Annual Report
For the year ended March 31, 2010

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for the Next Generation
Overview of the Medium-Term Management Plan
Operating under the management vision of being “a compelling company with strong market
presence” and based on the core philosophy of “customers come first,” Fuji Heavy Industry’s
medium-term management plan addresses five major challenges.

Major Challenges
1. To provide a distinctive Subaru experiencefor drivers and passengers
2. To increase sales globally
3. To strengthen competitiveness inquality and cost
4. To also grow through the businessalliance with Toyota
5. And to grow the level of employees
competence and so enhance the organization

2007

2009
• Released our flagship model, the new Legacy/
Outback worldwide, which underwent a fullmodel change, and commenced simultaneous

production in Japan and the United States• Launched the Subaru Plug-in STELLA electric vehicle (EV) for use by companies andgovernments

2008• Released mainstay models-Legacy/Outback,
Impreza and Forester-equipped with Boxer
Diesel Engines in response to strict environmental regulations in Europe• Released to the domestic market the new multipassenger vehicle “Exiga” and the new compact
car “Dex,” which is supplied on an OEM basis by
Daihatsu Motor Co., Ltd.

Impreza• Released the Impreza and Forester , which
underwent full model changes and feature the

new Subaru Intelligent-Chassis

Boxer Diesel Engine• Began manufacturing the Camry on an

OEM basis at Subaru of Indiana Automotive,
Inc. (SIA) through a business alliance with Toyota

Subaru Hybrid Tourer Concept

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Going Forward
Contents
A Message to Our Stakeholders

2

CFO Interview

10

Special Feature:
Performance in the U.S. Market

12

Performance in the Chinese Market

15

Director Interview (Production)

18

Corporate Social Responsibility (CSR)

20Management

23

Consolidated Ten-Year
Financial Summary

24Management’s Discussion andAnalysis of Results of Operations andFinancial Position

25

Consolidated Subsidiaries andAffiliates

34

Investor Information

35

Disclaimer Regarding Forward-Looking
Statements
Statements herein concerning plans and strategies,
expectations or projections about the future, FHI’s efforts
with regard to various management issues, and otherstatements, except for historical facts, are forward-looking statements. These forward-looking statements are
subject to uncertainties that could cause actual results todiffer materially from those anticipated. 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, raw material prices, and currency exchange
rates. FHI disclaims any obligation to update any forward-looking statements, whether as a result of new
information, future events, or otherwise.

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A Message to Our Stakeholders

Ikuo Mori
Representative
Director of the Board,
President and CEO

2

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Performance in fiscal 2010,
ended March 31, 2010,
reached a low point during the first quarterbut has been rapidly improving ever since.
Under the theme of “Going Forward,” we set a sales volume target of 630 thousand
units for fiscal 2011, the final year of the Fuji Heavy Industries Ltd. (FHI)’s medium-term
management plan. This is the highest-on-record unit sales target since consolidated
financial account settlements were instituted in fiscal 2000. Furthermore, following thestable dividend policy outlined in our medium-term management plan, we will resume
the payment of annual dividends, at ¥9 per share annually. To this end, we will pushforward with structural improvements in order to take the next step forward.

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Experiencing a Rapid Recovery Following the Low Point
Reached in the First Quarter of Fiscal 2010

Sales in the United States
were very robust,
while sales in China wereincreasing rapidly.

4

During the fiscal year under review, unit sales stood at
563 thousand units, net sales were ¥1,428.7 billion, operating income stood at ¥27.4 billion and there was a net
loss of ¥16.5 billion. From the perspective of initial forecasts established for fiscal 2010, unit sales rose by over
50 thousand units and operating income recorded a
profit, improving to over ¥60.0 billion. However, we
regret that we suspended year-end dividends of fiscal
2010 as we recorded net loss due to the impairment lossof the Industrial Products Division and others.
We announced our financial results of fiscal 2009 in
May, a situation in which FHI had to be prepared toaccept losses for two consecutive fiscal years due to a
substantial drop in units sold and a decrease of bothrevenues and earnings. Consequently, management’s
concern about whether or not we could be put back ona path to recovery during the fiscal year under review
could not be understated.
Nevertheless, major inventory reductions and production adjustments undertaken between January 2009 andJune 2009, as well as robust sales following the sequential release in each market of our new flagship, theLegacy/Outback from May 2009, were the keys to restoring performance. In July 2009, we launched the Legacy/
Outback in United States, and which enjoyed sales significantly above forecasts owing to the U.S. government’s implementation of their scrap incentives, an
initiative to encourage automobile trade-ins, colloquiallyknown as “cash for clunkers.” FHI recorded its highest
unit sales overall in the United States for two consecutive months in July and August 2009, ultimately leading
to insufficient inventories during the second half of fiscal

2010. In response to this situation, we have continued toengage in full production since that time.
Examining trends in net sales and operating income
for each quarter over the last two years, FHI experienced
ongoing declines in revenue and earnings during theconsecutive three quarters since the onset of the“Lehman Shock” in the third quarter of the fiscal 2009.
Despite these declines, we have recorded a rise in revenues and a positive turnaround in operating income
since the second quarter of the fiscal year under review.
These increases were primarily due to the introductionof the new Legacy/Outback, robust sales in such markets
as the United States and China, as well as to the implementation of thorough cost-reduction efforts. During thefourth quarter, in particular, of the fiscal year underreview, we recorded an operating income of ¥23.5 billion
despite a foreign currency exchange rate of ¥90 to the
U.S. dollar. This is the highest quarterly operating
income ever recorded since FHI began to disclose its
quarterly financial account settlements in fiscal 2005.
Increasing Brand Value in Global Markets

Examining the overseas market as a whole, sales in the
United States were very robust, while sales in China wereincreasing rapidly. Such strong levels of sales were able
to cover sluggish sales in Russia and Europe, where economic conditions remained severe.
Sales in the United States market have been brisk
thanks to the customer popularity of such products as
Subaru’s global model, Legacy/Outback, and thestrengthening of sales networks promoted by Subaru ofAmerica, Inc. (SOA) in recent years. Amid deteriorating
economic conditions in the United States since 2008,
which caused the sales volume of automobile manufac-

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10.8.31 5:53:09 PMturers to experience year-on-year declines, only Subaru
maintained sales above those recorded in the previous
year, owing to favorable sales of Forester and othermodels. This result has increased dealer confidence in,and loyalty to, the Subaru brand. In fact, Subaru has
been ranked second in the NADA Dealer Attitude
Survey since 2008 due to a high level of brand loyalty
among dealers. In light of this continuing momentum,
the new Legacy/Outback was released and has been
enjoying favorable sales at an accelerated pace.
At the same time, Subaru is beginning to benefit fromthe gradual development of a virtuous circle. This is
attributable to such factors as surveys conducted by the
Insurance Institute for Highway Safety (IIHS) that give all
Subaru models top safety pick, an increased level ofrecognition for the Subaru brand and a 40-50% rise in
showroom traffic (i.e. the number of customers who visit
dealerships) on a year on year basis. Consequently, market share in the 2009 calendar year rose from 1.4% to2.1%. This percentage, in turn, rose to 2.3% in terms ofaccumulated sale figures from January and May 2010. In
order to further the momentum that has continued, we

Performance Overview

This is the highest quarterly
operating income everrecorded since FHI began
to disclose its quarterly
financial accountsettlements in fiscal 2005.
Net Sales & Operating Income (Loss) by Quarter

Billions of yen(Billions of yen)

(Forecast)

FY2005

FY2006

FY2007

FY2008FY2009FY2010FY2011

582

571

578

597

555

563

630

1,446.5

1,476.4

1,494.8

1,572.3

1,445.8

1,428.7

1,470.0

Operating Income (Loss)

42.0

58.3

47.9

45.7

(5.8)

27.4

43.0

Ordinary Income (Loss)

43.6

46.8

42.2

45.4

(4.6)

22.4

38.0

Net Income (Loss)

18.2

15.6

31.9

18.5

(69.9)(16.5)

23.0

Capital Expenditures

85.3

56.2

59.6

56.3

58.0

56.1

56.0

Depreciation Expenses

51.1

57.5

58.9

65.5

65.1

57.1

52.0

R&D Expenses

53.0

46.9

50.7

52.0

42.8

37.2

46.0

Interest-Bearing Debt

Automobiles Sales Volume (thousand units)
Net Sales

412.2

374.1

343.9

304.5

381.7

367.6

320.0

Exchange Rate (¥/$, non-consolidated)

108

112

117

116

102

93

90

ROE

3.9

3.3

6.6

3.7

—

—

—

ROA*

3.3

4.6

3.9

3.9

—

2.4

—

Total Assets

1,357.5

1,348.4

1,316.0

1,296.4

1,165.4

1,231.4—

Net Assets**

474.6

467.8

495.7

494.4

394.7

381.9

—

* ROA was calculated as “(operating income + interest and dividend income)/(average of assets at the beginning and end of the term)”** Net Assets until the year ended March 2006 was the figure of total shareholders’ equity.

450

30

300

20

150

10

0

0

-20
FY

1Q/08 2Q/08 3Q/08 4Q/08 1Q/09 2Q/09 3Q/09 4Q/09

Net Sales

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to upgrade our sales networks, we will further strengthen
the quality of every aspect of our businesses, including
after service. Although the export of completed automobiles has increased for the time being, we need toconsider carrying out manufacturing locally for the next
step in our business development. Because Subaru is
not a company that competes by introducing entry typemodels with low-price to increase sales volume, however, we are investigating various methods for gradually
increasing unit sales while attaining customer recognition of the value inherent in Subaru products.

Consolidated Automobile Unit Sales
China

United States(Thousand Units)

60

49

50

200

(Thousand Units)

244

250

60

Global(Thousand Units)

700

227

600

188

630
555

563

500
40
150
30

400

LegacyImpreza
Forester
Exiga
Tribeca
Dex
Justy
Minicars
Others

26
300

100
20

200
50

10

0 FY 2009

100

2010

2011
(Plan)

0 FY 20092010

In accordance with our
medium-term management
plan, we reduced the
per-unit cost by ¥100,000
compared to the previous
model.

6

2011(Plan)

0 FY 2009

2010

2011
(Plan)

reformed our management structure in January 2010
to enable an even more comprehensive level of dealership administration and marketing. Rather than simply expanding dealership networks, we are working
to increase the quality of services and sales at eachdealership.
Unit sales to China rose by 23 thousand units in fiscal
2010 to 49 thousand units compared with the previous
fiscal year, and we have set sales targets at 60 thousand
units for fiscal 2011. Such a robust level of unit sales ismainly attributable to Subaru brand recognition among
Chinese customers and their belief that Japanese products on the whole feature premium quality. Taking steps

The Impact of the FHI Group Efforts to Reduce Overall Costs

In accordance with our medium-term management
plan, we reduced the per-unit cost of the Impreza,
Forester and Legacy by ¥100,000 compared to the eachprevious model, leading to an increase in earnings. At
the same time, FHI is aiming to control costs by reducing SG&A and personnel expenses as well as by continuing to reduce the salaries of directors and managers
during fiscal 2011. We also enjoyed a high degree ofsuccess in transitioning to an integrated network of distributors in Japan. This initiative involves controllingeach regional dealer through one core dealer, as wetake steps to consolidate back office jobs and regionalize the sales activities of other dealers under a single
corporate umbrella. The 46 dealers that existed as ofApril 1, 2008 have been reorganized into a structurethat now consists of 22 dealers.
This reorganization has enabled FHI and domestic
dealers to further clarify its management posture ofmaking a phased withdrawal from minicar development
and production in favor of focusing on the marketing of
Subaru passenger cars in Japan. Although domestic

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sales had been severe in terms of sales volume, financial
figures as early as the second quarter of fiscal 2010
began to put the domestic dealers on a path back to
profitability. This was the result of reductions in fixed
costs that exceeded our expectations as well as improvements in product mixture stemming from the release of
the new Legacy/Outback and the level of competitiveness displayed by the Exiga.
This recovery in performance is proof positive that thedirection laid out by our medium-term management
plan was the correct one.
Looking towards the Next Medium-Term Management Plan

Having raised the management vision of “a compellingcompany with a strong market presence,” our current
medium-term management plan, which began in fiscal
2008, will come to an end in fiscal 2011. We are currently
formulating various initiatives to prepare us for the nextstage, while working on a new set of growth strategies.
In addition, the fundamental direction laid by the current
medium-term management plan-(1) provide a distinctive Subaru experience for drivers and passengers; (2)increase sales globally; and (3) strengthen competitiveness in quality and cost-will remain unchanged. So,
what are the key issues of the next medium-term management plan? To answer this question, I would like todiscuss two of the key issues now facing us: “environmental responsibility” and “downsizing the automobile.”
It is undeniable that the development of hybrid andelectric vehicles is one way to respond to “environmental responsibility.” Aiming to “integrate the pleasure ofdriving with environmental friendliness,” Subaru also
released its own electric vehicle, the Subaru Plug-in
Stella, in July 2009. In addition, we are currently devot-

ing ourselves to the development of hybrid systems
based on our distinctive horizontally opposed engine,which we plan to release in 2012.
Although electric cars have been generating a considerable amount of interest, there are still many problems to be solved. Consequently, we are continuing toundertake development initiatives regarding this technology. Moreover, we will focus on the key points of how
to improve the fuel economy of gasoline engines andhow such improvements can be combined with reducing
automobile weight.
In terms of our efforts to improve the fuel economy
of gasoline engines, we are scheduled to install the

I would like to discuss twoof the key issues now facing
us: “environmental responsibility” and “downsizing theautomobile.”F U J I H E A V Y I N D U S T R I E S LT D . 2 0 1 0 | A N N U A L R E P O R T

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The new Impreza, Foresterand Legacy/Outback featurelarger bodies that perfectly
fit the size preferences ofcustomers worldwide.

third-generation horizontally opposed engine in Subaru
automobiles by the end of 2010. This engine, which features the first design-improvement in 21 years, realizes
an improvement of approximately 10% in fuel economy
owing to a radical revamping of the basic engine design
and manufacturing processes. Moreover, we aim toincrease the fuel economy of Subaru vehicles further bycoupling this engine with such technology as CVT.

Progress of the Medium-Term Management Plan
Product Roadmap

CY2007

Core models(Further Globalize)• IMPREZA• FORESTER

Subcompact• JUSTY (OEM)

CY2008CY2010• LEGACY/OUTBACK• DEX (OEM)• NEW CAR (OEM)• EXIGA

Multi Passenger Vehicle
MinicarsTechnology Roadmap

CY2007

SI Chassis• IMPREZA• FORESTER

Diesel Engine in Europe

8

CY2009

CY2008• DIAS (OEM)• LUCRA (OEM)• PLEO (OEM)

CY2009CY2010• LEGACY/OUTBACK• LEGACY/OUTBACK• IMPREZA • FORESTERCVT• LEGACY/OUTBACK• EXIGA

Electric Vehicle• Plag-in STELLAClosely connected to “environmental responsibility” isthe issue of “downsizing,” a trend which appears to begaining in strength.
Based on the current medium-term management plan,
Subaru has made efforts to globalize its main models
since implementing a full model change to the Imprezain 2007. Intended to effectively compete in each model’s
target segment, the new Impreza, Forester and Legacy/
Outback feature larger bodies that perfectly fit the size
preferences of customers worldwide. The success of thisseries of global-oriented model-design changes is evident in the brisk level of sales these three models havebeen enjoying. However, in devising our concept for the
next stage, we cannot avoid focusing on new segments,
which involves developing compact cars. To this end, we
will investigate what types of measures we will be able toimplement as we take the next step, and that includes
the mutual complementary relationship we have forgedthrough our alliance with Toyota Motor Corporation.
Concerning our alliance with the Toyota Group, I
believe that we must promote measures beyond thosetaken to date, which include the manufacturing on an
OEM basis of the Toyota Camry in Subaru of Indiana
Automotive, Inc. (SIA) and being supplied minicars on an
OEM basis by Daihatsu Motor Co., Ltd. In addition, weare steadily completing joint development of a sporty,
compact FR (front engine, rear drive) car with Toyota,
which we aim to release at the end of 2011. Recognizing
the well-balanced relationship we currently have with the
Toyota Group as a result of this alliance, we wish to
maintain this relationship in the years ahead. In the next
medium-term management plan, we will undertake thefull-scale development of a new type of compact car-a
vehicle that is unique to Subaru-in order to compete inglobal markets.

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The Types of Automobile Manufacturing that
Subaru is Pursuing

We have recently been made aware of an opinion thatclaims that once the era of electric vehicles becomes a
reality, the role of the automobile manufactures will
come to an end. I could not disagree with this idea
more, because regardless of the change made to thepower train, automobiles must remain balanced andsafe in all aspects of operation, including driving, stopping and turning. The combination of technology andexpertise involved in the full functioning of automobiles cannot be easily duplicated by manufacturers inother industries.

Dedicated to honing its technologies and expertise,for over 50 years Subaru has taken great pride in
exhaustively pursuing driving pleasure and comfort,
thereby gaining the trust of customers.
We will solidify our foothold as “a compelling company with a strong market presence” by producing
products that bring real pleasure to customers, no matter what changes take place in the automotive market.

current medium-term management plan was ultimately
the correct one, I firmly believe that Subaru is poised atpresent to achieve a significant breakthrough. Having
recently cleared the hurdle of selling 200 thousand
units and achieving a new sales record of 217 thousand
units in the United States, I am more certain than everthat Subaru will experience a growth breakthrough inthe near future.
With this in mind, we have set the consolidated sales
target of 630 thousand units for fiscal 2011, the highest
on record since consolidated financial account settlements were instituted in fiscal 2000. We are endeavoring to expand sales globally. At the same time, we will
strengthen our operating base through the reductionof costs and expenses as well as by once again providing stable dividends to our shareholders in fiscal 2011,in accordance with the current medium-term management plan. By undertaking these initiatives, we will
establish a foundation under the next medium-term
management plan to take the next step.
Continuing to progress as an automobile manufacturer, expect us to create products and pursue businessendeavors that utilize the distinctiveness and spirit ofinnovation found only in Subaru.

In Conclusion

As I mentioned in the beginning, the theme of fiscal
2011 can be summed up in the phrase “Going
Forward.” Given that the direction promoted in the

Ikuo Mori
Representative Director of the Board,
President and CEOF U J I H E A V Y I N D U S T R I E S LT D . 2 0 1 0 | A N N U A L R E P O R T

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CFO Interview

The Fuji Heavy Industries
Group has achieved a rapid
recovery in operating
income through across-theboard reductions incosts and the strong salesof the new Legacy/Outback.

Mitsuru Takahashi
Executive Vice President
Chief Financial Officer

10

FHI’s financial accounts settlement for fiscal 2010 is notable because of the rapid recovery in operating income.
Please explain the reasons underlying this recovery.

When we announced an operating loss of ¥5.8 billion forfiscal 2009, we had no choice but to forecast an operating loss of ¥35.0 billion for fiscal 2010. In response, wewere able to overcome a ¥30.4 billion loss due to foreign
currency exchange and instead record an operating
income of ¥27.4 billion. This is attributable to thoroughcost-reduction efforts undertaken Groupwide as well as
to the strong sales of the new Legacy/Outback. Reachinga low point in the first quarter of fiscal 2010, FHI experienced a ¥33.2 billion rise in earnings compared to fiscal
2009 for the following reasons.
To begin with, overall cost reductions totaling ¥54.9
billion were composed of a ¥26.0 billion reduction incosts of parts and materials, a ¥23.2 billion cut in SG&A
and other expenses and a ¥5.7 billion decrease in R&D
expenses. Reductions in costs of parts and materials
included approximately ¥12.0 billion that was caused bya renewed fall in prices for such raw materials as iron andaluminum to the level recorded before a worldwide
stagnation in production took place in the wake of the“Lehman Shock.”
Next, a reduction in sales administration costs significantly contributed to lower SG&A and other expenses.
In the United States, FHI’s most important market, wewere able to keep sales administration costs extremely
low. This is due to robust sales of Forester and the new
Legacy/Outback in combination with a U.S. $500 yearon-year decrease of incentives to $1,100 per automobile
in fiscal 2010. This drop in incentives was thanks to theeffects of the scrap incentive programs “cash for clunkers” to subsidize the purchase of new, more fuel-efficient
vehicles. We also achieved a decrease in fixed costs inJapan by integrating distributors’ strategy including the
scrap and build of dealerships.

More specifically, what resulted from FHI’s Value Analysis (VA)
activities, which formed part of its cost-reduction efforts?

Previously, Subaru’s cost-reduction efforts involved undertaking VA activities following the release of a new model.
However, the current medium-term management plan
has set a goal of reducing costs by ¥100,000 per unit
compared with previous models, starting from themodel-design stage onward. In terms of the full modelchanges made to the Impreza, Forester and Legacy/
Outback such actions have been yielding steady results
since 2007. The aforementioned ¥26.0 billion reduction incosts of parts and materials-which excludes ¥12.0 billion stemming from a renewed decrease in the prices ofraw materials-is the result of dedicated efforts in suchareas as VA. After the ¥100,000-per unit cost reduction isachieved through the launch of these new models, it will
be difficult to advance such reductions further. However,
we will continue to steadfastly conduct VA activities as
the vital theme of the manufacturer.
Please tell us more about the restructuring of distributors
in Japan.

In fiscal 2010, we continued across-the-board cost reductions with the aim of creating a leaner corporate structure.
Amid an ongoing drop in unit sales due to an overall contraction in domestic demand, we restructured our sales
networks in Japan based on the belief that we cannot
continue the type of automobile-business activities that
we have engaged in thus far. To begin with, we took steps
to decrease expenses in the back offices and improve
efficiency in inventory costs by establishing some core
distributors to control each regional distributor under
their umbrella. In addition, we decreased dealerships byapproximately 10%, leading to a cost reduction of about¥10.0 billion annually. Such results are due to initiatives wetook to decrease the number of dealerships in rural areas

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in favor of boosting urban-based ones in order to consolidate sales activities in urban areas, which offer more suitable driving conditions for Subaru models. Consequently,
Japanese distributors have experienced a return to profitability despite domestic sales volume dropping by 8
thousand units, or 4.2%, year-on-year to 171 thousand
units. Because improvements to sales volume and mixture
owing to the release of the new Legacy/Outback havesignificantly contributed to FHI’s performance, we need tocontinue such improvements in order to maintain profitability, even two or three years after a new model has
been released. For this reason, we need to find innovative
methods to take cost reductions in Japan a step further.
What measures is Subaru undertaking in response to foreign currency exchange rates, which have been a factor inearnings decreases?

Responding to fluctuations in foreign currency markets isa major management issue for us. One reason for this is
the Company’s high degree of sensitivity to currency
exchange fluctuations resulting from its low percentage ofoverseas production, which is below 20%, compared toother automobile manufacturers. The best way to address
this issue is by increasing foreign production. However,Subaru cannot easily increase production locally giventhat its annual sales volume stands at approximately 600
thousand units. To start, it is imperative that we achieve
cost reductions through complete cooperation between
the R&D and manufacturing divisions.
Amid favorable sales in the United States, the supplyof products and components to North American distributors and manufacturer based in dollars is rising.
Therefore, we are aiming to increase U.S. dollar-basedpurchase by switching to dollar-based procurement ofhigh-priced platinum, rhodium and palladium, which areused in muffler catalysts.
Furthermore, we are focusing on increasing our exposure

to the Euro and Australian dollar, whose correlative values
are relatively low compared with the U.S. dollar. I believethat expanding our exposure in non-U.S. dollar foreign currencies is not only beneficial in terms of currency exchange
rates, but is also useful when doing business in China.
What is your thought on the soundness of FHI’s balance
sheets in fiscal 2010? In particular, please explain the reasons why there was an improvement in cash flows and asignificant positive turnaround in free cash flow.

Although net losses unfortunately caused FHI’s balance
sheets to contract in fiscal 2010, we deserve high marks forbeing able to retain a sound financial position by recording a shareholders’ equity ratio of 30.9% and a 0.9 D/E
ratio. We will strive to restore FHI’s balance sheets bybuilding the profitability of our main business between fiscal 2011, the final year of the current medium-term management plan, and fiscal 2012. Given FHI’s robust sales atpresent and having reached bottom in fiscal 2010, I believe
the improvement of FHI’s financial position is in sight.
The Company recorded ¥114.0 billion in free cash flowin fiscal 2010. Although working capital decreased due toa fall in production in the wake of the “Lehman Shock” infiscal 2009, production has recovered significantly since
the first half of fiscal 2010. In this free cash flow of ¥114.0
billion, approximately ¥100.0 billion is contributing to arecovery in working capital. From fiscal 2011 onward, we
do not forecast an improvement in working capital to thelevel experienced last fiscal year; however, funds will be
required to expand the scope of FHI’s production activities. Despite these factors, we expect to obtain a suitablelevel of free cash flow based on earnings from our main
business as well as by depreciation and amortization.
Capital expenditures of fiscal 2011 are forecasted toreach ¥56.0 billion, almost the same amount recorded infiscal 2010. We are keeping capital expenditures to a necessary minimum for the time being.

Medium-Term Management Plan (from FY2008 to FY2011)

Billions of Yen

Original plan

As of July, 2010

Difference

R&D¥230.0¥178.0¥ (52.0)

Capex

270.0

226.4

(43.6)

Depreciation

250.0

239.7

(10.3)

Total¥750.0¥644.1¥(105.9)

What type of financial strategies will be instituted in the next
medium-term management plan, set to begin in fiscal 2012?

We will work to restore FHI’s financial base by fiscal 2012by increasing earnings in its main business, and byachieving a shareholders’ equity ratio above 30% and a
D/E ratio under 1.0. Our future goal is to bolster theCompany’s net cash position by reducing interest-bearing debt, which currently stands at about ¥80.0 billion*
net, through an improvement of cash flows. I believethese measures will ultimately lead to an improvementof FHI’s credit rating. FHI’s future financial standing isbased on our emphasis on maintaining a balance
between costs and financial stability. We will build optimal balance sheets while giving full consideration toshareholder equity ratio, D/E ratio and other factors.
At present, the exchange rate of ¥90 to U.S. $1.00,
which was forecasted for fiscal 2011, is a major change
compared with the exchange rate of ¥110, which wasrecorded during the formulation the Company’s medium-term management plan announced in February
2007. In turn, an operating income ratio of 2.9%, which
was forecasted in fiscal 2011, differs greatly from thetarget of 5% set in the current medium-term management plan. Through such actions as reducing costs during fiscal 2010, however, we are able to formulate aprofitable grand design based on an exchange rate of¥90 to U.S. $1.00. Consequently, we will prudently andaggressively set financial targets for the next mediumterm management plan based on this grand design.
* Excluding the captive portions of financial subsidiaries
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Special Feature: Performance in the U.S. Market

About 217,000 unit sales in U.S.

Solid Results Backed by Savvy Marketing anda Fresh Approach

SOA’s solid results over the last two years-sales rising an average of 15%-are particularly remarkablegiven that the U.S. auto market has been down about
40% over the same period. The roots of this successlie in a new set of strategies that were started in 2006
and were executed over the last three years.
Brand Asset-Based Marketing

For the past two years, Subaru has been thebest-performing brand in the entire U.S. automobile industry. Against a backdrop of severemarket conditions in 2008 and 2009, Subaru ofAmerica, Inc. (SOA) saw year-on-year sales
increases, recording a high of approximately 217
thousand unit sales in fiscal 2010.

12

Thomas J. Doll
Subaru of America
Executive Vice President,
COO and CFO

One of the first things SOA did was to change its marketing approach. Prior to 2006, SOA’s competitive
focus was on the price front, but SOA wanted tochange this to marketing based on Subaru’s brandassets. So, SOA examined its product lineup, considering not only pricing but also its target markets andproduct image.
In 2006, SOA repositioned the pricing of its
best-selling Legacy, Outback and Forester models,
which account for between 70% and 75% of what issold in the U.S. market. Recognizing the importanceof this approach, SOA applied strategic pricing toeach new line as it was introduced, starting with the’08 model year Impreza and continuing with the introduction of the ’09 model year Forester and ’10 modelyear Legacy and Outback models. This strategy has
paid off-Dealer and customer focus has shifted fromselling Subaru products based on low price to selling
our products based on the value they represent in
the market.
At the same time, SOA needed further market
development and this task began with obtaining abetter understanding of dealership operations.

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A New Field Organization-Supporting DealersPreviously, SOA had five regional offices which had to
manage a large number of dealers in diverse geographical areas of the country. For example, a single
regional office might have been doing business with up
to 125 dealers in different geographical markets (i.e.
Northern vs. Southern markets). As a result, mediumsized and small dealers were not getting the help andattention they needed to grow their business opportunity. In addition, the issues effecting dealers in the
Northern part of the country were different from thoseissues dealers faced in the Southern markets. SOA
needed to work on securing the success of all dealers
because the success of us depends on the success of
its retail organization.
SOA restructured its field organization, establishing
three regions under which 12 zone offices were established, each managing between 55 to 60 dealers insimilar geographic markets. This allowed SOA to concentrate its efforts and resources on medium-sized andsmaller dealers while at the same time allowing thecompany to maintain its focus on its larger dealers allwithin similar geographical markets. By focusing its
efforts into smaller marketing areas, this allowed SOA
to focus more on dealer/market development activities.
Those dealers who were unable or unwilling to improvetheir market penetration were replaced by new dealerswith greater potential to increase sales in those markets. Currently, SOA has replaced approximately 20%
of its dealers as a result of this process. In addition,with Subaru products now sized, styled and properly
priced for the U.S. market, the Subaru dealer body has
improved its profitability dramatically over the past two
years with over 90% of its dealers being profitable andwith the average Subaru dealer forecasting to earnapproximately $1 million in operating profit in 2010.
SOA would not have been able to accomplish thisreorganization if it had not discussed with the dealers
its strategies and really listened to their concerns andopinions. SOA set out to change its relationship with its
dealers by working with, rather than against them, andwas able to identify those issues that are most important to the success of the franchise.
One of the major initiatives SOA undertook was towork with its dealers to revitalize its dealer co-op advertising program. This revised co-op advertising program
helps both larger and smaller dealers lower their advertising costs and lets medium-sized and smaller dealers
who previously had difficulty affording advertising, toadvertise in a cost effective manner. Advertising is crucial-there have always been customers out there whowanted to buy Subaru products from a local dealer, butthere may not have been enough local advertising toprovide customers with the information they needed at
the time the customer was in the market to purchase a
new vehicle. This new co-op advertising program
ensures dealers are able to advertise their business during the entire year thus improving customer awarenessand leveraging SOA’s national advertising investment.
Dealers are loyal to Subaru because they know SOA
understands and cares about their business. SOA looks
at the entire dealership operation, not just new car
sales. SOA has developed programs that support every
area of dealership operations, such as used cars, parts,
service, finance, insurance, advertising, as well as new
car sales. Even though new car sales are important,
SOA looks at the entire dealership operation because
ultimately, if the dealers are not profitable, SOA cannot
be profitable. This holistic approach to dealer opera-

Market Share in U.S.
CY2008

CY2009National Share
1.4%

2.1%

Snowbelt Share
2.1%

3.1%

Sunbelt Share
0.5%

0.7%

tions and openness to dealer input has helped to not
only raise dealer profitability and enthusiasm, but win
dealer loyalty. SOA’s partnership with its dealers is
working and the Subaru brand currently ranks 2nd
among all manufacturers in the National Automobile
Dealers Association (NADA) Dealer Attitude Survey, but
Subaru ranks #1 in brand value in the entire industry
based on this survey.
Shifting the Perception of Subaru Styling and
Performance

One of Subaru’s strongest selling points has been thefact that every one of its vehicles-from the entrylevel Impreza to the top-of-line Tribeca-features thesafety, security, handling, and reliability of Subaru allwheel drive. But to break out of this niche market,

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SOA needed to shift the perception of Subaru vehicles as being small and lacking proper styling. Startingwith the 2009 model year Forester, and continuingwith the Legacy and Outback, Subaru vehicles are
now built with the size and style that U.S. customer’s
demand. And the new products also receive excellent
fuel economy- for example, the 2010 model year
Legacy sedan receives 31 miles per gallon and theOutback receives 29 miles per gallon on the highway.
Moreover, Subaru’s safety ratings are at the top of
the industry. Not only are Subaru vehicles rated No. 1
in crash test safety by the Insurance Institute forHighway Safety (IIHS), but Subaru is the only manufacturer to have every model rated as a top safety pick by
the Insurance Institute. In terms of retained value, in
their annual residual value survey, Automotive Lease
Guide ranks the Subaru brand as #1 in residual value
in the entire industry, with Forester rated #1 in residual
value in the small SUV category and Outback rated #1
in residual value in the mid-size SUV segment.

With a whole new set of customers aware of the Subaru
brand-there are now 17 million more households thatare aware of the Subaru brand than just two years
ago-the number and variety of potential customers
visiting Subaru showrooms is rising, drawn by our superior quality and reputation.
Subaru’s outstanding value is backed by excellent
customer service. Dealers want customers to love theirdealership, so they make both the sales and service
experience special. Subaru dealers understand the customer pays comparatively more for a Subaru than for acompetitors’ product so the Subaru brand has to carryspecial meaning. As a result, the “Love” theme allows
the Subaru franchise to appeal to the emotions of theentire U.S. organization including SIA, SOA and dealers
to make the customer want to love our brand. Everyonein the organization strives for the highest possible levelof customer satisfaction. Everyone in the Subaru organization is trying to have the customer “love” theirexperience with Subaru.

targeted advertising using its dealer co-op program
mentioned previously.
SOA is generating approximately 50,000 internet
sales leads per month, and the volume of applications
coming through the company's captive finance company, Subaru Motors Finance, suggests that SOA could
sell additional vehicles if they were available. Currently,
SOA is targeting annual sales of approximately 240,000
units in calendar year 2010. As always, the challenge for
Subaru of America is generating sales and continuing
to move in the right direction. Subaru continues tohave a huge opportunity in the U.S. market despite its
recent sales gains. Current Subaru sales represent justover 2% of total U.S. automobile sales, which means
there are still 98% of customers in the market that arepurchasing something else. This gives the Subaru franchise a tremendous amount of market potential.

US Retail Sales

Impreza
Legacy/Outback
ForesterTribeca(Thousand Units)“Love. It’s what makes a Subaru a Subaru”

Moving in the Right Direction

Attesting to their value, both the Subaru Forester andOutback have been named Motor Trend Magazine“Sport/Utility of the Year” in consecutive years...
Forester for the 2009 model year and Outback for the2010 model year. In fact, Subaru is the only brand tohave won the Motor Trend Sport/Utility of the Yearaward for two consecutive years.
The advertising slogan, “Love. It’s what makes a
Subaru a Subaru,” captures the Subaru experience.
The Subaru franchise holds itself to a high standard
and tries to ensure that every customer feels special.
Subaru is winning over the hearts and minds of customers.

The challenge that lies before Subaru of America now
is to maintain the momentum it has gained over thelast two of years and to expand its market share. SOA
will do this by stressing the outstanding value proposition Subaru vehicles represent in the market.
SOA has made solid gains in all market areas in the U.
S. market, but SOA is particularly pleased with theinroads made within the Sunbelt markets-the fastestgrowing population markets in the U.S. Subaru’s new
product offerings are properly sized, styled, and priced,
and are leading the way, backed by SOA’s outstanding
national advertising/marketing messages and locally

300

14

250
200
150
100
50
0

CY 2006

2007

2008

2009

2010
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Special Feature: Performance in the Chinese Market

Raise Subaru Brand AwarenessSubaru’s Development in the World’s No. 1 GrowthMarketSubaru’s sales in China are favorable. As of March 31,
2010, the Company had recorded 58 consecutive
months in which sales increased compared with thesame period of the previous fiscal year. Thus Subaru
experienced rapid growth, with sales volume (basedon the calendar year) rising from 19 thousand to 35
thousand units. People’s trust in the Subaru vehicle
manufacturing way and its brand image serve as the
dynamic force of our growth.
Displaying our Presence in the Quickly Expanding
Chinese Market

Subaru of China Ltd. is steadily increasing sales
in the Chinese market, which is showing exceptional growth. We are improving our comprehensive strengths in areas that include after services
in order to grow in this vast market.

Kazunari Suzuki
Subaru of China
President

Total demand of automobiles in China rapidly surged
from 9.38 million units in 2008 to 13.64 million units in2009. But during this period, sales suddenly fell due tothe onset of the global recession in the autumn of2008 in the wake of the “Lehman Shock.” However,
the Chinese market experienced a brisk recovery indemand owing to government-sponsored reduction of
tax on the purchase of new cars with engines under
1,600cc. As a result, Chinese market became theworld’s leader in unit sales of new automobiles in2009. Subject to these tax reductions, cars equippedwith engines under 1,600cc presently account for
approximately 70% of overall sales in China for automobiles priced less than 140,000 CNY (approximately¥1.85 million).
In the Chinese market, Subaru automobiles are classified as imported vehicles; such vehicles account for
4% of overall new automobile demand. Subaru automobiles are evaluated between Japanese automobiles

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manufactured locally and European luxury vehicles.
Furthermore, our models are subject to a 25% customs
duty and range in price from 210,000 to 590,000 CNY.
Amid expansion in the Chinese market, although thenumber of imported passenger cars in 2009 increased alittle less than 30% year on year, sales for the Foresterwhich Subaru released in 2008 and which has garnereda good reputation-nearly doubled from 19 thousandin 2008 to 35 thousand units in 2009. Such a boost insales has enabled Subaru to grow rapidly in China.
The Chinese market consists of 81 vehicle brands
that are manufactured locally and 58 that are imported.
In this market, Subaru has received responses frommany customers who felt that “although they are bland,
Subaru’s automobiles are manufactured to be very reliable, very safe and feature excellent drivability.” When

we entered the Chinese market in 2004, Subaru automobiles were associated with the image of the Fuji
Heavy Industries vehicle that participated in the Hong
Kong-Beijing Rally. The Subaru brand now stands for“distinctiveness” and “novelty” in the Chinese market. Added to this is the strong impression among
Chinese consumers that Japanese products bear premium quality.
Building a Dealer Network That Values Brand Image

Subaru’s Dealer Network in China

Zhongji Subaru Area

Anji Subaru Area
MIC Area16

Our dealership structure in China is represented solely
by Subaru of China, Ltd. (SOC), under which three distributors are exclusive local dealerships for Subaru.
Each of these distributors has formed a dealership network throughout China that consists of 61 dealers in
the north, 23 in the east and 21 in the south. Startingwith seven dealerships in 2004, we have grown to 105
dealerships at present. Our dealership network is fully
capable of providing what we refer to as the 3S’s:“sales,” “service” and “spare parts.” We plan toexpand to 120 dealerships by the end of 2010.
Various concerned parties are participating in theplanning of Subaru’s sales activities in China, including
distributors and the local partnerships that they havedeveloped. Distributors and their local partners arebuilding distinctively Subaru dealerships while creating
information-sharing links that strengthen awareness of
the Subaru brand.
Our dealerships in China have a grand and luxurious
appearance. For example, we have dealerships thatfeature AV rooms equipped with large screens reminiscent of movie theaters, as well as massage rooms. At
the same time, the customers and staff of each dealership meet once a month (this is referred to as the “userF U J I H E A V Y I N D U S T R I E S LT D . 2 0 1 0 | A N N U A L R E P O R T

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China Retail Sales(Thousand Units)

Impreza
Legacy/Outback
ForesterTribeca

60

Using the Release of the New Legacy as
an Opportunity to Expand Attention-Grabbing
Advertising

50
40
30
20
10
0

our technical training system for employees in China.
At the same time, we are promoting the standardization of service operations, which are currently being
developed at a fast pace.

CY 2006

2007

2008

2009

2010
(Plan)

club”) and hold events that include trips for the purpose of deepening communications among them.
Through these activities, we are engaging in increasingof the customer satisfaction through our hospitality on
both the software and the hardware sides.
I believe that now more than ever we require afterthe-sale service capabilities as Subaru sales increase
rapidly. Given that numerous customers take theirvehicles for inspections and maintenance after
5,000km, it is vital that we constantly increase thenumber and skill level of service staff. Such actions
are carried out with the purpose of quickly expanding the number of automobiles that can be accommodated by Subaru service centers to keep pacewith unit sales. In order to increase the level of service quality locally, in 2009 we began cooperatingwith Subaru Customer Center of FHI while upgrading

The long-awaited release of the new Legacy in the
Chinese market took place in September 2009. In
China, the previous generation Legacy was eclipsed
by the highly popular Forester, which accounts fornearly 90% of Subaru sales there. Taking advantage ofthe much-demanded increase in size realized in the
new Legacy, we expanded advertising intended toraise the level of awareness of this new model.
In 2008, SOC sponsored the Chinese romantic comedy, If You Are the One, which became a major hit andthe second biggest box-office earner in China. A previous generation Outback that we provided for thefilm was included in a scene driving through the natural splendor of Hokkaido in Japan. This scene drew
considerable attention and has led to an increase in
Chinese tourists visiting Hokkaido. Featuring the lead
actors and director of If You Are the One, we produced three-minute commercials centered on a story
that is intended to make viewers think that they arewatching a continuation of the film. Gaining notoriety
throughout China, this series of commercials has not
only increased awareness of the new Legacy, but wasalso successful in conveying our integrity and earnestness as an automobile manufacturer. For the future,
we plan to expand advertising that will further
increase the Subaru brand image while undertaking

measures targeting the natural environment.
Improving our comprehensive strengths, including
after-the-sale service, is the only way to utilize our limited business resources to undertake growth in thevast Chinese market. First, it is important that we reinforce our foundation by developing dealerships andsoft sales that convey Subaru's integrity while cultivating a brand that values contact with customers. Morespecifically, we need to realize our philosophy, “customers come first.” The role of SOC is to support thedevelopment of a dealership network that prioritizes
customer satisfaction, take steps to improve theSubaru brand image through quality advertising, andmake efforts to contribute to society by undertaking
operations firmly rooted in China.

Mr. Suzuki, President of SOC, receives a gift in response to monetary donations
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Director Interview (Production)

Subaru’s
Production Structure
Responds Flexibly
to Change

Subaru’s domestic automobile production is undertaken by the Yajima Plant, which manufactures
passenger cars, and the Main Plant, which produces minicars. Phasing out minicar production to
be supplied on an OEM basis by Daihatsu instead, FHI is scheduled to commence production of
automobiles developed jointly with Toyota at our existing plant. Furthermore, the Oizumi Plant
engages in the manufacture of horizontally opposed engines and transmissions, and undertakes
uniform automobile production in all phases, from engines to final assembly.
Overseas, Subaru of Indiana Automotive, Inc. (SIA), which is based in the United States,
produces the Legacy/Outback and Tribeca. SIA has also been manufacturing the Toyota Camryon an OEM basis since 2007.

Please tell us more about the characteristics of Subaru’s
production process.

Jun Kondo
Director of the Board
Executive Vice President

18

Given that Subaru’s annual unit sales is in the 500- to
600-thousand unit range, the number of units producedof each model is not that high. However, the fluctuationof production volume, resulting mainly from the impactof a full model change of a limited lineup of cars, is one
characteristic feature of Subaru’s manufacturing process.
Although the number of automobiles produced permonth in 2009 reached a low point in April, at 27
thousand units, production began to increase almost in
tandem with the domestic release of the new Legacy/
Outback in May. From September 2009 into 2010
(excluding January), full production has continued tosurpass 50 thousand units per month. Subaru has honed
its skills to enable it to flexibly respond to these types of
production volume changes at the Yajima Plant and the
SIA plant in the United States.
For example, Subaru develops a specific model thatthe two production lines at the Yajima Plant are able toproduce. This configuration makes it possible to respondto the fluctuation of production volume. To keep pacewith the rise in orders that began last year, we continue
to use a two-shift work system in combination with overtime and holiday work.
Undertaking slight expansion of its production capacity, SIA has raised its annual production volume ofSubaru cars from 100 thousand units to 131 thousand
units. Subaru plans to increase production volume forfiscal 2011 of all passenger car models by 14.7% year on
year to 529 thousand units. By maintaining operational
responsiveness with overtime and holiday work, thesetwo plants can achieve a 10% increase in production.
What are your thoughts on the capability of FHI’s global
production structure to keep pace with further increases
in sales volume?

In order for Subaru to maintain stable growth, we needto increase sales volume further while focusing ourattention on undertaking production in regions where
our sales are strong, such as China. It is essential that we
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How many of what type of cars can be sold in which markets? To this end, we are currently investigating where
we should establish automobile production bases, as we
prepare for the next medium-term management plan,
set to commence in the next fiscal year.
How is SIA utilizing the experience gained from producing
the Toyota Camry?

In 2007, SIA was able to launch production of the Camrywithin eleven and half months after we decided on thisproject. Almost all of Toyota’s Camry production lines
were emulated by SIA in order to commence operationsin this short period of time, and this, in turn, enabled us
to learn Toyota’s manufacturing way. The communication
between workplaces is also organized to reinforce ourknowledge of Toyota’s superior production system.
The impressiveness of Toyota’s monozukuri (“manufacturing products”) is found in their high level of thoroughness. Undertaking manufacturing in a painstaking
manner helps to identify problems and find the corresponding answers. This ultimately facilitates raisingproductivity. With production facilities worldwide,
Toyota is able to manufacture products in the samemanner regardless of location, thanks to the meticulous nature of its production lines. Although both
Toyota and Subaru send products to post-production
based on quality checks undertaken by employees incharge of individual production phases (referred to as“in process quality assurance”), Toyota strives for evengreater thoroughness by placing inspectors at eachstage of the production process to ensure overall quality. In addition, a management who participated in theestablishment of Camry production at SIA has beenpromoted to Chief General Manager of the Gunma

Plant in order to disseminate his expertise within the
Yajima Plant.
Please provide more details about the new thinking
behind the production lines for Subaru’s third-generation, horizontally opposed engine, which received its
first design-innovation in 21 years.
The Oizumi Plant’s existing production line has been
structured into one long processing line in order toincrease the level of productivity required to undertake
production on a mass scale. However, despite being
geared towards low-cost operations, this production line
configuration lacks flexibility. The new engine production line is designed based on the theme, “Flexible
Manufacturing” (Short lead-time manufacturing with
Variable Type and Quantity), in order to fundamentally
readjust costs associated with manufacturing horizontally
opposed engines. In particular, we install flexible production lines capable of manufacturing any type ofengine, not only specialized lines that make mass-production equipment. In other words, this production line
is capable of undertaking a “model and volume
change.” Given the periodic advances in productionlines for car bodies that have occurred in tandem withfull model changes, we are developing lines for thethird-generation, horizontally opposed engine that can
flexibly respond to future changes in the power train.

facility maintenance, since 1992. Such actions haveresulted in a workplace where the desire among employees to improve production is highly valued.
Handling 30,000 different components, Subaru production facilities are subject to constant change, including personnel turnovers. There is no magic bullet for
maintaining quality in this environment. Instead, we haveno choice but to ceaselessly work hard to improve. The
moment we settle on maintaining the status quo, ourrivals in the fiercely competitive automobile industry will
overtake us. Thus, the key to quality and safety can befound in the productive desire and motivation of ouremployees. To this end, foremen and managers holdmeetings when production is commenced in an effort tofully grasp the condition of our employees one by one.
Moreover, it is important to ceaselessly cultivate an
amenable workplace and dedicated employees in termsof maintaining quality during production. This includes
employees who are able to quickly report irregularities
in the components they are handling, even in terms ofweight. Although we manufacture the same car models,
working at Subaru production facilities is always exciting
because every day has something different to offer.

What measures are being taken to ensure quality during the production phase?
Subaru employees have been consistently undertaking
Total Production Maintenance (TPM) activities, which
involve on-site improvements in areas that include

Gunma Plant

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Corporate Social Responsibility (CSR)

CSR Policy

As a corporate entity that carries out monozukuri(“manufacturing products”) to bring enjoyment to its
customers, the FHI Group has revised its CSR policy.
The purpose of the revision, which has received theapproval of the CSR and Environmental Committee,
was to clarify the requirements for approaches at thecorporate organizational level: (1) CSR centered on
upholding the Corporate Code of Conduct and respectof critical items, and (2) aggressive CSR centered oncontributing to social issues through business activities
as a good corporate citizen.

term vision of becoming “a compelling company with astrong market presence,” this plan aims for FHI toretain the trust of each and every stakeholder, to contribute to the development of a sustainable society andto improve FHI’s corporate value.
CSR Activities

distance between vehicles; and a creep suspension andcontrol system that guards against sudden acceleration
due to driver’s error of automatic transmission.

Stereo camera technology enables 3D awareness of objects ahead
Specialized 3D-image processing engine
Warnings provided byalarms and meter displays

The common themes of CSR activities undertaken within the FHI Group, both in Japan and overseas, arebased on three pillars: the environment, traffic safety
and contributing to local communities.
Controls engine output andthe transmission as needed

Safety1. Based on FHI’s Corporate Code of Conduct, we shallrespect the law, human rights, international codes ofconduct and stakeholder rights as well as upholdstandards of moral behavior.
2. As a good corporate citizen, the FHI Group shallwork toward rectifying the global social problems
facing modern society.
In addition to focusing on relationships with various
stakeholders, our CSR activities emphasize the FHIGroup’s mission, which is to contribute to society’s
ongoing development through our global businessactivities.
CSR Management

One aspect of our management vision in the mediumterm management plan is stated as: “A corporationthat fulfills its social responsibility.” In conjunction withthe basic “customers come first” philosophy that represents our indispensable policy in realizing our long-

20

Controls brakes
as needed

ALL-AROUND SAFETY

As well as naturally striving to ensure that the driverand passengers in a Subaru vehicle enjoy a safe andcomfortable ride from a variety of driving scenarios,
Subaru aims to improve the overall safety of the mobility society from such perspectives as the surrounding
environments and people’s safety.
Pre-Crash Safety: Working to Realize a Society without
Automobile Accidents

Released domestically in May 2010, the Legacy isequipped with the “EyeSight” Active Driving Assist
System (version 2), based on the idea of predicting
accidents and minimizing the damage caused by collisions. The “EyeSight” was developed with the aim ofproviding an ultimate level of safety, referred to as“Collisions-free cars.” The “EyeSight” features pre-collision braking control that uses automatic brakes toavoid collisions; adaptive cruise control with all-speedrange tracking functions that helps to maintain a safe

Image of “EyeSight”

Active Safety: Safe Driving Capabilities

Subaru is pursuing the fundamental functions of a car“drive, turn and stop,” which eventually leads to the
avoidance of hazards.
Featuring superior weight balance by lowering thecenter of gravity of Subaru automobiles, Symmetrical
All Wheel Drive (AWD) is the core technology that
increases driving pleasure while enabling safe operation. Owing to the optimal handling it provides in various circumstances, Symmetrical AWD creates leeway
that allows drivers to make composed decisions just intime, and then lead them to be able to avoid hazards.
Passive Safety: Collision Safety Capabilities

In the event of an accident, Subaru is continuing topursue next-generation collision safety performancethat will reduce damages not only to drivers and passengers, but to pedestrians as well. Consequently,

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Subaru automobiles have achieved the world’s highest
ratings in collision safety performance.
• Legacy received an award in the Car Assessment
Grand Prix 2009/2010 as a result of the Japan New Car
Assessment Program (JNCAP) held in fiscal 2009 by
Japan’s Ministry of Land, Infrastructure, Transport andTourism and the National Agency for Automobile
Safety & Victims (NASVA)• All Subaru models received the U.S. Insurance Institutefor Highway Safety’s (IIHS) top safety pick
• All Subaru models were given the highest safety ratings by the U.S. National Highway Traffic Safety
Administration (NHTSA)• Legacy was awarded the highest safety ratings by theEuropean New Car Assessment Programme (EuroNCAP)• Legacy/Outback was awarded the highest safety ratings by the Australasian New Car Assessment Program(ANCAP) based in Australia and New Zealand
The Environment
Environmental Initiatives

FHI regards global environmental matters as one of its
most pressing management issues. On that basis, FHI
has established an “Environmental Policy,” formulated“Operating Criteria for Environmental Conservation”
for specific actions to achieve that policy and encourages environmental activities.

Environmental Policy

approximately half of Subaru automobiles sold in
Europe feature diesel engines.

FHI recognizes the integral relationship between theenvironment and its business activities and strives toprovide products that are friendly to the earth, society,and people. FHI is protecting the environment toensure our future.

• Eco Technologies Company is developing wind-power
generation that makes full use of this renewable natural energy source.

Corporate Activities and Environmental Impacts

Corporate Governance

Subaru is a transportation manufacturer focusing on
automobiles. Automobiles, which are a convenient andcomfortable form of transportation, are now indispensable for living in a modern society. On the other hand,automobiles require global resources such as materials
and fuels that are limited. They also emit carbon dioxide (CO 2), which causes global warming, as well asother air pollutants. Profoundly aware of these twosides to the automobile, Subaru accepts the task ofaiming for the fusion of the global environment
response (drastically improving fuel economy andreducing gas emissions) and the benefits of automobiles (driving pleasure, comfort and reliance).
Product Development Activities

Subaru aims to achieve compatibility between an
automobile-based society and an abundant global
environment.
• Subaru launched the Subaru Plug-in STELLA electricvehicle (EV) in the summer of 2009 as a city commutercar for use by companies, local governments andother organizations.
• Subaru released Legacy/Outback, Impreza andForester equipped with the world’s first Boxer Diesel
Engine in Europe beginning in 2008. Presently,

Basic Approach to Corporate GovernanceIn line with its Corporate Philosophy, FHI views thestrengthening of corporate governance as one of management’s highest priorities, so that it can measure up
to the trust and confidence placed in the Company by
all of its shareholders, customers and other stakeholders. In the pursuit of more efficient management, FHI isworking to clarify management and execution functions
to enhance decision-making speed. Ensuring proper
management and business execution through a welldeveloped auditing system, the Company works toaugment both its compliance and risk management
frameworks. Fair and timely information disclosure isalso leading to more transparent management.
Directors and Corporate Auditors

FHI adopts an audit system that encompasses the decision-making process, supervision and audit of mattersof importance to business execution made by the
Board of Directors and Board of Corporate Auditors.
Comprising six members, the Board of Directors works
to make decisions related to business affairs accelerated and more streamlined.
Management oversight functions are enhanced by
the appointment of two outside corporate auditors.
Possessing no inherent interest in the Company andF U J I H E A V Y I N D U S T R I E S LT D . 2 0 1 0 | A N N U A L R E P O R T

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completely independent from management, outside
corporate auditors possess sufficient credentials, abilities and experience to provide opinions from a legal
and fair perspective. Outside corporate auditors attend
meetings of the Board of Directors, Board of Corporate
Auditors and other important company meetings whileproviding appropriate advice and direction from a wideranging perspective. Specifically, the Company’s outside
corporate auditor, Giichi Miyakawa, is fully qualified forthis position owing to his management experience andwealth of knowledge as an executive in the manufacturing industry, and his credentials and abilities to undertake audits in an objective manner. In light of his

background, and with no possibility of a conflict ofinterest arising with regular shareholders, Mr. Miyakawa
has been also appointed as an independent executive.
Although the Company does not appoint outside
directors, the aforementioned contribution of outside
corporate auditors ensures the highly effective monitoring of directors. Consequently, the Company maintains business soundness with greater effectivenessthrough useful monitoring mechanisms.
Overview of Compensation for Directors andCorporate Auditors

In fiscal 2010, compensation for directors and corporate auditors was as follows:

Corporate Governance Systemamount paid to directors, is divided into a fixed amount(the specific amount is decided upon in considerationof the business environment and other factors based on
position) and a performance-based amount (the specificamount decided upon in consideration of the businessenvironment and other factors based on consolidated
ordinary income for the fiscal year under review).
The total amount of compensation paid to corporate
auditors in one year is ¥100 million or below, which wasapproved at the 75th Ordinary General Meeting of
Shareholders, held on June 27, 2006. In consultation withcorporate auditors, this compensation, which is the basic
amount paid to corporate auditors, consists of an amountthat is decided upon in consideration of the businessenvironment and other factors based on position.

General Meeting of Shareholders
Appoint/
Dismiss

Appoint/
Dismiss
Audit

Executive
Nomination
Meeting

Board of Corporate
Auditors Meeting(6 directors)(4 corporate auditors,
including 2 outside
corporate auditors)

Appoint/
Dismiss

Accounting
Auditors

ReportAppoint/
Dismiss/Supervise
Audit

President/
Representative Director

Report/Recommend

Assign/Supervise

CSR and Environmental
Committee

Deliberate andreport on
important matters

Corporate Vice President (20)(Business execution)

Compliance Committee
Recall Committee
Export Control Committee

Make proposals
for and reporton plans

Approval ofpolicy presentations
and plans

Corporate Operations at HQ, Automotive BU, Each Company and Affiliate of the Group

22

Classification

NumberFixed

Performancebased

Total

Directors

9

253

42

295

Corporate Auditors (CA)

5

72

-

72

(Outside CA)

(2)

(29)

-

(29)

Total

14

325

42

367

ReportExecutive Management
Board Meeting

Corresponding to the Quality Assurance

Basic compensation

ReportBoard of Directors
Meeting

Executive
Compensation
Meeting

Millions of Yen

Appoint/
Dismiss(Policy related to determining the amount of compensation for directors and corporate auditors and calculation methods)
The total amount of compensation paid to directors in
one year is ¥600 million or below, an amount that wasapproved at the 75th Ordinary General Meeting of
Shareholders, held on June 27, 2006. Approved by the
Board of Directors, this compensation, which is the basic

Subaru’s quality improvement activities, based on information gathered from customers worldwide, leaddirectly to better-qualified products and the refinementof the Subaru brand name. Using specialized internet
networks, fax, telephone and other resources, qualityrelated information on Subaru automobiles is collectedfrom dealerships worldwide. Based on this information
as well as survey results of vehicles and components:(1) We make determinations in accordance with domestic and overseas laws, placing the highest priority on
ensuring that customers ride in safety.
(2) We provide notifications to customers through awide array of media including announcements
placed in newspapers and journals, direct mail, telephone calls, visitations and the Company’s website.

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Management(As of June 25, 2010)

Representative Director of the Board,
President and CEO
 Ikuo Mori













Representative Directors of the Board,
Deputy Presidents
 Kazushige Okuhara
 Masatsugu Nagato
Directors of the Board,
Executive Vice Presidents

Executive Vice Presidents

Vice Presidents

Standing Corporate Auditors

Yoshio Hasunuma

Motokiyo Nomura

Shunsuke Takagi

Naoto Muto

Yasuo Ueno

Hiroyuki Oikawa

Mitsuru Takahashi (CFO)

Hidetoshi Kobayashi

Nobushige Imai

Yoshio Hirakawa
Senior Vice Presidents

Tamaki Kamogawa
Tomohiko Ikeda
Hisashi Nagano
Motohisa Miyawaki

 Jun Kondo

Mitsuru Takada

 Yasuyuki Yoshinaga

Takeshi Tachimori

 Akira Mabuchi

Masahiro Kasai

Ryoichi Shimokawa

Corporate Auditor

Tatsuhiko Mukawa

Giichi Miyakawa

Yasuo Kosakai
Tsuyoshi Nakai
Yasunobu Nogai
Masashi Takahashi

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Consolidated Ten-Year Financial Summary
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31

For the Year:Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income (loss)
Income (loss) before income taxes andminority interests
Net income (loss)
At Year-End:
Net assets**
Shareholders’ equity
Total assets
Ratio of net assets to total assets (%)

Thousands of
U.S. dollars*

2010

2010

¥1,445,790 ¥1,428,690
1,164,564
1,152,763
281,226
275,927
287,029
248,577(5,803)27,350$15,355,653
12,389,972
2,965,681
2,671,722
293,959

2001

2002

2003

2004

2005

2006

2007

2008

¥1,311,887
978,841
333,046
251,373
81,673¥1,362,493
992,950
369,543
281,063
88,480¥1,372,337
1,011,582
360,755
293,234
67,521¥1,439,451
1,085,716
353,735
303,41150,324¥1,446,491
1,107,718
338,773296,756
42,017¥1,476,368
1,125,293
351,075
292,736
58,339¥1,494,817
1,142,674
352,143304,237
47,906¥1,572,346
1,217,662
354,684
309,004
45,68021,291
22,62856,13630,283

46,97033,48456,266
38,64921,066
18,23828,674
15,61145,58931,89931,90618,481¥ 363,199
357,455
1,168,501
30.6%¥ 399,598
396,112
1,269,558
31.2%¥ 414,614
411,252
1,344,072
30.6%¥ 457,027
453,708
1,349,727
33.6%¥ 474,616
471,149
1,357,459
34.7%¥ 467,786
465,522
1,348,400
34.5%¥ 495,703
494,004
1,316,041
37.5%¥ 494,423
493,397
1,296,388
38.1%¥30.4429.06
480.86¥40.7438.83
532.88¥44.8442.91
553.90¥50.6249.66
582.60¥23.2723.27
604.51¥20.6620.66
649.41¥44.4644.44
687.81¥25.7325.73
687.02¥(91.97)—505.59¥(21.11)—488.5829.7
40.0
64,07033.5
41.2
63,96422.9
44.7
67,896

28.4
48.1
71,11224.5
51.2
71,01018.5
55.6
80,07316.5
46.3
81,45412.4
49.5
87,164

13.5
54.2
74,036 ¥10.5
41.8
65,785Per Share (in yen and U.S. dollars):
Net income or net loss:
Basic
DilutedNet assets
Other Information:
Automobile inventory (thousand units):
Japan
United States
Depreciation/amortization expenses
Capital expenditures(addition to fixed assets)
R&D expenses
Number of shares issued(thousands of shares)***Number of shareholders***
Number of employees***:Parent only
Consolidated

Millions of Yen

¥

¥

¥

¥

¥

¥

¥

¥

2009

(21,517)(69,933)(443)(16,450)(4,761)(176,806)¥ 394,719 ¥ 381,893
393,946
380,587
1,165,431
1,231,367
33.8%
30.9%

$ 4,104,611
4,090,574
13,234,813¥

102,301
46,622

118,376
54,903

119,423
60,110128,026
57,541

147,759
52,962

119,289
46,893

126,32950,709118,869
52,02095,15342,831

89,077
37,175746,502
32,996

746,506
33,094

746,52135,584

782,865
34,704

782,865
34,558782,865
46,367

782,865
42,920782,865
44,484

782,865
40,839782,865
39,223

13,60326,502

13,374
26,48313,06427,47812,92827,296

12,703
26,98911,998
26,115

11,752
25,598

11,90926,404

12,13727,65912,48327,586$(0.23)—5.25$

707,061
957,405
399,559* U.S. dollar figures have been translated from yen, for convenience only, at the rate of ¥93.04 to US$1.00, the approximate rate of exchange at March 31, 2010.
** Prior year amounts have been reclassified to conform to the current year presentation.
*** As of March 31

24

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Management’s Discussion and Analysis of Results of Operations and Financial Position
The Fuji Heavy Industries Ltd. GroupThe Fuji Heavy Industries Ltd. (“FHI”) Group is engaged in
production and sales activities across a wide range of business sectors. These activities are conducted under fourbusiness divisions: Automobiles (the Group’s core operating domain that accounts for over 90% of consolidated net
sales), Aerospace, Industrial Products and Other.
On a consolidated settlement of accounts basis, FHI
and 71 subsidiaries (a year-on-year increase of three) as
well as 9 equity-method affiliated companies (a year-onyear decrease of six) were included in the scope of the FHIGroup’s consolidation as of March 31, 2010, the end of fiscal 2010 (“the fiscal year under review”). To date, some of
FHI’s equity-method subsidiaries were reclassified as consolidated subsidiaries due to their growing importance.
Overview
During fiscal 2010, ended March 31, 2010, the economic climate in which FHI operates was initially very severe due tothe impact of the global recession that started in the previous fiscal year. However, the economy began to recoverfrom the second quarter onward owing to improved economic conditions in the United States, increased exports
following robust growth in China and other emerging markets and the impact of a series of economic countermeasures implemented by individual countries.
Against this backdrop, the FHI Group undertook a fullmodel change of its mainstay Legacy/Outback in May
2009 to facilitate a recovery in performance as early as
possible. The redesigned Legacy is a new product that
embodies the key words of the medium-term management plan announced in February 2007: “customers comefirst.” The new Legacy was started to be manufactured inJapan and North America almost simultaneously which
was the first trial at FHI’s production bases and initiallyreleased in those markets. Following the release, FHI
focused on increasing sales by releasing the new Legacy
sequentially in markets worldwide.
Amid the rapid economic deterioration that took place

FHI̲E̲MD&A̲0806.indd 25

during the previous fiscal year, FHI continued to implement emergency measures that focused on reducing costs
across the board. At the same time, the Company implemented internal reforms through structural improvement
measures aimed at maintaining profits despite severe economic conditions.
Owing to these initiatives, consolidated settlement ofaccounts for the consolidated fiscal year under review is asfollows.
Sales increased primarily in the Automobiles division,
which experienced strong sales in the North American andChinese markets, and the Aerospace division, whichenjoyed favorable product sales to Boeing. Despite this,consolidated net sales in fiscal 2010 were ¥1,428.7 billion,
down ¥17.1 billion, or 1.2%, compared with in the fiscal
year ended March 31, 2009. This was primarily attributable
to the impact of yen appreciation in foreign currency
exchange markets year on year. On a geographic basis,
net sales in Japan increased 2.6% to ¥520.8 billion compared with the previous fiscal year owing to such factors as
the effect on sales of the new Legacy. Overseas sales,
however, dropped 3.2% to ¥907.9 billion year on year due
to the impact of the strong yen on foreign currency
exchange markets, in spite of robust sales in the UnitedStates, Canada and China.
From a profit perspective, the FHI Group reported an
operating income of ¥27.4 billion despite the strong yen.
This represented a gain of ¥33.2 billion from an operating
loss of ¥5.8 billion recorded in the previous fiscal year. This
increase was mainly attributable to robust sales trends andefforts to reduce costs, including material cost, SG&A andother expenses. In the fiscal year under review, although
the FHI Group incurred an impairment loss of ¥10.5 billion
in the Industrial Products division, it reported a net loss of¥16.5 billion, an improvement of ¥53.5 billion from net lossof ¥69.9 billion in the fiscal year ended March 31, 2009. This
improvement was the result of not reversing a portion ofits deferred tax assets during the previous fiscal year.
(Please refer to “Cost of Sales, Expenses and Operating
Income” [page 29] for more details.)

Net Sales(Billions of yen)

1,600

1,200

800

400

0

FY

2006

2007

2008

2009

2010

Operating Income (Loss) & Net Income (Loss)(Billions of Yen)

75
50
25
0
-25
-50
-75

FY

2006

2007

2008

2009

2010

N Operating Income (Loss) N Net Income (Loss)F U J I H E A V Y I N D U S T R I E S LT D . 2 0 1 0 | A N N U A L R E P O R T

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Consolidated Automobile Sales

Consolidated Automobile Sales by Region

Number of Units
2006

2007

2008

2009

2010

Legacy50,61943,951

31,07920,41528,862

Impreza

26,911

24,13529,67819,733

21,721

Forester(Number of Units)

Domestic Units:
600,000

400,000

17,405

11,807

16,863

16,424

11,879

Exiga

—

—

—

11,126

10,789

Dex

—

—

—

2,034

1,523

Others

2,747

1,308

435

363

323

97,682

81,20178,05570,09575,097

132,483

145,610130,635

108,694

96,175230,165

226,811

208,690

178,789

171,272

United States

193,562

190,276

192,760

188,240

227,028

Canada16,384

16,247

17,587

18,873

22,828Europe64,72458,47563,37356,76437,340Subtotal
200,000

Minicars
Domestic Total
Overseas Units by Region:

0

FY

2006

2007

2008

2009

2010

N Japan N United States N Canada N Europe
N Russia N Australia N China N Others

RussiaAustralia

Consolidated Automobile Sales by Model

China(Number of Units)

OthersSubtotal

600,000—

12,92922,622

20,711

1,563

36,50638,136

40,21036,71634,992—

7,454

12,621

26,184

48,93830,034

27,61038,802

29,056

18,876341,210351,127

387,975

376,544391,565
146,099

Overseas Units by Model:

400,000

200,000

Legacy132,236

133,720

137,829

102,106

Impreza

72,79090,927

113,777

97,472

74,998Forester

104,059

102,969

96,839153,289

156,288

Tribeca

24,187

18,26827,327

17,658

7,564

Others

7,938

5,243

12,203

6,019

6,616

Subtotal
Total

0

FY

2006

2007

2008

2009

341,210351,127

387,975

376,544391,565

571,375

577,938

596,665

555,333

562,837

2010

N Legacy N Impreza N Forester N Tribeca
N Exiga N Dex N Others N Minicars

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Non-Consolidated Automobile Sales

Number of Units
2006

2007

2008

2009

2010

Legacy57,01347,176

34,63422,05930,927

Impreza

30,063

26,15932,873

21,93523,316

Forester

Non-Consolidated Domestic Automobile Sales by Model(Number of Units)

Domestic Units:

19,256

12,946

18,74016,954

12,542

Exiga

—

—

—

12,787

11,893

Dex

—

—

—

2,651

1,575

OthersSubtotal
Minicars
Domestic Total

—

—

—

—

—

106,332

86,281

86,24776,38680,253

138,398

157,453

132,872

110,043

97,230244,730

243,734

219,119

186,429

177,483

42,80946,41048,56828,78743,937300,000

200,000

100,000

Export Units:
Legacy

0

FY

2006

2007

Impreza

75,93592,782

119,000

99,68869,386

N Legacy N Impreza N Forester

Forester

104,425

99,63798,602

164,960

159,463

N Exiga N Dex N Minicars

OthersExport total

1,554

894

7,533

6,978

6,934

224,723

239,723

273,703

300,413279,720

U.S. Retail Sales*:

2008

2009

2010

Non-Consolidated Automobile Export Units by Model(Number of Units)

Legacy87,78884,44278,42866,87886,330

Impreza

33,637

41,14846,32949,09846,611

Forester

53,541

51,25844,53460,74877,781

Baja

6,239

5,241

1,127

—

—

Tribeca

14,797

18,614

16,79010,975

5,930

Total

196,002200,703

187,208

187,699

216,652

CKD** Overseas

119,784

100,972

110,363

77,871

113,605(SIA Portion)

119,784

100,972

110,363

77,871

113,605

SIA Production Units***
Legacy91,51089,351

84,96073,473

100,149

Tribeca

27,481

21,022

24,218

18,108

4,197* U.S. Retail Sales are the aggregate figures for the calendar year from January through December.
** CKD: Completely Knocked Down*** SIA Production Units are the aggregate figures for the calendar year from January through December until 2009.

300,000

200,000

100,000

0

FY

2006

2007

2008

2009

2010

N Legacy N Impreza N Forester N Others

CKD Overseas

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Segment Information
Automobiles Division
In the fiscal year under review, global sales volume stood
at 563 thousand units, up 8 thousand units, or 1.4%, compared with the previous fiscal year. This was attributable tothe positive impact received from the release of the new
Legacy in Japan and strong sales in the United States andChina.
In Japan, overall demand for automobiles rose 3.8% to
488 million units year on year, the first increase in four
years, thanks to the success of the eco-car tax rebate andeco-car subsidy systems that were introduced at the
beginning of 2009. In this circumstance, the sales volumeof Subaru passenger cars in Japan rose 5 thousand units,
or 7.1%, to 75 thousand units. This occurred thanks a fullmodel change of the Legacy in May 2009, which subsequently drove up overall sales on the back of an 8-thousand unit, or 41.4%, increase in Legacy sales to 29
thousand units year on year as well as the aforementioned
eco-car tax rebate and subsidy system.
Turning to minicars, FHI’s mainstay car model, Stella,experienced a reduction in units sold amid a fall in overall
demand due to its prolonged operating life, while production of the Pleo van was halted during the fiscal year underreview. As a result of these factors, sales volume fell 13
thousand units, or 11.5%, to 96 thousand units year on year.
Consequently, domestic sales volume in decreased 8
thousand units, or 4.2%, compared with the previous fiscal
year, to 171 thousand units.
Overseas, increases in sales volume resulted from
improved sales owing to the release of the new Legacy in
the United States and strong sales in China. Moreover,signs of a recovery in other markets were beginning to be
seen during the second half of fiscal 2010. As a result of
these factors, overseas sales volume rose 15 thousand
units, or 4.0%, to 392 thousand units compared with theprevious fiscal year.

28

By region, units sold in North America were up 43
thousand units, or 20.6%, to 250 thousand units. This is theresult of such factors as increased sales of the new Legacy
and Forester by FHI’s American subsidiary, Subaru ofAmerica, Inc. (SOA), and ”Cash for Clunkers” introduced in
the United States to subsidize the purchase of new, more
fuel-efficient vehicles. In China, sales volume surged 23
thousand units, or 86.9%, to 49 thousand units year on
year owing to robust sales of the Forester that began lastyear and the release of the new Legacy. In Europe andRussia, despite measures of scrap incentives introduced
by individual governments to support automobile replacement, sales volume decreased 39 thousand units, or 49.8%,
year on year to 39 thousand units. This was caused by production adjustments made to reduce inventories in thefirst half of fiscal 2010 amid severe market conditions.
In addition, year-on-year sales in Australia dipped 2thousand units, or 4.7%, to 35 thousand units, while sales
in other regions were down 10 thousand units, or 35.0%, to
19 thousand units.
As a result, net sales in the Automobile division
decreased ¥21.9 billion, or 1.7%, to ¥1,294.5 billion compared with the previous fiscal year, buffeted by the impactof the yen’s appreciation in foreign currency exchange
markets. Operating income in the fiscal year ended March
31, 2010 increased ¥30.9 billion to ¥21.7 billion comparedwith an operating loss of ¥9.2 billion recorded in fi scal
2009. This rise was primarily attributable to efforts to
reduce costs, including material costs, SG&A and otherexpenses.
Aerospace Division
On an individual product basis, overall net sales rose year
on year thanks to net sales increases for such products as
an unmanned aerial vehicle system and the “Forward Field
Observation System” produced for the Japan Ministry of
Defense.

In the commercial sector, net sales rose compared withthe previous fiscal year thanks to a recovery of sales of the
Boeing 777, which was affected by a strike that took placein the previous fiscal year, as well as increased sales formass production equipment used for manufacturing the
Boeing 787.
Based on these factors, net sales in the Aerospace division rose ¥12.3 billion, or 15.3%, compared with the previous fiscal year, to ¥93.2 billion. Operating income jumped¥3.2 billion, or 205.5%, to ¥4.8 billion.

Net Sales by Division (Excluding intersegment sales)(Billions of Yen)

1,600

1,200

800

400

0

FY

2006

2007

2008

2009

2010

N Automobiles N Aerospace N Industrial Products N OtherNet Sales by Division (Excluding intersegment sales) Billions of Yen
2006

2007

2008

¥1,329.2¥1,339.3¥1,421.2

Aerospace

81.8

94.0

99.7

80.9

93.2

Industrial
Products

52.4

49.7

40.7

34.9

23.9

13.7

17.1

Automobiles

Other

13.0

11.8

10.8

Total

¥1,476.4¥1,494.8¥1,572.3

2009

2010

¥1,316.3 ¥1,294.5¥1,445.8 ¥1,428.7

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60

45

(Consolidated, Three-Year YoY Comparison)

9.2(Billions of Yen)

0.3

45.7

(43.5)(14.3)

(3.2)

5.7
8.7
23.2

Cost of Sales, Expenses and Operating Income

27.4

30

26.0

2007

2008

2009

2010

N Automobiles N Aerospace N Industrial Products
N Other N Corporate and Elimination

Operating Income (Loss) by Division

Billions of Yen

2006

2007

2008

2009

2010

Automobiles

¥51.6

¥37.8

¥37.1

¥(9.2)¥21.7

Aerospace

2.8

5.7

4.4

1.6

4.8

Industrial Products

2.0

1.5

0.7

(1.6)

(2.4)

Other

1.2

2.3

2.5

3.1

2.6

Corporate andElimination
Total

0.7

0.6

0.9

0.3

0.7

¥58.3

¥47.9

¥45.7

¥(5.8)

¥27.4

N

2006

O
FY pe
E ra
M tin
ar g
ch lo
20 ss
N
09
Re
du
ct
io
n
N
in
co
ex Dec
st
pe re
ns as
es e oan f S
d G
ot &A
N
he
Im
rs
m sa pro
ixt le ve
ur s v mean olu ent
d me of
ot
h &
N ers
R& De
c
D re
ex as
pe e
ns of
N
es
Lo
ss
on
ex forch eig
N
an n
O
ge
pe
FY rati
E ng
M in
ar co
ch m
20 e
10

FY

(5.8)

13.0
20.9

3.2

(12.7)

43.0
(8.8)

27.4

pe
FY ratiE ng
Mar inco
ch
m
N
20 e
Im
10
p
m sa roixt le ve
ur s v mean olu ent
d me of
ot
N
he &
Re
rs
du
ct
io
n
in
N
co
ex Dec
st
pe re
ns as
es e oan f S
d G
ot &A
N
he
rs
Lo
ss
on
ex forch eig
an n
ge
N
R& In
D cre
ex as
pe e
N
ns of
FY O
es
E pe
M ra
ar tin
ch g
20 in
11 co
(P me
lan
)

-15

(30.4)

O

0

Operating income, as mentioned above, increased ¥33.2
billion year on year to ¥27.4 billion. Although the appreciation of the yen in foreign currency exchange markets was afactor in a ¥30.4 billion reduction in income, there were anumber of factors that offset this loss. These include: areduction in costs totaling ¥26.0 billion and a ¥23.2 billion
decline in SG&A and other expenses due to decreases inadministration and fixed manufacturing costs; an ¥8.7 billion improvement in sales volume and mix, primarily owing
to the release of the new Legacy and an increase in sales
volume in the United States and China; and a ¥5.7 billion
reduction in R&D expenses stemming from the finalizingof new model development and the efficient conduct ofexperimental research.
Turning to other income and expenses, net expenses
recorded in fiscal 2009 increased ¥12.1 billion to ¥27.8 billion in the fiscal year under review. Despite a reduction insuch items as loss on valuation of investment securities
and provision of allowance for doubtful accounts, thisyear-on-year increase in net expenses reflects the increase

N

15

(5.8)

pe
FY rati
E ng
M In
ar co
ch m
20 e
08
N
R& De
D cre
ex as
N
pe e
Im
ns of
es
m sa pro
ixt le ve
ur s v mean olu ent
d me of
ot
he &
N
rs
Lo
ss
on
ex forch eigNan n
ex Inc
ge
pe re
ns as
es e oan f S
N
d G
ot &A
R
he
ne edurs
t o ctf r ionaw inmc
pr a ostit
N ce ra erial ,
ise
O
FY pe
E rat
M in
ar g
ch Lo
20 ss
09

(Billions of Yen)

Other Division
Sales volume for Fuji Mighty sanitation trucks, which areused for collecting refuse, decreased. However, in addition
to deliveries of large-scale wind turbine generator systems, the inclusion of one subsidiary within the Group’s
scope of consolidation contributed to the increase in sales.
As a result, net sales in the Other division climbed ¥3.4 billion, or 24.9%, compared with the previous fiscal year, to¥17.1 billion. By contrast, operating income decreased ¥0.6
billion, or 17.9%, year on year, to ¥2.6 billion.

Analysis of Increases and Decreases in Operating Income

O

Operating Income (Loss) by Division

As a result, net sales in the Industrial Products division fell
¥11.0 billion, or 31.5%, compared with the previous fiscal year,to ¥23.9 billion. In the fiscal year under review, the division
reported an operating loss of ¥2.4 billion. This represented afurther deterioration of ¥0.8 billion from the operating loss of¥1.6 billion reported in the previous fiscal year.

N

Industrial Products Division
Net sales in this division increased following the inclusionof two subsidiaries in the scope of consolidation. However,industrial engine sales in Japan, Europe and the Middle
East dropped due to a slump in demand sparked by thefinancial crisis that took place in the previous fiscal year.
Furthermore, the impact of the strong yen in foreign currency exchange markets led to a year-on-year decline in
net sales.

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in interest expenses paid and the recording of impairment
loss on fixed assets in the Industrial Products division andthe integration of domestic dealerships in the Automobiles
division.
Taking into account the aforementioned factors, theFHI Group recorded a loss before income taxes andminority interests of ¥0.4 billion, an improvement of ¥21.1
billion year on year. As mentioned above, net loss for theperiod amounted to ¥16.5 billion. This was a ¥53.5 billion
improvement compared with the previous fiscal year.
Liquidity and Financing
Securing Liquidity
FHI believes that it has secured liquidity at a level sufficient to satisfy its current needs through the use of commitment lines contracted with major banks, combined withcash and cash equivalents.
Interest-bearing debt as of the end of fiscal 2010 totaled¥367.6 billion, ¥14.1 billion lower than the end of the previous fiscal year. As a result, the debt/equity ratio remained
unchanged since March 31, 2009 at 0.97.
Financial Position
Total assets as of March 31, 2010 stood at ¥1,231.4 billion,
an increase of ¥65.9 billion compared with the previous fiscal year-end.
Of this total, current assets stood at ¥638.9 billion, up¥52.9 billion compared with March 31, 2009. Despite a fallin inventories stemming from a contraction in stock volume that occurred amid robust automobile sales in the
United States, this increase is attributable to a rise in notes
and accounts receivable—trade caused by such factors as
an increase in cash and cash equivalents corresponding to
growth in working capital as well as higher sales of the
Boeing 787.

Total property, plant and equipment increased ¥13.1 billion year on year to ¥592.5 billion, an upswing primarily due
to an increase in the value of investment securities and thereclassification of other assets including license fees for
the AH-64D undertaken by the Aerospace division, which
until now was recorded under inventories. As is mentioned
below, FHI undertook capital expenditure of ¥56.1 billion
in the fiscal year under review, a decrease of ¥1.8 billion
compared with the fiscal year ended March 31, 2009.
Total liabilities were up ¥78.8 billion year on year, to¥849.5 billion. Despite a rise in notes and accounts payable—trade resulting from a higher automobile production volume, current liabilities declined ¥6.2 billion to¥555.1 billion mostly as a result of a decrease in short-termborrowings. Total long-term liabilities stood at ¥294.4 billion, ¥84.9 billion higher than at the end of the previous fiscal year. This was mainly attributable to an upswing in
long-term debt.
As mentioned above, interest-bearing debt amounted
to ¥367.6 billion as of March 31, 2010, down ¥14.1 billion
compared with the end of the previous fiscal year. This
reflected payments of a portion of short-term loans payable, the refinancing of long-term loans payable and theredemption of the outstanding balance of commercial
paper.
Net assets totaled ¥381.9 billion, down ¥12.8 billion
compared with the end of the previous fiscal year. This wasprimarily attributable to the decrease in retained earningsof ¥16.4 billion to ¥110.2 billion caused by the recording ofa net loss. As a result, net assets per share as of the end of
the fiscal year under review totaled ¥488.58, down ¥17.1
from ¥505.59 as of the end of the previous fiscal year.

Interest-Bearing Debt Balance & D/E Ratio(Billions of Yen)

500

1.00

400

0.80

300

0.60

200

0.40

100

0.20

FY

0

2006

2007

2008

2009

2010

0

N Interest-Bearing Debt Balance

D/E Ratio

Total Assets, Shareholders’ Capital & Ratio of
Shareholders’ Capital to Total Assets(Billions of Yen, %)
1,500

75.0

1,200

60.0

900

45.0

600

30.0

300

15.0

0

FY

2006

2007

2008

2009

2010

0

N Total Assets N Shareholders’ Capital

Ratio of Shareholders’ Capital to Total Assets

30

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Cash Flows
In the fisca l year un der revie w, net ca sh pro vid ed by ope rating act ivi ties was ¥17 6.7 bi llion. In com
p arison, net cas huse d i n oper ati ng act ivi tie s of ¥26. 9 billion had b een
recorded in the pr evi ous fisca l year. This ma inly r eflect s asignifica nt im
p rovemen t in working ca pit al owing to strong
aut omo bil e sales.
Net c ash us ed in investing activ iti es dec lined from¥72 .4 bil lion in fiscal 2009 to ¥62. 7 b illion in the fiscal yea r
und er review, primarily due to reduc tions in cas h outfl ows
related t o the acq uis ition of pro per ty, pl ant and e qui pm
en t and investm
en t secu rities mo re of the sam
e level ofthe pr evi ous fisca l ye ar.
As a result, free ca sh flow am
ou nted t o ¥114.1 bi llion.
Thi s was a positive turn around of ¥2 13. 4 billion from thenegative fig ure of ¥99.3 bil lion in the pre viou s fisca l ye ar.
Net c ash us ed in fin ancing activities totaled ¥ 18.6 b illion in the fis cal ye ar ended March 31, 2010. In co mpa rison,net ca sh pro vid ed by fin ancing activities stood at ¥80 .4 bil lion in fiscal 2009. Thi s result was large ly attributa ble to a
dro pin in terest-be aring debt .
Ac cou nting for the aforem
en tioned activities and theeffect of excha nge rate fluctu ations, the net incre ase incas h and cas h equi val ents am
ou ntedt o ¥94.7b illion. Aftertak ing into con sideratio n the increases or de cre ases incas h and cas h equi val ents resulting fromt he cha nge in thesco pe of con solida tion and in acco unt ing pe riod o f consolida ted subsi dia ries, cas h and cas h equi val ents as of theend of the fiscal yea r unde r revi ew stood at ¥19 1.5 bi llion,up ¥95 .0 bil lion ye ar on yea r.

Research and Development Expenses

Cash Flows from Operating Activities &Cash Flows from Investing Activities

As the temporary lull in new model development was
occurred after the full model change of the new Legacy
and FHI took steps to further increase efficiency. As aresult of these factors, R&D expenses declined ¥5.7 billion,or 13.2%, year on year, to ¥37.2 billion.

(Billions of Yen)
200
150
100

Capital Expenditures and Depreciation

50

Despite investing in the launch of the Yajima Plant and
FHI’s U.S. subsidiary, Subaru of Indiana Automotive, Inc.
(SIA) in order to initiate first-ever simultaneous productionin Japan and the United States accompanying the releaseof the new Legacy, capital expenditures declined ¥1.8 billion compared with the previous fiscal year, to ¥56.1 billion.
This was primarily attributable to the integration ofdomestic dealerships and the curbing of investments insales activities. Although depreciation increased as aresult of the domestic release of the new Legacy, total
depreciation fell ¥8.0 billion year on year, to ¥57.1 billion.
This was mainly attributable to a decline in mold costdepreciation on expenses related to older models produced by SIA.

0
-50
-100

FY

2006

2007

2008

2009

2010

N Cash Flows from Operating Activities
N Cash Flows from Investing Activities

Free Cash Flow
(Billions of Yen)

120

Billions of Yen
80

2006

2007

2008

2009

2010

40

R&D
Expenses¥ 46.9¥ 50.7¥ 52.0¥ 42.8¥37.2

0CapitalExpenditures

56.2

59.6

56.3

58.0

56.1

Depreciation
Expenses

57.5

58.9

65.5

65.1

57.1

-40
-80
-120

FY

2006

2007

2008

2009

2010

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Basic Policy Regarding the Distribution of Profits

Research & Development Expenses(Billions of Yen)

FHI views the return of profits to shareholders as a criticaltask for management and follows a basic policy of maintaining stable long-term dividends, while taking into consideration a wide range of factors, including its earnings
performance and dividend payout ratio. Despite performance entering a recovery trend, however, no dividends
were paid for the fiscal period under review due to therecording of a net loss since 2009. Although uncertainties
remain in the business environment, dividend payments
for fiscal 2011 are expected to resume in light of a forecasted recovery in net income. Consequently, interim andfiscal year-end dividends are scheduled to be ¥4.50 per
share, for an annual dividend of ¥9.00.

60

45

30

15

0

FY

2006

2007

2008

2009

2010

Outlook

Capital Expenditure & Depreciation Expenses(Billions of Yen)

80

60

40

20

0

FY

2006

2007

2008

2009

N Capital Expenditure N Depreciation Expenses

32

2010

In spite of movement towards an economic recovery, FHI
expects the business environment to remain uncertain
due to such factors as ongoing instability in foreign currency exchange rates and increasing raw materials prices.
Against this backdrop, the FHI Group is forecasting (asof May 2010) net sales of ¥1,470.0 billion in the fiscal year
ending March 31, 2011. This represents a year-on-yearincrease of ¥41.3 billion, or 2.9%, and is mainly attributable
to the rise in automobile sales volume overseas. On theearnings front, the Group’s consolidated operating income
is projected to increase ¥15.6 billion, or 57.2%, comparedwith the fiscal year under review, to ¥43.0 billion. Despite
forecasts of such negative factors as high raw materials
prices, foreign exchange losses caused by the yen’s appreciation and increasing R&D expenses, FHI expects to offset these elements through such positive factors as the
improvement of sales volume and mix, following increases
in unit sales in overseas markets, and a reduction of costs,
SG&A and other expenses. Net income in the fiscal year
ending March 31, 2011 is expected to total ¥23.0 billion, a
year-on-year improvement of ¥39.5 billion, the first time in
two years that FHI has reported a profit.

These forecasts are based on average annual exchange
rates of ¥90 to U.S. $1.00 and ¥120 to A1.
Note: Performance forecasts and medium- to long-term management
strategies are based on information available to management as ofthe date of this report. Accordingly, actual results may differ materially due to a variety of factors.

Medium- to Long-Term Management Strategies
FHI continues to engage in business activities underpinned by its four-year, medium-term management plan
covering the period from April 20 07 to March 2011.
Centered on the philosophy that “customers come first,”
this plan seeks to (1) provide a distinctive Subaru experience for drivers and passengers, (2) increase sales globally, (3) strengthen competitiveness in quality and cost,(4) grow through the business alliance with Toyota,and (5) grow the level of employee competence and soenhance the organization. As a result of the rapid deterioration of global economic conditions since 2008, targets
listed in the medium-term plan, including unit sales, operating income, management indicators and shareholder
returns, have been suspended. However, key initiatives
and directions outlined in this plan remain unchanged.
Thus, the recovery in performance that occurred during
the fiscal year under review has given us a strong sense ofconfidence that we are moving in the right direction.
FHI will do its utmost to come as close as possible tomeet targets set for the fiscal year ending March 31, 2011,
the final year of the medium-term management plan, while
taking steps to formulate the next medium-term management plan.
Integrate the Pleasure of Driving and Environmental
Responsibility
Introducing the Impreza, Forester and Legacy as global
models, we aim to produce automobiles that offer a pleasurable driving experience for not only drivers but also for
all passengers. Looking forward, FHI will promote theF U J I H E A V Y I N D U S T R I E S LT D . 2 0 1 0 | A N N U A L R E P O R T

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development of products and technologies that emphasize greater environmental responsibility and safety.
1. Equipped the new Legacy with CV T (Continuously
Variable Transmission) in 2009 and will sequentiallyintroduce this technology to other models
2. Introduce the new, third-generation, horizontally
opposed engine in 2010, which improves fuel economy
by over 10% and will promote further improvements infuel economy by such means as combining this technology with CVT
3. Supplied the Plug-In STELLA electric vehicle to the corporate and public sectors since July 2009
4. Release of a hybrid automobile scheduled for 2012
5. Continue to accelerate the development of safety technology through measures that include the introductionof models equipped with “EyeSight”*1 Subaru’s Unique
Advanced Driving Assist system, which augments precollision safety*2 functions*1. Utilizing stereo camera technology, this proprietary system developedby Subaru realizes high-level collision avoidance functions by enablinga wide degree of awareness while driving.
*2. Technology reduces the risk of collision or collision damages bydetecting vehicles and objects on the road

Increase Sales Globally
Based on the expansion of its global models, FHI will takesteps to increase unit sales in North America, its mostimportant market, and such emerging markets as China.
At the same time, we aim to secure earnings by shifting to
the sale of passenger cars in Japan.
1. Instituted a comprehensive assistance structure fordealerships in January 2010 by shifting its sales structurein the United States from five regions to three and byincreasing zone offices from three to twelve; improve
the quality of dealerships through scrap and build operations

2. Upgrade sales networks in such emerging markets as
China, along with the mainstay European market andother regions
3. Pursue increased profitability and strengthened marketing capability by transitioning to an integrated networkof distributors in Japan and by shifting to passenger car
sales

Through each of the aforementioned measures, the Groupwill combine the knowledge and talents of all employees
through the key word, “Going Forward,” with the aim ofachieving further growth. Furthermore, we will establish a
new base for growth in anticipation of the next mediumterm management plan.
Forecast for Global Automobile Sales

Establish a Production System in Tandem with RobustSales
1. Undertake efficient capital expenditures in 2010 to augment the production capability of FHI’s North American
production base, SIA, with the aim of meeting higher
demand for the new Legacy in this market

Thousand Units

2010

2011

ChangePassenger cars

75.1

69.0

(6.1)

Minicars

96.2

92.4

(3.8)

171.3

161.4

(9.9)
16.7

Japan:

Subtotal
Overseas:

2. Increase production capacity through the amalgamationof domestic production bases in order to meet growing
demand for such parts as the new horizontally opposedengine as well as engines and transmissions for individual markets such as the robust North American market

United States

227.0

243.7

Canada

22.8

26.5

3.7

Europe

37.3

52.2

14.8
6.5

3. Investigate new production systems following reductions of minicar manufacturing at FHI’s Gunma Main
Plant
4. Consider the possibility of the establishment of a local
production base in China where sales are favorable
Alliance with the Toyota Group
1. Smooth transition of manufacturing of the Toyota Camryon an OEM basis in SIA

Russia1.6

8.1

Australia

35.0

39.9

5.0

China

48.9

60.0

11.1

Other
Subtotal
Total

18.9

38.2

19.3

391.6

468.6

77.0

562.8

630.0

67.1

Principal Risks
Business risks faced by FHI with the potential to have significant impact on investor decisions are listed on FHI’s
website at http://www.fhi.co.jp/english/ir/

2. Full-scale OEM supply for minicars from Daihatsu MotorCo., Ltd. to FHI
3. OEM supply for a compact car from Toyota Motor
Corporation to FHI in fiscal 2010
4. Joint development of a sporty, compact FR (front
engine, rear drive) car with Toyota (scheduled to be
introduced at the end of 2011)

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Consolidated Subsidiaries and Affiliates(As of March 31, 2010)

Japan

Overseas

Fuji Machinery Co., Ltd. (100.0%)

Subaru Kosan Co., Ltd. (100.0%)

Subaru of America, Inc. (100.0%)

Subaru Canada, Inc. (100.0%)

Manufacture and sales of automobile parts andindustrial product parts
http://www.fuji-machinery.co.jp/

Leasing of real estate, shopping mall managements andtravel agency operations
http://www.subaru-kohsan.co.jp/index.asp

Ichitan Co., Ltd. (51.0%)

Subaru Finance Co., Ltd. (100.0%)560 Suffolk Court Mississauga, Ontario L5R 4J7, Canada
Phone: +1-905-568-4959
Fax: +1-905-568-8087
Distribution and sales of Subaru automobiles and parts
http://www.subaru.ca/

Manufacture and sales of forged automobile/industrial product parts
http://www.ichitan.co.jp/

Lease & credit facilities provider for Subaru automobiles,
financing for FHI subsidized companies, lease forvarious facility equipments, rolling stocks &FHI made garbage truck and sales of insurance
http://www.subaru-finance.co.jp/

Subaru Plaza, 2235 Route 70 West, Cherry Hill,
NJ 08002, U.S.A.
Phone: +1-856-488-8500
Fax: +1-856-488-0485
Distribution and sales of Subaru automobiles and parts
http://www.subaru.com

Kiryu Industrial Co., Ltd. (97.5%)
Manufacture of Subaru specially equipped automobiles
and distribution of Subaru automobile parts
http://www.kiryu-kougyo.co.jp/

Subaru Tecnica International Inc. (100.0%)
Management of SUBARU Motorsport Activities,
Development and manufacture of competition parts,
tuning parts and accessories for SUBARU cars
http://www.subaru-sti.co.jp/

Yusoki Kogyo K.K. (100.0%)
Manufacture and sales for aircraft parts
http://www.yusoki.co.jp/

TOKYO SUBARU INC. (100.0%)
Distribution, sales and services of Subaru automobiles
http://www.tokyo-subaru.co.jp/

Fuji Heavy Industries U.S.A., Inc. (100.0%)
c/o Subaru of America, Inc.
Subaru Plaza, 2235 Route 70 West, Cherry Hill,
NJ 08002, U.S.A.
Phone: +1-856-488-8743
Fax: +1-856-488-8517
Engineering research of Subaru automobiles in North
America Market

Subaru Research & Development, Inc.
3995 Research Park Drive, Ann Arbor, MI 48108, U.S.A.
Phone: +1-734-623-0075
Fax: +1-734-623-0076
Research and development of automobiles

Subaru Europe N.V./S.A. (100.0%)
Leuvensesteenweg 555 B/8, 1930 Zaventem, Belgium
Phone: +32-2-714-0300
Fax: +32-2-725-7792
Distribution, sales and marketing of Subaru automobiles
and parts

Subaru of China, Ltd. (100.0%)
Beijing Landmark Towers Office Building 2-1501,
8 North Dongsanhuan Road, Chaoyang District,
Beijing 100004, China
Phone: +86-10-6590-0725
Fax: +86-10-6590-0729
Distribution, sales and marketing of
Subaru automobiles and parts
http://www.subaru-china.cn/Home.html

Subaru of Indiana Automotive, Inc.
(100.0%)5500 State Road 38 East, Lafayette, IN 47905, U.S.A.
Phone: +1-765-449-1111
Fax: +1-765-449-6952
Manufacture of Subaru automobiles andcontracted manufacture of Toyota automobiles
http://www.subaru-sia.com/

34

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Investor Information(As of March 31, 2010)

Head Office

Major Shareholders

Subaru Building, 7-2, Nishi-Shinjuku 1-chome,
Shinjuku-ku, Tokyo 160-8316, Japan
Phone:+81-3-3347-2111
Fax:+81-3-3347-2338

1. Toyota Motor Corporation
2. Japan Trustee Services Bank, Ltd. (Trust account)
3. The Master Trust Bank of Japan, Ltd. (Trust account)
4. Nippon Life Insurance Company
5. Suzuki Motor Corporation
6. The Bank of New York Mellon as
Depositary Bank for DR Holders
7. Mizuho Corporate Bank, Ltd.
8. Mizuho Bank, Ltd.
9. FHI’s Client Stock Ownership
10. Sompo Japan Insurance Inc.

Investor Relations Office
Subaru Building, 7-2, Nishi-Shinjuku 1-chome,
Shinjuku-ku, Tokyo 160-8316, Japan
Phone:+81-3-3347-2655
Fax:+81-3-3347-2295

Established
July 15, 1953

Tokyo Stock Exchange

800

600

400

200

¥153,795 million

Transfer Agent

Number of Shareholders

Mizuho Trust & Banking Co., Ltd.
2-1, Yaesu 1-chome, Chuo-ku, Tokyo 103-0028, Japan

Number of Common Stock Issued(Yen)

Stock Exchange Listing

Paid-in Capital

48,940Quarterly Common Stock Price Range ( Tokyo Stock Exchange)

Website Address
http://www.fhi.co.jp/english/ir/

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

0

High
Low

FY2006

FY2007

FY2008FY2009FY2010

704
437

747
577

641
376

635
223

487
317

782,865,873

Domestic Manufacturing Divisions
Gunma Manufacturing Division (Automobiles Division)
Utsunomiya Manufacturing Division(Aerospace Division and Eco Technologies Division)
Saitama Manufacturing Division(Industrial Products Division)

LEGACY
Based on the product concept of “Grand Touring Innovation,” the new Legacy provides new value interms of evolving driver’s fun (which has been a traditional source of worth), passenger’s fun (which pursues comfort and reliability for all passengers to enjoy while driving), and eco performance in step withthe times. Acknowledged by numerous customers worldwide, the value embodied by the new Legacy
has led to very robust sales since its release in May 2009.

The entire Annual Report including the financial statements, please visit FHI’s website:

http://www.fhi.co.jp/english/ir/report/ar.html
F U J I H E A V Y I N D U S T R I E S LT D . 2 0 1 0 | A N N U A L R E P O R T

FHI̲E̲表紙̲0816.indd C7

35

10.8.31 5:56:48 PM

Fuji Heavy Industries Ltd.
Subaru Building, 7-2, Nishi-Shinjuku 1-chome,
Shinjuku-ku, Tokyo 160-8316, Japan
Phone:+81-3-3347-2111
Fax:+81-3-3347-2338

http://www.fhi.co.jp/english/ir/
Printed in Japan

FHI̲E̲表紙̲0816.indd C4

10.8.31 5:56:40 PM

Consolidated Balance Sheets

93.04

FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIESAs of March 31, 2010 and 2009
Millions of yen

Thousands of
U.S. dollars(Note 1)ASSETS
Current assets:
Cash and deposits (Note 3 and 4)
Notes and accounts receivable-trade (Note 4 and 6)
Lease investment assets (Note 4 and 22)
Short-term investment securities (Notes 3, 4 and 5)
Merchandise and finished goods
Work in process
Raw materials and supplies
Deferred tax assets (Note 11)
Short-term loans receivable (Note 3 and 4)
Other current assets
Allowance for doubtful accounts
Total assets

2010

2009

2010

¥168,643
103,521
27,78812,458101,351
59,59635,672
15,54975,78040,216(1,686)
638,888¥78,151
82,352
27,074
11,439128,645
96,42534,24915,91859,43453,845(1,509)586,023$1,812,586$1,112,650$298,667$133,899$1,089,327$640,542$383,405$167,122$814,488$432,245($18,121)
6,866,810

Property, plant and equipment (Notes 6, 8 and 15)
Accumulated depreciation
Accumulated impairment loss
Total property, plant and equipment

1,241,606(759,073)(33,006)
449,527

1,223,798(739,586)(16,153)
468,059

13,344,862(8,158,566)(354,750)
4,831,546

Investments and other assets:
Intangible assets
Investment securities (Note 4 and 5)
Investments in non-consolidated subsidiaries and affiliated companies
Deferred tax assets (Note 11)
Other assets (Note 30)
Allowance for doubtful accounts
Total investments and other assets
Total assets

11,99961,616
6,167
5,742
62,577(5,149)142,952¥1,231,367

13,97245,792
10,58910,702
36,219(5,925)111,349¥1,165,431

128,966
662,253
66,28361,715672,582(55,342)
1,536,457$13,234,813

Millions of yen

Thousands of
U.S. dollars(Note 1)

2010

2009

2010

¥217,051
142,12133,922
56,244
15,34819,9992,873
67,503555,061¥148,015
249,149
21,95650,52414,141
17,934
2,062
57,467561,248$2,332,878
1,527,526
364,596604,514164,961
214,951
30,879725,527
5,965,832

191,569
34,867
13,54154,436294,413

110,583
36,997
7,448
54,436
209,464

2,058,996
374,753
145,540
585,081
3,164,370

153,795
160,071
110,172(2,173)

153,795
160,071
126,593(2,086)

1,652,999
1,720,454
1,184,136(23,356)

421,865

438,373

4,534,233

10,309(51,587)(41,278)
1,306

3,002
(47,429)(44,427)773

110,802(554,461)(443,659)
14,037

381,893394,719

4,104,611¥1,231,367¥1,165,431$13,234,813

LIABILITIES AND NET ASSETS
Current liabilities:
Notes and accounts payable-trade (Note 4)
Short-term loans payable (Note 4 and 6)
Current portion of long-term debts (Note 4 and 6)
Accrued expenses (Note 4)
Provision for bonuses (Note 2)
Provision for product warranties (Note 2)
Accrued income taxes (Note 4 and 11)
Other current liabilities (Note 4 and 6)
Total current liabilities
Long-term liabilities:
Long-term debts (Note 4 and 6)
Accrued pension and severance liability (Note 10)
Deferred tax liabilities (Note 11)
Other long-term liabilities (Note 6)
Total long-term liabilities
Contingent liabilities (Note 24)
Net assets: (Note 1 and 12)
Shareholders' equity:
Capital stock
Authorized— 1,500,000,000 shares
Issued —782,865,873 shares
Capital surplus
Retained earnings
Less－treasury stock, at cost,
2010—
3,901,219 shares
2009—
3,682,316 shares
Total shareholders’ equity
Total valuation and translation adjustments:
Valuation difference on available-for-sale securities
Foreign currency translation adjustment
Total valuation and translation adjustments
Minority interests
Total net assets
Total liabilities and net assets
The accompanying notes are an integral part of these balance sheets.

1Consolidated Statements of Operations

93.04

FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2010 and 2009

Millions of yen

Net sales
Cost of sales (Note 13)
Gross profit
Selling, general and administrative expenses (Note 14)
Operating income (loss)
Other income (expenses):
Interest and dividend income
Interest expenses
Equity in earnings of affiliates
Real estate rent
Foreign exchange gains (losses)
Gain (loss) on valuation of derivatives
Gain (loss) on sales and retirement of noncurrent assets (Note 17)
Gain (loss) on sales of investment securities
Loss on valuation of investment securities (Note 18)
Reversal of allowance for doubtful accounts
Depreciation
Impairment loss (Note 8, 15 and 17)
Gain on sales of loans receivable
Loss on abandonment of inventories (Note 16)
Gain on revision of retirement benefit plan (Note 10)
Provision of allowance for doubtful accounts (Note 18)
Provision for loss on construction contracts (Note 2)
Other, net (Note 17, 18 and 19)
Income (loss) before income taxes and minority interests
Income taxes (Note 11):
Current
DeferredIncome (loss) before minority interests
Minority interests in income (loss)
Net income (loss)

Per share data (Note 2) :Net income (loss)—Basic—Diluted *Net assets
Cash dividends (Note 12)
The accompanying notes are an integral part of these statements.

Thousands of
U.S. dollars(Note 1)

2010

2009

2010

¥1,428,690
1,152,763
275,927
248,577
27,350¥1,445,790
1,164,564
281,226
287,029(5,803)$15,355,653
12,389,972
2,965,681
2,671,722
293,959

1,719(4,947)
1,070
573
98
(165)
(3,000)
20
(520)
283
(1,289)(17,906)294(1,191)(2,832)(27,793)
(443)

3,743
(3,315)
926
586
7,769
(5,296)(3,452)205(1,072)112(1,004)(1,045)837
845(2,640)(2,901)(10,012)(15,714)(21,517)

18,476(53,171)
11,5006,159
1,053(1,773)(32,244)215(5,589)3,042(13,854)(192,455)
3,160(12,801)(30,438)(298,720)(4,761)

10,504
5,629
16,133(16,576)(126)(¥16,450)

6,637
41,961
48,598(70,115)(182)(¥69,933)

112,898
60,501
173,399(178,160)(1,354)($176,806)

Yen

U.S. dollars(¥91.97)505.594.50($0.23)5.25
0.00(¥21.11)488.580.00* For the year ended March 31, 2010 and 2009, diluted information is not presented although potentially dilutive securities exist
and net loss is recorded.

2

Consolidated Statements of Changes in Net Assets

93.04

FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2010 and 2009

Shareholders' equity
Capital stock
Balance at the end of previous period
Balance at the end of current period
Capital surplus
Balance at the end of previous period
Changes of items during the period
Disposal of treasury stock
Total changes of items during the period
Balance at the end of current period
Retained earnings
Balance at the end of previous period
Effect of changes in accounting policies applied to foreign subsidiaries
Changes of items during the period
Dividends from surplus
Net income (loss)
Disposal of treasury stock
Change of scope of consolidation
Change of scope of equity method
Other
Total changes of items during the period
Balance at the end of current period
Treasury stock
Balance at the end of previous period
Changes of items during the period
Purchase of treasury stock
Disposal of treasury stock
Total changes of items during the period
Balance at the end of current period
Total shareholders' equity
Balance at the end of previous period
Effect of changes in accounting policies applied to foreign subsidiaries
Changes of items during the period
Dividends from surplus
Net income (loss)
Purchase of treasury stock
Disposal of treasury stock
Change of scope of consolidation
Change of scope of equity method
Other
Total changes of items during the period
Balance at the end of current period

3Millions of yen

Thousands of
U.S. dollars(Note 1)

2010

2009

2010

153,795
153,795

153,795
153,795

1,652,999
1,652,999

160,071160,098

1,720,454

160,071(27)(27)
160,071

1,720,454

126,593-

227,789(12,115)

1,360,630-(16,450)(3)
32(16,421)110,172(6,742)(69,933)(7,309)(43)
72(5,126)(89,081)
126,593(176,806)(32)
344(176,494)
1,184,136(2,086)(40,538)(22,420)

(93)
6
(87)
(2,173)(50)
38,50238,452(2,086)(1,000)64(936)(23,356)

438,373-

501,144(12,115)

4,711,663-(16,450)(93)
3
32(16,508)
421,865(6,742)(69,933)(50)
31,166(43)
72(5,126)(50,656)
438,373(176,806)(1,000)32
344(177,430)
4,534,233

Consolidated Statements of Changes in Net Assets
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2010 and 2009

Valuation and translation adjustments
Valuation difference on available-for-sale securities
Balance at the end of previous period
Changes of items during the period
Net changes of items other than shareholders' equity
Total changes of items during the period
Balance at the end of current period
Foreign currency translation adjustment
Balance at the end of previous period
Changes of items during the period
Net changes of items other than shareholders' equity
Total changes of items during the period
Balance at the end of current period
Total valuation and translation adjustments
Balance at the end of previous period
Changes of items during the period
Net changes of items other than shareholders' equity
Total changes of items during the period
Balance at the end of current period
Minority interests
Balance at the end of previous period
Changes of items during the period
Net changes of items other than shareholders' equity
Total changes of items during the period
Balance at the end of current period
Total net assets
Balance at the end of previous period
Effect of changes in accounting policies applied to foreign subsidiaries*
Changes of items during the period
Dividends from surplus
Net income (loss)
Purchase of treasury stock
Disposal of treasury stock
Change of scope of consolidation
Change of scope of equity method
Other
Net changes of items other than shareholders' equity
Total changes of items during the period
Balance at the end of current period
The accompanying notes are an integral part of these statements.

Millions of yen

Thousands of
U.S. dollars(Note 1)

2010

2009

2010

3,002

13,71632,266

7,307
7,307
10,309(10,714)(10,714)
3,002

78,53678,536
110,802(47,429)(21,463)(509,771)(4,158)(4,158)(51,587)(25,966)(25,966)(47,429)(44,690)(44,690)(554,461)(44,427)(7,747)(477,505)

3,149
3,149
(41,278)(36,680)(36,680)(44,427)

33,84633,846(443,659)

773

1,026

8,308

533
533
1,306

(253)
(253)
773

5,729
5,729
14,037394,719-494,423(12,115)

4,242,466-(16,450)
(93)
3
32
3,682
(12,826)
381,893(6,742)(69,933)(50)
31,166(43)
72(5,126)(36,933)(87,589)394,719(176,806)(1,000)32
344
39,575(137,855)
4,104,611* “Effect of changes in accounting policies applied to foreign subsidiaries” was related to amortization of goodwillthat had not amortized up to the prior financial year.
The breakdown of “Other” in “ Retained earnings” was as follows.
(Unit: Million of yen)
FY2009FY2010Comprehensive income of foreign subsidiaries
52
32
Impact of fiscal closing date changes of foreign subsidiaries(5,178)-4

Consolidated Statements of Cash Flows

93.04

FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2010 and 2009

Millions of yen

Thousands of
U.S. dollars(Note 1)

2010

2009

2010

Net cash provided by (used in) operating activities
Income (loss) before income taxes and minority interests
Depreciation and amortization
Impairment loss
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in provision for bonuses
Increase (decrease) in provision for product warranties
Increase (decrease) in provision for loss on construction contracts
Increase (decrease) in provision for retirement benefits
Interest and dividends income
Interest expenses
Loss (gain) on valuation of derivatives
Equity in (earnings) losses of affiliates
Loss (gain) on sales and retirement of noncurrent assets
Loss (gain) on sales and valuation of investment securities
Decrease (increase) in notes and accounts receivable-trade
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable-trade
Decrease (increase) in lease investment assets
Decrease (increase) in operating loans receivable
Decrease (increase) in vehicles and equipment on operating leases
Increase (decrease) in deposits received
Other
Sub total(¥443)
65,785
17,906
(630)
1,168
1,708
639
(2,292)(1,719)4,947
165(1,070)3,000
500(18,305)
56,491
67,557(575)(12,154)(2,867)3,293
3,155
186,259(¥21,517)
74,036
1,045
2,956(2,037)(533)
760(5,053)(3,743)
3,315
5,296
(926)
3,452
867
5,938
(18,717)(73,159)(1,539)9,127(417)(4,757)
12,819(12,787)($4,761)
707,061
192,455(6,771)
12,554
18,3586,868(24,635)(18,476)
53,171
1,773(11,500)
32,244
5,374(196,743)
607,169
726,107(6,180)(130,632)(30,815)
35,39333,9102,001,924

Interest and dividends income received
Interest expenses paid
Income taxes paid
Net cash provided by (used in) operating activities

1,722(5,203)(6,044)
176,734

3,738(3,062)(14,781)(26,892)

18,508(55,922)(64,961)
1,899,549

Net cash provided by (used in) investing activities
Purchase of short-term investment securities
Proceeds from sales of short-term investment securities
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Purchase of investment securities
Proceeds from sales of investment securities
Payments of loans receivableCollection of loans receivable
Other, net
Net cash provided by (used in) investing activities

(703)
1,055
(53,087)
2,390(2,894)(15,050)
6,386(59,057)
58,721(417)(62,656)(2,265)
5,326(58,415)830(2,713)(20,433)
11,848(64,188)
60,155(2,530)(72,385)(7,556)
11,339(570,583)
25,688(31,105)(161,758)
68,637(634,748)
631,137(4,482)(673,431)

Net cash provided by (used in) financing activities
Net increase (decrease) in short-term loans payable
Increase (decrease) in commercial papers
Proceeds from long-term loans payable
Repayment of long-term loans payable
Proceeds from issuance of bonds
Redemption of bonds
Cash dividends paid
Repayment of lease obligations
Other,net
Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents(81,922)(24,000)
110,472(26,118)
4,100
(960)
(132)
(18,560)(816)
94,70251,51718,00037,063(20,500)(30,000)(6,744)
31,11380,449(15,614)(34,442)(880,503)(257,954)
1,187,360(280,718)
44,067(10,318)(1,419)(199,485)(8,770)1,017,863

96,515

114,649

1,037,350

2,045
14,263¥96,515

2,676

Cash and cash equivalents at beginning of period
Increase (decrease) in cash and cash equivalents resulting
from change of scope of consolidation
Increase by change in accounting period of consolidated subsidiaries
Cash and cash equivalents at end of period (Note 3)
The accompanying notes are an integral part of these statements.
5249¥191,466$2,057,889

Notes to Consolidated Financial Statements
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
1. Basis of Presentation of the Financial Statements
The accompanying consolidated financial statements of Fuji Heavy Industries Ltd. (the “Company”) havebeen prepared in accordance with the provisions set forth in the Financial Instruments and Exchange Law
and its related accounting regulations, and in conformity with accounting principles generally accepted inJapan (“Japanese GAAP”), which are different in certain respects as to application and disclosure
requirements of International Financial Reporting Standards.
The accounts of the Company’s overseas subsidiaries are based on their accounting records maintained inconformity with generally accepted accounting principles prevailing in the respective countries of their
domicile. The accompanying consolidated financial statements have been restructured and translated into
English from the consolidated financial statements of the Company prepared in accordance with Japanese
GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance, as required by the
Financial Instruments and Exchange Law. Certain supplementary information included in the statutory
Japanese-language consolidated financial statements, but not considered necessary for fair presentation, is
not presented in the accompanying consolidated financial statements.
The translation of the Japanese yen amounts into U.S. dollars is included solely for the convenience ofreaders outside Japan, using the prevailing exchange rate at March 31, 2010, which was ¥93.04 to U.S.$1.
The convenience translation should not be construed as a representation that the Japanese yen amounts
have been, could have been, or could in the future be converted into U.S. dollars at this or any other rate ofexchange.
2. Summary of Significant Accounting Policies[1] The Scope of Consolidation and Application of the Equity Method
The accompanying consolidated financial statements include the accounts of the Company and its significant
subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
The fiscal year-end of consolidated domestic subsidiaries and main foreign subsidiaries is the same as that ofthe parent company, while the fiscal year-end of the nine consolidated foreign subsidiaries is December
31.The operating results of those subsidiaries that have fiscal year-ends different from that of theparent company are consolidated by using the financial statements as of each subsidiary’s respective
fiscal year-end, the necessary adjustments being made in consolidation if there are any significant
transactions between January 1 and March 31.
The consolidated financial statements include the accounts of the Company and 71 subsidiaries in fiscal
2010 (68 subsidiaries in fiscal 2009).
In addition, 8 non-consolidated subsidiaries and one affiliated companies were accounted for by the equity
method in fiscal 2010; 13 non-consolidated subsidiaries and two affiliated companies had been accounted forby the equity method in fiscal 2009.
Investments in insignificant non-consolidated subsidiaries and affiliated companies not accounted for by theequity method are carried at cost. The difference between the cost and the underlying net equity ofinvestments in subsidiaries and affiliated companies is allocated to identifiable assets based on their fair value
at the date of acquisition. The unallocated residual value of the excess of the cost over the fair value of theunderlying net assets is recognized as goodwill and amortized over a period of five years on a straight-line
basis.
All assets and liabilities of subsidiaries, which include not only the Company’s interest in the subsidiaries but
also the minority interest portion, are valued based on their fair value at the time the Company first
consolidates the subsidiary in question.
6

(Fiscal 2009)
Until the fiscal year ended March 31, 2008, since the difference between the fiscal year-end of the parent
company and that of 19 consolidated subsidiaries was within three months, the operating results of thosesubsidiaries were consolidated by using the financial statements as of each subsidiary’s respective fiscal
year-end, and the necessary adjustments made in consolidation to reflect any significant transactions
between January 1 and March 31.
The accounting date for the fiscal year-end of 12 consolidated subsidiaries was changed to March 31 inorder to make the disclosures of the consolidated financial statements more meaningful by unifying the
fiscal year.
Consolidated subsidiaries whose fiscal closing date has been changed･Subaru of America, Inc. and nine consolidated subsidiaries･Subaru of Indiana Automotive, Inc. and one consolidated subsidiary[2] Short-Term Investment Securities and Investment Securities
Under the Japanese accounting standards for financial instruments, available-for-sale securities for which fairvalue is available are stated at their fair value as of the balance sheet dates with unrealized holding gains andlosses included as a separate component of net assets until realized, while securities for which fair value is
not readily available are stated at cost, as determined by the moving-average method, after taking into
consideration devaluation, if any, for permanent impairment. Held-to-maturity debt securities are stated using
the amortized cost method.
[3] Inventories
Inventories for regular sales are stated at cost, determined mainly by the moving-average cost method. (Bookvalue on the consolidated balance sheet is measured based on the lower of cost or market value.)(Change in accounting policy)(Fiscal 2009)
Up to and including fiscal 2008, inventories for regular sales were stated at cost, determined mainly by themoving-average cost method. In fiscal 2009, the Company and its domestic consolidated subsidiaries
adopted the “Accounting Standard for Measurement of Inventories” (Accounting Standards Board of Japan[ASBJ] Statement No. 9). Inventories for regular sales are now stated at cost, determined mainly by themoving-average cost method. (Book value on the consolidated balance sheet is measured based on thelower of cost or market value.)
This change resulted in an increase in operating loss, ordinary loss and loss before income taxes andminority interests of ¥3,220 million.
The impact of this change on segment information is explained in the relevant portion of these
documents.
[4] Property, Plant and Equipment (Excluding Leased Assets)
Property, plant and equipment are stated at cost. Significant renewals and additions are capitalized; ordinary
maintenance, ordinary repairs, minor renewals and minor improvements are charged to the consolidated
statements of income as incurred.
Depreciation of the property, plant and equipment of the Company and its consolidated domestic
subsidiaries is principally computed by the declining-balance method, except for those buildings (excluding
building improvements) acquired on or after April 1, 1998, for which the straight-line method is applied.
Depreciation of the property, plant and equipment of consolidated foreign subsidiaries is computed by thestraight-line method at rates based on the estimated useful lives of the assets according to their general class,type of construction, and use.
7

Estimated useful lives for depreciable assets are as follows:(Fiscal 2010)
Buildings and structures: 6–50 years
Machinery, equipment and vehicles:2–15 years(Fiscal 2009)
Buildings and structures: 8–50 years
Machinery, equipment and vehicles: 2–12 years(Fiscal 2009)(Additional Information)
In fiscal 2009, the Company and its domestic consolidated subsidiaries revised the estimated useful lives of
fixed assets (machinery) in accordance with the enacted revisions to the tax depreciation schedules under
the Corporate Tax Law and related tax regulations.
This change resulted in an increase in operating loss of ¥1,595 million and an increase in ordinary loss
and loss before income taxes and minority interest of ¥1,609 million.
The impact of this change on segment information is explained in the relevant portion of these
documents.
[5] Intangible Assets (Excluding Leased Assets)
Computer software used internally by the Company and consolidated subsidiaries is amortized by thestraight-line method over the relevant economic useful lives of three or five years.
[6] Leased Assets
For leased assets under finance lease transactions in which the ownership is transferred to the lessee:Theleased assets are depreciated by the same method as used for other property, plant and equipment.
For leased assets under finance lease transactions in which the ownership is not transferred to the lessee:
The leased assets are depreciated by the straight-line method over the leased period and the residual value iszero.
In addition, finance lease transactions in which the ownership is not transferred to the lessee on or before
March 31, 2008 are recorded as regular rental transactions.
[7] Allowance for Doubtful Accounts
Allowance for doubtful accounts is provided based on the amount calculated from the historical ratio of bad
debt for ordinary receivables, and an estimated amount of uncollectible accounts for specific overdue
receivables.
[8] Provision for Bonuses
Employee's bonus is recognized as expenses for the period in which it is incurred.
[9] Provision for Product Warranties
The Company and its consolidated subsidiaries provide for accrued warranty claims on products sold basedon their past experience of warranty services and estimated future warranty costs, which are included in“Accrued expenses” in the accompanying consolidated balance sheets.
[10] Provision for Loss on Construction Contracts
The provision for losses on uncompleted construction of contracts in the Aerospace segment is made whensubstantial losses on the contracts are anticipated at the fiscal year-end for the next fiscal year and beyond
and such losses can be reasonably estimated.
8

(Change in accounting policy)(Fiscal 2009)
In fiscal 2009, the Company started accounting for the provision for losses on uncompleted construction ofcontracts in the Aerospace segment when substantial losses on the contracts were anticipated at the fiscal
year-end for the next fiscal year and beyond and such losses could be reasonably estimated. The reason
for this accounting change is that its estimated loss has became more significant, so the Company reflected
it properly in the financial statements and disclosed it in a timely manner.
This change resulted in a decrease in operating loss and ordinary loss of ¥433 million, and an increase inloss before income taxes and minority interest of ¥2,468 million.
The impact of this change on segment information is explained in the relevant portion of these
documents.
[11] Accrued Pension and Severance Liability
Upon termination of employment, employees of the Company and consolidated subsidiaries in Japan areentitled, under most circumstances, to lump-sum indemnities or pensions as described below, based on
current rates of pay, length of service, and conditions under which the termination occurs. The minimum
payment is an amount based on voluntary retirement. In addition to the minimum payment based on voluntary
retirement, employees receive additional benefits for retirement due to age limit, death or other definedreasons.
Certain consolidated subsidiaries in Japan have contributory funded defined benefit employees’ welfare
pension funds, which are pursuant to the Japanese Welfare Pension Insurance Law. The contributory
pension funds consist of a portion of the governmental welfare pension program, under which thecontributions are made by the companies and their employees, and an additional portion representing thecorporate noncontributory pension plans.
The Company has applied Partial Amendments to Accounting Standard for Retirement Benefits (Part3)(ASBJ Statement No.19, July 31, 2008) since the beginning of fiscal year 2010.
Under the Japanese accounting standards for pension and severance benefits, accrued pension andseverance liability for employees is provided based on the estimated amounts of projected pension andseverance obligation and the fair value of plan assets at the end of the fiscal year. Prior service cost is being
amortized by the straight-line method over a period (11-18 years) that is shorter than the average remaining
service period of the eligible employees. Actuarial gains and losses are amortized from the following fiscal
year by the straight-line method over a period (primarily 16 years and 18 years for fiscal years 2010 and 2009,
respectively) that is shorter than the average remaining service period of the eligible employees.
Accrued pension contribution for defined benefit pension plans is included in accrued pension andseverance liability.
Directors and statutory auditors of the Company and consolidated domestic subsidiaries are entitled toreceive a lump-sum payment at the time of severance or retirement, subject to shareholder approval. The
liabilities for such benefits, which are determined based on the Company’s and consolidated subsidiaries’internal rules, are included in “Other long-tem liabilities” in the accompanying consolidated balance sheets.
(Change in accounting policy)(Fiscal 2010)
The Company has applied Partial Amendments to Accounting Standard for Retirement Benefits (Part3)(ASBJ Statement No.19, July 31, 2008) since the beginning of fiscal 2010.
Since accumulated actuarial loss is amortized from next fiscal year, this change resulted in no effect on
operating income, ordinary income and loss before income taxes and minority interests.
Also, the amount of retirement benefit obligation which is accrued with this change is ¥1,447 million(US$15,552 thousand).
9[12] Translation of Foreign Currency-Denominated Accounts
Under the Japanese accounting standards for foreign currency translation, monetary assets and liabilities
denominated in foreign currencies are translated into Japanese yen at the exchange rates prevailing at eachbalance sheet date with the resulting gain or loss included currently in the statement of income.
The assets and liabilities of foreign subsidiaries and affiliated companies are translated into Japanese yen at
the exchange rates in effect at the balance sheet dates of the foreign subsidiaries and affiliated companies,
except for common stock and capital surplus, which are translated at historical rates. Revenue and expense
accounts are translated at the average exchange rates during the respective years. The resulting foreign
currency translation adjustments are included in “Foreign currency translation adjustments” and “Minority
interest” in the net assets section of the accompanying consolidated balance sheets.
[13] Revenue Recognition
The percentage-of-completion method of revenue from Aerospace division production has been applied toconstruction contracts for which certain elements were determinable with certainty at the end of fiscal year.
(The percentage of completion is estimated with the proportion-of-cost method). The completed-contract
method was applied to other works.
(Change in accounting policy)(Fiscal 2010)
The Company previously used the percentage-of-completion method for accounting revenues associatedwith construction contracts with a contract amount of ¥5,000 million (US$53,740 thousand) or more and aconstruction period of over one year, and other construction work was accounted for using thecompleted-contract method. Since the beginning of fiscal year 2010, in conjunction with adoption of the
Accounting Standard for Construction Contracts (ASBJ Statement No.15, December 27, 2007) and its
accompanying Guidance on Accounting Standard for Construction Contracts (ASBJ Guidance No.18,
December 27, 2007), the percentage-of-completion method has been applied to construction contracts thatwere started during the fiscal year 2010, for which certain elements were determinable with certainty at theend of fiscal year 2010. (The percentage of completion is estimated with the proportion-of-cost method).
The completed-contract method was applied to other works.
This change resulted in an increase in net sales of ¥2,361 million (US$25,376 thousand), an increase inoperating income and ordinary income of ¥215 million (US$2,311 thousand) and a decrease in loss before
income taxes and minority interests of ¥215 million (US$2,311 thousand) in the year ended March 31,
2010.
[14] Accounting for Lease Transactions
A part of its domestic consolidated subsidiaries recognizes revenue for financial lease transactions on theeffective date of each lease contract.
(Change in accounting policy)(Fiscal 2009)
Up to and including fiscal 2008, the Company and its domestic consolidated subsidiaries applied theaccounting treatment for operating lease transactions to finance lease transactions in which the ownershipwas not transferred to the lessee.
In fiscal 2009, the Company and its domestic consolidated subsidiaries adopted “Accounting Standard
for Lease Transactions” (ASBJ Statement No. 13), and “Guidance on Accounting Standard for Lease
Transactions” (ASBJ Guidance No. 16).
However, those finance lease transactions in which the ownership had not been transferred to the lessee
and that occurred before the application of the revised “Accounting Standard for Lease Transactions” weretreated as regular rental transactions.
10This change resulted in a decrease in operating loss, ordinary loss and loss before income taxes andminority interests of ¥2,513 million.
The impact of this change on segment information is explained in the relevant portion of these
documents.
For the reasons above, this change resulted in an increase in “lease investment assets” of “Current
assets” of ¥27,074 million and a decrease in “lease assets, net” of “Property, plant and equipment” of¥27,074 million, on the consolidated balance sheets.
The Company applies the disclosure model that the Japan Leasing Association created for leasing
companies, and cash flow from finance lease transactions of captive finance companies and sales on
credit were reclassified from “Net cash provided by (used in) investing activities” to “Net cash provided by(used in) operating activities.”
Net cash provided by (used in) operating activities

Decrease (increase) in lease investment assets
Decrease (increase) in operating loans receivable
Decrease (increase) in vehicles and equipment on operating leases
Total

Millions of yen(¥1,539)
9,127
(417)
¥7,171[15] Derivative Financial Instruments and Hedge Accounting
The Japanese accounting standards for financial instruments require that the Company and its consolidated
domestic subsidiaries state derivative financial instruments at their fair value and recognize changes in the fairvalue as a gain or loss, unless such derivative financial instruments are used for hedging purposes.
For interest rate swap contracts used as a hedge that meet certain hedging criteria, the net amount to be
paid or received under the interest rate swap contract is added to or deducted from the interest on the assets
or liabilities for which the swap contract is executed.
Derivative financial instruments qualifying as a hedge, along with the underlying transactions, assets andliabilities are as follows:
Financial Instrument
Interest swaps

Transactions, assets and liabilities
Borrowings

The risk exposures to movements in interest rates are hedged according to the Company’s andconsolidated subsidiaries’ risk management policy. An evaluation of hedge effectiveness is not considerednecessary as the terms and notional amounts of these hedging instruments are the same as those of theunderlying transactions, assets and liabilities, and therefore they are presumed to be highly effective inoffsetting the effect of movements in interest rates at their inception as well as during their terms.
[16] Goodwill and Negative Goodwill
Goodwill and negative goodwill are principally amortized by the straight-line method over five years inaccordance with accounting principles generally accepted in the countries where such goodwill is recorded.
[17] Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments—generally with original maturities of threemonths or less—that are readily convertible to known amounts of cash and have negligible risk of changes invalue due to their short maturities.

11[18] Income Taxes
The provision for income taxes is computed based on the pretax income for financial reporting purposes.
Deferred tax assets and liabilities are recognized for expected future tax consequences of temporary
differences between the financial statement carrying amounts and the tax bases of assets and liabilities. A
valuation allowance is recorded to reduce deferred tax assets when it is more likely than not that a tax benefit
will not be realized.
[19] Research and Development Expenses
Research and development costs are expensed as incurred and amounted to ¥37,175 million (US$ 399,559
thousand) and ¥42,831 million for fiscal years 2010 and 2009, respectively.
[20] 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 potential dilution that could occur if all the convertible
securities were converted or other contracts to issue common stock were exercised to the extent that they are
not anti-dilutive.
[21] Reclassification and Restatement
Financial statements in fiscal 2009 have been reclassified to conform to the current year presentation.
These reclassifications had no impact on previously reported results of operations or retained earnings.
[22] Other Changes in Accounting Policy(Fiscal 2009)
Change in Recognition of Sales or Interest Revenue on Credit
In fiscal 2009, the Company’s financial subsidiary changed the recognition of sales or interest revenue on
credit from the equal installment method to the seven-eight allocation method. The reason for this change
was to make it possible for the Company to closely manage the interest revenue by improving its credit
system and reflecting the results more accurately.
The impact of this change on net sales, operating loss and ordinary loss in the year ended March 31, 2009
was immaterial, whereas the impact on loss before income taxes and minority interest was a ¥1,043 million
decrease.
Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for
Consolidated Financial Statements
In fiscal 2009, the Company adopted “Practical Solution on Unification of Accounting Policies Applied toForeign Subsidiaries for Consolidated Financial statements” (the Practical Issues Task Force No.18) andmade necessary adjustments to the consolidated accounts.
The impact of this change on profit and loss was immaterial.
The impact of this change on shareholders' equity is described in “Consolidated statement of changes in
net assets.”12

3. Additional Cash Flow Information
Cash and cash equivalents as of March 31, 2010, and 2009, consisted of the following:
Millions of yen

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

2010¥168,643
12,45875,780256,881(65,415)¥191,466

2009¥78,151
11,43959,434
149,024(52,509)¥96,515

Thousands of
U.S. dollars
2010$1,812,586
133,899
814,4882,760,973(703,084)$2,057,889

4. Financial Instruments
The Company has applied "Accounting Standard for Financial Instruments and its Implementation Guidance(ASBJ Statement No.10, March 10, 2008)" and "Guidance on Disclosures about Fair Value of Financial
Instruments (ASBJ Guidance No.19, March 10,2008)" since the beginning of fiscal 2010.
(1) Summary of Financial Instruments Status[1] Action Policy with Regard to Financial Instruments
With regard to planned capital expenditure to support Fuji Heavy Industries Ltd., its consolidated subsidiaries
and affiliated companies (the “FHI Group”) in their main operations of automobile manufacturing and sales,
the Company is financed mainly by bank loans and the issue of corporate bonds. Temporary surpluses areinvested in highly secure financial assets, and bank loans and liquidation of accounts receivable provide
short-term working capital. It is the Company's policy to use derivatives as a way to avoid the below-statedrisks and to not conduct speculative transactions.
[2] Details of Financial Instruments and Respective Risks
Operating receivables such as notes and accounts receivable-trade and lease investment assets are subject
to customer credit risks. Moreover, because the Company works to expand its business globally, operatingreceivables denominated in foreign currencies are subject to the risk of changes in foreign exchange rates. As
a general rule, however, forward foreign exchange contracts are used to hedge the foreign exchange raterisk, considering the net amount of operating receivables denominated in foreign currencies that exceed
foreign currency denominated operating liabilities. Available-for-sale securities and investment securities aremainly stocks associated with business and capital alliances with principal business partners, and are subject
to risk of market price fluctuation.
Notes and accounts payable-trade that are included in operating liabilities usually have a payment date ofwithin one year. Furthermore, a certain portion of such liabilities involves foreign currency denominatedtransactions associated with the import of raw materials and is thus subject to exchange rate fluctuation risk,
although it is consistently less than accounts receivable balance of the same foreign currency. The FHIGroup’s liabilities associated with debt and bonds are set specifically for the acquisition of essential funds,
mainly for capital expenditure, whose redemption dates come within 14 years after March 31, 2010 at thelatest. A certain portion of said liabilities may have adjustable rates and are therefore subject to the risk ofchanges in interest rates, although in such cases derivative transactions (interest rate swap transactions) areused.
Derivative transactions are foreign exchange forward contracts to hedge against exchange rate fluctuations
associated with accounts receivables and liabilities denominated in foreign currencies, and interest rate swap
contracts with the objective of hedging against the risk of change in interest rates to be paid on loans. With13

regard to hedging instruments and hedged items, hedge policy, the method of evaluation of hedge
effectiveness and other related items, please refer to “2-[15] Derivative Financial Instruments and Hedge
Accounting”.
[3] Risk Management System with Regard to Financial Instruments(a) Management of Credit Risk (Risk Associated with Business Partner’s Breach of Contract)
Credit control departments at each FHI division and its consolidated subsidiaries regularly monitor thefinancial status of key customers with regard to accounts receivables and lease investment assets.
Together with keeping an eye on deadlines and balances of each customer, these departments identify
and mitigate the risk of potential problem in collection due to deterioration in financial status or otherfactors.
(b) Management of Market Risk (Risk Associated with Fluctuations in Exchange or Interest Rates)
With regard to operating assets and liabilities denominated in foreign currencies, as a general rule, theCompany uses foreign exchange forward contracts to hedge against risks of exchange rate fluctuation
on a monthly basis by each currency. Depending on the status of exchange rates, foreign exchange
forward contracts, that is no longer than six months, are used to hedge against the risk of exchange rate
fluctuation to which net position of accounts receivable and accounts payable dominated in foreign
currency is exposed. Moreover, the Company and certain consolidated subsidiaries use interest rate
swap transactions to limit exposure to the risk of fluctuation in interest rates payable on loans or corporate
bonds. The Company also regularly check the market values of securities and investment securities aswell as the financial conditions of issuers (business partner companies), and constantly reviews its
investment position taking into consideration its relationships with respective business partnercompanies. Basic policies with regard to derivative transactions are approved by the Executive
Management Board. Derivative transactions are handled in line with regulations and are conducted by
the Finance & Accounting Department. The results of these transactions are without exception reported
to officers concerned.
(c) Management of Liquidity Risk (Risk of Becoming Unable to Make Payments by the Due Date)
Associated with Funds Procurement
The Company secures liquidity at a level sufficient to satisfy its current needs through the use ofcommitment lines contracted with major banks in combination with cash and cash equivalents.
[4] Supplemental Explanation of Items with Regard to Fair Value of Financial Instruments
Fair value includes the fair market value of financial instruments and, in the event market-based prices are notavailable, prices that are calculated on a rational basis. Because the factors incorporated into the calculationof these prices are subject to change, differing assumptions may result in differing fair values. In addition, thevalues of contracts with regard to derivative transactions as stated in “(2) Items with Regard to Fair Value of
Financial Instruments” do not by themselves indicate the market risk associated with the respective derivativetransaction.
(2) Items with Regard to Fair Value of Financial Instruments
The consolidated balance sheet, the fair value and difference as of March 31, 2010 were as follows:
The items whose fair values were extremely difficult to measure were not included in the table below (refer
to Note 2).

14

As of March 31, 2010
Millions of yen

Cash and deposits
Notes and accounts receivable-trade
Lease investment assets
Short-term loans receivable
Short-term investment securities, Investment securities
and Other securities
Notes and accounts payable-trade
Short-term loans payable
Current portion of long-term loans payable
Current portion of bonds
Accrued income taxes
Accrued expenses
Bonds payable
Long-term loans payable
Derivative transactions (*2)
hedge accounting is not applied
hedge accounting is applied

Consolidatedbalance sheet
amounts (*1)
¥168,643
103,521
27,78875,780Fair Value(*1)¥168,643
103,52126,04075,844

Difference

58,132(217,051)(142,121)(13,912)(20,010)(2,873)(56,244)(44,090)(147,479)

58,132(217,051)(142,121)(13,912)(20,010)(2,873)(56,244)(44,447)(146,994)

(357)
485

(¥1,879)-(¥1,879)--(1,748)64

As of March 31, 2010
Thousands of U.S. dollars

Cash and deposits
Notes and accounts receivable-trade
Lease investment assets
Short-term loans receivable
Short-term investment securities, Investment securities
and Other securities
Notes and accounts payable-trade
Short-term loans payable
Current portion of long-term loans payable
Current portion of bonds
Accrued income taxes
Accrued expenses
Bonds payable
Long-term loans payable
Derivative transactions (*2)
hedge accounting is not applied
hedge accounting is applied

Consolidatedbalance sheet
amounts (*1)
$1,812,586
1,112,650
298,667
814,488

Fair Value(*1)$1,812,586
1,112,650
279,880
815,176

Difference

624,807(2,332,878)(1,527,526)(149,527)(215,069)(30,879)(604,514)(473,882)(1,585,114)(20,196)-624,807(2,332,878)(1,527,526)(149,527)(215,069)(30,879)(604,514)(477,719)(1,579,901)(20,196)-(3,837)
5,213-(18,787)688*1. Liabilities are indicated in ( ).
*2. Indicated are the net amounts of assets and liabilities results from derivative transactions, with thetotal net liabilities indicated in ( ).
15

[1] The calculation methods of financial instrument fair value together with securities and derivativetransactions
AssetsCash and deposits and Notes and accounts receivable-trade
Because these are settled in the short-term, the fair value is mostly the same as the book value andas such the book value is deemed as fair value.
Lease investment assets and Short-term loans receivable
Fair value is the present value calculated by discounting relevant cash flows by each category of theassets and timing of cash flow, where discount rates were adopted taking into consideration the
period until maturity and credit risks. In addition, the estimated residual value is included in thebalance of Lease investment assets.
Short-term investment securities and investment securities
Fair value is determined by the stock exchange price, while bonds are determined by the stock
exchange price or by quotations received from financial institutions. Please refer to the note entitled"5.Short-term investment securities and investment securities" regarding to respective objectives forholding securities.
Liabilities
Notes and accounts payable-trade, Short-term loan payable, Current portion of long-term loans
payable, Current portion of bonds, Accrued income taxes and Accrued expenses
Because these are settled in the short-term, the fair value is mostly the same as the book value andas such the book value is deemed as fair value.
Bonds payable
The fair value of bonds issued by the Company is based on market prices if available. For bonds
with no available market price, fair value is measured using the present value that is calculated as
discounted cash flow of the total amount of principal and interest by, where discount rates are
adopted taking into consideration the remaining redemption period and credit risks.
Long-term loans payable
Fair value is measured based on the present value that is calculated as discounted cash flow of
the total amount of principal and interest, where the interest would be set, if the Company
concluded a brand new loan agreement with the same condition at the date of measurement.
Derivative transactions
Fair value of interest rate swap that meets certain hedging criteria is included in the fair value of
long-term debt as a hedged item, because they are treated as a unit.

16

[2] Financial instruments whose fair value is extremely difficult to measure
Consolidated balance sheet amount as of March 31, 2010:
Millions of yen
Other securities (available-for-sale securities)

Thousands of
U.S. dollars
Money management fund
¥11,498$123,581
Unlisted stocks (excluding over-the-counter stocks)¥4,444$47,764
They have no available market price and are expected to entail excessive costs in the estimation of
future cash flows. Consequently, estimating their fair value is recognized as extremely difficult and they
are not included in "Short-term investment securities, Investment securities and Other securities".
[3] Scheduled redemption of monetary assets and securities with maturity
As of March 31, 2010:

Cash and deposits
Notes and accounts receivable-trade
Lease investment assets
Short-term investment securities, Investment
securities and Other securities
Government and municipal bonds
Corporate bonds
Other
Short-term loans receivable

Within 1Year

1 to 5
Years¥168,643
99,867
8,756

3,654
18,777

Millions of yen
5 to 10
Over 10
Years
years
255
-

610
324
26
¥36,713

6,121
6,413
217
¥39,001

1,333
1,810
92
¥66

Within 1
Year

Cash and deposits
Notes and accounts receivable-trade
Lease investment assets
Short-term investment securities, Investment
securities and Other securities
Government and municipal bonds
Corporate bonds
Other
Short-term loans receivable$1,812,586
1,073,377
94,110

6,556
3,482
279
$394,594

17

1,693
195
1,476
-

Thousands of U.S. dollars
5 to 10
Over 10Years
years
39,273201,816
2,741
1 to 5Years

65,78968,9272,332$419,185

14,327
19,454989$709

18,196
2,096
15,864-

[4] Amount of repayment for long-term debt and other interest-bearing debt
As of March 31, 2010:

Bonds payable
Long-term loans payable

Within 1Year

1 to 5Years¥20,010
13,912¥44,090
136,349

Within 1
Year

Bonds payable
Long-term loans payable$215,069
149,527

Millions of yen
5 to 10
Over 10Years
years
10,265865

Thousands of U.S. dollars
1 to 55 to 10
Over 10
Years
Years
years
$473,882
1,465,488
110,3299,297

5. Short-Term Investment Securities and Investment Securities
Information on the value of short-term investment securities and investment securities as of March 31, 2010
and 2009 was as follows:(fiscal 2010)(1) Other securities (available-for-sale securities) for which fair market value was available:
As of March 31, 2010:
Acquisition cost

Millions of yen
Difference¥35,028¥17,936¥17,092

6,350
7,960
1,115
50,453

6,223
7,618
1,082
32,859127342
33
17,594

2,791

3,087

(296)

3,407
782
699
7,679
¥58,132

3,437
785
710
8,019
¥40,878

(30)
(3)
(11)
(340)
¥17,254

Book value
Book value exceeding acquisition cost:
Equity securities
Debt securities
Government and municipal bonds
Corporate bonds
Other
Sub-total
Book value not exceeding acquisition cost:
Equity securities
Debt securities
Government and municipal bonds
Corporate bonds
Other
Sub-total
Total

18

Book value
Book value exceeding acquisition cost:
Equity securities
Debt securities
Government and municipal bonds
Corporate bonds
Other
Sub-total
Book value not exceeding acquisition cost:
Equity securities
Debt securities
Government and municipal bonds
Corporate bonds
Other
Sub-total
Total

Thousands of U.S. dollars
Acquisition cost
Difference$376,483$192,777$183,706

68,25085,555
11,984542,272

66,88581,879
11,629353,170

1,365
3,676
355
189,102

29,99833,179(3,181)

36,6198,405
7,513
82,535$624,807

36,941
8,437
7,631
86,188$439,358

(322)
(32)
(118)
(3,653)$185,449(2) Other securities (available-for-sale securities) sold during fiscal years 2010 :For the year ended March 31, 2010:

Equity securities
Debt securities
Government and municipal bonds
Corporate bonds
Other
Other
Total

Equity securities
Debt securities
Government and municipal bonds
Corporate bonds
Other
Other
Total

Sales amount¥1,320Total gains¥106

Millions of yen
Total losses
¥106

4,144
1,699
195
63,287¥70,645

50
41
5
¥202

43
6
27
¥182

Sales amount$14,187
44,54018,261
2,096
680,213$759,297

Thousands of U.S. dollars
Total gains
Total losses$1,139$1,139537
441
54$2,171462
64
290$1,955(3)The Company and consolidated subsidiaries recognized ¥520 million(US$5,589 thousand) in loss ondevaluation of securities for fiscal years 2010.
For the purpose of recording a loss on devaluation of securities, the Company and its consolidated
subsidiaries consider all the securities whose fair market value has fallen below 50% of the acquisition cost to
be permanently impaired, and record the relevant loss on devaluation. For securities whose fair market value
has declined by between 30% and 50% in relation to their acquisition costs, the Company and its
consolidated subsidiaries specifically consider the probability of recovery of the fair value and record a loss ondevaluation to the amount deemed permanently impaired.
19

(fiscal 2009)(1) Other securities (available-for-sale securities) for which fair market value was available:
As of March 31, 2009:
Acquisition cost
Book value exceeding acquisition cost:
Equity securities
Debt securities
Government and municipal bonds
Corporate bonds
Other
Sub-total
Book value not exceeding acquisition cost:
Equity securities
Debt securities
Government and municipal bonds
Corporate bonds
Other
Sub-total
Total

Book value

Millions of yen
Difference¥15,077¥20,579¥5,502

7,510
4,055
1,567
28,209

7,717
4,162
1,592
34,050

207
107
25
5,841

4,937

4,190

(747)

521
2,398
841
8,697
¥36,906

465
2,196
781
7,632
¥41,682

(56)
(202)
(60)
(1,065)¥4,776(2) Other securities (available-for-sale securities) sold during fiscal years 2009 :For the year ended March 31, 2009:
Sales amount
Total gains
Total losses¥32,312 million¥673 million¥468 millon
The above sales amount included sales of short-term investments in commercial paper and other amounting
to ¥15,138 million.
(3) Book value of major securities without available fair market value as of March 31, 2009:
Other securities (available-for-sale securities)

Millions of yen
2009
Money management fund
¥10,953
Unlisted stocks (excluding over-the-counter stocks)
4,596
Note: The Company and consolidated subsidiaries recognized ¥1,072 million in loss on devaluation of
securities for fiscal years 2009.
For the purpose of recording a loss on devaluation of securities, the Company and its consolidated
subsidiaries consider all the securities whose fair market value has fallen below 50% of the acquisition
cost to be permanently impaired, and record the relevant loss on devaluation. For securities whose fairmarket value has declined by between 30% and 50% in relation to their acquisition costs, theCompany and its consolidated subsidiaries specifically consider the probability of recovery of the fairvalue and record a loss on devaluation to the amount deemed permanently impaired.

20

(4) Scheduled redemption of other securities (available-for-sale securities) with maturity and held-to-maturity
debt securities as of March 31, 2009:
Millions of yen
Within 1
1 to 55 to 10
Over 10
Year
Years
Years
years
Debt securities
Government andmunicipal bonds¥19¥4,913¥1,455¥1,795
Corporate bonds
349
4,609
1,216
184
Other
118
437
75
1,742
Total
¥486
¥9,959¥2,746¥3,721
6. Short-Term Borrowings and Long-Term Debts
Short-term borrowings as of March 31, 2010 and 2009, consisted of the following:

Bank loans with average interest rate of 0.97 % and 0.81%
per annum as of March 31, 2010 and 2009, respectively
Commercial paper with average interest rate of 1.50% perannum as of March 31, 2009.
Total

Millions of yen
2009
2010

Thousands of
U.S. dollars
2010¥142,121¥225,149$1,527,526

0¥142,121

24,000¥249,149

0$1,527,526

Long-term debts as of March 31, 2010and 2009 consisted of the following:Thousands ofMillions of yen
U.S. dollars
2009
2010
2010
Loans principally from banks and insurance companies due
through 2024 with average interest rate of 1.44% and2.35% per annum as of March 31, 2010 and 2009,
respectively
Unsecured 0.68% bonds due June 18, 2010
Unsecured 0.93% bonds due March 31, 2011
Unsecured 1.31% bonds due April 28, 2011
Unsecured 2.01% bonds dueMay 31, 2012
Unsecured 1.62 % bonds due July 10, 2014
Unsecured 0.93% bonds due March 31, 2015
Subtotal
Less—Portion due within one year
Total

21

¥161,391¥72,539$1,734,642

20,00010
20,00020,0004,000
90225,491(33,922)¥191,569

20,00020,00020,000132,539(21,956)¥110,583

214,961108
214,961
214,961
42,992967
2,423,592(364,596)$2,058,996

Annual maturities of long-term loans payable and bonds payable as of March 31, 2010 were as follows:
Thousands ofMillions of yen
U.S. dollars
2011¥33,922$364,596
2012
39,574425,3442013
70,259755,1482014
31,054
333,770
2015
39,552425,1082016 and thereafter
11,130
119,626
Total¥225,491$2,423,592
Lease obligations as of March 31, 2010 and 2009, consisted of the following:

Lease obligations due within one year as of March 31, 2010
and 2009
Lease obligations due after one year as of March 31, 2010
and 2009
Total

Thousands ofMillions of yen
U.S. dollars
2009
2010
2010
¥87
¥1,123$12,070
720

288

7,739

¥1,843375$19,809

Annual maturities of lease obligations as of March 31, 2010 were as follows:
Millions of yen¥1,123
341
192
113
52
22
¥1,843

2011
2012
2013
2014
2015
2016 and thereafter
Total

Thousands of
U.S. dollars$12,070
3,665
2,064
1,215
559
236
$19,809

The following assets as of March 31, 2010 and 2009, were pledged as collateral for certain loans:Thousands ofMillions of yen
U.S. dollars
2009
2010
2010
Notes and accounts receivable-trade
¥79
¥69
$742
Property, plant and equipment
51,27765,584
704,901
Total¥51,356¥65,653$705,643
For efficient procurement of operating fund, the group concludes the commitment-line contracts as follows:
Thousands ofMillions of yen
U.S. dollars
2009
2010
2010
Total commitments¥68,739¥74,956$805,632
Unused balance-22

7. Derivative transactions
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 exposures to fluctuations in foreign currency exchange rates and interest rates. The
Company and consolidated subsidiaries do not use derivatives for speculative or trading purposes.
The fair value information of derivative financial instruments as of March 31, 2010 and 2009, was asfollows:
Derivative transactions to which hedge accounting is not applied(1) Foreign currency contracts:(a) As of March 31, 2010:
Millions of yen
Thousands of U.S. dollars
Notional
Valuation
Notional
Valuation
AmountFair value gain (loss)
AmountFair value gain (loss)
Foreign exchange
forward contracts:
Sell—
U.S. dollar¥61,590(¥1,361)(¥1,361)$661,973($14,628)($14,628)
Euro
8,899
58
58
95,647623
623
Canadian dollar
13,184(576)(576)
141,702(6,191)(6,191)
Australian dollar
¥25
0
0
$269
0
0
(b) As of March 31, 2009:

Foreign exchange forward contracts:
Sell—
U.S. dollar
Euro
Canadian dollar

Notional
AmountMillions of yen
Valuation
Fair value
gain (loss)¥33,928
4,923
2,300

¥35,379
5,138
2,338

Buy—
U.S. dollar(¥1,451)
(215)
(38)

59
59
Note: The method to determine the fair value is based on quotations obtained from financial institutions.

0(2) Interest rate contracts:(a) As of March 31, 2010:
None(b) As of March 31, 2009:
Notional
AmountMillions of yen
Valuation
Fair value
gain (loss)

Interest rate swap contracts:
Receive floating rate pay fixed rate
¥498
(¥12)
(¥12)
Note: The method to determine the fair value is based on quotations obtained from financial institutions.
Derivative financial instruments that qualify as a hedge and are accounted for using the deferred hedge
accounting method are excluded from the above table according to the disclosure requirements.
23

Derivative transactions to which hedge accounting is applied(1) Interest rate contracts:(a) As of March 31, 2010:
Accounting treatment : Exception processing of interest rate swap
Hedge item : Long-term loans payable
Millions of yen
Thousands of U.S. dollars
Notional
Over
Notional
Over
Amount1 yearFair value
Amount1 yearFair value
Interest rate swap
contracts:
Receive floating rate
pay fixed rate
¥36,945¥36,115(*)$397,087$388,166(*)
Note: Fair value of interest rate swap that meets certain hedging criteria is included in the fair value of
long-term debt as a hedged item, because they are treated as a unit.
8. Property, Plant and Equipment
Property, plant and equipment as of March 31, 2010 and 2009, are summarized as follows:2010¥318,236
452,122
27,207
239,985
1,037,550(759,073)(33,006)
191,384
12,672¥449,527

Buildings and structures
Machinery, equipment and vehicles
Vehicles and equipment on operating leases, net
Other
Subtotal
Accumulated depreciation
Accumulated impairment loss
Land
Construction in progress
Total

Millions of yen
2009¥304,620
456,832
20,421
242,846
1,024,719(739,586)(16,153)
186,792
12,287¥468,059

Thousands of
U.S. dollars
2010$3,420,421
4,859,437
292,423
2,579,374
11,151,655(8,158,566)(354,750)
2,057,008
136,199$4,831,546

9. Unexecuted Balance of Overdraft Facilities and Lending Commitments
The unexecuted balance of overdraft facilities and lending commitments at a consolidated subsidiary (Subaru
Finance Co., Ltd.) as of March 31, 2010 and 2009, was as follows:
Thousands ofMillions of yen
U.S. dollars
2009
2010
2010
Total overdraft facilities and lending commitments¥6,020¥5,010$53,848
Less amounts currently executed
1,166
808
8,684
Unexecuted balance¥4,854¥4,202$45,164
A portion of the overdraft facilities and lending commitments above is subject to credit considerations as
documented in the customer contracts. Therefore, the total balance above is not always available.

2410. Pension and Severance Plans
The Company and consolidated domestic subsidiaries have lump-sum retirement payment plans, qualified
retirement pension plans, contributory defined benefit employees’ welfare pension funds, defined benefit
pension plan, and certain domestic subsidiaries have defined contribution pension plans. In addition, in
certain occasions, additional retirement payments are made to employees for their retirement. Consolidated
foreign subsidiaries primarily have defined contribution plans.
In fiscal 2009, the Company transferred 80% of prescribed retirement benefits from qualified retirement
pension plans to defined benefits pension plans and transferred 20% of prescribed retirement benefits from
qualified retirement pension plans to defined contribution plans.
As of March 31, 2010, the Company and 50 of its consolidated domestic subsidiaries, which add up to a
total of 51 companies, have lump-sum retirement payment plans. Within the group, there are also 15 qualified
retirement pension plans, six defined contribution plans, and four defined benefits pension plans. In addition,
there are 13 single-employer employees’ welfare pension funds subject to the provisions of Article 33 of“Practice Guidelines of Accounting for Retirement Benefits.”
Certain insignificant consolidated subsidiaries calculated their pension liability using the simplified method.
Under the simplified method, an accrued pension and severance liability is provided at the amount that would
have been payable had all the employees voluntarily retired at the end of the fiscal year, less an amount to becovered from the plan assets, while the Company and significant subsidiaries provide an accrued pension
and severance liability based on the estimated amount of pension and severance obligation (projected benefit
obligations), less the fair value of plan assets at the end of the fiscal year under the actuarial method.
Certain information concerning the multi-employer pension plan, which requires contributions that are
expensed as they become due as pension and severance costs, is as follows:(1) Overall funded status of the multi-employer pension plan (mainly as of March 31, 2009)
Thousands ofMillions of yen
U.S. dollars
2009
2009
Plan assets¥191,805$2,061,533
Projected benefit obligation
231,986
2,493,401
Funded status(¥40,181)($431,868)(2) Contributions by the Company and consolidated domestic subsidiaries as a percentage of total
contributions to the multi-employer pension plan (mainly from April 1, 2008 to March 31, 2009): 10%
A reconciliation between the projected pension and severance obligation and accrued pension andseverance liability as of March 31, 2010 and 2009, was as follows:
Thousands ofMillions of yen
U.S. dollars
2009
2010
2010
a. Projected pension and severance obligation¥103,456¥103,286$1,110,125
b. Plan assets(42,201)(47,129)(506,546)
c. Unfunded pension and severance obligations
61,25556,157
603,579
d. Unamortized actuarial loss
(23,821)(21,073)(226,494)
e. Unamortized prior service cost
(492)
(269)
(2,891)
f. Net amount recorded in balance sheet
36,94234,815374,194
g. Prepaid pension cost
(55)
(52)
(559)
h. Accrued pension and severance liability¥36,997¥34,867$374,753
Notes: 1. The above amounts include the substitutional portion of the government pension plan funded bysocial security taxes paid by employees and employers.
2. Certain insignificant consolidated subsidiaries calculated the liability using the simplified method.
25

Periodic pension and severance costs for the fiscal years 2010, and 2009, consisted of the following:Thousands ofMillions of yen
U.S. dollars
2009
2010
2010
a. Service cost
¥7,677¥8,541$91,799b. Interest cost
1,929
1,920
20,636c. Expected return on plan assets(2,228)(1,440)(15,477)
d. Amortization of actuarial gain/loss
948
1,976
21,238e. Amortization of prior service cost
35
35
376
f. Pension and severance cost
8,361
11,032
118,572
g. Gain on transfer of the substitutional portion of theemployee’s pension fund(845)
h. Total¥7,516¥11,032$118,572
Notes:1. The above amounts do not include the social security taxes paid by employees.
2. The service cost of consolidated subsidiaries using the simplified method is included in the service
cost above.
3. The service cost above includes required funding for the multi-employer pension plan amounting to¥726 million (US$7,803 thousand) and ¥742 million for fiscal years 2010 and 2009, respectively, forwhich plan assets could not be allocated to each participating employer.
4. The service cost above includes contributions for the defined contribution plans of the Company andcertain consolidated subsidiaries amounting to ¥2,184 million (US$23,474 thousand) and ¥2,415
million for fiscal years 2010 and 2009, respectively.
5. In addition to the pension and severance cost above, additional retirement payments amounting to¥174 million (US$1,870 thousand) and ¥216 million were made for fiscal years 2010 and 2009,
respectively. For fiscal years 2010 and 2009, the entire ¥174 million (US$1,870 thousand) ofadditional retirement payments and ¥216 million of additional retirement payments is included in costof sales and selling, general and administrative expenses, respectively.
Actuarial assumptions used in computation of pension and severance liability were as follows:
2010
2009
a. Attribution of expected benefit obligation The straight-line method
The straight-line method
b. Discount rate
1.4%–2.0%
2.0%–2.5%
c. Expected rate of return on plan assets
1.4%–4.0%
0.8%–4.5%
d. Amortization of actuarial gain/loss
Primarily 16 years (amortized Primarily 18 years (amortizedby the straight-line methodby the straight-line method
starting from the following
starting from the following
fiscal year, over a period
fiscal year, over a period
shorter than the average
shorter than the averageremaining service periods of remaining service periods ofthe eligible employees)
the eligible employees)e. Amortization of prior service cost
11 to 18 years
11 to 18 years

2611. Income Taxes
The Company and its consolidated subsidiaries were subject to a number of taxes based on income, which in
the aggregate resulted in a normal statutory income tax rate of approximately 40.5% for fiscal years 2010 and2009. For fiscal 2010 and 2009, such reconciliation is not presented herein because the consolidated financial
results recorded a net loss.
Significant components of the deferred tax assets and liabilities as of March 31, 2010 and 2009, were as
follows:
Thousands ofMillions of yen
U.S. dollars
2009
2010
2010
Deferred tax assets:
Accrued pension and severance liabilities
Depreciation and amortization expenses
Accrued expenses
Loss on devaluation of inventories
Accrued warranty claims
Accrued bonus
Long-term accounts payable, other
Allowance for doubtful accounts
Net operating loss carryforwards
Other
Total deferred tax assets
Valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Net unrealized holding gains on investment securities
Depreciation and amortization expenses
Advanced depreciation reserve
Other
Total deferred tax liabilities
Net deferred tax assets¥13,847
13,191
8,836
8,340
7,324
6,255
4,681
2,882
53,878
11,818131,052(101,750)
29,302¥14,710
7,545
8,667
8,552
6,566
5,782
3,865
2,774
49,036
13,385
120,882(87,638)
33,244$148,828
141,778
94,97089,63978,71967,22950,31230,976
579,084
127,020
1,408,555(1,093,615)
314,940(6,648)(7,780)(510)(6,614)(21,552)¥7,750(2,105)(4,310)(510)(7,147)(14,072)¥19,172(71,453)(83,620)(5,482)(71,088)(231,643)$83,297

The net deferred tax assets are included in the following line items in the accompanying consolidated balance
sheets.
Thousands ofMillions of yen
U.S. dollars
2009
2010
2010
Current assets—Deferred tax assets¥15,918¥15,549$167,122
Investments and other assets—Deferred tax assets
10,702
5,742
61,715Long-term liabilities—Deferred tax liabilities(7,448)(13,541)(145,540)
Total net deferred tax assets¥19,172¥7,750$83,297(Fiscal 2009)
Income taxes-deferredA reversal of deferred tax assets of ¥39,408 million was made, as a result of careful evaluation ofrealizability.
27

12. Net Assets
The Japanese Corporate Law (the “Law”) became effective on May 1, 2006, replacing the JapaneseCommercial Code (the “Code”). The Law is generally applicable to events and transactions occurring after
April 30, 2006, and for fiscal years ending after that date.
Under Japanese laws and regulations, the entire amount paid for new shares is required to be designatedas common stock. However, a company may, by a resolution of its Board of Directors, designate an amountnot exceeding one half of the price of the new shares as additional paid-in capital, which is included in capitalsurplus.
Under the Law, in cases where a dividend distribution of surplus is made, the smaller of an amount equal to
10% of the dividend or the excess, if any, of 25% of common stock over the total of additional paid-in capitaland legal earnings reserve must be set aside as additional paid-in capital or legal earnings reserve. Legalearnings reserve is included in retained earnings in the accompanying consolidated balance sheets.
Under the Code, companies were required to set aside an amount equal to at least 10% of the aggregate
amount of cash dividends and other cash appropriations as legal earnings reserve until the total of legal
earnings reserve and additional paid-in capital equaled 25% of common stock.
Under the Code, legal earnings reserve and additional paid-in capital could be used to eliminate or reducea deficit by a resolution of the shareholders’ meeting or could be capitalized by a resolution of the Board of
Directors. Under the Law, both of these appropriations generally require a resolution of the shareholders’meeting.
Additional paid-in capital and legal earnings reserve may not be distributed as dividends. Under the Code,however, on condition that the total amount of legal earnings reserve and additional paid-in capital remained
equal to or exceeded 25% of common stock, they were available for distribution by resolution of theshareholders’ meeting. Under the Law, all additional paid-in capital and all legal earnings reserve may betransferred to other capital surplus and retained earnings, respectively, which are potentially available fordividends.
13. Ending Inventories
Book value of ending inventory is measured based on the lower of cost or market value.
¥836 million (US$8,985 thousand) and ¥3,812 million as "Loss on valuation of inventories" is included in "Costof sales" for fiscal years 2010 and 2009,respectively. And ¥494 million(US$5,310 thousand) as "Provision forloss on construction contracts" is included in "Cost of sales" for fiscal year 2010.

28

14. Selling, General and Administrative Expenses
Selling, general and administrative expenses for fiscal years 2010 and 2009 consisted of the following:Thousands ofMillions of yen
U.S. dollars
2009
2010
2010
Freightage and packing expenses¥17,489¥17,439$187,436
Advertising expenses
45,76541,082441,552
Sales incentives
42,65832,995354,632
Salaries and bonuses
46,79844,723
480,686
Research and development expenses
42,41637,041
398,119
Other
91,90375,297809,297
Total
287,029¥248,577$2,671,722
15. Impairment Loss on Property, Plant and Equipment
In the fiscal year ended March 31, 2010, the Company recorded an impairment loss with regard to thefollowing asset groups:
Use
Location
Category
Buildings and structures,
Saitama
Machinery, equipment andProduction facility
Prefecture and Gunma Prefecture
vehicles, land and other
Buildings and structures, land andAssets for dealership business Tokyo, Gifu Prefecture and 7 other locationotherOsaka Prefecture, Chiba Prefecture and Buildings and structures, land andIdle assets
other11 other location
The assets on which impairment loss was recognized are grouped as follows: The production facilities aregrouped by each business line ,the assets for dealership business are grouped by each dealership, and theidle assets are grouped on a property-by-property basis.
In automobiles businesses, the supply business of CVT (gearless transmission) unit for minicar significantly
dropped after July, 2010,and the change that remarkably decreases recoverable amounts that can becollected is expected to take place. As a result, at the Company and its subsidiaries, production facilities were
written down to their recoverable amounts.
Because industrial products company has continuously experienced profit loss on operating activities andit is predicted that future cash flow falls below book value of related facilities, the book value of those assets
was written down to the their recoverable amounts.
A recoverable amount is determined by a value in use. A value in use is calculated based on future cash
flows discounted principally at 7.58%.
As a part of the rationalization, the company is performing restructuring of dealership network in Japan
gradually. At the Company and its subsidiaries, assets for dealership business were written down to theirrecoverable amounts.
As a result, the Company and its consolidated subsidiaries recognized a total of ¥17,906 million(US$192,455 thousand) in impairment loss.

29

The impairment loss by each category of property, plant and equipment was as follows:

Buildings and structures
Machinery, equipment and vehicles
Land
Other
Total

Millions of yen
2010¥4,700
3,694
9,435
77

Thousands of
U.S. dollars
2010$50,516
39,703
101,408
828¥17,906$192,455

A recoverable amount is the higher of net realizable value or value in use. A net realizable value is determinedbased on the government-published land valuation index prices or values used for real estate tax purposes,
less cost of disposal. A value in use is calculated based on future cash flows discounted principally at 7.58%.
In the fiscal year ended March 31, 2009, the Company recorded an impairment loss with regard to thefollowing asset groups:
Use
Location
Category
Assets for dealership
Nagano Prefecture and Shimane Prefecture Buildings, land and otherbusiness
Idle assets
Hokkaido Prefecture and three other
Buildings and structures, andlocationsland
The assets on which impairment loss was recognized are grouped as follows: The assets for dealershipbusiness are grouped by each dealership, and the idle assets are grouped on a property-by-property basis.
At the Company and its subsidiaries, certain assets were written down to their recoverable amounts due toa recent decline in the real estate market and their decreased profitability.
As a result, the Company and its consolidated subsidiaries recognized a total of ¥1,045 million in
impairment loss.
The impairment loss by each category of property, plant and equipment was as follows:
Millions of yen
2009
¥288
706
51

Buildings and structures
Land
Other
Total

¥1,045

A recoverable amount is the higher of net realizable value or value in use. A net realizable value is determinedbased on the government-published land valuation index prices or values used for real estate tax purposes,
less cost of disposal. A value in use is calculated based on projected future cash flows discounted principallyat 6.3%.
16. Loss on Abandonment of Inventories
The Company conducted a business field review in the industrial products segment in fiscal 2010. As a result,
the Company abandoned obsolete inventories and recorded an extraordinary loss of ¥1,191 million(US$12,801 thousand) in fiscal 2010.

30

17. Loss on Sales and Retirement of Noncurrent Assets and Other
After assessing the severe business environment for domestic distributors, such as the sluggish automobile
market caused by a business slowdown, and the response to sophisticated and diversified customer needs,
the Company has determined that it was necessary to quickly implement regional business activities while
simultaneously establishing a rational management system. Therefore, the transition from Subaru distributors
to the integrated system was performed sequentially from October, 2008. As a part of the rationalization,theCompany is performing a gradual restructuring of the dealership network in Japan.
Furthermore, regarding dealerships that the Company had closed (or, had decided to close) by the end of
fiscal 2010, it recorded an extraordinary loss in the fiscal year under review as follows:
Thousands ofMillions of yen
U.S. dollars
2010
2010
Loss on sales and retirement of noncurrent assets¥902$9,695
Impairment loss
3,639
39,112
Other
815
8,760
Total
¥5,356$57,567
18. Loss on Valuation of Investment Securities(Fiscal 2009)
On November 25, 2008, Eclipse Aviation Corporation (“Eclipse”), a trading partner of FHI, filed an application
under Chapter 11 of the United States Bankruptcy Code. However, Eclipse’s creditors submitted a motion for
an order converting the Chapter 11 Bankruptcy cases to cases under Chapter 7 on February 24, 2009, andthis was granted with the selection of a trustee on March 5, 2009. Therefore, the Company recorded an
extraordinary loss (as detailed below) because the Company would incur uncollectible receivables or thedelayed collection of receivables and damage to assets that the Company holds for or in Eclipse.
Millions of yen
2009
¥521
¥2,640¥5,737

Loss on valuation of investment securities
Provision of allowance for doubtful accounts
Other (Loss on valuation of inventories)

19.Other Extraordinary Income (Loss)(Fiscal 2009)[1] ¥1,001 million among “Other, net," representing the impact of the “Change in recognition of sales orinterest revenue on credit” from the equal installment method to the seven-eight allocation method.
[2] ¥3,030 million among “Other, net," representing the impact of loss on the withdrawal from the FIA World
Rally Championship (WRC).

31

20. Business Combinations(Fiscal 2009)
The Company has integrated certain Subaru dealer subsidiaries to enhance their sales forces and improvetheir profitability.
These integrated companies are consolidated subsidiaries included in the Automobiles segment, and theintegration has been accounted for as a reorganization of entities under common control.
October 1, 2008, merger by surviving companies
Area
Integrated companies

New company

Shin Nagano Subaru, Inc. ※Nagano Prefecture

Subaru Shinsyu, Inc.
Matsumoto Subaru Motors Co.

※ Surviving company
21. Stock Option Plans(Fiscal 2010)
1. Descriptions, volume, and movement of stock options(1) Descriptions of stock option plans
Fiscal 2002
Stock option plan
Position and number of
Directors, Executive Officers,
grantees
Corporate Auditors and employees:
303
Class and number ofstock (shares)
Common Stock 1,029,000
Date of grant
September 9, 2002

Fiscal 2004
Stock option plan
Directors, Executive Officers,
Corporate Auditors and employees:
320
Common Stock 1,917,000
September 6, 2004

Directors, Executive Officers,
Directors, Executive Officers,
Corporate Auditors and employees
Corporate Auditors and employees
who are enrolled at the date thewho are enrolled at the date thesubscription rights are granted.
subscription rights are granted.
Should an employee under 50 years
Should an employee under 50 yearsof age retire by voluntary termination,of age retire by voluntary termination,
the employee’s right to exercise
the employee’s right to exercise
his/her claim will expire.
his/her claim will expire.
Required service period
From September 9, 2002,
From September 6, 2004,
to July 31, 2004
to July 31, 2006
Exercise period
From August 1, 2004,
From August 1, 2006,
to July 31, 2009
to July 31, 2011
Note: The number of stock options is converted to the equivalent number of common stock.
Vesting conditions32

(2) Volume and movement of stock options
The stock options outstanding in the fiscal year 2010 are summarized as follows:[1] The number of stock options (shown as the equivalent number of common stock)
Fiscal 2002
Stock option plan
Nonexercisable stock options (shares):Fiscal 2004
Stock option plan

At the end of the fiscal year 2009--

Stock options granted--

Forfeitures--

Conversion to exercisable stock options--

Stock options outstanding--

734,000

1,863,000

Conversion from nonexercisable stock options--

Stock options exercised--

734,000--

1,863,000

Fiscal 2002
Stock option¥498,000

Fiscal 2004
Stock option¥594,000

Average market price of the stock at the time of exercise (Yen)--Fair value (date of grant) (Yen)--

Exercisable stock options (shares):At the end of the fiscal year 2009

Forfeitures
Stock options outstanding[2] Price information of stock options

Exercise price (Yen)33

(Fiscal 2009)
1. Descriptions, volume, and movement of stock options(1) Descriptions of stock option plans
Fiscal 2002
Stock option plan
Position and number of
Directors, Executive Officers,
granteeCorporate Auditors and employees:
303
Class and number ofstock (shares)
Common Stock 1,029,000
Date of grant
September 9, 2002

Fiscal 2004
Stock option plan
Directors, Executive Officers,
Corporate Auditors and employees:
320
Common Stock 1,917,000
September 6, 2004

Directors, Executive Officers,
Directors, Executive Officers,
Corporate Auditors and employees
Corporate Auditors and employees
who are enrolled at the date thewho are enrolled at the date thesubscription rights are granted.
subscription rights are granted.
Should an employee under 50 years
Should an employee under 50 yearsof age retire by voluntary termination, of age retire by voluntary termination,
the employee’s right to exercise
the employee’s right to exercise
his/her claim will expire.
his/her claim will expire.
Required service period
From September 9, 2002,
From September 6, 2004,
to July 31, 2004
to July 31, 2006
Exercise period
From August 1, 2004,
From August 1, 2006,
to July 31, 2009
to July 31, 2011
Note: The number of stock options is converted to the equivalent number of common stock.
Vesting conditions(2) Volume and movement of stock options
The stock options outstanding in fiscal 2009 are summarized as follows:[1] The number of stock options (shown as the equivalent number of common stock)
Fiscal 2002
Stock option plan
Nonexercisable stock options (shares):Fiscal 2004
Stock option plan

At the end of the fiscal year 2008--

Stock options granted--

Forfeitures--

Conversion to exercisable stock options--

Stock options outstanding--

813,000

1,863,000--

79,000---734,000

1,863,000

Exercisable stock options (shares):At the end of the fiscal year 2008
Conversion from nonexercisable stock options
Stock options exercised
Forfeitures
Stock options outstanding34

[2] Price information of stock options
Fiscal 2002
Stock option

Fiscal 2004
Stock option¥498,000
569¥594,000---

Exercise price (Yen)
Average market price of the stock at the time of exercise (Yen)Fair value (date of grant) (Yen)

22. Finance Leases
As allowed under the Japanese accounting standards, the Company and its consolidated subsidiaries inJapan account for finance leases.
Information as Lessee(1) Transfer of title through finance lease transaction[1] Leased assets
Mainly implements of production in the automotive business[2] Depreciation method for leased assets
Leased assets are depreciated by the same method as used for other property, plant and equipment.
(2) Finance leases which do not transfer ownership title[1] Leased assets
Mainly network equipment and terminal units (Other tangible assets) in the automotive business[2] Depreciation method for leased assets
Leased assets are depreciated by the straight-line method over the leased period and the residual value iszero.
(3) Those finance lease transactions that had not had their ownership transferred on or before March 31,
2008, are recorded based on the same method as used for regular rental transactions.
[1] Pro forma information of such leases as of March 31, 2010 and 2009, was as follows:

2010
¥334
1,426
141
1,901
(1,261)¥640

Machinery, equipment and vehicles
Other tangible assets
Intangible assets
Accumulated depreciation/amortization
Net

35

Millions of yen
2009
¥729
2,078
146
2,953
(1,740)¥1,213Thousands of
U.S. dollars
2010$3,59015,327
1,515
20,432(13,553)$6,879[2] The future minimum lease/rent payments, excluding the portion of interest thereon, as of March 31, 2010
and 2009, were as follows:
Thousands ofMillions of yen
U.S. dollars
2009
2010
2010
Finance leases:
Due within one year
¥513
¥345
$3,708Due after one year
797
322
3,461
Total
¥1,310¥667$7,169[3] Pro forma information related to finance leases for fiscal years 2010 and 2009 was as follows:
Thousands ofMillions of yen
U.S. dollars
2009
2010
2010
Lease payment
¥711
¥456
$4,901
Depreciation and amortization expenses
645
420
4,514
Interest expense portion
37
¥20
$215
Information as Lessor(1) The details of lease investment assets as of March 31, 2010 and 2009 were as follows:
Millions of yen
2009
2010
¥32,957¥29,568327
303(6,210)(2,083)¥27,074¥27,788

Obligation of lease fee receivable
Estimated residual value
Interest expense portion
Lease investment assets

Thousands of
U.S. dollars
2010$317,798
3,257(22,388)$298,667(2) Lease revenue related to lease investment assets
Amounts of collections on lease receivable after the fiscal year ended March 31, 2010 and 2009, were as
follows;
Thousands ofMillions of yen
U.S. dollars
2009
2010
2010
Within 1 year
¥12,491¥9,650$103,719
1 to 2 years
8,045
7,290
78,3532 to 3 years
6,215
5,913
63,5533 to 4 years
4,712
4,100
44,0674 to 5 years
1,269
2,370
25,473
Over 5 years
225¥245$2,63336

23. Operating Lease
Information as Lessee
The future minimum lease/rent payments, excluding the portion of interest thereon, as of March 31, 2010 and2009, were as follows:
Thousands ofMillions of yen
U.S. dollars
2009
2010
2010
Operating leases:
Due within one year
¥1,001¥1,233$13,252
Due after one year
3,385
4,839
52,010Total¥4,386¥6,072$65,262
Information as Lessor
The future minimum lease/rent payments receivable, excluding the portion of interest thereon, as of March 31,
2010 and 2009, were as follows:
Thousands ofMillions of yen
U.S. dollars
2009
2010
2010
Operating leases:
Due within one year
¥2,229¥1,682$18,078
Due after one year
510
276
2,966
Total
¥2,739¥1,958$21,044
24. Contingent Liabilities
Contingent liabilities as of March 31, 2010 and 2009, were as follows:
Thousands ofMillions of yen U.S. dollars
2009
2010
2010
As guarantor of third-party indebtedness from financial
institutions¥32,330¥33,668$347,485

25. The Amount of Discount of Export Bill
The amount of discount of export bill as of March 31, 2010 and 2009, were as follows:
Thousands ofMillions of yen U.S. dollars
2009
2010
2010
The amount of discount of export bill
¥19,637¥4,379$211,060

26. Property for Transfer Balance to Special Purpose Company
Property for transfer balance to special purpose company as of March 31, 2010 and 2009, were as follows:
Thousands ofMillions of yen U.S. dollars
2009
2010
2010
Property for transfer balance to special purpose company(loan claims of Automobiles and account receivable-trade¥63,634¥43,788$470,636
of Aerospace)37

27. Segment Information
Information by business segment
The Company and consolidated subsidiaries operate principally in four business segments: automobiles,
aerospace, industrial products and other business fields (including eco-related equipment).
A summary of net sales, operating income, assets, depreciation and amortization expenses and capital
expenditures by business segment for fiscal years 2010 and 2009, was shown below:
Thousands ofMillions of yen
U.S. dollars
2009
Net Sales:
2010
2010
Automobiles—
Outside customers¥1,316,305¥1,294,451$13,912,844
Inter-segment
2,641
2,304
24,763Sub-total
1,318,946
1,296,755
13,937,607
Aerospace—
Outside customers
80,872
93,2161,001,892
Inter-segment
1
Sub-total
80,873
93,2161,001,892
Industrial products—
Outside customers
34,912
23,913
257,018
Inter-segment
18
63
678
Sub-total
34,93023,976257,696
Other—
Outside customers
13,701
17,110183,899
Inter-segment
12,42012,678136,264
Sub-total
26,121
29,788320,163
Total
1,460,870
1,443,735
15,517,358
Corporate and elimination(15,080)(15,045)(161,705)
Consolidated total¥1,445,790¥1,428,690$15,355,653

Operating Income or Loss:
Operating income:Automobiles
AerospaceIndustrial products
Other
Total
Corporate and elimination
Consolidated total

38

2010

Millions of yen
2009

Thousands of
U.S. dollars
2010¥21,716
4,812(2,437)2,560
26,651
699¥27,350(¥9,201)
1,575(1,643)
3,118(6,151)348(¥5,803)$233,405
51,720(26,193)
27,515
286,447
7,512$293,959

Assets:
Total assets:
Automobiles
AerospaceIndustrial products
Other
Total
Corporate and elimination
Consolidated total

2010

Millions of yen
2009

Thousands of
U.S. dollars
2010¥989,462
166,492
31,591
77,8951,265,440(34,073)¥1,231,367¥910,250
174,062
39,85670,0891,194,257(28,826)¥1,165,431$10,634,802
1,789,467
339,542
837,221
13,601,032(366,219)$13,234,813
Thousands of
U.S. dollars
2010

Other Significant Items:
Depreciation and amortization expenses:
Automobiles
AerospaceIndustrial products
Other
Total
Corporate and elimination
Consolidated total

2010

Millions of yen
2009¥59,155
3,709
1,228
1,693
65,785¥65,785¥66,395
4,479
1,421
1,741
74,036¥74,036$635,802
39,865
13,19918,195707,061$707,061

Impairment loss on property, plant and equipment:
Automobiles
AerospaceIndustrial products
Other
Total
Corporate and elimination
Consolidated total¥7,38910,517
17,906¥17,906¥1,0451,045¥1,045$79,417
113,038
192,455$192,455

Capital expenditures for segment assets:
Automobiles
AerospaceIndustrial products
Other
Total
Corporate and elimination
Consolidated total¥84,085
1,347
433
3,212
89,077¥89,077¥90,723
1,787
1,187
1,480
95,177(24)¥95,153$903,751
14,478
4,654
34,522
957,405$957,405

Notes:1. Definition of business segments
Business segments are defined based on their product line and market.
2. Main products by each business segment
Business segments’ main products:
Automobiles: Legacy, Impreza, Forester, Exiga,Tribeca, Stella, R1, R2, Pleo, Samber
Industrial products; Robin engines, power generators, pumps
Aerospace: Aircraft, parts of space-related devices
Other: Garbage collection vehicles, specialized vehicles, real estate lease393. All operating costs and expenses are allocated to each business segment.
4. All figures in corporate and elimination represent elimination.
5. Changes in accounting policies:(Fiscal 2010)
Change in accounting standard for construction revenue and cost
As described in “2-[13] Revenue Recognition”, since fiscal 2010, the Company and its domestic
consolidated subsidiaries have applied “the Accounting Standard for Construction Contracts(ASBJ Statement No.15, December 27, 2007) ” and its accompanying “Guidance on AccountingStandard for Construction Contracts (ASBJ Guidance No.18, December 27, 2007) ”, thepercentage-of-completion method was applied to construction contracts that were started during
the fiscal 2010, for which certain elements were determinable with certainty at the end of fiscal
2010. (The percentage of completion is estimated with the proportion-of-cost method). The
completed-contract method was applied to other works.
This change resulted in an increase in sales of ¥2,361 million (US$25,376 thousand) and increase inoperating income of ¥215 million (US$2,311 thousand) in "Aerospace", compared with corresponding
amounts calculated under method used in previous year.
(Fiscal 2009)[1] Accounting Standard for Measurement of Inventories
As described in “2-[3] Inventories,” in fiscal 2009 the Company and its domestic consolidated
subsidiaries applied the “Accounting Standard for Measurement of Inventories” (ASBJ Statement No.
9).
This change resulted in an increase in operating loss of ¥3,061 million in “Automobiles” and anincrease in operating loss of ¥146 million in “Industrial products.”
The effects of those changes on other business segments were immaterial.
[2] Provision for loss on construction contracts
As described in “2-[10] Provision for Loss on Construction Contracts,” in fiscal 2009 the Company
started accounting for the provision for losses on uncompleted construction of contracts in the
Aerospace segment when substantial losses on the contracts were anticipated at the fiscal year-end
for the next fiscal year and beyond and such losses can be reasonably estimated.
The Company recorded ¥2,901 million of “Provision for loss on construction contracts” in the firstquarter of fiscal 2009 as “Extraordinary loss,” and a part of the provision corresponding to recognizedsales related to construction were reclassified in cost of sales along with additional cost for construction
since the second quarter of fiscal year 2009.
This change resulted in an increase in operating income of ¥433 million in “Aerospace.”[3] Change in recognition of sales or interest revenue on credit
As described in “2-[22] Other Changes in Accounting Policy,” in fiscal 2009 the Company’s financial
subsidiary changed the recognition of sales or interest revenue on credit from the equal installment
method to the seven-eight allocation method.
The impact of this change on net sales and operating loss was immaterial.
[4] Accounting for lease transactions
As described in “2-[14] Accounting for Lease Transactions,” in fiscal 2009 the Company and its
domestic consolidated subsidiaries adopted “Accounting Standard for Lease Transactions” (ASBJ
Statement No. 13), and “Guidance on Accounting Standard for Lease Transactions” (ASBJ GuidanceNo. 16).
40

This change resulted in a decrease in operating loss of ¥2,513 million in “Automobiles.”[5] Practical solution on unification of accounting policies applied to foreign subsidiaries forconsolidated financial statements
As described in “2-[22] Other Changes in Accounting Policy,” in fiscal 2009 the Company adopted“Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for
Consolidated Financial statements” (Practical Issues Task Force No.18) .
The impact of this change on profit and loss was immaterial.
[6] Alteration of estimated useful lives of fixed assets
As described in “2-[4] Property, Plant and Equipment (Excluding Leased Assets),” in fiscal 2009 theCompany and domestic consolidated subsidiaries revised the estimated useful lives of fixed assets(machinery) in accordance with the enacted revisions to the tax depreciation schedules under the
Corporate Tax and Law and related tax regulations.
This change resulted in an increase in operating loss of ¥1,469 million in “Automobiles” and adecrease in operating income of ¥128 million in “Aerospace.”
The impact of this change on other business segments is immaterial.
Information by Geographic Area
A summary of net sales, operating income and assets by geographic area for fiscal years 2010 and 2009 wasshown below:

Net Sales:
Japan—
Outside customers
Inter-segment
Sub-total
North America—
Outside customers
Inter-segment
Sub-total
Other—
Outside customers
Inter-segment
Sub-total
Total
Corporate and elimination
Consolidated total

41

2010

Millions of yen
2009

Thousands of
U.S. dollars
2010¥815,812
293,948
1,109,760¥856,188
280,623
1,136,811$8,768,401
3,159,372
11,927,773

577,409
2,232
579,641

546,859
15,380562,239

6,206,030
23,9896,230,019

35,469557
36,026
1,725,427(296,737)¥1,428,690

42,743622
43,365
1,742,415(296,625)¥1,445,790

381,223
5,987
387,210
18,545,002(3,189,349)$15,355,653

Operating Income or Loss:
Operating income:Japan
North America
Other
Total
Corporate and elimination
Consolidated total

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

2010

Millions of yen
2009

Thousands of
U.S. dollars
2010¥1,84432,05795
33,996(6,646)27,350(¥15,840)(1,964)
1,933(15,871)
10,068(¥5,803)

19,819344,551
1,021
365,391(71,432)
293,959

Millions of yen
2009

Thousands of
U.S. dollars
2010¥872,342
297,801
13,116
1,183,259(17,828)¥1,165,431$9,789,779
3,640,595
199,033
13,629,407(394,594)$13,234,813

2010¥910,841
338,721
18,5181,268,080(36,713)¥1,231,367
Notes:1. Geographic areas are based on geographical proximity.
2. Principal countries or districts in each geographic area:
North America: United States and Canada
Other: Europe
3. All operating costs and expenses are allocated to each segment.
4. All figures in corporate and elimination represent elimination.
5. Changes in accounting policies:(Fiscal 2010)
Change in accounting standard for construction revenue and cost
As described in “2-[13] Revenue Recognition”, since fiscal 2010, the Company and its domestic
consolidated subsidiaries have applied the “Accounting Standard for Construction Contracts(ASBJ Statement No.15, December 27, 2007)” and its accompanying “Guidance on AccountingStandard for Construction Contracts (ASBJ Guidance No.18, December 27, 2007)” therefore,
the percentage-of-completion method was applied to construction contracts that were started
during the fiscal 2010, for which certain elements were determinable with certainty at the end of
fiscal 2010. (The percentage of completion is estimated with the proportion-of-cost method). The
completed-contract method was applied to other work.
This change resulted in an increase in sales of ¥2,361 million (US$25,376 thousand) and increase inoperating income of ¥215 million (US$2,311 thousand) in "Japan", compared with corresponding
amounts calculated under method used in previous year.
(Fiscal 2009)[1] Accounting standard for measurement of inventories
As described in “2-[3] Inventories,” in fiscal 2009, the Company and its domestic consolidated
subsidiaries applied the “Accounting Standard for Measurement of Inventories” (ASBJ Statement No.
9).
42

This change resulted in an increase in operating loss of ¥3,220 million in “Japan.”[2] Provision for loss on construction contracts
As described in “2-[10] Provision for Loss on Construction Contracts,” in fiscal 2009 the Company
started accounting for the provision for losses on uncompleted construction of contracts in the
Aerospace segment when substantial losses on the contracts were anticipated at the fiscal year-end
for the next fiscal year and beyond and such losses could be reasonably estimated.
The Company recorded ¥2,901 million in “Provision for loss on construction contracts” in the firstquarter of fiscal 2009 as “Extraordinary loss” and a part of the provision corresponding to recognizedsales related to the construction has been reclassified in cost of sales along with additional cost for
construction since the second quarter of fiscal 2009.
This change resulted in a decrease in operating loss of ¥433 million in ‘’Japan.’’[3] Change in recognition of sales or interest revenue on credit
As described in “2-[22] Other Changes in Accounting Policy,” in fiscal 2009, the Company’s financial
subsidiary changed the recognition of sales or interest revenue on credit from the equal installment
method to the seven-eight allocation method.
The impact of this change on net sales and operating loss was immaterial.
[4] Accounting for lease transactions
As described in “2-[14] Accounting for Lease Transactions,‘’ in fiscal 2009 the Company and its
domestic consolidated subsidiaries adopted “Accounting Standard for Lease Transactions” (ASBJ
Statement No. 13) and “Guidance on Accounting Standard for Lease Transactions” (ASBJ GuidanceNo. 16).
This change resulted in a decrease in operating loss of ¥2,513 million in “Japan.”[5] Practical solution on unification of accounting policies applied to foreign subsidiaries forconsolidated financial statements
As described in “2-[22] Other Changes in Accounting Policy,” in fiscal 2009 the Company adopted“Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for
Consolidated Financial Statements” (Practical Issues Task Force No.18).
The impact of this change on profit and loss was immaterial.
[6] Alteration of service life of fixed assets
As described in “2-[4] Property, Plant and Equipment (Excluding Leased Assets)”, in fiscal 2009 theCompany and its domestic consolidated subsidiaries revised the estimated useful lives of fixed assets(machinery) to the enacted revisions to the tax depreciation schedules.
This change resulted in an increase in operating loss of ¥1,595 million in ‘’Japan.’’43

Overseas Sales
Overseas sales for the fiscal years ended March 31, 2010 and 2009, was summarized as follows:
Thousands ofMillions of yen
U.S. dollars
2009
2010
2010
Overseas sales:
North America¥582,979
40.3%¥622,126
43.5%$6,686,651
Europe168,520
11.7%
84,4745.9%
907,932
Asia
66,4564.6%
101,470
7.1%
1,090,606
Other120,3218.3%
99,7847.0%
1,072,485
Total
938,27664.9%
907,85463.5%
9,757,674
Consolidated net sales¥1,445,790
100% $15,355,653¥1,428,690
100%
Notes:1. Geographic areas are based on geographical proximity.
2. Principal countries or districts in each geographic area:
North America: United States and Canada
Europe: Germany, Switzerland, the United Kingdom and Russia
Asia: China
Other: Australia
3. Overseas sales are sales outside of Japan by the Company and its consolidated subsidiaries.
28. Fair Value of Investment and Rental Property
From fiscal 2010, the Company has applied “Accounting Standard for Disclosures about Fair Value ofInvestment and Rental Property” (The Accounting Standards Board of Japan (ASBJ) No. 20, November 28,2008) and “Guidance on Accounting Standard for Disclosures about Fair Value of Investment and Rental
Property” (The Accounting Standards Board of Japan (ASBJ) No. 23, November 28, 2008).
[1] Summary of investment and rental property
The Company and certain consolidated subsidiaries own rental office buildings and rental commercial
facilities with the objective of generating rental income in Saitama prefecture and other locations. Certain
domestic rental office buildings in Japan are classified as properties that include ones partly used as
investment and rental property, because part of them are used by the Company and certain consolidated
subsidiaries.
[2] Investment and rental property consolidated balance sheet amounts, principal changes during fiscal 2010,
fair value at the end of fiscal 2010 and calculation method of applicable fair value
As of March 31, 2010
Millions of yen
Consolidated balance sheet amounts
Fair value as
As of March
Changes in
As of Marchof March 31,
31, 2009
the fiscal
31, 2010
2010
year 2010
Investment and rental property¥30,982(¥1,144)¥29,838¥30,834
Properties that include ones used as
investment and rental property¥13,707(¥173)¥13,534¥33,56144

As of March 31, 2010

Investment and rental property
Properties that include ones used as
investment and rental property

Thousands of U.S. dollars
Consolidated balance sheet amounts
Fair value as
As of March
Changes in
As of Marchof March 31,
31, 2009
the fiscal
31, 2010
2010
year 2010$332,997($12,296)$320,701$331,406$147,324($1,859)$145,465$360,716
Note 1. The balance of consolidated balance sheet excludes accumulated depreciation and accumulated
impairment loss from acquisition costs.
2. Among changes in the amount of investment, rental property and properties that includes ones partly
used as investment and rental property during the fiscal 2010, principal increases were properties
acquisitions, which amounted to ¥653 million (US$7,018 thousand), and principal decreases weredepreciation and impairment loss, which amounted to ¥966 million (US$10,383 thousand) and ¥526
million (US$5,653 thousand), respectively.
3. Fair value at the end of the fiscal year is the amount estimated by the Company based principally onland assessment value.
[3] Profit and loss concerning investment and rental property
Profit and loss in fiscal 2010 concerning investment and rental property and properties that include ones
used as investment and rental property were as follows:
As of March 31, 2010
Millions of yen
RentalRentalChangeOther profit
incomeexpensesand loss
Investment and rental property¥3,297¥2,275¥1,022(¥474)
Properties that include ones used as
investment and rental property¥1,685¥978¥707¥0As of March 31, 2010

Investment and rental property
Properties that include ones properties
used as investment and rental property

Thousands of U.S. dollars
RentalRentalChangeOther profit
incomeexpensesand loss$35,436$24,452$10,984($5,095)$18,110$10,512$7,598$0Note:1. Rental income (from the properties that include ones partly used as investment and rental property)
does not include the portion that the Company or certain subsidiaries use as the provision of services
and business administration purposes. Rental expenses, however, include all portions of the expenses(costs related to depreciation, repairs, insurance and taxes).
2. Other profit and loss include in impairment loss.

45

29. Additional information
Notification with Respect to the Execution of an Agreement Regarding a Share Exchange through which
Ichitan Co., Ltd. will become a Wholly Owned Subsidiary of the Company.
The Company and Ichitan Co., Ltd. (“Ichitan”) resolved, at their respective meetings of the Board of Directors
held on March 31, 2010, to conduct a share exchange (the “Share Exchange”) through which Ichitan will
become a wholly owned subsidiary of the Company and entered into an agreement concerning the Share
Exchange (the “Share Exchange Agreement”).
The effective date (the “Effective Date”) of the Share Exchange is scheduled to be August 1, 2010, after
Ichitan obtains approval for the Share Exchange Agreement at the ordinary general meeting of its
shareholders scheduled to be held on June 29, 2010. The Company will implement the Share Exchange
without obtaining approval for the Share Exchange Agreement at a general meeting of its shareholders inaccordance with “simplified share exchange” (kan-i kabushiki kokan) procedures pursuant to Article 796,
Paragraph 3 of the Companies Act of Japan. In addition, prior to August 1, 2010, the scheduled Effective Dateof the Share Exchange, the shares of common stock of Ichitan will be delisted from Jasdaq Securities
Exchange, Inc. (“JASDAQ”) on July 28, 2010 (the final day on which the shares of common stock of Ichitan
will be traded on JASDAQ is scheduled to be July 27, 2010).
30.Other
On January 15, 2010, the Company filed a lawsuit with the Tokyo District Court against the Government ofJapan for the payment [totaling ¥35,124 million (US$377,515 thousand)] of uncollected initial investment fees(amount paid for customization to the Japanese specifications) for the manufacture of the AH-64D combat
helicopters for the Japan Ministry of Defense.
The payment [totaling ¥23,954 million (US$257,459 thousand)] of uncollected initial investment fees theCompany paid was included in “Other assets” of “Inventments and other assets”.
In addition, the amount of lawsuit includes the uncollected initial investment fees paid by subcontractors,
consumption tax and others.

46

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