................................
Other .............................................................................................................................
Total deferred tax assets ................................................................................................
Valuation allowance .......................................................................................................
Total deferred tax assets, net of valuation allowance ......................................................

¥05,221
5,255
2,211
2,787
2,693
2,453
5,563
4,119
2,002
5,657
2,932
40,893(12,373)
28,520$049,255
49,57520,85826,292
25,40623,14252,481
38,85818,88753,36827,661
385,783(116,726)
269,057

Deferred tax liabilities:
Depreciation ..................................................................................................................
Other .............................................................................................................................
Total deferred tax liabilities..............................................................................................
Net deferred tax assets ......................................................................................................

(1,094)(225)(1,319)¥27,201(10,321)(2,123)(12,444)$256,613

10. SHAREHOLDERS’ EQUITY:The Japanese Commercial Code provides that an amountequal to at least 10% of cash dividends and other distributions from retained earnings paid by the parent company
and its subsidiaries in Japan be appropriated as a legal
reserve. No further appropriation is required when thelegal reserve equals 25% of stated capital. Legal reserve
included in retained earnings as of March 31, 2000 and
1999, were ¥6,902 million ($65,113 thousand) and ¥6,371
million and are restricted to be used as dividends.

In accordance with customary practice in Japan, theappropriations are not accrued in the financial statements
for the period to which they relate, but are recorded in thesubsequent accounting period after shareholders’ approvalhas been obtained. Retained earnings at March 31, 2000,
includes amounts representing final cash dividends of¥3,072 million ($28,981 thousand), ¥5.0 ($0.05) per shareand directors’ bonuses of ¥100 million ($943 thousand),
which were approved at the shareholders’ meeting held on
June 29, 2000.

11. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling, general and administrative expenses for the years ended March 31, 2000, 1999 and 1998, consist of thefollowing:Thousands of
U.S. dollars

Millions of yen

Transportation and packing expenses .....................................
Advertising expenses ..............................................................
Sales incentives ......................................................................
Salaries and bonuses ..............................................................
Research and development expenses .....................................
Others .....................................................................................

2000

1999

1998

2000

¥013,495
41,265
16,69655,84040,12376,174¥243,593¥017,701
36,37044,295
20,77038,512
37,072¥194,720¥017,193
32,333
51,197
18,37838,231
38,438¥195,770$0,127,311
389,292
157,509526,793378,519
718,623$2,298,047

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

35

12. LEASES:(A) Information as lessee
As allowed under Japanese accounting standards, the Company and subsidiaries in Japan account for financing leases,
which do not transfer ownership of leased assets to lessees as stipulated in lease contracts, as operating leases. The “asif capitalized” information of the leased assets is as follows:(1) Details of the leased assets—
Thousands of
U.S. dollars

Millions of yen

2000

Machinery and vehicles ............................................................................
Tools and other ........................................................................................
Intangibles assets ....................................................................................
Accumulated depreciation .......................................................................
Net ..........................................................................................................

¥1,165
6,046
824¥8,035(4,578)¥3,457

1999

2000¥04,664
7,388
533¥12,585(8,039)¥04,546$10,991
57,038
7,773$75,802(43,189)$32,613(2) Depreciation of the leased assets is computed by the straight-line method, at rates based on the lease periods of theassets. Depreciation expense for the year ended March 31, 2000 and 1999, was ¥1,757 million ($16,575 thousand)and ¥3,918 million, respectively.
Periodic lease expenses of financing leases, as accounted for as operating leases, were as follows:
Thousands of
U.S. dollars

Millions of yen

Lease expenses ......................................................................

2000

1999

1998

2000

¥2,017¥5,086¥7,091$19,028

Future minimum lease payments, excluding the portion of interest thereon, as of March 31, 2000, are as follows:
Finance leases:
One year or less .............................................................................................................
More than one year ........................................................................................................
Operating leases:
One year or less .............................................................................................................
More than one year ........................................................................................................

Millions of yen

Thousands of
U.S. dollars¥01,5992,148¥03,747$015,085
20,264$035,349¥02,335
32,325¥34,660$022,028
304,953$326,981

Millions of yen

Thousands of
U.S. dollars¥27,577
9,118
860
37,555(21,068)¥16,487$260,160
86,0198,113
354,292(198,754)$155,538(B) Information as lessor
Capitalized lease assets for finance leases at March 31, 2000, are as follows:
Machinery and vehicles ......................................................................................................
Tools and other ..................................................................................................................
Intangible assets ................................................................................................................
Accumulated depreciation ..................................................................................................

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

36

Information, related to financing leases for the year ended March 31, 2000, was as follows:
Lease income .....................................................................................................................
Depreciation expense .........................................................................................................
Interest income portion.......................................................................................................

Millions of yen

Thousands of
U.S. dollars¥08,852
10,4201,163$83,50998,302
10,972Future minimum lease income, excluding the portion of interest thereon, as of March 31, 2000, is as follows:
Finance leases:
One year or less .............................................................................................................
More than one year ........................................................................................................
Operating leases:
One year or less .............................................................................................................
More than one year ........................................................................................................

Millions of yen

Thousands of
U.S. dollars¥07,593
9,488¥17,081$071,632
89,510$161,142¥04,841
3,806¥08,647$045,670
35,905$081,575

Millions of yen

Thousands of
U.S. dollars¥01,220
31,648$011,509
298,566

13. CONTINGENT LIABILITIES:Contingent liabilities at March 31, 2000, are as follows:
Trade notes discounted with banks ....................................................................................
As guarantor of indebtedness of non-consolidated subsidiaries, affiliates and others ..........
14. DERIVATIVE FINANCIAL INSTRUMENTS:
In the normal course of business, the Company and its consolidated subsidiaries employ derivative financial instruments,
including foreign exchange forward contracts, foreign currency options and interest rate swaps to manage their exposure
to fluctuations in foreign currency exchange rates and interest rates. The Company and its consolidated subsidiaries do
not use derivatives for speculative or trading purposes. The off-balance-sheet forward exchange contracts and foreign
currency options at March 31, 2000, are as follows:(1) Forward exchange and currency options contracts
Thousands of
U.S. dollars

Millions of yen

Forward exchange contracts:
To sell foreign currencies—
U.S. dollar ......................................................................
Foreign currency options contracts:
Written—Put U.S. dollar ................................................................

Contract
amountFair value

Unrealized
gains (losses)¥21,877¥21,623¥254$2,396

Call U.S. dollar ................................................................
Purchased—
Put U.S. dollar ................................................................

Unrealized
gains (losses)

1,031
(6)
8,310
(104)

7

(1)

(9)

17

87

821

7,907
(110)

147

37

349

The amounts in brackets are the carrying amounts of the premium on the option recorded as other current assets or
liabilities.
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

37

(2) Interest rate swap contracts
At March 31, 2000, the aggregate notional principal amount of interest rate swap contracts was ¥900 million ($8,491
thousand). The estimated fair value of these contracts was a loss of ¥4 million ($38 thousand).
The disclosure of information about fair values of derivative financial instruments in the consolidated financial statements has been required, effective from the fiscal year beginning April 1, 1999.
15. SUBSEQUENT EVENT:
Pursuant to the basic agreement with General Motors Corporation (GM), on April 11, 2000, the Company issued common stock of 131,895,925 shares to General Motors of Canada Limited, a wholly owned subsidiary of GM, at ¥853($8.05) per share. As a result, common stock increased by ¥56,320 million ($531,321 thousand) and additional paid-in
capital increased by ¥56,187 million ($530,066 thousand). The proceeds from the issuance of the stock to the amount of¥112,507 million ($1,061,387 million) will be used for R & D and capital investments.
16. SEGMENT INFORMATION:
Information by Industry Segment
The Company and its consolidated subsidiaries operate principally in four industry segments: automobiles, industrial
products, aerospace, and other business fields (including transportation equipment).
A summary of net sales, operating income, assets, depreciation and capital expenditures by industry segments for theyears ended March 31, 2000, 1999 and 1998, are shown below:
Net sales:
Thousands of
U.S. dollars

Millions of yen

2000

Net sales:
Automobiles—
Outside customers .........................................................
Inter-segment .................................................................
Total .............................................................................
Industrial products—
Outside customers .........................................................
Inter-segment .................................................................
Total .............................................................................
Aerospace—
Outside customers .........................................................
Inter-segment .................................................................
Total .............................................................................
Other—
Outside customers .........................................................
Inter-segment .................................................................
Total .............................................................................
Elimination ..........................................................................
Consolidated total ...............................................................

1998¥1,175,471 ¥1,197,429 ¥1,145,353
4,474
744
862
1,179,945 1,198,173 1,146,215

2000$11,089,349
42,208
11,131,557

51,847150
51,99743,257
270
43,52745,202271
45,473

489,123
1,415
490,538

66,144
185
66,32978,268148
78,41673,528
117
73,645624,000
1,745
625,745

36,66333,56639,906
2,172
117
128
38,83533,68340,034(6,981)(1,279)(1,378)¥1,330,125 ¥1,352,520 ¥1,303,989

345,877
20,491
366,368(65,859)$12,548,349

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

38

1999

Segment profit or loss:
Thousands of
U.S. dollars

Millions of yen

Operating income (loss):
Automobiles ........................................................................
Industrial products ..............................................................
Aerospace ..........................................................................
Other ..................................................................................
Total ...............................................................................
Corporate and elimination ...................................................
Consolidated operating income ..........................................

2000

1999

1998

2000

¥92,314
1,283
2,034(4,411)
91,220181¥91,401¥85,4101,442
6,650(3,602)
89,90032¥89,932¥72,884
2,142
7,130(1,743)80,413
24¥80,437$870,887
12,104
19,189(41,614)860,566
1,708$862,274

Assets:Thousands of
U.S. dollars

Millions of yen

Total assets:
Automobiles ........................................................................
Industrial products ..............................................................
Aerospace ..........................................................................
Other ..................................................................................
Total ...............................................................................
Corporate and elimination ...................................................
Consolidated total ...............................................................

2000

1999

1998

2000

¥0,849,046
49,47898,06447,993
1,044,581(6,023)¥1,038,558¥749,383
48,330117,224
67,467
982,404(1,148)¥981,256¥704,191
39,384
106,624
56,171
906,370(1,799)¥904,571$8,009,868
466,774925,132
452,764
9,854,538(56,821)$9,797,717

Other significant items:
Thousands of
U.S. dollars

Millions of yen

Depreciation:
Automobiles ........................................................................
Industrial products ..............................................................
Aerospace ..........................................................................
Other ..................................................................................
Total ...............................................................................
Corporate and elimination ...................................................
Consolidated total ...............................................................
Capital expenditures for segment assets:
Automobiles ........................................................................
Industrial products ..............................................................
Aerospace ..........................................................................
Other ..................................................................................
Total ...............................................................................
Corporate and elimination ...................................................
Consolidated total ...............................................................

2000

1999

1998

2000

¥053,651
2,024
2,739
1,821
60,235(45)¥060,190¥33,408
2,044
2,258
998
38,708—¥38,708¥26,994
2,160
2,413
1,007
32,574—¥32,574$506,142
19,09425,84017,179568,255(425)$567,830¥098,428
2,296
1,671
3,489
105,884(1,962)¥103,922¥54,997
1,134
3,176
800
60,107(2,541)¥57,566¥51,485
976
2,894
1,064
56,419—¥56,419$928,566
21,66015,76432,915998,905(18,509)$980,396

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

39

Information by Geographic Area
A summary of net sales, operating income and assets by geographic areas for the years ended March 31, 2000, 1999
and 1998, is shown below:
Net sales:
Thousands of
U.S. dollars

Millions of yen

2000

Net sales:Japan
Outside customers .........................................................
Inter-segment .................................................................
Total .............................................................................
North America—
Outside customers .........................................................
Inter-segment .................................................................
Total .............................................................................
Other—
Outside customers .........................................................
Inter-segment .................................................................
Total .............................................................................
Elimination ..........................................................................
Consolidated total ...............................................................

1999

1998

¥0,903,697 ¥0,738,945 ¥0,708,851
188,984
213,582
173,858
1,092,681
952,527
882,709420,457
1,799
422,256

605,637
1,638
607,275

2000$08,525,443
1,782,868
10,308,311

583,332
1,172
584,504

3,966,575
16,972
3,983,547

5,971
7,938
11,806
72
55
67
6,043
7,993
11,873(190,855)(215,275)(175,097)¥1,330,125 ¥1,352,520 ¥1,303,989

56,330679
57,009(1,800,518)$12,548,349

Millions of yen

Thousands of
U.S. dollars

Segment profit or loss:

Operating income (loss):Japan .................................................................................
North America ....................................................................
Other ..................................................................................
Total .............................................................................
Corporate and elimination ...................................................
Consolidated total ...............................................................

2000

1999

1998

¥61,800
27,154
181
89,135
2,266¥91,401¥65,761
27,509191
93,461(3,529)¥89,932¥58,805
24,459166
83,430(2,993)¥80,437

2000$583,019
256,1701,708
840,897
21,377$862,274

Assets:Thousands of
U.S. dollars

Millions of yen

2000

Assets:Japan .................................................................................
North America ....................................................................
Other ..................................................................................
Total .............................................................................
Corporate and elimination ...................................................
Consolidated total ...............................................................

¥0,856,235 ¥0,721,643
212,958
280,016
1,918
2,191
1,071,111 1,003,850(32,553)(22,594)¥1,038,558 ¥0,981,256

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

40

1999

1998

2000

¥656,485
269,825
2,344
928,654(24,083)¥904,571$08,077,689
2,009,038
18,094
10,104,821(307,104)$09,797,717

Overseas sales
Overseas sales for the years ended March 31, 2000, 1999 and 1998, are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

2000

1999

1998

2000

Overseas sales:
North America .........................
Europe .....................................
Other .......................................
Total .........................................

¥0,480,588 36.1% ¥0,637,780 47.2% ¥0,620,993 47.6%
99,192 7.5
104,628 7.7
93,699 7.2
63,876 4.8
66,842 4.9
65,546 5.0¥0,643,656 48.4
¥0,809,250 59.8
¥0,780,238 59.8

$04,533,849
935,774
602,604$06,072,227

Consolidated net sales .................

¥1,330,125 100.0% ¥1,352,520 100.0% ¥1,303,989 100.0%$12,548,349

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

41

Report of Independent Certified Public Accountants

To the Board of Directors of
FUJI HEAVY INDUSTRIES LTD.
We have audited the accompanying consolidated balance sheets of FUJI HEAVY INDUSTRIES LTD. andits consolidated subsidiaries as of March 31, 2000 and 1999, and the related consolidated statements ofincome and shareholders’ equity for each of the three years in the period ended March 31, 2000,
expressed in Japanese yen. We have also audited the consolidated statement of cash flows for the year in
the period ended March 31, 2000. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit also includes examining, on atest basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial statements, the Company and its consolidated
subsidiaries in Japan changed the method of translation of current monetary assets and liabilities denominated in foreign currencies into Japanese yen from the historical exchange rate method to the year-end
current rate method for the year ended March 31, 2000. We recognize that this change has been madebased on reasonable grounds.
In our opinion, the consolidated financial statements audited by us present fairly, in all material respects,
the financial position of FUJI HEAVY INDUSTRIES LTD. and its consolidated subsidiaries as of March 31,
2000 and 1999, and the consolidated results of their operations for each of the three years in the period
ended March 31, 2000 and their cash flows for the year in the period ended March 31, 2000, in conformity
with accounting principles generally accepted in Japan.
The United States dollar amounts in the consolidated financial statements have been translated forconvenience only on the basis described in Note 3 to the consolidated financial statements.
Tokyo, Japan
June 29, 2000
MEIJI AUDIT CORPORATION

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

42

Consolidated Subsidiaries and Affiliates (As of March 31, 2000)

Japan
Fuji Robin Industries Ltd. (58.1%)
Manufacture, service and sales of agricultural/
forestry equipment, engines, fire pumps andrelated parts
http://www5.mediagalaxy.co.jp/fujirobin/

Fuji Machinery Co., Ltd. (56.7%)
Manufacture and sales of automobile parts andindustrial products
http://www.fuji-machinery.co.jp/

Yusoki Kogyo K.K. (45.6%)
Manufacture and sales of parts for car trailer,
crane trucks, construction machinery andautomobiles
http://www.yusoki.co.jp/

TOKYO SUBARU INC. (100.0%)
and 39 other dealerships

337 Ta Hsi Road Ching Hsi Lii, Ping Tung,
TaiwanTel: (08) 753-8001
Fax:(08) 753-8021
Manufacture and sales of Subaru automobiles
http://www.subaruzone.com.tw/

Distribution, sales and service of Subaru
automobiles
http://www.sss.ne.jp/tokyo-subaru/

Subaru Canada, Inc. (100.0%)
and a sole subsidiary

NIIGATA SUBARU, INC.* (46.7%)

Manufacture and sales of forged automobile/industrial product parts

Distribution, sales and service of Subaru
automobiles
http://www.niigata-subaru.co.jp/

Kiryu Industrial Ltd. (95.0%)

SAGA SUBARU, INC. (45.3%)

Ichitan Co., Ltd. (51.0%)

Manufacture of Subaru’s specially-equipped
automobiles and management of Subaru
automobile parts distribution

Distribution, sales and service of Subaru
automobiles

Subaru Building Co., Ltd. (100.0%)

Overseas

Leasing and maintenance of real estate
http://www.sss.ne.jp/subaru-kohsan/

Subaru Kosan Co., Ltd. (100.0%)
Sales and leasing of real estate; leasing andrental of Subaru automobiles; sales of auto
insurance; travel agency operations and auto
loans

Subaru Used Car Sales Co., Ltd.
(100.0%)
Refurbishment, distribution and sales of used
Subaru cars

FICS Corporation (100.0%)
Distribution and service of Volvo automobiles

Subaru Finance Co., Ltd. (100.0%)
Financing for Group companies
http://www.sss.ne.jp/subaru-finance/

F.O.D. Co., Ltd. (100.0%)
Sales, leasing, dealing, mediation and maintenance of real estate, planning, research andmanagement of redevelopment, and development of residential areas

Ta Ching Motors Co., Ltd.* (45.0%)
TaiwanSubaru of America, Inc. (100.0%)
and its 11 subsidiaries
Subaru Plaza, 2235 Route 70 West Cherry Hill,
NJ 08002, U.S.A.
Tel: (856) 488-8500
Fax:(856) 665-3346
Distribution and sales of Subaru automobiles
http://www.subaru.com/

Fuji Heavy Industries U.S.A. Inc.
(100.0%) and a sole subsidiary
C/O Subaru of America, Inc.
Subaru Plaza, 2235 Route 70 West Cherry Hill,
NJ 08002, U.S.A.
Tel: (856) 488-8532
Fax:(856) 488-9279
Distribution and sales of Subaru automobiles

Subaru-Isuzu Automotive Inc. (51.0%)
and a sole subsidiary
5500 State Road 38 East, Lafayette, IN 47903,
U.S.A.
Tel: (765) 449-1111
Fax:(765) 449-6952
Manufacture of Subaru and Isuzu automobiles
http://www.subaru-isuzu.com/

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

435990 Falbourne Street, Mississauga, Ontario,
L5R 3S7 Canada
Tel: (905) 568-4959
Fax:(905) 568-8087
Distribution and sales of Subaru automobiles
http://www.subaru.ca/

Subaru Parts Europe N.V./S.A.
(100.0%)C/O Hermesstraat 6C, 1930 NossegemZaventem, Belgium
Tel: (02) 714-0400
Fax:(02) 725-7792
Distribution and sales of automobiles, parts andaccessories

Robin Manufacturing U.S.A., Inc.
(60.0%)
1201 Industrial Road, Hudson,
WI 54016, U.S.A.
Tel: (715) 381-5902
Fax:(715) 381-5901
Manufacture and sales of general purpose,four-wheel buggy and golf cart engines*Equity-method Affiliates

Note: To centralize fund-procurement activities
for Group companies, the financial operations ofSubaru Kosan Co., Ltd. were transferred to
Subaru Finance Co., Ltd. as of April 1, 2000. In
addition, Subaru Building Co., Ltd. assumed all
real estate and travel agent operations andchanged its name to Subaru Kosan Co., Ltd.,
also as of April 1, 2000. As a consequence,
F.O.D. Co., Ltd. was liquidated on May 22, 2000.

Investor Information (As of March 31, 2000)

Major Shareholders
Nissan Motor Co., Ltd.
The Industrial Bank of Japan, Ltd.
The Nippon Life Insurance Company
The Mitsubishi Trust and Banking Corporation
Chase Manhattan Bank (London)
The Fuji Bank, Ltd.
The Asahi Bank, Ltd.
The Chuo Mitsui Trust and Banking Co., Ltd.
Suzuki Motor Corporation
The Dai-ichi Mutual Life Insurance Company

Head Office
Subaru Building
7-2, Nishishinjuku 1-chome, Shinjuku-ku, Tokyo 160-8316, Japan
Tel: (03) 3347-2111
Fax: (03) 3347-2338
Investor Relations Office
Subaru Building
7-2, Nishishinjuku 1-chome, Shinjuku-ku, Tokyo 160-8316, Japan
Tel: (03) 3347-2655
Fax: (03) 3347-2295
Established
July 15, 1953

Note: As of April 12, 2000, General Motors of Canada Limited, a wholly owned
subsidiary of General Motors Corporation (GM), became FHI’s top shareholder,following a third-party allotment and the acquisition of shares formerly held by
Nissan Motor Co., Ltd., and its related group companies.

Paid-in Capital¥88,115,015,000

Stock Listings
Tokyo Stock Exchange, Osaka Securities Exchange, Nagoya Stock
Exchange

Number of Shareholders
49,381

Transfer Agent
The Chuo Mitsui Trust and Banking Co., Ltd.
7-1, Kyobashi 1-chome Chuo-ku, Tokyo 104-8345, Japan

Number of Common Stock Issued and Outstanding
614,552,540
Number of Employees
26,914Web Site Address
http://www.fhi.co.jp/english/

Domestic Manufacturing Divisions
Gunma Manufacturing Division (Automobile Division)
Utsunomiya Manufacturing Division (Aerospace, Transportation and
Ecology Systems Division)
Isesaki Manufacturing Division (Bus Manufacturing and PrefabricatedHouse Division)
Saitama Manufacturing Division (Industrial Products Division)

Quarterly Common Stock Price Range (Tokyo Stock Exchange)

(Yen)
1,200
1,000
800
600
400
200
0

FY
High
Low

1996
495
293

1997
618
432

1998
649
305

FUJI HEAVY INDUSTRIES LTD.
Annual Report 2000

44

1999
871
469

2000
1189
647

Horizontally-Opposed Six Cylinder Engine

http://www.fhi.co.jp/english/

Subaru Bldg., 7-2, Nishishinjuku 1-chome Shinjuku-ku, Tokyo 160-8316, Japan

Printed in Japan