Annual Report 2008
For the year ended March 31, 2008

Moving Forward with   
the Global Subaru Identity

Contents
page 2-7

A Message to Our Stakeholders

page 8-15

Discussions with project team members for the new-generation Forester

page 16-17

Success of Efforts to “Increase Sales Globally"

page 18“Customers Come First" Initiatives

page 19-21

Corporate Social Responsibility (CSR)

page 22-23

Management

page 24

Consolidated Nine-Year Financial Summary

page 25-33

Management's Discussion and Analysis of Results of Operations and Financial Position

page 34

Consolidated Subsidiaries and Affiliates

page 35

Investor Information

Fuji Heavy Industries Ltd. (FHI) is a global manufacturer of transportation-related products andthe maker of Subaru automobiles.
FHI’s roots date back to 1917, when Japan’s first Aircraft Research Laboratory (later Nakajima
Aircraft Co., Ltd.) was established. While some of the world’s other automakers once manufactured
aircraft, FHI is the only automaker who continues to build aircraft today.
At FHI, everything we do is for our customer satisfaction. This policy of delivering true value
to customers at every turn underpins all our business activities as we strive to be a compellingcompany with a strong market presence. This year marks half a century since FHI unveiled its
first Subaru brand car, the Subaru 360. Along with this exciting milestone, we carried out
full-model changes for the Impreza and Forester in 2007, which we followed up with the debutof a brand new car, the Exiga. As these actions attest, we are ready to begin chapter II in thehistory of FHI by embodying the true meaning of the Subaru brand.

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 other statements, except for historical facts, are forward-looking statements. These forward-looking statements are subject touncertainties that could cause actual results to differ 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, rawmaterial 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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FUJI HEAVY INDUSTRIES LTD.
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A Message to Our Stakeholders

Fuji Heavy Industries Ltd. (FHI) approaches an important milestone in 2008, which marks the50th anniversary since it unveiled the Subaru 360.
Meanwhile, we’ve been hard at work. In 2007, for example, we released the Impreza, theImpreza WRX STI and the third-generation Forester, all of which underwent a full modelchange. In June 2008, we launched the brand-new Exiga, a multi-passenger vehicle inJapan. We have also enjoyed strong domestic and overseas sales of the Forester, a carthat truly offers “a distinctive Subaru experience” from the customer’s perspective.
Unit sales of Subaru vehicles have grown steadily in the United States and Europe, as well as
in China, Russia, and other overseas regions, highlighting the solid progress of our strategy
to “increase sales globally,” a key theme of our new medium-term management plan.
In April 2008, FHI strengthened its alliance with the Toyota Group, which involves thejoint development of a compact FR sporty car and the procurement of compact cars andminicars on an OEM basis. The alliance has thus entered a new stage of development andis clearly headed in the right direction. In my opinion, these achievements are simply partof the process of establishing the Subaru brand, and provide no guarantee that FHI willrecord stable growth in the future. In our ongoing quest to deliver “a distinctive Subaru
experience,” we recognize that the true value of Subaru will be determined by the successor failure of initiatives going forward.

Ikuo Mori
Representative Director of the Board,
President and CEO

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Annual Report 2008

Fiscal 2008 in Review

the establishment of the Overseas Sales and Marketing Division I, set up to bring sales activities closer

In fiscal 2008, ended March 31, 2008, FHI reported consolidated net sales of ¥1,572.3 billion, up 5.2%

to our target markets and achieve more centralized control of production and sales. This enabled us tofrom fiscal 2007, reflecting increased unit volume for automobiles in overseas markets. Following amanage inventories more accurately and reduce the average per-vehicle sales incentive by US$200

decline in the previous fiscal year, operating income slipped 4.6% to ¥45.7 billion, due mainly to ancompared with CY 2006. With these efforts delivering concrete results, we improved regional earnings

increase in fixed costs associated with the launch of new models. However, operating income

in fiscal 2008.

exceeded our initial forecast of ¥35.0 billion, owing to a number of factors, including the depreciation

In Europe, sales volume increased by 15 thousand, to 86 thousand units. Although we struggled inof the yen in the first half of the year, as well as higher overseas sales volume and the effect of new carWestern Europe, where the share of diesel-engine vehicles is high, we compensated for this withlaunches in Japan. These factors helped curb the deterioration in our sales mix, both domestically andstrong sales in Russia and other CIS nations.

overseas, and enabled us to reduce costs despite surging prices for raw materials. Upon analysis, we

In other regions, sales in emerging markets, such as China, surpassed our initial forecasts, continu-

believe that as an automobile manufacturer, we now have an infrastructure capable of generating

ing the trend of the previous fiscal year.

sustained profits in our core business.

In Japan, unit sales of both passenger cars and minicars declined year on year. However, we

In North America, we sold 210 thousand vehicles, up 4 thousand from the previous fiscal year.

improved the sales mix thanks to the popularity of our new Impreza and Forester vehicles.

This figure, though, was below our initial forecast and reflected the impact of the subprime loan crisisand soaring gasoline prices. By contrast, we became more flexible in responding to local needs owing to

Performance Overview
Billions of yen
FY2003

FY2004

FY2005

FY2006

FY2007

FY2008(Forecast)
FY2009

540

551

582

571

578

597

636

1,372.3

1,439.5

1,446.5

1,476.4

1,494.8

1,572.3

1,600.0

Operating Income

67.5

50.3

42.0

58.3

47.9

45.7

23.0

Ordinary Income

58.6

56.6

43.6

46.8

42.2

45.4

20.0

Net Income

33.5

38.6

18.2

15.6

31.9

18.5

10.0

Capital Expenditures

64.6

74.6

85.3

56.2

59.6

56.3

70.0

Depreciation Expenses

48.8

53.2

51.1

57.5

58.9

65.5

66.0

R&D Expenses

60.1

57.5

53.0

46.9

50.7

52.0

55.0

Interest-Bearing Debt

389.1

379.0

412.2

374.1

343.9

304.5

304.5

124

116

108

112

117

116

100

Automobile Sales Volume (thousand units)
Net Sales

Exchange Rate (¥/$, non-consolidated)
ROE

8.3

8.9

3.9

3.3

6.6

3.7

—

ROA*

5.3

3.9

3.3

4.6

3.9

3.9

—

Total Assets

1,344.1

1,349.7

1,357.5

1,348.4

1,316.0

1,296.4—

Net Assets**

414.6

457.0

474.6

467.8

495.7

494.4

—

* 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.

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FUJI HEAVY INDUSTRIES LTD.
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“ The Impreza and Forester have been particularly well received in the market,
earning acclaim for high customer satisfaction. ”

Outlook for Fiscal 2009

Although FHI’s business environment has radically changed, we nonetheless managed to improve

From the outset of fiscal 2009, we have noticed dramatic changes in our business environment. For theour sales mix in the latter half of fiscal 2008, benefiting from the launch of new models. We intend toyear ending March 31, 2009, we forecast operating income of ¥23.0 billion, with our performance affectedbuild on this momentum going forward.

particularly by foreign exchange fluctuations and surging prices for raw materials.
When we announced our medium-term management plan in 2007, we assumed an averageexchange rate of ¥110 to the U.S. dollar. In March 2008, however, that rate suddenly changed, withIn February 2007, when we announced our medium-term management plan, we set a consolidated
operating income target of ¥80.0 billion for the year ending March 31, 2011. At this stage, we have nointention of changing the target, and we will strive hard to reach that target in the years ahead.

the U.S. dollar falling below ¥100 for the first time in 12 years. For this reason, we have revised theassumed rate for our business forecasts to ¥100 to the U.S. dollar. Each one-yen movement against the

A Compelling Company with a Strong Market Presence

U.S. dollar affects our operating income by around ¥2.7 billion, so we expect foreign exchange factors

In April 2007, we embarked on our new medium-term management plan, the core focus of which isto reduce earnings by ¥46.0 billion in fiscal 2009.

to embrace a “customers come first” mindset. Guided by the plan, we are pursuing five key initiatives:

With that said, I must confess that I view this situation as a great opportunity. As a company, we

provide a distinctive Subaru experience for drivers and passengers, increase sales globally, strengthenmust harness our strengths and strive to build an infrastructure capable of generating profits evencompetitiveness in quality and cost, growth through the business alliance with Toyota, and grow thewhen the U.S. dollar falls below ¥100. Specifically, we will expand sales in Russia, China, and otherlevel of employee competence and so enhance the organization. We are determined to work vigor-

emerging markets and have launched European sales of the Tribeca, currently in production in theously to achieve progress in these areas.

United States. In these and other ways, we will step up efforts to minimize the effect of the strong yen
on our business performance.

Provide a Distinctive Subaru Experience for Drivers and Passengers

Rising prices for raw materials, such as steel and precious metals, are also having a major impact

Reflecting our customer-oriented approach, we made a succession of new-model rollouts in 2007,

on our operations. Strengthening competitiveness in quality and cost, we have succeeded in cutting

starting with the Impreza in June, the Impreza WRX STI in October, and the Forester in December.

costs by ¥100,000 per vehicle, while reducing tooling and other development-related costs by 30%.

This was followed in March 2008 by the launch in Europe of Legacy and Outback models

The benefits of these efforts were reflected in the new Impreza launched in 2007 and all other new

equipped with the world’s first boxer turbo diesel engine. And in June 2008, we unveiled themodels that followed. We will work to incorporate these advances in new models to be introduced in the

Exiga, a multi-passenger vehicle, in the domestic market. In these ways, we are launching products

future. At the same time, we will comprehensively lower costs, not only for materials and componentsthat provide a distinctive Subaru experience, as promised in our plan.

but also for basic processes, such as design.

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The Impreza and Forester have been particularly well received in the market, earning acclaim forOverseas Sales Progressing as Plannedhigh customer satisfaction. Both the Impreza and Forester deliver the automotive experience that

As part of our plan to increase sales globally, we are promoting marketing strategies in overseas regions,customers want: a comfortable ride for both front- and rear-seat passengers, together with easy

which we regard as pivotal to building a solid earnings foundation. While the United States is our mostmaneuverability for drivers. Indeed, this market response confirms that our vision and direction for ourimportant market, we also consider Europe and emerging regions as suitable markets for expanding

automobiles is the right one, since we have clearly delivered what people really want in a car. Suffice itrevenue and profits. At this stage, our overseas marketing efforts are progressing better than planned,

to say, this revelation has rejuvenated everyone at the Company.

although there are differences in the growth levels of each specific market.

In June 2008, we launched the Exiga multi-passenger vehicle in Japan. This is our response to

In the United States, the outlook remains difficult to predict, due to uncertainty about that nation’s

Subaru fans requesting a vehicle able to carry many passengers. Like the Impreza and Forester, it

economic direction amid the subprime loan crisis and other factors. Nevertheless, we will continue

boasts exceptional basic performance and is much anticipated in the market as a multi-passenger

strengthening our sales network by transforming some dual dealerships into exclusive and separate

vehicle with the driving feel of the Legacy.

showroom dealerships, while also setting up Subaru “Signature Facility” showrooms. In the meantime,

Also reflecting our pursuit of a distinctive Subaru experience, in March 2008 we unveiled in Europe

we will enhance the effect of new models, such as the Impreza WRX STI and Forester. In Europe, weLegacy and Outback models equipped with the world’s first boxer turbo diesel engine. To date, wewill introduce boxer diesel engine models, as I stated earlier, in order to boost sales. In Russia, China,

have struggled in Western Europe, where diesel-powered vehicles account for over 50% of the market.

and other emerging markets, where growth has exceeded our initial expectations, we will continue

However, launching boxer turbo diesel vehicles has enabled us to boost unit sales. Moreover, suchseeking to broaden our market presence.

vehicles emit around 30% less carbon dioxide than gasoline-powered vehicles with similar engine sizes,

Due to our success overseas, especially in emerging markets, the number of units sold has greatly

helping us contribute to initiatives that reduce environmental load. Traditional diesel engines were

surpassed our original forecast, placing pressure on the production capacity of our Yajima Plant, where

plagued by high levels of vibration and noise. By leveraging our superior boxer engine technology,

we make passenger vehicles. For this reason, we will fast-track our capital spending schedule with thethough, we have created a compact engine with extremely low vibration and noise levels. In rolling out

aim of raising annual production capacity to around 400 thousand units during the summer of 2008.

this boxer diesel-engine car, we will strive to reaffirm customers’ recognition of the advantage of ourcore boxer engine technology, and thus establish a firm foothold for Subaru’s brand in the market.

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Deepening Alliance with the Toyota Group

Under the joint development agreement, Toyota will handle the basic concept and design, while

In April 2008, FHI reached an agreement with Toyota Motor Corporation (Toyota) and Daihatsu

FHI will take care of development, production, and manufacturing. Although still at the development

Motor Co., Ltd. (Daihatsu) to build a new cooperative framework for vehicle development andstage, we believe the excellent layout of the compact FR sporty car will go well with the advantages

production. The agreement has three main components: joint development with Toyota of theoffered by the boxer engine. For this reason, we’re confident that we can deliver a vehicle that iscompact FR (front engine, rear-wheel drive) sporty car, to be marketed by both companies; supply

extremely fun to drive. By incorporating a boxer engine into the compact FR sporty car, rather thanof compact cars to FHI by Toyota on an OEM basis; and supply of minicars to FHI by Daihatsu on

our traditional AWD technology, we can best highlight the twin features of the boxer engine and thean OEM basis. To help our cooperative relationship run more smoothly, we will transfer 61 million

Subaru DC3 (The new Subaru Dynamic Chassis Control Concept) that supports it, creating a superiorshares of treasury stock to Toyota, bringing its equity stake in FHI to 16.5%. Since first announcing

package with all the core essentials.

our business alliance in October 2005, we have built a strong cooperative relationship of reciprocal

For production, we will build a new auto-assembly plant adjacent to the Oizumi Plant of thevehicle development and production. This includes consignment production of the Toyota Camry

Gunma Manufacturing Division, which currently produces engines, transmissions, and other items.

by Subaru of Indiana Automotive, Inc. (SIA), and the supply by Daihatsu to FHI of compact cars

Operations at the new facility are scheduled to start in 2011. Because all vehicles under this agreement

destined for Europe. Through the new agreement, we intend to bolster this relationship even further.

will be produced by FHI, consignment production of models apart from the compact FR sporty car is

A key objective of the stronger alliance is to better address industry challenges. Competition will

still under consideration. Although we currently make passenger cars at our Yajima Plant in Gunma

intensify among Japanese and overseas automakers, who will be pressed further by the adoption ofPrefecture and at SIA in the United States, we hope to take advantage of the new facility to increase

tougher environmental standards in Japan, North America, and Europe. To prevail amid these conditions,

our overall production capacity.

we must intensify our focus on the passenger car business, our core specialty, and channel business

Furthermore, we will start reorganizing our domestic sales network to meet a new product portfolio of

resources accordingly. This is consistent with our aim of providing a distinctive Subaru experience, a key

Subaru leveraging the alliance with the Toyota group. First, we will rebuild our sales company framework

theme of the medium-term management plan, and a stronger alliance will only expedite our progress.

by setting up holding companies for each region and halving the number of distributors, currently 46, by
March 2010. This will enable us to lower fixed costs and establish a system that complements our future

Compact FR Sporty Car: Joint Development and Marketing with Toyota
FHI and Toyota will join forces to develop the compact FR sporty car that seeks to deliver a new level ofdriving enjoyment. The compact FR sporty car will be based on a new platform equipped with a boxer
engine, a core Subaru technology. Toyota will consign production to FHI, whose Gunma Manufacturing
Division will build a new vehicle assembly plant. Market launch is slated for the end of 2011.

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FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008

product development plans.

OEM Supply to FHI by Toyota and Daihatsu

The basic reason for entering the recent alliance is to keep the Subaru brand shining brightly inPreviously, FHI had considered in-house development of compact cars as a way to augment its productthe future. Considering our current business scope and resources, there is an urgent sense that welineup. We ultimately concluded, however, that we should concentrate our management resources in

may not survive as a company unless we direct all of our powers toward improving our strengths.

areas where we can best demonstrate our strengths. For this reason, we decided to accept compact cars

To continue operations in a distinctive Subaru-like manner, therefore, we decided to become afrom Toyota on an OEM basis. Under this arrangement, we will strengthen our product lineup by themember of the Toyota Group and concentrate all of our limited resources in our areas of expertise.

end of 2010.
In addition, we have decided to take delivery of 6 thousand units annually of the “Coo” compact

In the short term, the transfer of treasury stock will have a dilutive effect on our share base. By thesame token, it will provide funds for R&D on the FR Sporty car and capital to build the new production

car produced by Daihatsu from October 2008. Destined for the domestic market, these vehicles will

facility, while enabling us to focus on our core strengths. From a long-term perspective, therefore, we

be supplied on an OEM basis. From the latter half of 2009, we will supplement our OEM lineup withbelieve we can raise the value of our shares and of FHI as a corporation.

minicars produced by Daihatsu, taking advantage of synergies with Daihatsu’s increasing production
output of such vehicles. While we will not withdraw completely from the minicar segment, we have

In Conclusion

decided to terminate its development and production. To provide a distinctive Subaru experience and

The focal point for all our activities is, “What can we do for our customers?” From this standpoint, we

further hone our strengths, we believe it is most important to channel our resources into our mainstay

have emphasized the importance of making cars that customers love, advancing our business in the

product areas. By mobilizing our alliance with Toyota and Daihatsu, we will continue expanding andprocess. As described earlier, we are upgrading our new-car lineup and reaping the benefits of ourupgrading our product lineup.

overseas initiatives. We have also made an important decision about our alliance with Toyota. We are
now well-positioned to firmly establish the Subaru brand and create true value for customers andChanging Investment Ratio and the New Subaru

shareholders alike. Going forward, we will continue striving to be “a compelling company with a

Following the aforementioned share transfer, Toyota’s equity stake in FHI will increase from 8.7% tostrong market presence.” We ask for your ongoing support and understanding in this endeavor.

16.5%. Since forming our initial alliance in 2005, SIA has produced Camry vehicles and adopted thelatest production equipment from Toyota. At the same time, engineers from FHI have participated in
the development of Toyota vehicles. In other words, both companies have actively shared their vehicle
development and production technologies. Under the new agreement, which starts with the joint
development and consigned production of the compact FR Sporty car, both companies will promote

Ikuo Morivarious projects in the future. We have decided that we can build a more progressive relationship by

President and CEO

having Toyota raise its stake in our company. In the process, we can move forward as a member of
the Toyota Group.

“ We are now well-positioned to firmly establish the Subaru brandand create true value for customers and shareholders alike. ”
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Discussions with project team members for the new-generation Forester

Creating Cars that People Want to Drive
December 25, 2007 : World debut of the third-generation Forester
The new Forester is the core embodiment of the “customers come first” philosophy outlined in our new medium-term management plan.
Since its development and launch, the new Forester has earned strong acclaim from customers in Japan and overseas, and it continues tosell well in markets throughout the world. The Company’s new management plan involves several key themes, such as “provide
a distinctive Subaru experience” and “increase sales globally.” We asked project team members for the new Forester to discuss
how well they expressed and exemplified those themes, and whether they succeeded in creating a vehicle that perfectly matches
the market. Details of our discussion with the project team are given in the following pages.

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GlobalConcept“ The team members always kept a global perspective in mind. ”“ We shifted from a ‘driver’s car’ to a vehicle
in which all drivers and passengers can ride in comfort. ”

The Forester is the only model in the Subaru lineup that does not have separate sedan or wagon
options. It was developed as a single vehicle for markets worldwide and created from a truly global
perspective. Under the initial concept, we considered size and performance requirements that arecommon throughout the world, including in Japan, the United States, and Europe. We then held
repeated “design clinics” to find a design that would win the hearts of people worldwide. In theseways, the engineers approached their task from the viewpoint of making a car with global appeal.
As a result, the Forester has been a huge success, generating strong sales globally. Domesticorders in the first month after launch totaled 4,285 units, more than double the initial sales targetof 2,000 units per month. In the United States, we posted record-high sales of 6,412 units in
May 2008, while back orders in China quickly reached 3,500 units
after launch.
From the design stage, we have sought to blend
three key elements—packaging, drivability, and theenvironment—at an advanced level basedon the concept of “Best Package foran Active Lifestyle.” The idea ofincorporating such a “best balance”
in the Forester has resonated withcustomers, leading to strong sales.

“Since its launch last Christmas, the new Forester has been hailed as ‘areally good car’ by the press at rollout events and test-drive sessions
around the world. It has also been warmly received by dealers.
The feedback from customers, too, has been excellent, making all of ourwork worthwhile.”

Kazuharu Ichikawa
Subaru Product and Portfolio Planning Division
Project General Manager

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–Best Package for an Active Lifestyle–
When refining the product concept for the new Forester, we decided that our first task should be
to better understand the essence of the “customers come first” mindset. This time, engineersfrom the planning and design departments, together with key staff from the technical division,
actively participated in forums arranged to elicit the opinions of customers. Staff involved inevery development-related phase took the initiative to directly incorporate customer feedback
into discussions about what Subaru should do from now on. They then held rigorous discussions
and, through a process of trial and error, found ways to create new levels of value exceeding
customers’ expectations, while retaining the essential elements and core technologies
demanded by Subaru customers. To date, we have focused mainly on the personal-use
aspect of vehicle development, namely how to maximize enjoyment for the driver.
We have since realized that we traditionally paid somewhat less attention to the riding
comfort of front- and rear-seat passengers.
In the process of formulating the product concept, we spoke directly with customers
around the world, going back to the basics to gain an impartial view of what customers
really want. After considerable communication, we agreed that our concept would beto create a car that all drivers and passengers will enjoy and that delivers exceptional
environmental performance, by blending three key elements—packaging, drivability,
and the environment—at an advanced level.

“The combination of a boxer engine and symmetrical AWD has enabled us
to offer a distinctive Subaru experience in terms of driving performance.
We believe the Subaru brand will be further enhanced by the new Forester.”Naoyoshi Morita
Subaru Product and Portfolio Planning Division

Size

Design“We enlarged the body size for all the family to ride in comfort,
providing space for relaxation.”“ We sought to embody universal customer values in the form of a car. ”

For the new Forester, size was a very important issue. When deciding the product concept, we took
steps to obtain market data, and the feedback we received from market research companies was that
the Forester appeared small in the worldwide context. By contrast, there was also the view that theForester’s configuration, with a large engine fitted into a small chassis, was a unique and positive
attribute. So we sought to find out exactly how customers are using their vehicles. To do this, we went
into the field to examine the market first-hand and hear opinions directly from customers themselves.
On visits to shopping mall parking lots in the United States, we were reminded once again how small
the Forester appeared compared with locally made SUVs. We also learned that people wanted genuinefamily-use cars with plenty of room in the rear seat, enough to comfortably fit up to four adults.
After combining market research results with more opinions canvassed than ever before, we reacheda major decision to enlarge the body size. However, we were determined to ensure that the coreelements of the Forester—ease of entry and exit, wide field of vision, and good maneuverability witha small turning radius—would be retained even if the body size increased.

“With respect to driving performance, it is certainly not appropriate to ignore
the advances we’ve made to date. The driving performance of a Subaru is theresult of refinements and enhancements by our engineers, giving us the solid
foundation we have today—a foundation that will not simply disappear
tomorrow or the day after. One of our missions is to nurture and advance the
DNA inherent in that foundation.”

The basic premise of our design has always been to “combine function and style at an advanced
level.” We retained basic functional and performance aspects of a good automobile, such as sidesill positioning for easy access, a windshield designed for good viewing, and large rear windows,
while at the same time placing emphasis on styling. By “styling,” we did not mean pursuit of thelatest styling trends. Rather, we sought to embody universal customer values in the form of a car.
This is our fundamental consideration in designing the ideal car. The latest Forester offers a sleek
design and sense of elegance, while fully retaining the high function and performance levels
expected of a Subaru. We also strongly feel that the new car will appeal to a broader rangeof customers, not only Subaru loyalists.

“We sought to create a vehicle with universal appeal, rather than target
only loyal Subaru fans. As such, we are convinced that the new Forester
will be embraced by people who have never bought a Subaru before.”

Kunihiro Tomita
Design Dept.

Kazuya Takahashi
Subaru Product and Portfolio Planning Division

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InputEvaluation“ We got back to the basics of what makes the Forester an SUV ”“ We had groups of two or three actually ride in the car,checking the driver and passenger seats and the rear seats. ”

Size of vibration

We also visited dealers in Japan and conducted a customer survey to find out exactly how Subaru
vehicles are being used. Many people responded that they purchased our cars mainly because they
were impressed with Subaru’s advantages with respect to safety and driving performance. Based onthese customer comments, we came up with the concept for the new Forester. Specifically, we
decided to promote Forester as an SUV while retaining the positive attributes of Subaru earned todate. With this in mind, we returned to the basics and determined how we could deliver a distinctive
Forester experience. After further verification, we reaffirmed the various scenarios in which a single car
might be used by customers. To highlight the Forester’s ease of handling and high utility as an SUV,
our development team created a car that can beused for practically any purpose, such as commutHarshness Image Comparison
ing, shopping, and even camping. As an example(Driving over a 10 mm bump at 60 km/h)
of how we addressed the strong demand of customers, we added “soft flat seats” to the productseating specifications.

Our evaluation team, charged with the task of improving vehicle function and performance, sought toraise not only drivability, a traditional Subaru trait, but also the riding comfort levels of all passengers
in the front- and rear-seats. We also strove to create a car in which people could travel long distancesin comfort and style, without getting tired. At the trial stage, we had groups of two or three actuallyride in the car, whereas normally we would only evaluate riding comfort for the driver. The groups sat
in the driver’s seat and the front- and rear-seats to experience the ride as passengers would in the car,which was test-driven in various conditions, including uneven road surfaces. We conducted repeatedtests in this way to evaluate the car from thecustomer’s perspective. Rather than create a
car merely to impress automotive specialists,
we felt it very important to obtain the views of
those who would use the car on a regular basis.
For this reason, we asked many people toparticipate in the test-driving sessions, rightfrom the development stage, and we undertook
development while respectfully considering
their evaluations and opinions.

Time
New models

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Annual Report 2008

Old models“We started development based on the concept of building a versatile car
suited to almost any scenario. We envisaged a vehicle that can be used forcommuting and shopping, and even for long drives and camping withfamily and friends on weekends.”“We had repeated discussions about many things, such as streamlining
the window frame by just one millimeter to ensure good visibility.
Such persistence underscores our commitment to improving riding
comfort, entry and exit accessibility, and field of vision.”

Kiyokazu Nakatsu

Yukio Suzuki

Interior and Electronic Design Dept.

Total Vehicle Performance Integration Dept.

Drivability

Performance“ We were determined to make the minimum turning radius
10 centimeters less than the previous model. ”“ Through strong persistence, we achieved advances in two areas normallyconsidered contradictory. ”

In our opinion, a Subaru’s basic distinguishing characteristic is its driving performance, which is producedby combining a boxer engine with symmetrical all-wheel drive (AWD). These core technologies haveenabled us to achieve a low center of gravity and excellent front-back, left-right balance. Despite being
larger and taller than the previous model, the new Forester delivers the driving feel of a passenger car
and a comfortable ride even over long distances.
Indeed, the new Forester brings together “a distinctive Subaru experience” and superb “driving
performance” into one vehicle. With respect to driving performance, there are other cars in the market
that do well on driving circuits in terms of straight-line driving and cornering. With the Forester, however,
we wanted to achieve the kind of operational ease that would give the car a unique Subaru feel.
For example, we were determined to make the minimum turning radius 10 centimeters less than theprevious model. Performance that matches the requirements of each category, therefore, is also one
aspect of our pursuit of a distinctive Subaru experience. In short, we wanted to create a car thatappeals to a broader range of customers, by deploying Subaru’s proprietary technologies to deliver
performance for all driving scenarios, as well as comfort and environmental performance. This is how
we make cars at Subaru.

In the case of automobiles, simultaneously raising driving performance and environmental performance
would normally be considered a contradictory task. This is because SUVs are generally regarded ashaving poor fuel economy. To counter this image, we strove to achieve top-class fuel performance ineach category in all markets, including Japan, Europe, and North America. First, we reduced thevehicle’s weight, then increased engine fuel efficiency, lowered friction and tire rolling resistance,
and improved body aerodynamics. In these and other ways, we made numerous and meticulous
enhancements, enabling the Forester to achieve unparalleled fuel performance in its class.

+140 mm

Total door mirror width
2,006 mm
(10 mm less than earlier models)

5.3 m(New-model Forester)

5.4 m(Old-model Forester)“In developing the new Forester, we gave repeated attention to minutedetails. Even the slightest improvement, such as a 0.1% boost in fuelefficiency, was considered important. Consequently, we succeeded increating a top-class car in terms of fuel efficiency. Based on the Forester’s
strong sales, I conclude that the direction we took was the right one.”

Toyohide Sunaguchi
1st Powerunit Research and Experiment Dept.

13
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008

Cost

Customers Come First“ In monetary terms, the new Forester shares around 75%
of its components with the Impreza. ”“ The new Forester has been well received by customers throughout the world
because we imagined what would put a smile on their faces
and strove to meet their expectations. ”

One theme of our medium-term management plan is to “strengthen competitiveness in quality andcost.” Our specific target is to reduce the basic cost of each vehicle by ¥100,000 compared with theprevious model, a target that we achieved with the new Forester. An effective way to lower costs is
to share components with other models. In monetary terms, around 75% of the new Forester’s
components are shared with the Impreza, including frame, platform, and instrument panel surroundings.
It was a huge challenge for us to undertake a full model change of the Forester, following that of the
Impreza, in such a short period of time. Nevertheless, we were able to achieve our initial targets,with everyone fulfilling their roles properly. Reducing costs requires a comprehensive effort.
We strove to cut costs in all aspects of development, including by modifying the design and deleting
components with excessive quality. Soaring prices for precious metals, steel, and other raw materials
represented another major challenge. To meet emission standards for exhaust gas, for example, we
had to closely monitor regulatory trends with respect to catalytic metals. Meanwhile, we madecontinual assessments to ensure that the outcome of our efforts reflected what customers reallywant. Throughout development, we constantly sought to achieve the best overall result, while keeping
a close watch on market movements.
We were also committed to achieving a safety level that would be highly acclaimed worldwide.
In this respect, we sought a good balance between keeping costs down and improving safety, byincorporating Vehicle Dynamic Control (VDC) as standard. Through the effective use of high-tension
steel plates for the chassis and paneling, we attained a higher level of collision safety performancedespite increasing the vehicle’s size.

14
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008

When developing the drive train, we did not attempt to blindly incorporate into the Forester all theknow-how amassed in developing the Legacy and Impreza. Instead, we tried to reaffirm what SUV
drivers expect in an AWD vehicle. Rather than promoting generally recognized specifications, suchas number of transmission gears in the automatic and manual versions, we packaged the Forester tosuit SUV drivers. This included incorporating VDC as standard and ensuring a satisfactory towing
capacity, which is important to many users in Europe. We stood face-to-face with customers andspent money on areas highly valued by them in our quest to meet their expectations. By fusing theneeds of customers with the “essence” of Subaru, we successfully created a new level of value
beyond what anyone had anticipated. That is why the new Forester has been so widely received bypeople throughout the world.

“Drawing on Subaru’s impressive AWD technologies, we pinpointed theperformance requirements of Forester drivers and SUV drivers in general,then embarked on development.”“When developing the new Forester, we sought to provide a gentle,
comfortable ride so that front- and rear-seat passengers can travel long
distances without getting tired.”

Kazunobu Matsumae

Kazuhiro Ito

3rd Powerunit Research and Experiment Dept.

1st Vehicle Research and Experiment Dept.

15
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008

Success of Efforts to “Increase Sales Globally”

One of the key themes of FHI’s new medium-term management plan is to “increase sales globally.”
At present, sales volumes are steadily increasing as we promote a marketing strategy that views
overseas markets as pivotal to our earnings base. Sales of new car models, such as the Impreza andForester, have played a particularly vital role in supporting brisk sales. Growth has been especiallyprominent in our highest priority market, North America, as well as in fast-growing emerging
markets such as Russia and China.
United States

GlobalIn fiscal 2008, overseas sales volume totaled 388 thousand units, an increase of 36.9 thousand units over the previous fiscal
year—and far greater than initially planned. The target for the current fiscal year is to raise volume by approximately 9% to423.3 thousand units. Among other actions, we intend to meet this objective by expanding overseas sales through stronger
marketing in newly emerging markets.

100

0

200

300

400

500

600

636

FYE2009(Plan)

597

FYE2008

578

FYE2007

Legacy700

Impreza

ForesterTribeca

Justy

OthersThousand Units

Minicars

EuropeUnited States
0

50

100

150

200

205

FYE2009(Plan)

FYE2008193

FYE2007

190

Legacy16
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008250

Impreza

ForesterTribeca

0

20

40

60

80

70

FYE2009(Plan)

63

FYE200859

FYE2007
Thousand Units

LegacyImpreza

ForesterTribeca

Justy

Thousand Units

Russia
Sales volume in Russia was 22.6 thousand units in fiscal 2008, 9.9 thousand units up from theprevious fiscal year. This growth was mainly from sales of the Forester and Impreza. This market
recorded annual sales per dealership of 665 units, the most of any Subaru market worldwide.
Our target for fiscal 2009 is to raise sales volume by roughly 40% to 31.7 thousand units.

Russia0Europe

5

10

15

20

25

30

32

FYE2009(Plan)

China

35

23

FYE200813

FYE2007

LegacyImpreza

ForesterThousand Units

Tribeca

China
Sales volume in China for fiscal 2008 was 12.6 thousand units, a year-on-year increase of 5.2
thousand units, with growth largely reflecting Forester sales. Due to road conditions in thismarket, the Subaru driving experience—made possible by highly reliable boxer engines andsymmetrical AWD—is a key advantage that has earned praise for the brand. Our target for fiscal
2009 is to raise sales volume by roughly 30% to 16.4 thousand units.
Australia
0

3

6

9

12

15

16

FYE2009(Plan)

13

FYE2008

Australia
0

20

30

40

50

LegacyImpreza

ForesterTribecaThousand Units

46

FYE2009(Plan)40

FYE200838

FYE2007

Legacy7

FYE200710

18

Impreza

ForesterTribecaThousand Units

17
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008

“Customers Come First” Initiatives

To provide customers with peace of mind when driving our vehicles, we arereinforcing our safety performance by focusing on two areas: “passive safety”(protecting drivers, passengers and pedestrians in the event of an accident) and“active safety” (reducing the possibility of accidents occurring in the first place).
Passive Safety—Collision Safety Performance Recognized Globally
In April 2008, the new Impreza received the Assessment Grand Prix award from the Japan New Car
Assessment Program (JNCAP). This award recognizes vehicles that provide exceptional levels of safety.
Among vehicles tested, the Impreza was the only one to receive top marks in terms of overall collisionsafety performance and pedestrian head protection performance. In collision tests by the Australasian
New Car Assessment Program (ANCAP), moreover, the Impreza received the highest 5-star rating forvehicle occupant protection and was the first among models from any manufacturer to ever obtain a
4-star rating for pedestrian protection. Under the same program, the new Forester also received a
5-star rating for vehicle occupant protection.
Subaru has also earned a reputation for safety in the United States. In November 2007, forexample, the Legacy, Impreza, Forester, and Tribeca all earned Top Safety Pick awards for safety fromthe Insurance Institute for Highway Safety (IIHS). The Impreza, moreover, was the only compact car
chosen for this honor. In April 2008, the new Forester earned an IIHS Top Safety Pick award, and in thefollowing month received a 5-star rating from the National Highway Traffic Safety Administration(NHTSA). These awards attest to Subaru’s ability to make cars that provide “safety from any direction.”

Active Safety—Our Efforts to Develop “Collision-Free” Cars
From the beginning, we have sought to maximize safety in the event of a collision. Focusing also
on the area of preventative safety, we have developed vehicles with the ultimate goal of creating“collision-free cars.” One development is “EyeSight,” a new-generation Active Driving Assist (ADA)
system incorporated in the Legacy and Outback. We were also the first in the world (as of March
31, 2008; according to FHI data) to adopt “pre-crash brakes” as well as a “creep suppression andcontrol” system for automatic vehicles. We also have “Cruise Control for All Speed Ranges” andother functions to minimize the burden on the driver. We are the first carmaker to solely employ
stereo cameras to realize this system. The addition of various pre-crash safety functions to features
for which Subaru is famous—such as the stability and ability to avoid dangerous obstacles offeredby symmetrical AWD—makes the Subaru driving experience more enjoyable and relaxing. Having
successfully reduced the basic costs of these systems to around half of previous levels, we intend
to incorporate such systems in other models and help deliver preventative safety to more andmore customers.

Stereo cameras

Obstacle detection image in town

Illustration of the EyeSight System

1. Visual data from stereo cameras isrendered by a 3-D graphics processing
engine2. Information and warning lamps quickly
activate to caution the driver

3. When necessary, the system assumes
control of brakes, engine power andtransmission

18
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008

Corporate Social Responsibility (CSR)

Approach to CSR
One of the core elements of FHI’s latest medium-term management plan is a commitment to“pursue Quality rather than just Size to fulfill its Corporate Social Responsibility.”
Pursuant to this tenet, FHI strives for two key goals in its CSR activities:
1. Address social issues through business activities as a good corporate citizen, and
2. Remain a vitally important company that retains the trust of its customers and the public.

Corporate GovernanceIn line with the Corporate Philosophy, FHI views the strengthening of corporate governance as oneof management’s highest priorities, to ensure that it can measure up to the trust and confidence
placed in the Company by all its shareholders, customers and other stakeholders. In the pursuit ofmore efficient management, FHI is working to clarify management and execution functions toenhance decision-making speed. The Company is also ensuring proper management and businessexecution through a well-developed auditing system that includes the presence of outside corporate
auditors. In this way, FHI is working to augment both its compliance and risk management
frameworks. Fair and timely information disclosure is also leading to more transparent management.

Internal Control Systems
FHI’s Systems and Policies
To ensure that directors of the board comply with laws and the Company’s Articles of Incorporation in
the execution of their duties, FHI has systems in place whereby directors and corporate auditors attend
all relevant meetings, peruse documents that require managerial approval, and receive business
reports from executive officers and employees. We have also established regulations covering legal andethical compliance and a system for internal reporting (compliance hotline system), and we conduct
training programs related to compliance.
In addition, we have set up systems as directed by the Ministry of Justice that are necessary forassuring proper business conduct by companies. These include a system for saving and managing
information related to directors’ execution of duties, regulations and other frameworks for managing
risk of losses, a system for assuring that directors perform their duties efficiently, a system for ensuringthat executive officers and employees comply with laws and the Company’s Articles of Incorporation in
the execution of their duties, a system for assuring proper conduct of business by the FHI Group, rules
covering items related to support staff assigned to assist corporate auditors, a system covering reportingby directors, executive officers, and employees to corporate auditors, other systems for reporting tocorporate auditors, and a system for ensuring that corporate auditors conduct their audits effectively.

Progress Status
Spearheaded by its Strategy Development Division, the FHI Group is strengthening risk management
through close cooperation across all relevant departments and Group companies. In addition, theInternal Audit Department conducts regular audits of the business execution of each department
and Group company.
To facilitate establishment of internal control systems, the Company is setting up and operatingcompliance systems and infrastructure, positioning compliance as the most fundamental element ofproper risk management. To promote compliance-oriented practices across the entire Group, weestablished the Compliance Committee, which discusses and makes decisions on important complianceissues and exchanges and communicates relevant information. We have also assigned compliancemanagers and compliance officers in each department and Group company, providing a system inwhich compliance is practiced rigorously in each workplace. In addition, for some time we haveconducted regular educational and training programs for executives and employees, and we promotecompliance-related awareness through internal magazines and other means.

Response to J-SOX Law
In response to the so-called J-SOX Law (Japanese Securities and Exchange Law), FHI has added
specialized project teams to its organizational structure. These teams are charged with four tasks
designed to promote the readiness and robustness of internal control systems across the Group:(1) ensure effectiveness and efficiency of business operation; (2) ensure the reliability of financial
reporting; (3) ensure compliance with applicable laws and regulations relevant to businessactivities; and (4) ensure safeguarding of assets. We are currently documenting all initiatives witha view to filing an internal control system report at the end of the current fiscal year.

19
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008

Environmental Initiatives
The FHI Environmental Policy states that the Company “recognizes the integral relationshipbetween the environment and its business activities and strives to provide products that arefriendly to the earth, society, and people. FHI is protecting the environment to ensure our
future.” Guided by this policy, the Company has drafted its Voluntary Plan for the Environment,
the “FHI Environmental Conservation Program,” through which FHI undertakes activities aimed at
reducing the burden on the environment at every stage of business—from product development
to procurement, production, use and disposal. The Company is presently enacting its fourth New
Voluntary Plan for the Environment that will run from fiscal 2008 through fiscal 2012.
In the latest medium-term management plan, FHI has positioned the pursuit of a productdevelopment concept that integrates the pleasure of driving and environmental responsibility as
the way to provide customers with “a distinctive Subaru experience.” While continuing to enable
drivers and passengers alike to experience the distinctive sense of comfort and reliability that comeswith driving a Subaru, FHI is developing technology that aims to improve the fuel consumption ofits vehicles from the ground up.

Electric Vehicles (EV)
Since June 2006, FHI has been conducting practical trials of an electric vehicle (R1e, based on the R1)
in cooperation with Tokyo Electric Power Company (TEPCO). Since September 2007, we haveconducted public road trials of 40 electric vehicles (EVs), with the Kanagawa Prefectural Government
also participating.
In July 2008, we supplied five “Plug-in Stella” (electric version of the Stella minicar) vehicles to
the G8 Hokkaido Toyako Summit, attracting the attention of the press and summit participantsfrom around the world. This car is slated as the base model for our planned commercialization of
an EV in 2009.
The Subaru R1e and the Plug-in Stella are environmentally friendly EVs developed with sustainabilityof the earth, our society and our future in mind. In addition to reduced emissions of carbon dioxide,
identified as a key cause of global warming, they allow users to lower their running costs.

Subaru’s EVs emit zero carbon dioxide when in operation. Carbon dioxide produced whilecharging the batteries is only about one-quarter of that emitted by gasoline-powered minicars in thesame class (in the case of Japan). Moreover, running costs are only around one-eighth those ofgasoline-powered minicars and one-fifth those of hybrid vehicles.
The power source of these EVs is a lithium-ion battery, which can be charged to around 80% of
capacity in only 15 minutes if a dedicated EV-use high-speed charger is used. When its battery is
fully charged, a Subaru EV can travel distances of 80 kilometers or more.
In the early stages after launch, we expect our EVs to be used mainly for commuting purposes.
Because lithium-ion batteries are expensive and heavy, we do not expect users to increase thenumber of batteries to achieve longer travel distance. Rather, they will likely align their vehicle usage
to one suitable for commuting distances. Going forward, we will create an environment in whichmore and more people can experience EV driving. At the same time, we will strive to lower the costsof EVs, including their batteries, in order to expand sales of these environmentally friendly vehicles.
EV Initiatives
2009
Plan to sell roughly 100 carsannually, largely to corporate
customers and local
governments

2012~13

Around 2015

Bring EV prices down to around¥2 million/car; sell vehicles to
eco-conscious customers

Use economies of scale to bringbattery prices down; plan to sell
several tens of thousands ofunits annually for around ¥1.5
million/car

Subaru Plug-in STELLA
Concept model

20
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008

Diesel Engines

Subaru Plug-in STELLA at a recharging station

March 2008 saw the European market launch of Legacy and Outback models fitted with theworld’s first boxer turbo diesel engine. Compared with their gasoline counterparts, diesel
engines are more environmentally friendly because they consume less fuel and emit lesscarbon dioxide. Indeed, our boxer diesel engine, which emits 30% less carbon dioxide thana similar two-liter gasoline engine, meets the stringent Euro 4 emission standards adopted inEurope and delivers a top-class environmental performance among AWD passenger vehicles.
The vehicles combine the strengths of diesel, such as powerful
torque at low and medium speeds, with the features of theboxer engine, namely high rigidity and low vibration.
The result is a superb driving experience—the fusion of
comfortable driving and low environmental impact that
represents a distinctive Subaru experience. We plan to
introduce more boxer diesel models and expand our sales
territory for these vehicles in the future.
For more information on the FHI Group’s CSR initiatives,
please refer to the Social & Environmental Report.

Main Specs
Dimensions

3,395×1,475×1,660 mm (nearly identical in size to gasoline-engine Stella)

Passenger Seating

4 people

Curb Weight

1,060 kg (approx. 200kg more than gasoline-engine Stella)

Per-Charge Driving DistanceMore than 80 km

Maximum Speed

100 km/hElectric Motor

Permanent-magnet type synchronous motor
Maximum power output: 40 kW (comparable to gasoline engine)
Maximum torque output: 150 Nm

Subaru boxer turbo diesel engine

Key Boxer Diesel Engine Specs
EE20 (Boxer Diesel)

EJ20 (petrol)

1,998

1,994

2,999

Maximum power output [kW (PS)/rpm]

110 (150)/3,600

110 (150)/6,000180 (245)/6,600

Maximum torque output[Nm (kgfm)/rpm]

350 (35.7)/1,800

196 (20.0)/3,200297 (30.3)/4,200

CO2 emissions [g/km]

243 (Sedan MT)

Displacement [cc]EZ30 (petrol)

148 (sedan)

209 (Sedan MT)

Compression ratio

16.3

10.2

10.7

Lithium-ion battery(Cell-battery procurement from NEC subsidiary AESC; battery unit packaging by FHI)
Total voltage: 346V
Total energy output: 9.2 kWh

Bore/Stroke [mm]86.0×86.0

92.0×75.0

89.2×80.0

98.4

113

98.4

Fuel injection system

Common rail type

EGI

EGI

Fast recharge: 80% in 15 minutes
Residential power source: 100% in 8 hours

Turbo charger––

Recharging Capacity

Variable nozzle
turbocharger

EGR layout

Water cooled––

Running Costs

Compared to gasoline-engine minicar, 1/3 of cost with daytime recharge,
1/8 to 1/10 of cost with late-night recharge

DPF (Diesel Particulate Filter)

Open type

–

–

353.5

414.8

438.4

Battery Type

Bore pitch [mm]Engine length [mm]21
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008

Management(As of June 25, 2008)

Ikuo Mori
Representative Director of the Board,
President and CEO

22
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008

Shunsuke Takagi

Norihisa Matsuo

Masatsugu Nagato

Representative Director of the Board,
Executive Vice President

Director of the Board,
Executive Vice President

Director of the Board,
Executive Vice PresidentJun Kondo

Kazushige Okuhara

Director of the Board,
Executive Vice President

Director of the Board,
Executive Vice President

Hiroyuki Oikawa
Director of the Board,
Executive Vice President

Hiroshi Komatsu
Representative Director of the Board,
Senior Executive Vice President

Representative Director of the Board,
President and CEO

Directors of the Board,
Executive Vice Presidents

Ikuo Mori

Hiroyuki Oikawa
Norihisa Matsuo
Kazushige
OkuharaMasatsugu Nagato
Jun Kondo

Representative Director of the Board,
Senior Executive Vice President

Hiroshi Komatsu
Representative Director of the Board,
Executive Vice President

Shunsuke Takagi

Senior Vice Presidents

Vice Presidents

Takashi Ishihara
Tsunenori Hoshi
Yoshio Hasunuma
Naoto Muto
Yasuyuki
Yoshinaga
Akira Mabuchi
Tamaki Kamogawa

Masakazu Kimura
Tomohiko Ikeda
Takeshi Tachimori
Hisashi Nagano
Mitsuru Takahashi
Motokiyo Nomura
Motohisa Miyawaki
Masahiro Kasai
Naoto Arai
Yasuo Ueno
Hidetoshi Kobayashi
Yoshio Hirakawa

Standing Corporate
Auditors

Takeo Tsumuji
Yoji Ishimaru
Nobushige Imai
Corporate Auditor

Giichi Miyakawa

23
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008

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

Millions ofyen

Thousands of
U.S. dollars

2000

2001

2002

2003

2004

2005

2006

2007

2008

2008

For the Year:¥1,330,125¥1,311,887¥1,362,493¥1,372,337¥1,439,451¥1,446,491¥1,476,368¥1,494,817¥1,572,346$15,692,075

Cost of sales

995,131

978,841

992,950

1,011,582

1,085,716

1,107,718

1,125,293

1,142,674

1,217,662

12,152,315

Gross profit

334,994

333,046

369,543

360,755

353,735

338,773

351,075

352,143354,684

3,539,760

Selling, general and administrative expenses

243,593

251,373

281,063

293,234

303,411296,756

292,736304,237

309,004

3,083,872

Operating income

91,401

81,67388,48067,52150,32442,01758,33947,90645,680455,888

Income before income taxes and minority interest

64,83921,291

56,136

46,97056,266

21,066

28,67445,58931,906

318,423

Net income

31,34822,62830,28333,48438,64918,23815,611

31,89918,481

184,441¥ 213,806¥ 363,199¥ 399,598¥ 414,614¥ 457,027¥ 474,616¥ 467,786¥ 495,703¥ 494,423$ 4,934,361

206,404

357,455

396,112411,252

453,708

471,149

465,522494,004

493,397

4,924,121

1,038,558

1,168,501

1,269,558

1,344,072

1,349,727

1,357,459

1,348,400

1,316,041

1,296,388

12,938,004

19.9%

30.6%

31.2%

30.6%

33.6%

34.7%

34.5%

37.5%

38.1%

Net sales

At Year-End:
Net assets*
Shareholders’ capital
Total assets
Ratio of net assets to total assets (%)
Per Share (in yen and U.S. dollars):
Net income:	  Basic

¥

51.90

¥

30.44

¥

40.74

¥

44.84

¥

50.62

¥

23.27

¥

20.66

¥

44.46

¥

25.73

$

0.26

	  Diluted

48.53

29.06

38.83

42.91

49.66

23.27

20.66

44.44

25.73

0.26

Net assets

338.75480.86532.88553.90582.60604.51649.41687.81687.02

6.86

	  Japan

26.1

29.7

33.5

22.9

28.4

24.5

18.5

16.5

12.4

	  United States

29.2

40.0

41.2

44.7

48.1

51.2

55.6

46.3

Other Information:
Automobile inventory (1,000 units):

Depreciation/amortization expenses
Capital expenditures (addition to fixed assets)¥

60,190103,922¥64,070102,301¥

63,964
118,376¥

67,896
119,423¥

71,112
128,026¥

71,010147,759¥

80,073
119,289¥

81,454
126,32949.5¥

87,164519,162

40,123

46,622

54,903

60,11057,541

52,962

46,89350,70952,020

Number of shares issued (thousands of shares)**614,553

746,502746,506

746,521782,866

782,866

782,866

782,866

782,866

Number of shareholders**

49,381

32,99633,09435,58434,70434,55846,36742,92044,484

	  Parent only

13,66813,603

13,374

13,064

12,92812,703

11,99811,752

11,909

	  Consolidated

26,91426,502

26,48327,47827,29626,98926,11525,59826,404

Number of employees**:

24
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008

869,900
1,186,317

R&D expenses

Note: U.S. dollar figures have been translated from yen, for convenience only, at the rate of ¥100.20 to US$1.00, the approximate rate of exchange at March 31, 2008.
* Prior year amounts have been reclassified to conform to the current year presentation.
** As of March 31$

118,869

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

Overview

Segment Information

During fiscal 2008, ended March 31, 2008, the Fuji Heavy Industries Ltd. (“FHI”) Group was engaged
in production and sales activities in a wide range of business sectors. Operations in the Group’s networkof 102 subsidiaries and 9 affiliated companies were conducted under four main business divisions:
the Group’s mainstay Automobiles division, the Aerospace division, the Industrial Products division,and the Other division.
FHI announced a new medium-term management plan in February 2007, covering the four-year
period from fiscal 2008 to 2011. With “customers come first” as our key word, the FHI Group ismaking concerted efforts toward achievement of the targets.
The following is an overview of operations during fiscal 2008.
In the Group’s mainstay Automobiles division, in Japan, sales of the Impreza (launched in June2007) and Forester (launched in December 2007), both of which underwent full model changes,
increased thanks to a favorable reception from the market. However, existing models, namely theLegacy and minicars, posted lower sales volume. As a result, sales volume for both passenger cars andminicars declined compared to the previous fiscal year. Meanwhile, overseas sales volume exceeded
levels in the previous fiscal year in all markets, beginning with North America and Europe, with sales
higher than initially expected in emerging markets, including Russia and China.
Regarding the non-automobiles divisions, the Aerospace division posted record sales for the third
consecutive year, reflecting strong demand for commercial aircrafts. The Industrial Products division
recorded lower sales year on year as a result of Fuji Robin Industries Ltd. (now Makita Numazu
Corporation) becoming a non-consolidated subsidiary due to the tender of all the shares of Fuji
Robin owned by FHI to Makita Corporation in response to a friendly takeover bid.
All of these factors taken together, and due especially to contributions from higher sales volume
overseas and the yen’s depreciation in the first half of the fiscal year, consolidated net sales increased¥77.5 billion, or 5.2%, to ¥1,572.3 billion. Operating income, however, declined ¥2.2 billion, or 4.6%,
to ¥45.7 billion. Earnings were negatively affected by weak sales volume in Japan, deterioration of thesales mix in overseas markets in the first half of the fiscal year, fixed costs associated with depreciation
method changes, selling, general and administrative (SG&A) expenses and other costs, and higher R&D
expenses, overshadowing efforts to reduce material costs. Net income fell ¥13.4 billion, or 42.1%, to¥18.5 billion. The main factors were the disappearance of gains on the sale and disposal of property,
plant and equipment that were recorded in the previous fiscal year, and the booking of impairment losses
on property, plant and equipment for minicar manufacturing facilities at the Gunma manufacturing plant(Ota, Gunma Prefecture) in conjunction with planned reorganization of the production framework.

Automobiles Division
Net sales from the Automobiles division increased by ¥81.9 billion, or 6.1% year on year, to ¥1,421.2
billion. However, operating income declined ¥0.7 billion, or 1.8%, to ¥37.1 billion. In the second halfof the fiscal year, the sales volume and mix improved due to strong sales of new vehicles both in Japanand overseas, but efforts to reduce the cost of materials were unable to compensate for fixed costs ofdies and molds associated with getting new vehicles off the ground, and a change in depreciation
method, SG&A expenses and other costs, and higher R&D expenses.
Global sales volume was 597 thousand units, up 19 thousand units, or 3.2%, over the previous
fiscal year.
In Japan, passenger car sales benefited from the new Impreza and Forester, but this was outweighed
by lower sales volume for the existing Legacy. As a result, domestic passenger car sales volume declinedby 3 thousand units, or 3.9 % year on year, to 78 thousand units. Similarly, minicar sales declined by 15
thousand units, or 10.3%, to 131 thousand units as benefits from the new Stella, launched in June 2006,
fell away, and sales of other models also declined. As a result of these factors, total sales volume in Japandeclined by 18 thousand units, or 8.0% year on year, to 209 thousand units.
In contrast, overseas sales volume increased by 37 thousand units, or 10.5%, to 388 thousand
units. In North America, sales volume rose by 4 thousand units, or 1.9%, to 210 thousand units as
higher sales of the Legacy and Tribeca, which underwent big change, offset lower sales volume for theForester ahead of its full model change. In Europe, sales volume rose by 15 thousand units, or 20.4%,
to 86 thousand units. In addition to substantial growth in emerging markets, particularly Russia, wherevolume increased by 10 thousand units, or 77.7%, to 23 thousand units, expansion was led by the
Impreza and the Justy. Sales in Australia remained strong, rising by 2 thousand units, or 5.4%, to 40
thousand units, setting a new record high for the tenth consecutive year. Sales in other regions werealso strong, increasing by 16 thousand units, or 46.7%, to 51 thousand units, led by China, where
sales rose by 5 thousand units, or 69.3%, to 13 thousand units, mainly from Forester sales.

25
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008

Consolidated Automobile Sales

Number of Units
Domestic Units:
LegacyImpreza
ForesterOthers	  Subtotal
Minicars
	  Domestic total
Overseas Units by Region:
United States
CanadaEurope*Australia
Others	  Subtotal
Overseas Units by Model:
LegacyImpreza
ForesterTribeca
Others	  Subtotal
CKD** Overseas
Total

2008

2007

2006

2005

2004

31,07929,67816,863435
78,055
130,635
208,690

43,951
24,135
11,807
1,308
81,201
145,610
226,81150,61926,911
17,405
2,747
97,682
132,483
230,165

56,97725,194
17,7094,138
104,018
150,021254,039

65,907
21,20018,9885,000
111,095
134,446
245,541

192,760
17,58785,99540,21051,423387,975

190,276
16,247
71,404
38,13635,064351,127

193,562
16,38464,72436,50630,034341,210

193,917
16,50660,51735,414
21,241
327,595

189,633
16,15453,57830,685
15,652
305,702

137,829
113,777
96,83927,327
12,203387,975—
596,665

133,720
90,927
102,969
18,2685,243
351,127—
577,938

132,236
72,790104,059
24,187
7,938
341,210—571,375

150,987
66,67095,173—
14,765327,595—
581,634

128,994
72,72998,941—
5,038
305,7022,800
554,043* “Europe” includes figures for Russia.
** CKD: Complete Knocked Down

Consolidated Automobile Sales by Region**

Consolidated Automobile Sales by Model**FY2008596,665596,665

FY2007

577,938

FY2007

577,938

FY2006571,375

FY2006571,375

FY2005

581,634

FY2004

United States**Excluding CKD Overseas

26
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008

200,000

CanadaEurope400,000

Australia

Others600,000
Number of Units

581,634

FY2005551,2430Japan

FY2008551,243

FY20040LegacyImpreza**Excluding CKD Overseas

200,000

ForesterTribeca

400,000

OthersMinicars

600,000
Number of UnitsNon-Consolidated Automobile Sales

Domestic Units:
LegacyImpreza
ForesterOthers	  Subtotal
Minicars
	  Domestic total
Export Units:
LegacyImpreza
ForesterOthers	  Export total
U.S. Retail Sales*:LegacyImpreza
Forester
Baja
Tribeca	  TotalCKD Overseas(SIA Portion)
SIA Production Units*:
LegacyTribeca

Number of Units

2008

2007

2006

2005

2004

34,63432,87318,740086,247
132,872
219,119

47,17626,15912,946086,281
157,453
243,734

57,01330,063
19,256
0
106,332
138,398
244,730

59,84327,437
19,457
1,397
108,134
164,624
272,758

73,67622,26320,097
2,479
118,515
143,502
262,017

48,568
119,000
98,602
7,533
273,70346,41092,782
99,637894
239,72342,80975,935
104,425
1,554
224,723

44,101
69,946
90,131
8,324
212,50233,86567,34999,463161
200,838

78,42846,32944,534
1,127
16,790187,208
110,363
110,363

84,442
41,14851,2585,241
18,614
200,703
100,972
100,972

87,78833,63753,541
6,239
14,797
196,002
119,784
119,784

89,45332,20958,424
7,316—
187,402115,317
115,31779,83936,52559,761
10,694—
186,819
90,15887,35884,96024,21889,351
21,02291,51027,481

105,550—

96,993—* U.S. Retail Sales and U.S. Production Units are the aggregate figures for the calendar year from January through December.

Non-Consolidated Domestic Automobile Sales by Model

Non-Consolidated Automobile Export Units by Model

FY2008FY2008219,119

273,703110,363

FY2007

FY2007

243,734

239,723
100,972

FY2006

FY2006

244,730

224,723
119,784

272,758

FY2005

FY2005

212,502115,317

262,017

FY2004

FY2004200,838
90,158Legacy050,000

Impreza

Forester

100,000

Others150,000

Minicars

200,000

250,000

300,000
Number of Units

0

LegacyImprezaCKD Overseas

50,000Forester

100,000

Others150,000

200,000

250,000

300,000
Number of Units

27
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008

Aerospace Division

Other Division

The division posted record sales for the third consecutive year, with sales up ¥5.7 billion, or 6.0%, to¥99.7 billion. However, operating income fell ¥1.2 billion, or 21.7%, to ¥4.4 billion.
Sales to the Japan Ministry of Defense declined compared to the previous fiscal year. Sales of the“AH-64D” combat helicopter and unmanned aircraft increased, but sales of the “XP-1/CX” nextgeneration fixed-wing Maritime Patrol Aircraft and Cargo Transport Aircraft declined with the moveinto the termination stage of prototype delivery.
Sales to the commercial sector were up substantially compared with the previous fiscal year.
In addition to higher shipments of the center wing for the Boeing 777, the division saw increased deliveriesof the main wing for the H4000 mid-sized business jet and for the Eclipse 500 light business jet.
Earnings declined mainly because of increasing manufacturing expenses related to parts for the
Boeing 787.

Other division sales were down ¥1 billion, or 8.5%, to ¥10.8 billion. However, operating income rose
¥0.3 billion, or 11.9%, to ¥2.5 billion.
Although sales were boosted by the May 2007 introduction of 2-ton and 3-ton vehicles in the new“Fuji Mighty 81 series” sanitation truck and the delivery of the first mass-produced large-scale wind turbine
generator systems, the decrease in sales caused by withdrawal from the environmental equipment businessin fiscal 2008 had a negative impact. However, factors such as the complete consolidation of an affiliate
subsidiary had a positive impact on earnings.

Industrial Products Division
Sales in the industrial products division declined ¥9 billion, or 18.2%, to ¥40.7 billion. Operating
income decreased ¥0.8 billion, or 56.3%, to ¥0.7 billion.
One factor was lower year on year sales due to a decline in sales of engines for construction
machinery in the domestic market. Overseas, sales in the North American market declined due to theslowing economy there. However, the appreciation of euro boosted sales in Europe and sales in the
Middle East, where business conditions remain good due to high prices for crude oil. As a result, total
overseas sales rose compared with the previous fiscal year.
Another factor reducing sales was the fact that Fuji Robin Industries was no longer a consolidated
subsidiary, as FHI sold its entire stake during the fiscal year.

Cost of Sales, Expenses and Operating Income
Compared to the previous fiscal year, the cost of sales increased by ¥75.0 billion, or 6.6%, to ¥1,217.7
billion, and the cost of sales ratio edged up 1.0 percentage point to 77.4%. Higher raw materials costs
fueled by sharp increases in prices for materials, mainly steel and precious metals, were responsible forthe increase in the cost of sales ratio. Operating income declined by ¥2.2 billion, or 4.6%, to ¥45.7
billion, as ¥1.0 billion in currency exchange gains and ¥7.0 billion in benefits from cost reductions netof sharply higher values for raw materials were outweighed by a ¥8.1 billion increase in miscellaneous
expenses (including ¥4.6 billion due to changes in depreciation method), a ¥1.3 billion rise in R&D
expenses, and ¥0.8 billion due to deterioration in the sales volume and mix.

Net Sales by Division (Excluding intersegment sales)

Net Sales by Division (Excluding intersegment sales)
FY2008

1,572.3

2008

2007

2006

2005

Billions of yen
2004¥1,421.2¥1,339.3¥1,329.2¥1,319.6¥1,317.0

FY2007

1,494.8

Automobiles

FY2006

1,476.4

Aerospace

99.7

94.0

81.8

59.4

56.6

40.7

49.7

52.4

46.8

42.3

FY2005

1,446.5

Industrial Products

FY2004

1,439.5

Other

10.8

11.8

13.0

20.6

23.6

1,500

Total

¥1,572.3¥1,494.8¥1,476.4¥1,446.5¥1,439.5

0Automobiles

500

Aerospace

28
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008

Industrial Products

1,000

Other

Billions of yen

Net other income/expenses declined ¥11.5 billion to a loss of ¥13.8 billion. Although foreignexchange losses were offset by a gain on revaluation of derivatives, net income/expenses declined due
to lower gains on the sale and disposal of property, plant and equipment, which were recorded in theprevious fiscal year, and the booking of impairment losses on minicar manufacturing facilities at the
Gunma plant in association with planned reorganization of the production framework. Income before
income taxes and minority interest declined ¥13.7 billion, or 30.0%, to ¥31.9 billion. Net income fell
¥13.4 billion, or 42.1%, to ¥18.5 billion.

Operating Income & Net Income
45.7

FY200818.5
47.9

FY200731.9
58.3

FY200615.6
42.0

FY200518.2
50.3

FY2004

38.6
0

45.7

FY2008

20

30

40

50

60
Billions of yen

2008

2007

2006

2005

Billions of yen
2004

Automobiles

¥37.1

¥37.8

¥51.6

¥40.9

¥52.1

Aerospace

4.4

5.7

2.8

0.2

(0.3)

Industrial Products

0.7

1.5

2.0

0.8

(0.3)

Other

2.5

2.3

1.2

(0.6)

(1.5)

Corporate and Elimination

0.9

0.6

0.7

0.6

0.3

¥45.7

¥47.9

¥58.3

¥42.0

¥50.3

2008

2007

2006

2005

Billions of yen
2004

¥34.2

¥40.6

¥57.0

¥40.5

¥37.7

North America

6.6

5.2

2.0

(6.7)

1.1

Other

1.4

0.8

0.3

0.4

0.3

Corporate and Elimination

3.5

1.3

(0.9)

7.8

11.3

¥45.7

¥47.9

¥58.3

¥42.0

¥50.3

Operating Income (Loss) by Division

47.9

FY200758.3

FY200642.0

FY200550.3

FY2004-20

Automobiles

10

Operating Income
Net Income

Operating Income (Loss) by Division

0

Aerospace

20

Industrial Products

Other

40

60
Billions of yen

Corporate and Elimination

Total
Operating Income (Loss) by Region
FY2008Operating Income (Loss) by Region

45.7

FY200747.9

FY200658.3

FY200542.0

FY2004

50.3

-20

Japan

North America

0

Other

20

Corporate and Elimination

40

60
Billions of yen

Japan

Total

29
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008

Liquidity and Financing

Analysis of Increases and Decreases in Operating Income(Consolidated, Three-Year (FY2006-FY2009) YoY Comparison) (Billions of Yen)
Operating income
FYE March 2006

Securing Liquidity
FHI believes that it has secured a degree of liquidity sufficient to satisfy a level of funds as currently
necessary through the use of commitment lines contracted with major banks, combined with cash andcash equivalents.
Interest-bearing debt at the end of fiscal 2008 totaled ¥304.5 billion, a year-on-year decrease of¥39.4 billion. The debt/equity ratio improved 0.08 of a point to 0.62, as FHI maintained a soundfinancial position.

58.3

Increase due tocurrency exchange

13.8

Reduction in cost,
net of raw material price raise

8.6

Decrease of SG&A
expenses and others

1.9

Deterioration of sales
volume & mixture and others–30.9

Increase of
R&D expenses

Interest-Bearing Debt Balance & D/E Ratio–3.8

Operating income
FYE March 2007

%

47.9

0

0.2

0.4

304.5

FY2008Operating income
FYE March 2007

47.9
7.0

Increase due tocurrency exchange

1.0

Increase of SG&A
expenses and others–8.1

Increase of
R&D expenses–1.3

Deterioration of sales
volume & mixture and others

45.7

Improvement of sales
volume & mixture and others– 46.0

Increase of SG&A
expenses and others

Operating income
FYE March 2009 (Plan)

30
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008

–13.8
–7.3
–3.0
23.0

0.80

379.0

FY200447.4

Decrease due tocurrency exchange

Increase of
R&D expenses

FY2005–0.8

Operating income
FYE March 2008

0.70

412.2

0

45.7

Reduction in cost,
net of raw material price raise

FY2006

100

200

300

1.0

0.62

374.1

Interest-bearing Debt
D/E Ratio

Operating income
FYE March 2008

0.8

343.9

FY2007

Reduction in cost,
net of raw material price raise

0.6

0.87
0.84

400

500
Billions of yen

Financial Position

Cash Flows

Total assets at March 31, 2008 decreased ¥19.7 billion, or 1.5% compared to the previous fiscal yearend, to ¥1,296.4 billion. Total current assets were ¥622.8 billion, increasing ¥28.2 billion, or 4.7%,
from the previous fiscal year. This change largely reflected a decrease in short-term loans due to thesecuritization of receivables at a financing subsidiary, as well as higher inventories and an increase in
cash and time deposits.
Property, plant and equipment decreased by ¥38.9 billion, or 7.1%, to ¥511.7 billion, a change
primarily attributable to a decline in machinery and vehicles, the account for construction in progress
and leased assets.
Investments and other assets totaled ¥161.9 billion, a decrease of ¥8.9 billion, or 5.2%, from theprevious fiscal year-end.
Total liabilities were down ¥18.4 billion, or 2.2%, to ¥802.0 billion, mostly as a result of a reduction
in interest-bearing debt to ¥304.5 billion, down ¥39.4 billion, or 11.5%, due to redemption of bonds
and reductions in loans.
Net assets totaled ¥494.4 billion, down ¥1.3 billion, or 0.3%, compared to the previous fiscal year.
Retained earnings increased ¥13 billion to ¥227.8 billion, while net unrealized holding gains on securities
declined ¥8.5 billion to ¥13.7 billion.
As a result of the above, return on equity (ROE) at the end of the year was 3.7%, deteriorating 2.9
percentage points compared to the previous fiscal year. Return on assets (ROA), the numerator ofwhich consists of operating income plus interest and dividend income, was unchanged at 3.9%.

Net cash provided by operating activities increased by ¥41.8 billion, to ¥107.4 billion. Inventories increased¥45.6 billion, while income before income taxes and minority interest was ¥31.9 billion, depreciation andamortization was ¥87.2 billion, and notes and accounts payable, trade, rose ¥44.2 billion.
Net cash used in investing activities increased ¥1.5 billion year on year, to ¥44.9 billion, mainlyreflecting ¥57.0 billion used for the purchase of property, plant and equipment (net of proceeds fromsale of property, plant and equipment), and ¥19.9 billion in inflows from the collection of loans
receivable (net of disbursement of loans receivable).
As a result, free cash flow totaled ¥62.5 billion, an improvement of ¥40.3 billion from ¥22.2 billion
in the previous fiscal year.
Net cash used in financing activities totaled ¥45.1 billion, representing a year-on-year improvementof ¥8.9 billion. This result was largely attributable to a reduction in interest-bearing debt.

Cash Flows from Operating Activities & Cash Flows from Investing Activities
107.4

FY2008–44.9
65.6

FY2007

–43.4
137.5

FY2006

Total Assets, Shareholders’ Capital & Shareholders’ Capital to Total Assets

–75.8
57.3

FY2005

–89.8

%
0

20

40

60

FY2004

1,296

FY2008

38.1

493

-150

1,316

FY2007

FY2005

466

34.5

471

34.7

1,348

Free Cash Flow

1,357

FY2008454
0Total Assets
Shareholders’ Capital
Ratio of Shareholders’ Capital to Total Assets

500

-50

0

33.6

50

100

62.5
22.2

61.7

FY20061,000

1,500
Billions of yen

FY2005
FY2004

150
Billions of yen

Cash Flows from Investing Activities

FY20071,350

FY2004-100

Cash Flows from Operating Activities

37.5

494

FY200699.8–127.1

-32.4
-27.4

-20

0

20

40

60

80
Billions of yen

31
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008

Capital Expenditures

Research & Development Expenses

Capital expenditures declined ¥3.3 billion, or 5.5% compared to the previous fiscal year, to ¥56.3
billion. Expenditures declined due to a reduction in investment for SIA and slower progress in acquiring
new land for domestic dealers than initially expected. Depreciation increased ¥6.6 billion, or 11.2%, to¥65.5 billion, partly because of a change in depreciation method.

Research and development expenses at FHI as a whole increased ¥1.3 billion, or 2.6%, to ¥52.0 billion,
mainly from R&D on models undergoing the next generation full model changes and initiatives for
improving environmental performance.

Research & Development Expenses
Capital Expenditures
FY2008FY200856.3

FY2007

FY200759.6

FY200685.3

FY2004
60

80

53.0

FY2004

74.6
40

46.9

FY2005

FY20052050.7

FY2006

56.2

0

52.0

57.5
0

20

40

100
Billions of yen

60

80
Billions of yen

Basic Policy Regarding the Distribution of Profits
Depreciation Expenses
FY2008FHI views the return of profits to shareholders as a priority task for management, and follows a basic
policy of maintaining stable long-term dividends while taking comprehensive consideration of suchfactors as its earnings performance and dividend payout ratio. FHI uses retained earnings with the intent
of strengthening its financial position. Funds are also allocated for investments to support future growthand development in areas such as R&D for the development of appealing products, and investments tobolster FHI’s production and sales network.

65.5

FY200758.9

FY200657.5

FY200551.1

FY200453.2
032
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008

20

40

60

80

100
Billions of yen

Outlook

Medium- to Long-term Management Strategies

The automobile market in Japan is expected to remain harsh, while economic conditions in the U.S. arelikely to decelerate against the backdrop of the sub-prime loan issue. Additionally, sharp increases in prices
for raw materials, including petroleum, steel and precious metals, and the further strengthening of the yen
against other currencies make the business environment for FHI difficult to predict.
In this environment, FHI is forecasting fiscal 2009 sales of ¥1,600.0 billion, up ¥27.7 billion, or
1.8%, from the previous fiscal year atop increased sales volume, and operating income of ¥23.0 billion,
down ¥22.7 billion, or 49.6%. While the Company expects improvement in the sales mix due to theongoing introduction of new vehicles into the market to contribute to earnings, it also expects foreignexchange loss, higher manufacturing fixed costs, increased SG&A expenses, sharp increases in raw
material prices, and greater R&D expenses. As a result, FHI is forecasting net income of ¥10 billion,
down ¥8.5 billion, or 45.9% year on year.
These targets are based on an exchange rate of ¥100 to U.S.$1 for the parent company.

In February 2007, FHI announced a new four-year, medium-term management plan scheduled to run
from fiscal 2008 to 2011. While retaining FHI’s long-term vision of becoming a compelling company
with a strong market presence, the new plan places priority on building stronger foundations tounderpin future growth, and aims for solid improvements in enterprise value, guided by an unswerving
commitment to FHI customers. Centered on the philosophy that “Customers come first,” the 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 so enhance the organization. Financial targets
include attaining an operating margin at the level of 5% and a target ROA level of 7% by fiscal 2011.
In April 2008, FHI announced that it would expand cooperative ties with Toyota Motor Corporation(Toyota) and Daihatsu Motor Co., Ltd. (Daihatsu), specifically through new arrangements related to R&D
and product supply, with the aim of strengthening its competitiveness by achieving mutual synergies
through the apt application of each company’s technological know-how.
The specifics of the alliance are as follows:(1) FHI and Toyota are to jointly develop a compact FR (front engine, rear drive) sporty car, to bemarketed by both companies. The new sporty car is to be developed based on Subaru’s
boxer engine platform, with market launch in late 2011.
(2) FHI is to build a new vehicle assembly plant at its Gunma facility, and the new compact sporty
car will be manufactured entirely at FHI’s new plant.
(3) Toyota will supply FHI with a compact car on an OEM (original equipment manufacturing)basis, with the start of supply targeted for the end of 2010.
(4) Daihatsu will supply FHI with the compact car “Coo” on an OEM basis, starting in October 2008.
(5) Daihatsu is to supply FHI with minicars on an OEM basis, starting in the second half of 2009.
(6) FHI will terminate development and production of minicars and transfer employees at its existing
Main Plant to the new factory in Oizumi, Gunma Prefecture.
(7) To further promote a smooth business alliance, FHI will transfer 61 million shares owned astreasury stock to Toyota, following approval by Japan’s Fair Trade Commission.
After this transfer, Toyota’s ownership ratio in FHI will increase from 8.7% to 16.5%. The funds
received for the transfer of shares will be allotted for capital investment for the construction of
the new production facility.*

Forecast for Global Automobile Sales
2009

2008

1,000 Units
ChangeJapan
Passenger cars

98.1

78.1

20.0

Minicars

114.6

130.6

(16.1)

	  Subtotal

212.6

208.7

3.9

United States

204.6

192.8

11.8

Canada

18.0

17.6

0.4

Overseas

Europe

101.7

86.0

15.7

Australia

46.2

40.2

5.9

Other

52.9

51.4

1.5

	  Subtotal

423.3

388.0

35.4

Total

636.0

596.7

39.3

FHI believes that each of these measures will make its pursuit of a distinctive Subaru experience fordrivers and passengers more visible in the automobile market. Through this focus on our resources, wewill enhance the advantages of the Subaru brand while maintaining management independence, andwill be better able to pursue the improvement of shareholder value through increased enterprise value.
*This transfer was completed on July 14, 2008.

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

33
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008

Consolidated Subsidiaries and Affiliates(As of March 31, 2008)

OverseasJapan
Fuji Machinery Co., Ltd. (100.0%)

Subaru UI Co., Ltd. (100.0%)

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

Sales & car auction support for second hand Subaru
automobiles and pre-delivery inspection & body repair
works for Subaru automobiles
http://www.subaru-ui.jp/

Ichitan Co., Ltd. (51.0%)
Manufacture and sales of forged automobile/industrial
product parts
http://www.ichitan.co.jp/

Subaru Finance Co., Ltd. (100.0%)

Kiryu Industrial Co., Ltd. (97.5%)

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

Manufacture of Subaru specially equipped automobiles anddistribution of Subaru automobile parts
http://www.kiryu-kougyo.co.jp/

Yusoki Kogyo K.K. (100.0%)

Subaru Kosan Co., Ltd. (100.0%)
Leasing of real estate, shopping mall managements andtravel agency operations
http://www.ebis303.com/

Manufacture and sales for aircraft parts
http://www.yusoki.co.jp/

Tokyo Subaru Inc. (100.0%)
and 33 other dealerships
Distribution, sales and services of Subaru automobiles
http://www.tokyo-subaru.co.jp/

Subaru of America, Inc. (100.0%)
and 10 subsidiaries

Subaru Canada, Inc. (100.0%)
and one subsidiary

Subaru Plaza, 2235 Route 70 West, Cherry Hill, NJ08002,
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/

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

Fuji Heavy Industries U.S.A., Inc. (100.0%)
and one subsidiaryc/o Subaru of America, Inc.
Subaru Plaza, 2235 Route 70 West, Cherry Hill, NJ08002, 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 of Indiana Automotive, Inc. (100.0%)
and one subsidiary
5500 State Road 38 East, Lafayette, IN47905, U.S.A.
Phone: +1-765-449-1111
FAX: +1-765-449-6952
Manufacture of Subaru automobiles and contracted
manufacture of Toyota automobiles
http://www.subaru-sia.com/

34
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008

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 Co, Ltd. (100.0%)
Beijing Landmark Towers office Building 2-1501, 8 North
Dongsanhuan Road,
Chaoyang District, Beijing 100004, China
Tel: +86-10-6590-0725
Fax: +86-10-6590-0729
Distribution, sales and marketing of Subaru automobiles
and parts

Investor Information(As of March 31, 2008)

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. Fuji Heavy Industries Ltd.
3. Northern Trust Company (AVFC) Sub-account
American Client
4. The Master Trust Bank of Japan, Ltd. (Trust Account)
5. Japan Trustee Services Bank, Ltd. (Trust Account)
6. Hero and Company
7. Nippon Life Insurance Company
8. Suzuki Motor Corporation
9. Mizuho Corporate Bank, Ltd.
10. Mizuho Bank, Ltd.

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

Paid-in Capital¥153,795 million

Number of Shareholders
55,422

(Yen)
800

600

400

Stock Exchange Listing
Tokyo Stock Exchange

200

Transfer Agent
Mizuho Trust & Banking Co., Ltd.
2-1 Yaesu 1-chome, Chuo-ku, Tokyo 103-8670, JapanWeb Site Address

Number of Common Stock Issued

Quarterly Common Stock Price Range (Tokyo Stock Exchange)

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

0

High
Low

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

FY2004

FY2005

FY2006

FY2007

FY2008

668
414

627
462

704
437

747
577

641
376

4Q

782,865,873

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

With the new EXIGA, Subaru has created a car that brings new value to multi-passenger vehicles. Basedon the concept of a seven-seater with panoramic visibility for the touring experience, the EXIGA has beendeveloped to provide a safe and pleasant journey for all occupants. Leveraging expertise gained from its
work in wagons, Subaru has created an open and comfortable interior space enabling all passengers toeasily engage in conversation and share scenic views as they enjoy the experience of touring.

The entire Annual Report including the financial statements,
please visit FHI’s website: http://www.fhi.co.jp/english/ir/report/ar.html

35
FUJI HEAVY INDUSTRIES LTD.
Annual Report 2008

FUJI HEAVY INDUSTRIES LTD.
Subaru Building, 7-2, Nishi-Shinjuku 1- chome,
Shinjuku-ku, Tokyo 160-8316, Japan
http://www.fhi.co.jp/english/ir/

Printed on recycled paper in Japan

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

Millions of yen
2000

2001

2002

2003

2004

¥1,330,125¥1,311,887¥1,362,493¥1,372,337¥1,439,451

Cost of sales

995,131

978,841

992,950

1,011,582

1,085,716

Gross profit

334,994

333,046

369,543

360,755

353,735

243,593

251,373

281,063

293,234

303,411

91,401

81,67388,48067,52150,32464,83921,291

56,136

46,97056,266

31,34822,62830,28333,48438,649Net assets¥213,806¥363,199¥399,598¥414,614¥457,027

Shareholders’ capital

206,404

357,455

396,112411,252

453,708

1,038,551

1,168,501

1,269,558

1,344,072

1,349,727

19.9%

30.6%

31.2%

30.6%

33.6%

Basic

¥51.90¥30.44¥40.74¥44.84¥50.62

Diluted

48.53

29.06

38.83

42.91

49.66

Net assets

338.75480.86532.88553.90582.60¥60,190¥64,070¥63,964¥67,896¥71,112103,922102,301

118,376

119,423

128,026

40,123

46,622

54,903

60,11057,541(thousands of shares) *614,553

746,502746,506

746,521782,866

Number of shareholders*

49,381

32,99633,09435,58434,704

Parent only

13,66813,603

13,374

13,064

12,928

Consolidated

26,91426,502

26,48327,47827,296

For the Year:Net sales

Selling, general andadministrative expenses
Operating income
Income before income taxes
and minority interest
Net income
At Year-End:Total assets
Ratio of net assets
to total assets (%)
Per Share: (in yen and U.S.
Dollars)
Net income:

Other Information:
Depreciation/amortization
expensesCapital expenditures(addition to fixed assets)
R&D expenses
Number of shares issued

Number of employees*:

Note: U.S. dollar figures have been translated from yen, for convenience only, at the rate of ¥100.20 to US$1.00, the approximate rateof exchange at March 31, 2008.
* As of March 31

1Thousands of
U.S. dollars
2008

2005

2006

2007

Millions of yen
2008

Net sales¥1,446,491¥1,476,368¥1,494,817¥1,572,346$15,692,075

Cost of sales

1,107,718

1,125,293

1,142,674

1,217,662

12,152,315

Gross profit

338,773

351,075

352,143354,684

3,539,760

296,756

292,736304,237

309,004

3,083,872

42,01758,33947,90645,680455,888

21,066

28,67445,58931,906

318,423

18,23815,611

31,89918,481

184,441

Net assets¥474,616¥467,786¥495,703¥494,423$4,934,361

Shareholders’ capital

471,149

465,522494,004

493,397

4,924,121

1,357,459

1,348,400

1,316,041

1,296,388

12,938,004

34.7%

34.5%

37.5%

38.1%

Basic

¥23.27¥20.66¥44.46¥25.73$0.26

Diluted

23.27

20.66

44.44

25.73

0.26

Net assets

604.51649.41687.81687.02

6.86¥71,010¥80,073¥81,454¥87,164$869,900

147,759

119,289

126,329

118,869

1,186,317

52,962

46,89350,70952,020519,162(thousands of shares) *782,866

782,866

782,866

782,866

Number of shareholders*

34,55846,36742,92044,484

Parent only

12,703

11,99811,752

11,909Consolidated

26,98926,11525,59826,404

For the Year:

Selling, general andadministrative expenses
Operating income
Income before income taxes
and minority interest
Net income
At Year-End:Total assets
Ratio of net assets
to total assets (%)
Per Share: (in yen and U.S.
Dollars)
Net income:

Other Information:
Depreciation/amortization
expensesCapital expenditures(addition to fixed assets)
R&D expenses
Number of shares issued

Number of employees*:

Note: U.S. dollar figures have been translated from yen, for convenience only, at the rate of ¥100.20 to US$1.00, the approximate rateof exchange at March 31, 2008.
* As of March 31

2

Consolidated Balance Sheets
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIESAs of March 31, 2008 and 2007

Millions of yen

Thousands of U.S.
dollars(Note 1)

2008

2007

2008

Cash and time deposits (Note 4)¥67,053¥52,406$669,192

Marketable securities (Notes 4 and 5)

32,77532,017

327,096

Notes and accounts receivable, trade (Note 9)

96,017

99,290958,253

Allowance for doubtful accounts(1,346)(1,713)(13,433)

Inventories (Note 6)

261,009

224,9192,604,880

Short-term loans (Note 4)

78,329101,184

781,727

Deferred tax assets (Note 12)

26,486

27,072

264,331

Other current assets

62,50459,501

623,792

622,827594,676

6,215,838

1,280,060

1,284,660

12,775,050(768,352)(734,076)(7,668,184)

511,708

550,584

5,106,866

57,95872,349578,423

14,974

15,136

149,441

Long-term loans

3,736

3,696

37,285

Goodwill

18,50019,092

184,632

Intangibles, net

12,972

16,100129,461

Deferred tax assets (Note 12)27,256

20,825

272,016

Other assets

29,54426,806294,850

Allowance for doubtful accounts(3,087)(3,223)(30,808)

161,853

170,781

1,615,300¥1,296,388 ¥1,316,041$12,938,004

ASSETS
Current assets:

Total current assets
Property, plant and equipment (Notes 7, 8 and 9)

Less－accumulated depreciation
Net property, plant and equipment
Investments and other assets:
Investment securities (Note 5)
Investments in non-consolidated subsidiaries andaffiliated companies

Total investments and other assets
Total assets

3Consolidated Balance Sheets
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIESAs of March 31, 2008 and 2007

2008

Millions of yen
2007

Thousands of
U.S. dollars(Note 1)
2008

¥150,625¥172,665$1,503,244

Current portion of long-term debts (Note 9)51,261

20,789511,587

Notes and accounts payable, trade229,780

190,394

2,293,214

Accrued expenses

100,024

94,970998,243

Accrued income taxes (Note 12)

8,091

4,572

80,748Other current liabilities (Note 12)58,26180,277

581,447

Total current liabilities

598,042563,667

5,968,483

Long-term liabilities:
Long-term debts (Note 9)

102,661

150,400

1,024,561

40,99345,516409,112-821-

60,26959,934

601,487

203,923

256,671

2,035,160

153,795

153,795

1,534,880

Capital surplus

160,098

160,104

1,597,785

Retained earnings

227,789

214,8312,273,343

Less－treasury stock, at cost, 2008— 64,698,395 shares(40,538)(40,511)(404,571)

501,144488,219

5,001,437

13,71622,182

136,886-290-

Foreign currency translation adjustments(21,463)(16,687)(214,202)

Total valuation, translation and other adjustments(7,747)

5,785(77,316)

1,026

1,699

10,240494,423495,7034,934,361¥1,296,388¥1,316,041$12,938,004

LIABILITIES AND NET ASSETS
Current liabilities:
Short-term borrowings (Note 9)

Accrued pension and severance liability (Note 11)

Negative goodwill (Notes 1 and 3)
Other long-term liabilities (Notes 8 and 12)
Total long-term liabilities
Contingent liabilities (Note 21)
Net assets: (Notes 1 and 13)
Shareholders’ capital:
Common stock
Authorized—1,500,000,000 shares
Issued — 782,865,873 shares

2007—64,639,092 shares

Total shareholders’ capital
Valuation, translation and other adjustments:
Net unrealized holding gain on securities
Revaluation reserve for land (Notes 8 and 12)

Minority interest in consolidated subsidiaries
Total net assets
Total liabilities and net assets
The accompanying notes are an integral part of these balance sheets.

4Consolidated Statements of Income
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2008, 2007 and 2006
Thousands of
U.S. dollars(Note 1)
2008

2008

2007

Millions of yen
2006

Net sales¥1,572,34¥1,494,817¥1,476,3$15,692,07

Cost of sales

1,217,662

1,142,674

1,125,29

12,152,315

Gross profit

354,684

352,143

351,075

3,539,760

Selling, general and administrative expenses (Note 14)309,004

304,237

292,736

3,083,872

Operating income
Other income (expenses):
Interest and dividend income

45,68047,90658,339455,888

5,503

3,864

3,421

54,920Interest expenses(4,063)(4,017)(3,181)(40,549)

Gain on sale of securities, net

1,502

40

3,021

14,990Foreign exchange losses(4,740)(11,906)(10,597)(47,305)

Loss on devaluation of securities
Gain (loss) on sale and disposal of property, plant andequipment, net
Gain (loss) on revaluation of derivatives

-

(335)

(16)

-

(4,009)

1,899

(401)

(40,010)

4,811

4,196

(2,470)48,014

Impairment loss on property, plant and equipment(13,174)(550)(4,064)(131,477)

Additional retirement payments (Note 11)--(7,991)-

Loss on termination of development projects (Note 16)--(7,094)-

Amortization of negative goodwill (Note 3)

-

2,175

3,296

-

Prior period adjustment (Note 17)
Gain on transfer of the substitutional portion of theemployees’ pension fund (Note 11)
Loss on liquidation of affiliated companies (Note 18)

1,539

1,451

-

15,359

-

2,423

-

-

-

(913)

-

-

Other, net(1,143)(644)(3,589)(11,407)(13,774)(2,317)(29,665)(137,465)

Income before income taxes and minority interest

31,90645,58928,674318,423

Income taxes (Note 12):Current

14,536

7,231

13,231145,070(1,148)

6,411

(303)

(11,457)

13,38813,642

12,928

133,613

18,51831,947

15,746

184,810

(37)

(48)

(135)

(369)

¥18,481¥31,899¥15,611$184,441

Yen

Yen

Yen

U.S. dollars(Note 1)¥25.73¥44.46¥20.66

$0.26

25.73

44.44

20.66

0.26

687.02687.81649.41

6.86

9.00

9.00

9.00

0.09

DeferredIncome before minority interest
Minority interest in earnings of consolidated
Net income

Per share data (Note 2) :Net income—Basic—Diluted
Net assets
Cash dividends (Note 13)
The accompanying notes are an integral part of these statements.

5Consolidated Statements of Changes in Net Assets
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES

Years ended March 31, 2008, 2007 and 2006
Fiscal 2006 (from April 1, 2005 to March 31, 2006)
Thousands
Number ofsharesissuedCommonstock

CapitalsurplusRetainedearnings

Millions of yen
Shareholders’ capital
Total
Treasury shareholders’stockcapital782,866¥153,795¥160,071¥178,022¥(2,231)¥489,657

Cash dividends--(7,015)-(7,015)

Payment of bonuses todirectors and statutory
auditors

-

-

(111)

-

(111)

Net income--

15,611-

15,611

Purchase of treasury stock

-

-

-

(39,351)(39,351)

Disposal of treasury stock

-

-

(8)

37

29

-

-

3,466

-

3,466

-

-

31

-

31

-

-

-

-

-

-

-

-

-

-

782,866¥153,795¥160,071¥189,996¥(41,545)¥462,317

Net
unrealized
holding
gains onsecurities

Valuation, translation and other adjustments
Totalvaluation,
Foreigntranslation
currency
Revaluationand othertranslation
reserve foradjustments
adjustments
land

Balance, March 31, 2005

Increase in the number ofcompanies accounted forby the equity method
Other comprehensive
income of foreignsubsidiaries
Other changes inshareholders’ capital
Changes (other thanshareholders’ capital), net
Balance, March 31, 2006

Millions of yen

Balance, March 31, 2005

Minority
interest inconsolidated
subsidiaries

Total net
assets¥16,945¥421¥(35,874)¥(18,508)¥3,467¥474,616

Cash dividends

-

-

-

-

-

(7,015)

Payment of bonuses todirectors and statutory
auditors

-

-

-

-

-

(111)

Net income

-

-

-

-

-

15,611

Purchase of treasury stock

-

-

-

-

-

(39,351)

Disposal of treasury stock

-

-

-

-

-

29

-

-

-

-

-

3,466

-

-

-

-

-

31

-

-

-

-

-

-

4,200

(131)

17,644

21,713(1,203)

20,510¥21,145¥290¥(18,230)¥3,205¥2,264¥467,786

Increase in the number ofcompanies accounted for by
the equity method
Other comprehensive incomeof foreign subsidiaries
Other changes inshareholders’ capital
Changes (other thanshareholders’ capital), net
Balance, March 31, 2006

6

Fiscal 2007 (from April 1, 2006 to March 31, 2007)
Thousands

Millions of yen
Shareholders’ capital
Total
Treasury shareholders’stockcapital

Number ofsharesissuedCommonstock

CapitalsurplusRetainedearnings

782,866¥153,795¥160,071¥189,996¥(41,545)¥462,317

Cash dividends--(6,452)-(6,452)

Payment of bonuses todirectors and statutory
auditors

-

-

(107)

-

(107)

Net income--

31,899-31,899Purchase of treasury stock

-

-

-

(71)

(71)

Disposal of treasury stock

-

33

-

1,105

1,138

-

-

1,038

-

1,038

-

-

(1,513)-(1,513)

-

-

(30)

-

(30)

-

-

-

-

-

782,866¥153,795¥160,104¥214,831¥(40,511)¥488,219Net
unrealized
holding
gains onsecurities

Valuation, translation and other adjustments
Totalvaluation,
Foreigntranslation
currency
Revaluationand othertranslation
reserve foradjustments
adjustments
land

Balance, March 31, 2006

Increase in the number ofcompanies accounted forby the equity method
Other comprehensive
income of foreignsubsidiaries
Other changes inshareholders’ capital
Changes (other thanshareholders’ capital),net
Balance, March 31, 2007

Millions of yen

Balance, March 31, 2006

Minority
interest inconsolidated
subsidiaries

Total net
assets¥21,145¥290¥(18,230)¥3,205¥2,264¥467,786

Cash dividends

-

-

-

-

-

(6,452)

Payment of bonuses todirectors and statutory
auditors

-

-

-

-

-

(107)

Net income

-

-

-

-

-

31,899Purchase of treasury stock

-

-

-

-

-

(71)

Disposal of treasury stock

-

-

-

-

-

1,138

-

-

(18)

(18)

-

1,020

-

-

-

-

-

(1,513)

-

-

-

-

-

(30)

1,037

-

1,561

2,598

(565)

2,033

¥22,182¥290¥(16,687)¥5,785¥1,699¥495,703

Increase in the number ofcompanies accounted for by
the equity method
Other comprehensive incomeof foreign subsidiaries
Other changes inshareholders’ capital
Changes (other thanshareholders’ capital), net
Balance, March 31, 2007

7

Fiscal 2008 (from April 1, 2007 to March 31, 2008)
Thousands

Millions of yen
Shareholders’ capital
Total
Treasury shareholders’stockcapital

Number ofsharesissuedCommonstock

CapitalsurplusRetainedearnings

782,866¥153,795¥160,104¥214,831¥(40,511)¥488,219

Cash dividends--(6,468)-(6,468)Net income--

18,481-

18,481

Purchase of treasury stock

-

-

-

(60)

(60)

Disposal of treasury stock

-

(6)

-

33

27

-

-

402

-

402

-

-

543

-

543

-

-

-

-

-

782,866¥153,795¥160,098¥227,789¥(40,538)¥501,144Net
unrealized
holding
gains onsecurities

Valuation, translation and other adjustments
Totalvaluation,
Foreigntranslation
currency
Revaluationand othertranslation
reserve foradjustments
adjustments
land

Balance, March 31, 2007

Increase due to changes inscope of consolidation
Other comprehensive
income of foreignsubsidiaries
Changes (other thanshareholders’ capital),net
Balance, March 31, 2008

Millions of yen

Balance, March 31, 2007

Minority
interest inconsolidated
subsidiaries

Total net
assets¥22,182¥290¥(16,687)¥5,785¥1,699¥495,703

Cash dividends

-

-

-

-

-

(6,468)Net income

-

-

-

-

-

18,481

Purchase of treasury stock

-

-

-

-

-

(60)

Disposal of treasury stock

-

-

-

-

-

27

-

-

-

-

-

402

-

-

-

-

-

543

(8,466)(290)(4,776)(13,532)(673)(14,205)¥13,716-¥(21,463)¥(7,747)¥1,026¥494,423

Increase due to changes inscope of consolidation
Other comprehensive incomeof foreign subsidiaries
Changes (other thanshareholders’ capital), net
Balance, March 31, 2008

8

Fiscal 2008 (from April 1, 2007 to March 31, 2008)
Thousands

Thousands of U.S. dollars (Note 1)
Shareholders’ capital
Total
Retained
Treasury shareholders’earnings
stock
capital

Number ofsharesissuedCommonstock

Capitalsurplus782,866$1,534,880$1,597,845$2,144,022$(404,301)$4,872,446

Cash dividends--(64,551)-(64,551)

Net income--

184,441-

184,441

Purchase of treasury stock

-

-

-

(599)

(599)

Disposal of treasury stock

-

(60)

-

329

269

-

-

4,012

-

4,012

-

-

5,419

-

5,419

-

-

-

-

-

$1,534,880$1,597,785$2,273,343$(404,571)$5,001,437

Balance, March 31, 2007

Increase due to changes inscope of consolidation
Other comprehensive
income of foreignsubsidiaries
Changes (other thanshareholders’ capital),net
Balance, March 31, 2008

782,866

Thousands of U.S. dollars (Note 1)
Net
unrealized
holding
gains onsecurities

Balance, March 31, 2007

Valuation, translation and other adjustments
Totalvaluation,
Foreigntranslation
currency
Revaluationand othertranslation
reserve foradjustments
adjustments
land

Minority
interest inconsolidated
subsidiaries

Total net
assets$221,377$2,894$(166,537)$57,734$16,956$4,947,136

Cash dividends

-

-

-

-

-

(64,551)

Net income

-

-

-

-

-

184,441

Purchase of treasury stock

-

-

-

-

-

(599)

Disposal of treasury stock

-

-

-

-

-

269

-

-

-

-

-

4,012

-

-

-

-

-

5,419

(84,491)(2,894)(47,665)(135,050)(6,716)(141,766)$136,886-$(214,202)$(77,316)$10,240$4,934,361

Increase due to changes inscope of consolidation
Other comprehensive incomeof foreign subsidiaries
Changes (other thanshareholders’ capital), net
Balance, March 31, 2008

The accompanying notes are an integral part of these statements.

9Consolidated Statements of Cash Flows
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES

Years ended March 31, 2008, 2007 and 2006

2008

2007

Millions of yen
2006

Thousands of
U.S. dollars(Note 1)
2008

¥31,906¥45,589¥28,674$318,423

87,164
4,009(4,136)(1,502)
460(45,633)
44,205(11,111)(11,475)
13,174(4,811)
5,137
107,387

81,454(1,899)(6,790)
(40)
335
6,392
(12,787)(20,520)(825)(15,555)550(2,175)(4,196)(3,917)65,61680,073401(6,859)(3,021)
16
13,893(9,944)
16,55523,964(9,201)
4,064
7,094(3,296)2,470(7,398)137,485

869,900
40,010(41,277)(14,990)
4,591(455,419)
441,168(110,888)(114,521)
131,477(48,014)51,267
1,071,727(59,430)
2,384(18,032)(4,700)15,9116,020(2,782)(108,620)
128,476(60,048)
57,734(1,833)(44,920)(57,388)
7,571(16,599)(3,517)
11,4308,472(3,100)(114,761)
138,280(64,100)
52,112(1,828)(43,428)(60,942)3,616(9,063)(9,489)13,092
21,908(5,127)(124,989)
127,450(7,087)(59,933)
34,499290(75,775)(593,114)
23,792(179,960)(46,906)
158,792
60,080(27,765)(1,084,032)
1,282,196(599,281)
576,188(18,293)(448,303)

3,100(10,735)(10,000)(20,972)(60)
27(6,470)(45,110)(1,968)15,3891,700(3,848)20,000(20,500)(27,169)(62)
224(6,452)(102)(36,209)756(13,265)

15,301(28,996)(10,300)
18,538(39,352)30(7,015)(15)(88,885)7,856(19,319)30,938(107,136)(99,800)(209,301)(599)
269(64,571)(450,200)(19,641)
153,583

99,060200¥114,649

112,366(41)¥99,060

131,685¥112,366

988,623
1,996
1,144,202¥4,135¥3,945¥2,920$41,267

Cash flows from operating activities:
Income before income taxes and minority interest
Adjustments to reconcile income before income taxes andminority interest to net cash provided by operating activities:
Depreciation and amortization expenses(Gain) loss on sale and disposal of property, plant and equipment, net
Decrease in accrued pension and severance liability
Gain on sale of investment securities
Loss on devaluation of securities
Decrease in notes and accounts receivable, trade
Increase in inventories
Increase (decrease) in notes and accounts payable, trade
Increase (decrease) in deposits received
Income taxes paid
Impairment loss on property, plant and equipment
Loss on termination of development projects
Amortization of negative goodwill(Gain) loss on revaluation of derivatives
Other, net

Net cash provided by operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchase of investment securities
Purchase of marketable securities
Proceeds from sale of investment securities
Proceeds from sale of marketable securities
Purchase of intangible assets
Disbursement of loans receivableCollection of loans receivable
Price adjustment of investments in subsidiary (Note 4)
Purchase of leased assets
Proceeds from sale of leased assets
Other, net

Net cash used in investing activities
Cash flows from financing activities:
Proceeds from long-term debts
Repayment on long-term debts
Issuance of bonds
Redemption of bonds
Net increase (decrease) in short-term borrowings
Purchase of treasury stock
Proceeds from disposal of treasury stock
Dividends paid
Other, net

Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents:
Balance at beginning of year
Net increase (decrease) related to the change in scope of consolidation

Balance at end of year (Note 4)
Supplementary information on cash flows:
Cash paid during the year for interest
The accompanying notes are an integral part of these statements.

10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”) have been 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 in Japan (“Japanese GAAP”),
which are different in certain respects as to application and disclosure requirements ofInternational Financial Reporting Standards.
The accounts of the company’s overseas subsidiaries are based on their accounting
records maintained in conformity with generally accepted accounting principles prevailingin the respective countries of their domicile. The accompanying consolidated financial
statements have been restructured and translated into English (with certain expandeddisclosure and the inclusion of the consolidated statements of changes in net assets for2006) from the consolidated financial statements of the Company prepared in accordancewith Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministryof 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 theconvenience of readers outside Japan, using the prevailing exchange rate at March 31,
2008, which was ¥100.20 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 couldin the future be, converted into U.S. dollars at this or any other rate of exchange.
2. Summary of Significant Accounting Policies
Consolidation
The accompanying consolidated financial statements include the accounts of theCompany and its significant subsidiaries. All significant intercompany transactions andbalances have been eliminated in consolidation. The fiscal year-end of the consolidated
domestic subsidiaries is the same as that of the Company, while the fiscal year-end of theconsolidated foreign subsidiaries is December 31. Although these consolidated foreignsubsidiaries are included based on their fiscal year ended December 31, significant
intervening transactions that occurred for the period between December 31 and March 31
are reflected in the consolidated financial statements.
The consolidated financial statements include the accounts of the Company and 62
subsidiaries in the fiscal year 2008 (61 subsidiaries in the fiscal year 2007 and 68
subsidiaries in the fiscal year 2006).
In addition, 19 non-consolidated subsidiaries and 2 affiliated companies were
accounted for by the equity method in the fiscal year 2008, while 17 non-consolidated
subsidiaries and an affiliated company were accounted for by the equity method in thefiscal year 2007, and there were 10 non-consolidated subsidiaries and an affiliatedcompany accounted for by the equity method in the fiscal year 2006.
Investments in insignificant non-consolidated subsidiaries and affiliated companies notaccounted for by the equity method are carried at cost. The difference between the cost
and the underlying net equity of investments in subsidiaries and affiliated companies is11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 the underlying
net assets is recognized as goodwill, and is amortized over a period of five years on astraight-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.
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 yenat the exchange rates prevailing at each balance 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 theforeign subsidiaries and affiliated companies, except for common stock and capitalsurplus, which are translated at historical rates. Revenue and expense accounts aretranslated 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 consolidated subsidiaries” in the net assets sectionof the accompanying consolidated balance sheets.
Revenue recognition
Revenue from sales of finished products is generally recognized when the products areshipped to dealers or customers. Revenue from operating leases is recognized on astraight-line basis over the lease term. In addition, revenue of the Aerospace division’s
production contracts with the production term exceeding one year and the amountexceeding ¥5,000 million is recognized by the percentage-of-completion method.
Cash equivalents
Cash and cash equivalents include all highly liquid investments, generally with original
maturities of three months or less that are readily convertible to known amounts of cash
and have negligible risk of changes in value due to their short maturities.
Allowance for doubtful accounts
Allowance for doubtful accounts is provided based on the amount calculated based on thehistorical ratio of bad debt for ordinary receivables, and an estimated amount of
uncollectible accounts for specific overdue receivables.
Marketable securities and investment securities
Under the Japanese accounting standards for financial instruments, available-for-salesecurities for which fair value is available are stated at their fair value as of the balance
sheet dates with unrealized holding gains and losses included as a separate componentof net assets until realized, while securities for which fair value is not readily available arestated 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.
Derivative financial instruments and hedge accounting
The Japanese accounting standards for financial instruments requires the Company and12consolidated domestic subsidiaries to state derivative financial instruments at their fairvalue and to recognize changes in the fair value as a gain or loss unless such derivative
financial instruments are used for hedging purposes.
For interest rate swap contracts used as a hedge which 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 and liabilities are as follows:
Financial Instrument
Interest swaps

Transactions, assets and liabilities
Borrowings

The risk exposures to movements in interest rates are hedged according to theCompany’s and consolidated subsidiaries’ risk management policy. An evaluation ofhedge effectiveness is not considered necessary as the terms and notional amounts ofthese hedging instruments are the same as those of the underlying transactions, assets
and liabilities, and therefore they are presumed to be highly effective in offsetting theeffect of movements in interest rates at their inception as well as during their terms.
Inventories
Finished products are stated principally at cost determined by the moving-averagemethod. Raw materials, work in process and supplies are stated principally at cost
determined by the first-in, first-out method.
Property, plant and equipment
Property, plant and equipment are stated at cost. Significant renewals and additions arecapitalized; 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 consolidated
domestic subsidiaries is principally computed by the declining-balance method, except forthe buildings (excluding building improvements) acquired on or after April 1, 1998, forwhich the straight-line method is applied. Depreciation of the property, plant andequipment of consolidated foreign subsidiaries is computed by the straight-line method at
rates based on the estimated useful lives of the assets according to their general class,type of construction, and use.
Estimated useful lives for depreciable assets are as follows:(Fiscal 2007 and 2006)
Buildings and structures: 7–50 years
Machinery, equipment and vehicles: 2–12 years(Fiscal 2008)
Buildings and structures: 7–50 years
Machinery, equipment and vehicles: 3–12 years(Change in accounting policy)(Fiscal 2006)
In the fiscal year 2006, the Company and the consolidated domestic subsidiaries adopted
the new accounting standard for impairment of fixed assets (“Opinion Concerning

13

Establishment of Accounting Standard for Impairment of Fixed Assets” issued by theBusiness Accounting Deliberation Council on August 9, 2002) and the implementation
guidance for the accounting standard for impairment of fixed assets (Financial AccountingStandard Implementation Guidance No. 6 issued by the Accounting Standards Board ofJapan on October 31, 2003). As a result of this change, income before income taxes andminority interest decreased by ¥3,263 million. (Impairment loss on property, plant andequipment in the consolidated statement of income in the fiscal year 2006 was ¥4,064
million, of which ¥801 million was related to consolidated subsidiaries in the UnitedStates.) The impact of such change on segment information is stated in Segment
Information (Note 24).
An accumulated impairment loss is recorded as a direct deduction in the book value of therespective assets.
(Fiscal 2008)
In the fiscal year 2008, the Company and domestic consolidated subsidiaries changed
their depreciation method for fixed assets acquired on or after April 1, 2007 to conform to
the enacted revisions to the tax depreciation schedules under the Corporate Tax Law andrelated tax regulations. The effects of this change were to decrease operating income by¥2,308 million (US$23,034 thousand), and to decrease ordinary income and income
before income taxes and minority interest by ¥2,319 million (US$23,144 thousand) eachas compared to the respective amounts that would have been reported under the previous
method. Please refer to “24. Segment Information”, about the effect on the business andgeographical segments.
(Additional Information)
In addition, during the fiscal year 2008, the Company and domestic consolidated
subsidiaries started to depreciate the residual book value of fixed assets acquired on or
before March 31, 2007 on a straight-line basis over a five-year period commencing in theyear following the year in which those assets have reached their depreciation limit under
the previous depreciation method. Please refer to “24. Segment Information”, about theeffect on the business and geographical segments.
This change resulted in a decrease in operating income of ¥2,298 million (US$22,934
thousand), and decreases in both ordinary income and income before income taxes andminority interest of ¥2,345 million (US$23,403 thousand), as compared to the respective
amounts that would have been reported had the change not been implemented.
Accounting for leases
In principle, finance leases are accounted for on a similar basis to sales by lessors orpurchases by lessees. However, finance leases which do not transfer ownership of theleased assets to lessees as stipulated in the lease contracts can be accounted for as
operating leases. Therefore, as a lessee, the Company and consolidated domestic
subsidiaries account for those leases as operating leases and charge periodic lease
payments to expenses as incurred. Certain “as-if capitalized” pro-forma information isdisclosed in Note 21 to the consolidated financial statements.
Goodwill and intangible assets
Goodwill is principally amortized by the straight-line method in accordance withaccounting principles generally accepted in the countries where such goodwill is recorded.
However, goodwill of the consolidated subsidiary in the U.S. is not amortized inaccordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, whileother identifiable assets are being amortized by the straight-line method.
Computer software used internally by the Company and consolidated subsidiaries is14

amortized by the straight-line method over the relevant economic useful lives of 3 or 5
years.
Accrued warranty claims
The Company and consolidated subsidiaries provide for accrued warranty claims on
products sold based on their past experience of warranty services and estimated future
warranty costs, which are included in “Accrued expenses” in the accompanying
consolidated balance sheets.
Directors’ bonus
Directors’ bonus is recognized as expenses for the period in which it is incurred.
(Fiscal 2007)
Accounting standard for directors’ bonus
In previous fiscal years, directors’ bonus was accounted for as a direct distribution fromunappropriated retained earnings. Effective from the fiscal year 2007, it is recognized inearnings as incurred. This change in accounting standards had no material effect on
income.
Accrued pension and severance liability
Upon termination of employment, employees of the Company and consolidated
subsidiaries in Japan are entitled, under most circumstances, to lump-sum indemnities or
pensions as described below, based on current rates of pay, length of service, andconditions under which the termination occurs. The minimum payment is an amountbased on voluntary retirement. In addition to the minimum payment based on voluntary
retirement, employees receive additional benefits for retirement due to age limit, death orother defined reasons.
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 the contributions are made by the companies andtheir employees, and an additional portion representing the corporate noncontributory
pension plans.
Under the Japanese accounting standards for pension and severance benefits, accrued
pension and severance liability for employees is provided based on the estimatedamounts of projected pension and severance 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 (12-18 years) which is shorter than the average remaining service
period of the eligible employees. Actuarial gains and losses are amortized from thefollowing fiscal year by the straight-line method over a period (primarily 18 years) which isshorter than the average remaining service period of the eligible employees.
Accrued pension contribution for defined benefit pension plans is included in accrued
pension and severance liability.
Directors and statutory auditors of the Company and consolidated domestic
subsidiaries are entitled to receive a lump-sum payment at the time of severance orretirement, subject to approval of the shareholders. The liabilities for such benefits are
determined based on the Company’s and consolidated subsidiaries’ internal rules, andare included in “Other long-tem liabilities” in the accompanying consolidated balance
sheets.
(Additional Information)

15

(Fiscal 2008)
In order to pay the directors and statutory auditors’ retirement benefits, the Company had
provided for the amount of required payments based on the Company’s internal rules.
However, at the annual general meeting held in June 2007, the shareholders haveresolved to abolish this retirement benefits system, subject to a “grandfather” provision
under which those incumbent directors and statutory auditors who were reappointed at
the meeting shall be eligible for such retirement benefits when they retire based on theirservices through the date of that shareholders’ meeting. As of March 31, 2008, ¥271
million (US$2,705 thousand) of the estimated benefits for the payment are included in“Other long-tem liabilities”.
Research and development costs
Research and development costs are expensed as incurred and amounted to ¥52,020
million (US$519,162 thousand), ¥50,709 million and ¥46,893 million for the fiscal years
2008, 2007 and 2006, respectively.
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 toreduce deferred tax assets when it is more likely than not that a tax benefit will not berealized.
(Fiscal 2007)
Accounting standard for business combinations
Effective from the fiscal year 2007, the Company and consolidated domestic subsidiaries
adopted the provisions of “Accounting Standard for Business Combination” (BusinessAccounting Deliberation Council, October 31, 2003), “Accounting Standard for BusinessSeparation” (Statement No. 7 issued by the Accounting Standards Board of Japan on
December 27, 2005), and the related “Implementation guidance for the accounting
standard for business combination and the accounting standard for business separation”(the Financial Accounting Standard Implementation Guidance No. 10 issued by the
Accounting Standards Board of Japan on December 27, 2005). The adoption of these
new accounting standards had no effect on income.
Accounting Standard for Presentation of Net Assets in the Balance Sheet
Effective from the fiscal year 2007, the Company adopted the new accounting standard,“Accounting Standard for Presentation of Net Assets in the Balance Sheet” (Statement No.
5 issued by the Accounting Standards Board of Japan on December 9, 2005), and therelated “Implementation guidance for the accounting standard for presentation of net
assets in the balance sheet” (the Financial Accounting Standard Implementation
Guidance No. 8 issued by the Accounting Standards Board of Japan on December 9,2005).
The consolidated balance sheet as of March 31, 2006 has been restated to conform to
the new presentation. There was no effect on total assets or total liabilities after applying
these new accounting standards to the balance sheet as of March 31, 2006. The adoptionof the new accounting standards had no impact on the consolidated statements of income
for the years ended March 31, 2007 and 2006.

16

Accounting Standard for Statement of Changes in Net Assets
Effective from the fiscal year 2007, the Company adopted the new accounting standard,“Accounting Standard for Statement of Changes in Net Assets” (Statement No. 6 issued
by the Accounting Standards Board of Japan on December 27, 2005), and the related“Implementation guidance for the accounting standard for statement of changes in net
assets” (the Financial Accounting Standard Implementation Guidance No. 9 issued by the
Accounting Standards Board of Japan on December 27, 2005).
Accordingly, the Company prepared the statement of changes in net assets for the year
ended March 31, 2007 in accordance with these new accounting standards. Also, theCompany voluntarily prepared the consolidated statements of changes in net assets forthe year ended March 31, 2006 in accordance with the new accounting standards.
Previously, consolidated statements of shareholders’ equity were prepared for the
purpose of inclusion in the consolidated financial statements although such statements
were not required under Japanese GAAP.
Net income per share
Basic net income per share (EPS) is computed based on the average number of shares ofcommon stock outstanding during each year. Diluted EPS assumes the potential dilutionthat could occur if all the convertible securities were converted or other contracts to issuecommon stock were exercised to the extent that they are not anti-dilutive.
Reclassification and restatement
Certain prior year amounts have been reclassified to conform to the current year
presentation. Also, in lieu of the consolidated statements of shareholders’ equity for theyears ended March 31, 2006, which was prepared on a voluntary basis for inclusion in the2006 consolidated financial statements, the Company prepared the consolidated
statements of changes in net assets for the year ended March 31, 2006 as well as for2007 and 2008.
These reclassifications had no impact on previously reported results of operations orretained earnings.
3. Acquisition of Isuzu’s Share of Subaru of Indiana Automotive, Inc.
Subaru of Indiana Automotive, Inc. (“SIA,” formerly Subaru-Isuzu Automotive Inc.), a
consolidated subsidiary in the United States, had been a joint venture company of Isuzu
Motors, Limited (“Isuzu”) and the Company (the Company had held a 51% interest in SIA).
On January 1, 2003, as a result of dissolution of the joint venture relationship with Isuzu
and execution of an agreement for the consignment of production, the Company acquired
Isuzu’s share of SIA to make SIA a wholly owned subsidiary of the Company, and SIA
was assigned to produce certain Isuzu vehicles as well as Subaru vehicles.
The acquisition cost of Isuzu’s share of SIA was determined in consideration of certain
losses on disposal of property, plant and equipment, losses on cancellation of operatingleases, and losses related to personnel reduction, to be incurred during and after theconsigned production activities. Consequently, negative goodwill arose.
The portion of the negative goodwill that clearly corresponds to the forecasted future
losses has been amortized according to the generation of those losses, and the remaining
portion has been amortized by the straight-line method over five years.
The Company revised this amortization schedule following the settlement of actual losses
with Isuzu according to the Master Agreement for Cancellation of Joint Venture
Relationship and Consignment of Production dated December 20, 2002.

17

As a result, negative goodwill totaled ¥1,949 million as of March 31, 2006, which was fully
amortized by the end of the fiscal year 2007.
4. Additional Cash Flow Information(a) Cash and cash equivalents as of March 31, 2008, 2007 and 2006, consisted of thefollowing:

2008

2007

2006

Thousands of
U.S. dollars
2008¥67,053
32,77578,329178,157(63,508)¥114,649¥52,406
32,017101,184
185,607(86,547)¥99,060¥ 65,524
37,444
118,414221,382(109,016)¥112,366$669,192
327,096
781,727
1,778,015(633,813)$1,144,202

Millions of yen

Cash and time deposits
Marketable securities
Short-term loans
Less maturity over three months
Cash and cash equivalents(b) Significant non-cash transactions:(Fiscal 2006)
None(Fiscal 2007)
On October 1 2006, the Company executed a share exchange agreement to make Fuji
Machinery Co., Ltd. a wholly owned subsidiary of the Company. As a result of the shareexchange, goodwill increased by ¥307 million and treasury stock decreased by ¥1,000
million in the fiscal year 2007.
(Fiscal 2008)
None(c) Price adjustment of investments in subsidiary(Fiscal 2006)“Price adjustment of investments in subsidiary” included in the cash flows from investing
activities represents a cash payment related to the adjustment to the price of Subaru ofIndiana Automotive, Inc. (“SIA,” formerly Subaru-Isuzu Automotive Inc.) sharestransferred from Isuzu Motors, Limited (“Isuzu”) under the settlement of actual losses in
the fiscal year 2006, in accordance with the Master Agreement for Cancellation of Joint
Venture Relationship and Consignment of Production with Isuzu, as described in Note 3.
Acquisition of Isuzu’s Share of Subaru of Indiana Automotive, Inc.
5. Marketable Securities and Investment Securities
Information as to the value of marketable securities and investment securities as of March
31, 2008 and 2007 was as follows:18(1) Other securities (available-for-sale securities) for which fair market value wasavailable:(a) As of March 31, 2008:
Millions of yen

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
Corporate bonds
Other
Sub-total
Total

Acquisition cost

Book value

Difference¥20,552¥43,269¥22,717

10,1113,044
36
33,743

10,362
3,083
131
56,84525139
95
23,102

425

333

(92)

565
1,446
2,436
¥36,179

565
1,445
2,343
¥59,188

(0)
(1)
(93)
¥23,009

Acquisition cost

Book value

Difference$205,110$431,827$226,717

100,908
30,379359
336,756

103,41330,7691,307
567,316

2,505
390
948
230,560

4,242

3,323

(919)

5,639
14,431
24,312$361,068

5,639
14,421
23,383$590,699

(0)
(10)
(929)
$229,631

Thousands of U.S. dollars

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
Corporate bonds
Other
Sub-total
Total

19

(b) As of March 31, 2007:
Millions of yen
Acquisition cost

Book value

Difference¥20,348¥57,376¥37,02836
20,384272
57,648236
37,264

293

274

(19)

9,746
2,929
2,181
15,149¥35,533

9,722
2,919
2,173
15,088¥72,736

(24)
(10)
(8)
(61)
¥37,203

Book value exceeding acquisition cost:
Equity securities
Debt securities
Other
Sub-total
Book value not exceeding acquisition
cost:
Equity securities
Debt securities
Government and municipal bonds
Corporate bonds
Other
Sub-total
Total(2) Other securities (available-for-sale securities) sold during the fiscal years 2008 and2007:(a) For the year ended March 31, 2008:
Sales amount

Total gains

Total losses¥681,548 million
US$6,801,876 thousand¥1,889 million
US$18,852 thousand¥260 million
US$2,595 thousand

The above sales amount included sales of short-term investments in commercial paperand other amounting to ¥659,617 million (US$6,583,004 thousand).
(b) For the year ended March 31, 2007:
Sales amount

Total gains

Total losses¥616,735 million¥413 million¥370 million

The above sales amount included sales of short-term investments in commercial paperand other amounting to ¥596,833 million.
(3) Book value of major securities without available fair market value as of March 31, 2008
and 2007:Thousands of
Other securities (available-for-sale securities)

Money management fundFloating rate note
Unlisted stocks (excluding over-the-counter
stocks)Millions of yen

U.S. dollars

2008

2007

2008

¥24,629
5,077¥29,656-$245,798
50,6691,832

1,967 18,283

Note: The Company and consolidated subsidiaries recognized ¥18 million (US$180 thousand) and ¥335
million in loss on devaluation of securities for the fiscal years 2008 and 2007, respectively.
For the purpose of recording a loss on devaluation of securities, the Company and consolidated

20

subsidiaries consider all the securities whose fair market value has fallen below 50% of theacquisition cost to be permanently impaired, and record the relevant loss on devaluation. For
securities whose fair market value has declined between 30% to 50% in relation to their acquisition
costs, the Company and consolidated subsidiaries specifically consider the probability of recoveryof the fair value, and record a loss on devaluation in an amount deemed permanently impaired.

(4) Scheduled redemption of other securities (available-for-sale securities) with maturity
and held-to-maturity debt securities as of March 31, 2008 and 2007:(a) As of March 31, 2008:
Millions of yen

Debt securities
Government andmunicipal bonds
Corporate bonds
Other
Total

Thousands of U.S. dollars

Within 1

1 to 55 to 10

Over 10Within 1

1 to 55 to 10

Over 10

Year

Years

Years

Years

Year

years

Years

years

¥2,479565
23¥3,067¥4,505
2,520
715¥7,740¥1,531433
26¥1,990¥1,846130682¥2,658$24,741
5,639
229$30,609$44,960
25,1507,136$77,246$15,279
4,321
260$19,860$18,423
1,297
6,807$26,527(b) As of March 31, 2007:
Millions of yen

Debt securities
Government and municipal
bonds
Corporate bonds
Other
Total

Within 1

1 to 55 to 10

Over 10

Year

Years

Years

Years

¥767
599
994
¥2,360¥7,825
1,987
720¥10,532

¥286
333
210
¥829

¥844
249
¥1,093

6. Inventories
Inventories as of March 31, 2008 and 2007, consisted of the following:Thousands ofMillions of yen

Finished products
Work in process
Raw materials
Supplies
Total

21

U.S. dollars

2008

2007

2008

¥133,175
100,133
2,213
25,488¥261,009¥117,272
84,786
20,936
1,925¥224,919$1,329,092
999,331
22,086254,371$2,604,880

7. Property, Plant and Equipment
Property, plant and equipment as of March 31, 2008 and 2007, are summarized asfollows:
Thousands ofMillions of yen

Buildings and structures
Machinery and vehicles
Leased assets
Other
SubtotalLess accumulated depreciation
Land
Construction in progress
Total

U.S. dollars

2008

2007

2008

¥302,268
460,450
85,263
237,572
1,085,553(768,352)
184,346
10,161¥511,708¥298,614
452,166
97,576
241,504
1,089,860(734,076)
176,465
18,335¥550,584$3,016,647
4,595,309
850,928
2,370,97810,833,862(7,668,184)
1,839,781
101,407$5,106,866

8. Revaluation Reserve for Land
In accordance with the Land Revaluation Law (Law No. 34, enacted on March 31, 1998),
land owned by a consolidated subsidiary for business use was revalued on March 31,
2002. The unrealized gains from the revaluation were included in the net assets as“Revaluation reserve for land,” net of income taxes. The deferred taxes for the unrealized
gains are included in other long-term liabilities. Unrecorded loss on the revalued land asof March 31, 2007 was ¥483 million. According to the Law, the Company andconsolidated subsidiaries are not permitted to revalue the land after April 1, 2002.
9. Short-Term Borrowings and Long-Term Debts
Short-term borrowings as of March 31, 2008 and 2007, consisted of the following:Thousands ofBank loans with average interest rate of
1.06% and 0.79% per annum as ofMarch 31, 2008 and 2007, respectively
Commercial paper with average interest
rate of 0.90% and 0.70% per annum asof March 31, 2008 and 2007,
respectively
Total

22

Millions of yen

U.S. dollars

2008

2007

2008

¥144,625¥161,665$1,443,364

6,000¥150,625

11,000¥172,665

59,880$1,503,244

Long-term debts as of March 31, 2008 and 2007 consisted of the following:Thousands ofMillions of yen

Loans principally from banks and insurancecompanies due through 2025 with averageinterest rate of 2.16% and 2.42% per annum asof March 31, 2008 and 2007, respectively
Unsecured 1.22% bonds due September 30, 2008
Unsecured 0.68% bonds due June 18, 2010
Unsecured 1.31% bonds due April 28, 2011
Unsecured 2.01% bonds due May 31, 2012
Subtotal
Less—Portion due within one year
Total

U.S. dollars

2008

2007

2008

¥63,922¥71,189$637,944

30,00020,00020,00020,000
153,922(51,261)¥102,661

30,00020,00020,00020,000171,189(20,789)¥150,400

299,401
199,601
199,601
199,601
1,536,148(511,587)$1,024,561

Annual maturities of long-term debts as of March 31, 2008 were as follows:
Thousands of

2009
2010
2011
2012
2013
2014 and thereafter
Total

Millions of yen

U.S. dollars¥51,261
21,717
24,42020,43932,624
3,461¥153,922$511,587
216,736
243,713203,982
325,589
34,541$1,536,148

The following assets as of March 31, 2008 and 2007, were pledged as collateral for
certain loans:Thousands ofMillions of yen

Notes and accounts receivable, trade
Property, plant and equipment
Total

U.S. dollars

2008

2007

2008

¥78
54,057¥54,135¥132
57,168¥57,300$778
539,491$540,269

The unused balance of commitments for borrowings by the Company and consolidated
subsidiaries (Subaru of America, Inc. and Subaru Europe N.V./S.A.) as of March 31, 2008
and 2007, was as follows:
Thousands ofTotal commitments
Less amounts currently borrowed
Unused balance

23

Millions of yen

U.S. dollars

2008

2007

2008

¥84,691¥84,691¥82,599¥82,599$845,220$845,22010. 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, 2008 and 2007 was as follows:
Thousands ofMillions of yen

Total overdraft facilities and lending commitments
Less amounts currently executed
Unexecuted balance

U.S. dollars

2008

2007

2008

¥8,3401,859¥ 6,481¥10,9102,312¥ 8,598$83,234
18,553$64,681

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.
11. Pension and Severance Plans
The Company and consolidated domestic subsidiaries have lump-sum retirement
payment plans, qualified retirement pension plans, and contributory defined benefit
employees’ welfare pension funds, 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.
By the end of the fiscal year 2008, the Company has transferred 80% of prescribedretirement benefits from the lump-sum retirement payment plan to the qualified retirement
pension plan for employees who terminate their employment at the age of 50 or over.
As of March 31, 2008, the Company and 40 of its consolidated domestic subsidiaries,
which add up to a total of 41 companies, have lump-sum retirement payment plans. Within
the group, there are also 21 qualified retirement pension plans, 5 defined contributionplans, and 3 defined benefits pension plans. In addition, there are 14 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 be covered from the plan
assets, while the Company and significant subsidiaries provide an accrued pension andseverance 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, required contributions towhich are expensed as they become due as pension and severance costs, is as follows:24

(1) Overall funded status of the multi-employer pension plan (mainly as of March 31,
2007)
Thousands ofMillions of yen

Plan assets
Projected benefit obligation
Funded status

U.S. dollars

2008

2008

¥278,501
283,519¥(5,018)$2,779,451
2,829,531$(50,080)(2) Contributions by the Company and consolidated domestic subsidiaries as apercentage of total contributions to the multi-employer pension plan (mainly from April 1,
2006 to March 31, 2007): 8%
Additional information(Fiscal 2007)
Transfer to the government of the substitutional portion of employees’ welfare pension
fund
As stipulated in the Japanese Defined Benefit Pension Insurance Law, the Tokyo
Subaru Employees’ Pension Fund (a multi-employer employees’ welfare pension fund), of
which certain consolidated subsidiaries are members, obtained an approval from the
Minister of Health, Labor and Welfare for exemption from the benefit obligations related tofuture employee service in respect of the substitutional portion on October 28, 2005, andobtained an approval from the Minister of Health, Labor and Welfare for transferring theobligations related to past employee service on November 1, 2006. The pension fund iscurrently in the process of transferring plan assets related to the obligations related to past
employee service to the government.
The amount of plan assets to be transferred (the minimum reserve obligations) to thegovernment as of March 31, 2007, was ¥5,294 million. Assuming the transfer had takenplace at the end of the fiscal year 2007, the Company would have recognized a resulting
difference of ¥2,423 million as “Gain on transfer of the substitutional portion of theemployees’ pension fund” in other income in the fiscal year 2007, in accordance with theprovisions of Article 44 – 2 of “Practice Guidelines of Accounting for Retirement Benefits(Interim Report)” (JICPA Accounting Systems Committee Report No. 13).
(Fiscal 2008)
Multi-employer pension plan
Effective the fiscal year 2008, the Company and consolidated domestic subsidiaries
adopted the provision of “The partial revisions (Part 2) to “Accounting Standard for
Retirement Benefits” (Statement No. 14 issued by the Accounting Standard Board ofJapan on May 19, 2007)”.

25

A reconciliation between the projected pension and severance obligation and accrued
pension and severance liability as of March 31, 2008 and 2007 was as follows:
Thousands ofa. Projected pension and severance
obligationb. Plan assetsc. Unfunded pension and severance
obligations
d. Unamortized actuarial loss
e. Unamortized prior service cost
f. Net amount recorded in balance sheet
g. Prepaid pension costh. Accrued pension and severance liability

Millions of yen

U.S. dollars

2008

2007

2008

¥114,783(61,134)¥120,177(71,200)$1,145,539(610,120)

53,649(13,199)
476
40,926(67)¥40,993

48,977(4,003)488
45,462(54)¥45,516

535,419(131,727)
4,751
408,443(669)$409,112

Notes: 1. The above amounts include the substitutional portion of the government pension plan fundedby social security taxes paid by employees and employer.
2. Certain insignificant consolidated subsidiaries calculated the liability using the simplified
method.
3. In addition to the above plan assets, there were plan assets of the multi-employer pension
plan amounting to ¥20,764 million as of March 31, 2007. The plan assets for themulti-employer pension plan could not be allocated to each participating employer. Theseamounts were based on the number of participants.

Periodic pension and severance costs for the fiscal years 2008, 2007 and 2006,
consisted of the following:Thousands ofMillions of yen

a. Service costb. Interest costc. Expected return on plan assets
d. Amortization of actuarial gain/loss
e. Amortization of prior service cost
f. Pension and severance cost
g. Gain on transfer of the substitutional
portion of the employee’s pension fundh. Total

U.S. dollars

2008

2007

2006

2008

¥8,7152,117(2,863)
526
(11)
8,484

¥8,572
2,232(1,313)663
51
10,205¥9,351
2,557(1,266)
1,218
186
12,046$86,976
21,128(28,573)
5,250
(110)
84,671¥8,484(2,423)¥7,782¥12,046$84,671

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 theservice cost above.
3. The service cost above includes required funding for the multi-employer pension planamounting to ¥797 million (US$7,954 thousand), ¥797 million and ¥831 million for the fiscal
years 2008, 2007 and 2006, respectively, for which plan assets could not be allocated to eachparticipating employer.
4. The service cost above includes contributions for the defined contribution plans of certain
consolidated foreign subsidiaries amounting to ¥1,651 million (US$16,477 thousand), ¥1,436
million and ¥1,397 million for the fiscal years 2008, 2007 and 2006, respectively.
5. In addition to the pension and severance cost above, additional retirement payments
amounting to ¥258 million (US$2,575 thousand), ¥971 million and ¥7,467 million were made forthe fiscal years 2008, 2007 and 2006, respectively. For the fiscal year 2008, the entire ¥258

26

million (US$2,575 thousand) of additional retirement payments is included in cost of sales andselling, general and administrative expenses. For the fiscal year 2007, ¥190 million out of thetotal additional retirement payments is included in selling, general and administrative expenses,
and the remaining ¥781 million is reflected as part of ”Other, net” in other expense in theaccompanying consolidated statement of income. For the fiscal year 2006, ¥37 million out of
the total additional retirement payments is included in selling, general and administrative
expenses, and the remaining ¥7,430 million is reflected as ”Additional retirement payments” inother expense in the accompanying consolidated statement of income.

Actuarial assumptions used in computation of pension and severance liability were as
follows:
a. Attribution of expected benefit obligation
The straight-line method
b. Discount rate
2.0%–2.5%
c. Expected rate of return on plan assets
0.8%–4.0% (fiscal 2006 and 2007)
0.8%–4.5% (fiscal 2008)
d. Amortization of actuarial gain/loss
Primarily 18 years (It is amortizedby the straight-line method startingfrom the following fiscal year over a
period shorter than the averageremaining service periods of theeligible employees)e. Amortization of prior service cost
12 to 18 years (fiscal 2008)
12 to 18 years (fiscal 2007)
14 to 18 years (fiscal 2006)
12. Income Taxes
The Company and 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 the fiscal years 2008, 2007 and 2006.
A reconciliation of the statutory income tax rates in Japan to the Company’s effective
income tax rates for the fiscal years 2008, 2007 and 2006 was as follows:
Statutory income tax rate in Japan
Increase (reduction) in taxes resulting from:
Changes in valuation allowance and tax benefits
realized from loss carry forwards
Adjustment to past corporate income taxes payable
and corporate income taxes refundable
Adjustment to past deferred income taxes
Special deductions on corporate income taxes
Entertainment and other non-deductible expenses
Equity income
Amortization of goodwill
Other
Effective income tax rate

27

2007

2006

40.5%

40.5%

(4.9)

20.2

(0.9)
(1.0)
(2.3)
1.1
(1.4)
(1.9)
0.7
29.9%

2.8
(6.8)
(6.1)
1.1
(2.0)
(4.6)
0.0
45.1%

For the fiscal year 2008, such reconciliation is not presented herein because thedifference between the statutory income tax rate and the effective income tax rate is lessthan 5%.
Significant components of the deferred tax assets and liabilities as of March 31, 2008 and2007 were as follows:
Thousands ofMillions of yen

U.S. dollars

2008

2007

2008

¥16,373
7,347
7,305
7,299
6,374
6,325
4,228
3,527

¥18,267
2,184
8,205
6,956
6,443
6,173
3,087
4,611

$163,403
73,32372,904
72,844
63,613
63,12442,19635,20016,276
18,49293,546

6,017
18,453
14,781
95,177(18,412)(16,685)

75,13478,492

162,435
184,551
933,593(183,753)
749,840(6,648)(8,782)(66,347)(9,045)(510)(5,621)(15,031)(21,824)(32,049)¥53,310¥46,443(90,269)(5,090)(56,098)(217,804)$532,036

Deferred tax assets:
Accrued pension and severance liabilities
Depreciation and amortization expenses
Accrued warranty claims
Accrued expenses
Loss on devaluation of inventories
Accrued bonus
Long-term accounts payable, other
Unrealized gain on sale of inventories
Unrealized gain on sale of property, plant andequipment
Net operating loss carry forwards
Other
Total deferred tax assets
Valuation allowance
Total deferred tax assets, net of valuation
allowance
Deferred tax liabilities:
Depreciation and amortization expenses
Net unrealized holding gains on investment
securities
Revaluation reserve for land
Advanced depreciation reserve
Other
Total deferred tax liabilities
Net deferred tax assets

(703)
(489)
(7,044)

The net deferred tax assets are included in the following captions in the accompanying
consolidated balance sheets.
Thousands ofMillions of yen

Current assets—Deferred tax assets
Investments and other assets—Deferred tax assets
Current liabilities—Other current liabilities
Long-term liabilities—Other long-term liabilities
Total net deferred tax assets

28

U.S. dollars

2008

2007

2008

¥26,486
27,256(432)¥53,310¥27,072
20,825(1,454)¥46,443$264,331
272,016(4,311)$532,036

13. Net Assets
The Japanese Corporate Law (the “Law”) became effective on May 1, 2006, replacing theJapanese Commercial Code (the “Code”). The Law is generally applicable to events andtransactions 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 isrequired to be designated as common stock. However, a company may, by a resolution of
the Board of Directors, designate an amount not exceeding one-half of the price of the
new shares as additional paid-in-capital, which is included in capital surplus.
Under the Law, in cases where a dividend distribution of surplus is made, the smaller ofan amount equal to 10% of the dividend or the excess, if any, of 25% of common stockover the total of additional paid-in-capital and legal earnings reserve must be set aside asadditional paid-in capital or legal earnings reserve. Legal earnings reserve is included inretained 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-capitalequaled 25% of common stock.
Under the Code, legal earnings reserve and additional paid-in-capital could be used toeliminate or reduce a deficit by a resolution of the shareholders’ meeting or could becapitalized by a resolution of the Board of Directors. Under the Law, both of theseappropriations 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 the shareholders’ meeting. Under the Law,
all additional paid-in-capital and all legal earnings reserve may be transferred to othercapital surplus and retained earnings, respectively, which are potentially available fordividends.
The maximum amount that the Company can distribute as dividends is calculated
based on the non-consolidated financial statements of the Company in accordance withJapanese laws and regulations.
At the annual shareholders’ meeting held on June 25, 2008, the shareholders approved
cash dividends amounting to ¥3,234 million (US$32,275 thousand). Such appropriations
have not been accrued in the consolidated financial statements as of March 31, 2008.
Such appropriations are recognized in the period in which they are approved by theshareholders.
14. Selling, General and Administrative Expenses
Selling, general and administrative expenses for the fiscal years 2008, 2007 and 2006
consisted of the following:29

Thousands ofMillions of yen

Transportation and packing expenses
Advertisement expenses
Sales incentives
Salary and bonus
Research and development cost
Other
Total

U.S. dollars

2008

2007

2006

2008

¥18,645
51,90747,57747,40951,05592,411¥309,004¥17,291
49,342
48,60647,21049,552
92,236¥304,237¥16,184
45,82338,82748,42145,80997,672¥292,736$186,078
518,034
474,820
473,144509,531922,265$3,083,872

15. Impairment Loss on Property, Plant and Equipment
In the fiscal year ended March 31, 2008, the Company recorded an impairment loss withregard to the following asset groups:
Use
Production facility

Location
Gunma Prefecture

Assets for dealershipbusiness

Yamagata Prefectureand 2 other locations

Idle assets

Hokkaido Prefectureand 3 other locations

Category
Buildings, machinery andother
Buildings and structures,
machinery, land and otherMachinery, land and other

The assets on which impairment was recognized are grouped as follows: The
production facilities are grouped by product line, the operating assets for dealership aregrouped by each company, and the idle assets are grouped on a property-by-property
basis.
In light of an agreement entered into by the Company and Daihatsu Motor Co., Ltd.
(Daihatsu) under which Daihatsu will provide sub-compact vehicles to the Company on an
OEM basis, the Company has revised certain assets groupings within its Automobiles
segment. Accordingly, the Company wrote down the carrying amounts of its sub-compact
vehicle manufacturing equipment to a recoverable amount. In addition, a certain idle
manufacturing facility was classified as held-for-sale, and its carrying amount was reduced
to a recoverable amount.
At the subsidiaries, certain assets were written down to their recoverable amounts
due to a recent decline in the real estate market as well as their decreased profitability.
As a result, the Company and consolidated subsidiaries recognized a total of ¥13,174
million ($131,740 thousand) in impairment losses which is included in “Other expenses”.
The impairment loss by each category of property, plant and equipment was asfollows:

30

Thousands of

Buildings and structures
Machinery and equipment
Land
Other
Total

Millions of yen

U.S. dollars

2008

2008

¥3,092
8,619
789
674

$30,858
86,018
7,874
6,727¥13,174$131,477

A recoverable amount is the higher of net realizable value or value in use. A net
realizable value is determined based on the government-published land valuation index
prices or values used for real estate tax purposes less cost of disposal. A value in use iscalculated based on projected future cash flows discounted at principally 6.4%.
In the fiscal year ended March 31, 2006, the Company recorded an impairment loss
with regard to the following asset groups:
Use
Manufacturing facility

Location
United States

Assets for dealershipbusiness

Wakayama Prefectureand 3 other locations

Real estate for leasebusiness
Underutilized real estate

Gunma Prefecture

Category
Structures, machinery andequipment
Buildings and structures,
machinery and equipment,
and land
Buildings

Hokkaido Prefectureand 3 other locations

Land, buildings andstructures, and other

The operating properties for dealers are grouped by each company, and the leased
property and unused property are grouped on a property-by-property basis, and theoperating properties of a subsidiary in the United States are grouped by the product.
The impairment loss by each category of property, plant and equipment was asfollows;
Millions of yen
2006

Buildings and structures
Machinery and equipment
Land and otherTotal¥1,672782
1,610¥4,06431

16. Loss on Termination of Development Projects
In the fiscal year ended March 31, 2006, the Company recorded a ¥7,094 million loss ontermination of development projects, which consisted of the following two components:(1) A joint development project for new model vehicle
In light of the termination of the Strategic Alliance between the Company and General
Motors (GM), the Company and GM agreed to terminate the joint development project forcrossover vehicles with SAAB Automobile AB. As a result, the Company has recorded
other expense of ¥3,633 million on the joint project costs already incurred. As theCompany has since identified certain project assets to be used for another model
development, the loss has been reduced by ¥1,980 million compared to the amountrecorded in the consolidated financial statements for the semi-annual period of the fiscal
year 2006.
(2) New software system development project
The Company started to develop a software operating system which was expected tosupport its business processes from order entry to delivery. However, the Company has
concluded that the new system would not be as cost effective as it was originally planned.
As a result, the Company terminated the development project and has recorded otherexpense of ¥3,461 million from the termination.
17. Prior Period Adjustment(Fiscal 2008)
Prior period adjustment recorded in the fiscal year 2008 represents a gain on reversal ofcertain expenses due to a revision to the estimated expense related to a change in the
medical insurance system of a foreign subsidiary and the settlement of a tariff rate issue
on imported parts.
(Fiscal 2007)
Prior period adjustment recorded in the fiscal year 2007 represents a gain on reversal, asa result of the final settlement, of a portion of “Loss on termination of joint development
projects (joint development projects for new model vehicles)” which was recorded as otherexpense in the fiscal year 2006.
18. Loss on Liquidation of Affiliated Companies
Loss on liquidation for the fiscal year 2007 represents a loss of ¥913 million uponliquidation of Fuji AT Ltd, which was a joint venture with JATCO Ltd.
19. Business Combinations(Fiscal 2007)
The Company has integrated certain Subaru dealer subsidiaries for the purpose ofenhancement of their sales force and improvement of their profitability.
Those integrated companies are consolidated subsidiaries included in the
Automobiles segment, and the integration has been accounted for as a reorganizationof entities under common control.
(1) April 1, 2006, merger by surviving companies

32

Area
Hokkaido

Chubu

Shikoku

Kita-Kyushu

Minami-Kyushu

Integrated companies
Asahikawa Subaru, Inc.
Hokkaido Subaru, Inc.
※
Hokuriku Subaru, Inc※
Fukui Subaru, Co., Ltd
Kagawa Subaru, Inc.
※
Tokushima Subaru, Inc.
Saga Subaru, Inc.
Nagasaki Subaru, Inc.
※
Miyazaki Subaru, Inc.
Kagoshima Subaru, Inc※

New companies
Hokkaido Subaru, Inc.

Hokuriku Subaru, Inc.

Higashishikoku Subaru, Inc.

Nishikyushu Subaru, Inc.

Minamikyushu Subaru, Inc.

※ Surviving companies(2) October 1, 2006, sale of automobile dealership business to a surviving company.
Area
Kinki

Integrated companies
Wakayama Subaru
Motors Inc.
Osaka Subaru, Inc.

New company
Osaka Subaru, Inc.

※※ Surviving company

In addition, the number of consolidated subsidiaries decreased because Subaru Yard
Operations, Inc (subsidiary of Subaru of America, Inc.) was merged into Subaru ofAmerica, Inc (sales company in America).
Share exchange
On October 2, 2006, the Company acquired additional common shares of Fuji MachineryCo., Ltd. through a share exchange. The details of the transaction are as follows:
1. Acquired company and nature of its business, legal form of business combination, anda summary of the transaction including the purpose(1) Acquired company and nature of its businessFuji Machinery Co., Ltd. (manufacturing and selling parts for automobiles andindustrial products)(2) Legal form of business combination
A share exchange (simplified share exchange method)(3) Summary of the transaction including the purpose
Fuji Machinery Co., Ltd. accounts for approximately 90% of its sales to the33Company. In order to enhance group management, the Company made Fuji
Machinery Co., Ltd. a wholly owned subsidiary.
2. Accounting treatment
Transaction with minority shareholders
3. Information concerning the acquisition of additional shares of subsidiary(1) Acquisition cost and its breakdown
Price for acquisition
The shares of Fuji Heavy Industries Ltd.: ¥705 million(2) Share exchange ratio by class of shares, method of determining the shareexchange ratio, and the number of shares issued and their valuation amount① Class of share and exchange ratio
Common shares Fuji Heavy Industries Ltd. 1: Fuji Machinery Co., Ltd. 0.52
② Method of determining the share exchange ratio
The Company and Fuji Machinery Co., Ltd. individually engaged third party
appraisers to analyze the exchange ratio. This analysis was performed basedon the market stock prices, the comparable company comparisons, and thediscounted cash flows. The Company and Fuji Machinery Co., Ltd. haveagreed to the above ratio, taking into consideration the results of such third
party appraisals and certain other factors.
③ The number of shares issued and their valuation amount
1,586,520 shares ¥1,066 million(3) The amount of recognized goodwill, source of generated goodwill, and method ofamortization and amortization period① The amount of recognized goodwill: ¥307 million② Source of generated goodwill
The difference between the acquisition cost of the additional shares of thesubsidiary and the amount of minority interest that were decreased by theadditional acquisition③ Method of amortization and amortization period
Five years amortization by the straight-line method
20. Stock Option Plans(Fiscal 2007)
1. Descriptions, volume, and movement of stock options(1) Descriptions of stock option plans

34

Position andnumber of grantee
Class and numberof stock (shares)
Date of grantVesting condition

Required service
periodFiscal 2002
Stock option plan

Fiscal 2004
Stock option plan

Directors, Executive
Officers, Corporate Auditorsand employees: 303

Directors, Executive
Officers, Corporate Auditorsand employees: 320

Common Stock 1,029,000
September 9,2002

Common Stock 1,917,000
September 6, 2004

Directors, Executive
Officers, Corporate Auditorsand employees who areenrolled at the date thesubscription rights are
grantedFrom September 9, 2002,
to July 31, 2004

Directors, Executive
Officers, Corporate Auditorsand employees who areenrolled at the date thesubscription rights are
grantedFrom September 6, 2004,
to July 31, 2006

From August 1, 2004,
to July 31, 2009

From August 1, 2006,
to July 31, 2011

Exercise period

Note: The number of stock options is converted to the equivalent number of common stock.

(2) Volume and movement of stock options
The stock options outstanding in the fiscal year 2007 are summarized as follows:①The number of stock options (shown as the equivalent number of common stock)
Fiscal 2002
Stock option plan

Fiscal 2004
Stock option planNot exercisable stock options(shares):At the end of the fiscal year 2006-

1,917,000

Stock options granted--

Forfeitures

-

8,000

Conversion to exercisable stock options-

1,909,000

Stock options outstanding--

At the end of the fiscal year 2006

962,000-

Conversion from not exercisable stock
options
Stock options exercised

120,000

39,000--842,000

1,870,000

Exercisable stock options (shares):

Forfeitures
Stock options outstanding35

② Price information of stock options

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

Fiscal 2002
Stock option

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

678
-

675
-

(Fiscal 2008)
1. Descriptions, volume, and movement of stock options(1) Descriptions of stock option plans

Position andnumber of grantee
Class and numberof stock (shares)
Date of grantVesting condition

Required service
periodExercise period

Fiscal 2002
Stock option plan

Fiscal 2004
Stock option plan

Directors, Executive
Officers, Corporate Auditorsand employees: 303

Directors, Executive
Officers, Corporate Auditorsand employees: 320

Common Stock 1,029,000
September 9, 2002

Common Stock 1,917,000
September 6, 2004

Directors, Executive
Officers, Corporate Auditorsand employees who areenrolled at the date thesubscription rights are
grantedFrom September 9, 2002,
to July 31, 2004

Directors, Executive
Officers, Corporate Auditorsand employees who areenrolled at the date thesubscription rights are
grantedFrom September 6, 2004,
to July 31, 2006

From August 1, 2004,
to July 31, 2009

From August 1, 2006,
to July 31, 2011

Note: The number of stock options is converted to the equivalent number of common stock.

36

(2) Volume and movement of stock options
The stock options outstanding in the fiscal year 2008 are summarized as follows:①The number of stock options (shown as the equivalent number of common stock)
Fiscal 2002
Stock option plan

Fiscal 2004
Stock option planNot exercisable stock options(shares):At the end of the fiscal year 2007--

Stock options granted--

Forfeitures--

Conversion to exercisable stock options--

Stock options outstanding--

At the end of the fiscal year 2007

842,000

1,870,000

Conversion from not exercisable stock
options
Stock options exercised

29,000

7,000

-

-

813,000

1,863,000

Fiscal 2002
Stock option

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

585
-

579
-

Exercisable stock options (shares):

Forfeitures
Stock options outstanding② Price information of stock options

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

21. Leases(1) Information as lessee
As allowed under the Japanese accounting standards, the Company and consolidated
subsidiaries in Japan account for finance leases, which do not transfer ownership ofleased assets to lessees as stipulated in the lease contracts, as operating leases. The“as-if capitalized” pro forma information of such leases as of March 31, 2008 and 2007
was as follows:37

Thousands ofMillions of yen

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

U.S. dollars

2008

2007

2008

¥703
2,662
164
3,529
(1,870)¥1,659¥1,195
2,230
55
3,480
(1,815)¥1,665$7,016
26,567
1,637
35,220(18,663)$16,557

Pro forma information related to finance leases for the fiscal years 2008, 2007 and 2006
was as follows:
Thousands ofMillions of yen

Rent paid
Depreciation and amortization expenses
Interest expense portion

U.S. dollars

2008

2007

2006

2008

¥679
633
44

¥616
565
47

¥623
578
51

$6,776
6,317
439

The future minimum lease/rent payments, excluding the portion of interest thereon, as
of March 31, 2008 and 2007, were as follows:
Thousands ofFinance leases:
Due within one year
Due after one year
Total
Operating leases:
Due within one year
Due after one year
Total

Millions of yen

U.S. dollars

2008

2007

2008

¥623
1,120
¥1,743¥536
1,222¥1,758$6,217
11,178$17,395¥925
3,263¥4,188¥888
3,252¥4,140$9,231
32,565$41,796(2) Information as lessor
The carrying amounts of leased assets under finance leases as of March 31, 2008 and2007 were as follows:
Thousands ofMillions of yen

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

38

U.S. dollars

2008

2007

2008

¥22,574
4,612
1,682
28,868(15,972)¥12,896¥22,016
8,811
1,938
32,765(18,663)¥14,102$225,290
46,028
16,786288,104(159,401)$128,703

Information related to finance leases for the fiscal years 2008, 2007 and 2006 was asfollows:
Thousands ofMillions of yen

Rent received
Depreciation and amortization expenses
Interest income portion

U.S. dollars

2008

2007

2006

2008

¥7,727
5,773
779¥8,844
6,635
937¥9,357
7,109
1,231$77,116
57,615
7,774

The future minimum lease/rent payments receivable, excluding the portion of interest
thereon, as of March 31, 2008 and 2007 were as follows:
Thousands ofFinance leases:
Due within one year
Due after one year
Total
Operating leases:
Due within one year
Due after one year
Total

Millions of yen

U.S. dollars

2008

2007

2008

¥5,7098,714¥14,423¥6,524
9,888¥16,412$56,976
86,966$143,942¥5,117
4,523¥9,640¥5,0283,947¥8,975$51,068
45,140$96,208

22. Contingent Liabilities
Contingent liabilities as of March 31, 2008 and 2007 were as follows:
Thousands ofAs guarantor of third-party indebtedness fromfinancial institutions

Millions of yen

U.S. dollars

2008

2007

2008

¥41,705¥39,960$416,218

23. Derivative Financial Instruments
In the normal course of business, the Company and consolidated subsidiaries employ
derivative financial instruments, including foreign exchange forward contracts, foreign
currency options and interest rate swaps, to manage their exposures to fluctuations inforeign 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, 2008 and2007 was as follows:39

(1) Foreign currency contracts:(a) As of March 31, 2008:
Millions of yen
Notional

Thousands of U.S. dollars

Valuation

Notional

Valuation

AmountFair value

gain (loss)

AmountFair value

gain (loss)

Foreign exchange
forward contracts:
Sell—
U.S. dollar¥51,510¥48,200¥3,310$514,072$481,038$ 33,034Euro

11,658

11,774(116)

116,347

117,505(1,158)Canadian dollar

8,374

7,955

419

83,57379,391

4,182

2,454

2,400

(54)

24,491

23,952

(539)

407

399

(8)

4,062

3,982

(80)

11,088〔282〕

303

110,659(21) 〔2,814〕

3,024

(210)

11,088〔282〕

326

110,659
44 〔2,814〕

3,253

439

Buy—
U.S. dollar
British pound
Foreign currency
options contracts:
Sell—
Call U.S. dollar
Buy—
Put U.S. dollar

40

(b) As of March 31, 2007
Millions of yen
Valuation

Notional
AmountFair value

gain (loss)¥64,166¥64,805¥(639)

Euro

9,232

9,708

(476)

Canadian dollar

5,888

5,909

(21)

4,539

4,535

(4)

1,112

1,121

9

13,063
〔178〕

218

(40)

6,212
〔59〕

116

(57)

8,134
〔93〕

127

(34)

19,196
〔245〕

167

(78)

2,540
〔33〕

26

(7)

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

Buy—
U.S. dollar
British pound
Foreign currency options contracts:
Sell—
Call U.S. dollar
Call Euro
Call Canadian dollar
Buy—
Put U.S. dollar
Put Canadian dollar

Note: The amounts in brackets [ ] are the carrying amounts of the premium on the option contracts
recorded as other current assets or liabilities.

41

(2) Interest rate contracts:(a) As of March 31, 2008:
Millions of yen
Notional

Interest rate swap
contracts:
Receive floating
rate pay fixed rate

Thousands of U.S. dollars

Valuation

Notional

Valuation

AmountFair value

gain (loss)

AmountFair value

gain (loss)¥5,424¥(8)¥(8)$54,132

$(80)

$(80)

(b) As of March 31, 2007:
Millions of yen
Notional

Interest rate swap
contracts:
Receive floating rate
pay fixed rate

Valuation

AmountFair value

gain (loss)¥7,743¥101¥101

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 thedeferred hedge accounting method are excluded from the above table according to thedisclosure requirements.
24. Segment Information
Information by business segment
The Company and consolidated subsidiaries operate principally in four businesssegments: automobiles, industrial products, aerospace 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 the fiscal years 2008, 2007
and 2006 is shown below:

42Thousands of

Net sales:
Automobiles—
Outside customers
Inter-segment
Sub-total
Industrial products—
Outside customers
Inter-segment
Sub-total
Aerospace—
Outside customers
Inter-segment
Sub-total
Other—
Outside customers
Inter-segment
Sub-total
Total
Corporate and elimination
Consolidated total

Millions of yen

U.S. dollars

2008

2007

2006

2008

¥1,421,179
2,849
1,424,028¥1,339,291
3,050
1,342,341¥1,329,161
3,688
1,332,849$14,183,423
28,433
14,211,856

40,67813
40,691

49,69920
49,71952,436116
52,552405,968130
406,098

99,673
1
99,674

94,012
16
94,02881,78735
81,822994,740
10
994,750

10,816
6,778
17,594
1,581,987(9,641)¥1,572,346

11,815
2,575
14,3901,500,478(5,661)¥1,494,817

12,984
2,518
15,502
1,482,725(6,357)¥1,476,368

107,944
67,645
175,589
15,788,293(96,218)$15,692,075
Thousands ofOperating income or loss:
Operating income:Automobiles
Industrial products
Aerospace
Other
Total
Corporate and elimination
Consolidated total

Millions of yen

U.S. dollars

2008

2007

2006

2008

¥37,141
659
4,442
2,525
44,767913¥45,680¥37,831
1,508
5,674
2,257
47,270636¥47,906¥51,559
2,038
2,795
1,231
57,623
716¥58,339$370,669
6,577
44,331
25,199446,7769,112$455,888

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

Millions of yen

U.S. dollars

2008

2007

2006

2008

¥1,041,057
45,528172,41064,8691,323,864(27,476)¥1,296,388¥1,058,957
55,450165,177
64,915
1,344,499(28,458)¥1,316,041¥1,110,445
56,621
147,557
68,435
1,383,058(34,658)¥1,348,400$10,389,791
454,371
1,720,659
647,395
13,212,216(274,212)$12,938,004

43Thousands of

Other significant items:
Depreciation and amortization
expenses:
Automobiles
Industrial products
Aerospace
Other
Total
Corporate and elimination
Consolidated total
Impairment loss on property, plantand equipment:
Automobiles
Industrial products
Aerospace
Other
Total
Corporate and elimination
Consolidated total
Capital expenditures for segment
assets:Automobiles
Industrial products
Aerospace
Other
Total
Corporate and elimination
Consolidated total

Millions of yen

U.S. dollars

2008

2007

2006

2008

¥79,575
1,527
4,250
1,812
87,164¥87,164¥73,899
1,618
4,236
1,701
81,454¥81,454¥74,431
1,795
1,941
1,906
80,073¥80,073$794,162
15,23942,41518,084
869,900$869,900¥13,174
13,174¥13,174

¥530
20
550
¥550

¥3,96896
4,064¥4,064$131,477
131,477$131,477¥114,245
858
3,142
624
118,869¥118,869¥120,079
1,620
4,120
669
126,488(159)¥126,329¥109,955
1,195
7,605
534
119,289¥119,289$1,140,170
8,563
31,3576,227
1,186,317$1,186,317

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, 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 lease
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 2006)
Impairment loss on property, plant and equipment
The Company and domestic consolidated subsidiaries adopted the accounting standards for
impairment of fixed assets in the fiscal year 2006. As a result of this change, the assets of theAutomobile segment decreased by ¥3,167 million and the assets of the Other segment
decreased by ¥96 million in the fiscal year 2006.
(Fiscal 2007)
Directors’ bonus
The adoption of the accounting standard for directors’ bonus had no material effect on
segment results.

44

(Fiscal 2008)
Depreciation method of fixed assets
The Company and domestic consolidated subsidiaries changed their depreciation method in
the fiscal year 2008 as mentioned in ”2. Summary of Significant Accounting Policies”. The
effect of this change was to decrease operating income of “Automobiles” by ¥2,158 million(US$21,537 thousand). In addition, the change in the depreciation method for the residual
book value during the fiscal year 2008 resulted in a decrease in operating income of“Automobiles” of ¥1,897 million (US$18,932 thousand). The effects of these changes on otherbusiness segments were insignificant.

Information by geographic area
A summary of net sales, operating income and assets by geographic area for the fiscal
years 2008, 2007 and 2006 is shown below:
Thousands of

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

Millions of yen

U.S. dollars

2008

2007

2006

2008

¥901,091
270,514
1,171,605¥881,102244,896
1,125,998¥888,117
257,456
1,145,573$8,992,924
2,699,741
11,692,665

617,718
20,860638,578

576,053
14,222590,275

572,4122,298
574,710

6,164,850
208,184
6,373,034

53,537
501
54,0381,864,221(291,875)¥1,572,346

37,662283
37,945
1,754,218(259,401)¥1,494,817

15,839313
16,152
1,736,435(260,067)¥1,476,368

534,301
5,000
539,301
18,605,000(2,912,925)$15,692,075

Thousands ofOperating income or loss:
Operating income:Japan
North America
Other
Total
Corporate and elimination
Consolidated total

Millions of yen

U.S. dollars

2008

2007

2006

2008

¥34,1886,575
1,402
42,165
3,515¥45,680¥40,6225,171
831
46,624
1,282¥47,906¥56,989
1,970
309
59,268(929)¥58,339$341,197
65,61913,992420,80835,080$455,888

45

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

Millions of yen

U.S. dollars

2008

2007

2006

2008

¥962,886
347,205
12,221
1,322,312(25,924)¥1,296,388¥985,335
347,770
8,063
1,341,168(25,127)¥1,316,041¥1,006,951
368,541
2,716
1,378,208(29,808)¥1,348,400$9,609,641
3,465,120
121,966
13,196,727(258,723)$12,938,004

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 2006)
Impairment loss on property, plant and equipment
The Company and domestic consolidated subsidiaries adopted the accounting standards for
impairment of fixed assets in the fiscal year 2006. As a result of this change, the assets of theJapan segment decreased by ¥3,263 million.
(Fiscal 2007)
Directors’ bonus
The adoption of the accounting standard for directors’ bonus had no material effect on
segment results.
(Fiscal 2008)
Depreciation method of fixed assets
The Company and domestic consolidated subsidiaries changed their depreciation method in
the fiscal year 2008 as mentioned in ”2. Summary of Significant Accounting Policies”. The
effect of this change was to decrease operating income of “Japan” by ¥2,308 million(US$23,034 thousand). In addition, the change in the depreciation method for the residual
book value during the fiscal year 2008 resulted in a decrease in operating income of “Japan” of¥2,298 million (US$22,934 thousand).

Overseas sales
Overseas sales for the years ended March 31, 2008, 2007 and 2006 are summarized asfollows:
2008

2007

Millions of yen
2006

Thousands of
U.S. dollars
2008

Overseas sales:
41.6%
10.2%
9.7%
61.5%

¥616,437
128,777
127,016¥872,230

41.8%
8.7%
8.6%
59.1%

$6,659,780
1,809,711
1,793,573
10,263,064¥1,572,346 100.0% ¥1,494,817 100.0%
Notes: 1. Geographic areas are based on geographical proximity.

¥1,476,368

100.0%$15,692,075

North America

EuropeOther
Total
Consolidated
net sales¥667,310
181,333
179,716¥1,028,359

42.5%
11.5%
11.4%
65.4%

¥622,149
152,458
143,994¥918,601

46

2. Principal countries or districts in each geographic area:
North America: United States and Canada
Europe: Germany, Switzerland and the United Kingdom
Other: Australia
3. Overseas sales are sales outside of Japan by the Company and consolidated subsidiaries.
4. Changes in accounting policies(Fiscal 2006)
None(Fiscal 2007)
None(Fiscal 2008)
None

25. Subsequent Event(Fiscal 2007)
The sale of all the shares of Fuji Robin Industries Ltd.
In response to a takeover bid for the shares of Fuji Robin Industries Ltd. (a consolidated
subsidiary) by Makita Corporation, the Company has tendered all the shares (7,525
thousand shares) of Fuji Robin owned by the Company.
Makita Corporation, by making Fuji Robin a subsidiary, intends to pursue synergies
from the mutually complementary businesses of the two companies. Based on its
judgment that this acquisition will enhance the corporate value of the two companies froma long-term viewpoint, and it will also serve to improve the efficiency of the Company’s
asset utilization, the Company tendered and sold the shares on May 15, 2007.
As a result, a gain on sale of subsidiary’s shares of ¥1,380 million (sale proceeds:¥1,957 million) will be recognized in the fiscal year 2008.
(Fiscal 2008)
Development of a business alliance
The Company at its board of directors’ meeting on April 10, 2008 resolved to enter into analliance in the development and production of cars, the disposition of its own shares intreasury stock, and the construction of a new assembly plant to give effect to such abusiness alliance.
1. Alliance partners: Toyota Motor Corporation (TMC) and Daihatsu Motor Co., Ltd.
(Daihatsu)
2. Alliance contents:(1) TMC and FHI jointly develop a compact, rear-wheel-drive sports car, and market the
new model through the sales channels of both companies.
(2) TMC supplies a sub-compact car to FHI under an OEM arrangement.
(3) Daihatsu supplies a mini car and a sub-compact car “COO” to FHI under an OEM
arrangement.
3. Disposition of treasury stock
The Company sells its treasury stock to TMC in order to further strengthen its
relationship with TMC.

47

(1) Class of stocks(2) Method of sale oftreasury stock(3) Total number ofshares(4) Sale price(5) The basis forcalculation of the sale
price(6) Placement period: Common stock: Private placement to a designated third party: 61,000,000 shares: ¥510 (US$5) per share (Total: ¥31,110 million(US$310,479 thousand)): The sale price of ¥510 (US$5) was determined inreference to the average closing price of FHI shares of¥462 (US$5) at the Tokyo Stock Exchange from
December 11, 2007 to March 10, 2008. (Plus 10%
premium, rounded up to the nearest whole yen)
: From May 2, 2008 to May 1, 2009

4. Construction of a new assembly plant
The Company plans to build a new vehicle assembly plant in Oizumimachi, Ora-gun,Gunma, in connection with the development of the business alliance with TMC andDaihatsu. Details of the plan, such as the amount of investment, are yet to be determinedthrough a discussion with TMC.
Change of the retirement benefit scheme
Effective April 1, 2008, the Company restructured part of its retirement benefit schemeand has introduced a defined benefit plan and a defined contribution pension, in order tocontribute to the wellbeing of its retired employees as well as to improve the Company’s
financial position by reducing the retirement benefit liabilities.
Contents of change:(1) Introduction of a point system(2) Transfer of its qualified pension plan to a defined benefit plan and a defined
contribution pension
The Company is to account for this change in accordance with Corporate Accounting
Implementation Guidelines No. 1, “Accounting for Transfers Between Retirement Benefit
Plans” (Accounting Standards Board of Japan, January 31, 2002), and recognizes a gainof ¥653 million (US$6,517 thousand) as a result of a reduction in retirement benefit
liabilities.

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