FUJI HEAVY INDUSTRIES LTD. Annual Report 2002

Annual Report 2002
For the year ended March 31, 2002

Focusing on

Our New Brand Equity

Annual Report 2002

1

C1

FHI’s Brand Names Subaru: Adopted in March 1958, Subaru refers to a group of stars also known by its original Japanese name mutsura-boshi, or series of six stars. This group of stars—known inWestern countries as the Pleiades—belongs to the Taurus constellation and is the basisof the Subaru trademark. Subaru automobiles were the first to bear a name derived fromthe Japanese language.
Robin: Adopted in May 1956 and registered as an official trademark in July 1960, Robin isused for FHI general-purpose engines. The Robin trademark, with its lovely design of thediligent komadori, or Japanese robin, is known the world over.

Profile Since its establishment in 1953, Fuji Heavy Industries Ltd. (FHI) has steadily grown as acomprehensive transportation machinery company, manufacturing and marketing theSubaru brand of automobiles, aircraft, and other vehicles, as well as the Robin brand ofindustrial machinery. Constantly in pursuit of superior mobility, the Subaru brand—withsuch distinct features as horizontally opposed engines and symmetrical all-wheel-drive
systems—has attracted a multitude of supporters worldwide with its unique appeal.
Always striving to be “a global player with premium brands,” in June 2002, FHI converted
to a new holding-company-style structure based primarily on its automotive business.
Under this new framework, the aerospace, industrial products, and eco-technologies
businesses are established as individual internal companies. FHI will continue to supply
the products that satisfy its customers, while at the same time enhancing its efforts tomeet today’s demand for environmental protection, and will positively contribute tosociety through all of its future business endeavors.
Disclaimer Regarding Forward-Looking Statements
Statements herein concerning plans and strategies, expectations or projections about the future, FHI’s efforts with regard tovarious management issues, and other statements, except for historical facts, are forward-looking statements. These forward-looking statements are subject to uncertainties 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, 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.

CONTENTS Consolidated Financial Highlights ....................................1
To the Stakeholders of Fuji Heavy Industries Ltd. ..........2
President’s Interview..........................................................4
Focusing on Our New Brand Equity..................................7
The New Forester:
The Embodiment of the Subaru Philosophy.................8
Design Strategies
for Establishing Premium Brands .................................12
FHI’s Unique Technological Capabilities Used in
the High-Speed-Flight Demonstration Project ............14
Environmental Protection Efforts ...................................16
Management .....................................................................18
Financial Section ..............................................................19
Consolidated Subsidiaries and Affiliates .......................55
Investor Information.........................................................56

2 FUJI HEAVY INDUSTRIES LTD.

2

Consolidated Financial Highlights
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2002, 2001 and 2000

Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars(Note)

2002

2001

2000

2002

¥1,362,493¥1,311,887¥1,330,125$10,225,088

Operating income

88,48081,67391,401

664,015

Net income

30,283

22,62831,348227,265

Shareholders’ equity¥ 396,112¥ 357,455¥ 206,404$ 2,972,698

Total assets

1,269,558

1,168,501

1,038,558

9,527,640¥40.74¥30.44¥51.90$0.31

For the year:
Net sales

At year-end:

Per Share (in yen and U.S. dollars):
Net income
Retum on equity

8.0%

8.0%

15.4%

Note: U.S. dollar figures have been translated from yen, for convenience only, at the rate of ¥133.25 to US$1.00, the approximate rate of exchange at March 31, 2002.

Net Sales (Years ended March 31)

Net Income (Years ended March 31)(¥ Billion)(¥ Billion)

’98

’98

1,304

’99

1,353

’99

’00

1,330

’00

’01

1,312

’01

’02

1,362

Net Income per Share (Years ended March 31)

31
23

’02

30

(¥ Billion)

’98

51

’99

’98
56

’00

’02

34

Shareholders’ Equity and Total Assets

(¥)

’01

31

52
30

’99
’00
’01

41

’02

169
905
200
981
206
1,039
357
1,169
396
1,270

Shareholders’ Equity
Total Assets

Annual Report 20021

To the Stakeholders of

Fuji Heavy Industries Ltd.

Takeshi Tanaka
Chairman and CEO

2 FUJI HEAVY INDUSTRIES LTD.

Kyoji Takenaka
President and COO

Earnings for fiscal 2002

Reconfiguring operations toward a company withDuring fiscal 2002, ended March 31, 2002, the environment

even greater appeal and stronger market presence

surrounding Fuji Heavy Industries Ltd. (FHI) grew even more

FHI has worked tirelessly toward the attainment of its vision ofsevere. Japan’s economic malaise persisted as consumer

being “an appealing company with strong market presence.” It

spending and employment conditions remained weak, andalso pursues the redistribution of managerial resources throughfurther decline was witnessed in stock prices and private sector

selectivity and concentration, the strengthening of consolidated

capital investment. The September 11 terrorist attacks in the

global operations, and efficient and agile management toward

United States further exacerbated the situation, giving rise to

the attainment of the medium-term business plan goal of being

concern over deepening economic recession.

a “global player with premium brands.” In May 2002, toAgainst this backdrop, despite a decline in Subaru unit

implement more effective application of resources and proactive

sales volumes in both the domestic and European markets,management, the Company drew up and unveiled its newconsolidated net sales for the fiscal year increased 3.9%, tomedium-term plan. The details of this plan will be described¥1,362.4 billion, due to the strength of North American sales

later in this report, but in essence we have adopted a holding-and favorable currency exchange rates during the term.

company-style management strategy centered around theIncreases in selling costs and declines in domestic andautomotive business and established the Aerospace, Industrial

European sales were compensated for by cost-cutting measures

Products, and Eco Technologies divisions as largely self-sustaining

and favorable exchange rates, and operating income increased

in-house companies. Under this strategy, we will significantly

8.3%, to ¥88.4 billion. Net income for the year climbed 33.8%,

reduce costs by merging overlapping segments and integratingto ¥30.2 billion. This was due in large part to two factors that

related operations and strive to provide unique Fuji Heavy

negatively influenced net income in the previous fiscal year:

products by concentrating resources on our areas of expertisedeferred taxes and the full amortization of net pension andand growing segments.

severance obligations. The absence of these factors more than

Furthermore, with regard to the environment—an extremely

offset the recognition of losses on the valuation of investment

crucial issue for the automotive industry—we will makesecurities and costs relating to affiliated companies’ withdrawal

comprehensive efforts to reduce waste emission volumes. In

from certain businesses.

addition, we will strive to decrease the emissions and increase

Analyzed by individual segment, in the core Automobile
Division, sales grew 4.5%, to ¥1,222.7 billion, and operating
income increased 4.2%, to ¥85.6 billion. Strong sales in thethe fuel efficiency and recyclability of our vehicles, along withengaging in the full-fledged development of hybrid cars.
The Company’s efforts are dedicated to its foremost task

North American market, which increased to 207 thousand units,of satisfying customers by providing advanced and uniquecontributed significantly to these results. In the Japanese market,

products that are available only from Subaru and FHI in a

we launched the Traviq seven-seater passenger wagon andvariety of fields, including automobiles, aerospace, and industrial

added the GT30 (six-cylinder engine touring wagon) and the

products. We will also work proactively to strengthen corporate

RS30 (six-cylinder engine B4 sedan) to our flagship Legacy

governance, fulfill the expectations of our shareholders, customers,

lineup. These efforts to expand sales were further augmented

and all stakeholders, and focus the total strength of the Groupby the introduction of the All-New Forester in February 2002.

toward increasing corporate value.

However, as new introductions to our core product lines fellnear the end of the term, overall registrations unfortunately slid
12.3%, to 108 thousand units. Total unit sales for the term, both
domestic and overseas, declined 3.0%, to 543 thousand units.
Takeshi Tanaka
Chairman and CEO

Kyoji Takenaka
President and COO

Annual Report 20023

By executing its new FDR-1 medium-term businessplan, Fuji Heavy Industries Ltd. will strive to create
superior premium brands and become a company witheven greater individual identity.

President’s Interview

Kyoji Takenaka: The new Fuji Dynamic Revolution-1 (FDR-1)

As one step toward our 10-year goal, our medium-term planQ

calls for a 35% increase in net sales, to ¥1,840 billion, and a

FHI’s 10-year vision, has now commenced. Please

25% increase in operating income, to ¥110 billion, it also sets a

describe the philosophy behind it.

unit sales volume of 760 thousand units for fiscal 2007, ending

Takenaka: In 2003, FHI will celebrate the 50th anniversary of its

March 31, 2007. The plan is built upon the pillars of structural

establishment. After holding office as president for one year, I

reform, brand strategy, manufacturing cost reform, creation ofhave taken part in numerous efforts that FHI has implemented

new core technologies, and the reform of corporate culture.

medium-term business plan, aimed at achieving

to be a global player with premium brands. In the past decade,: What does the new holding company style organi-notions of value to change even further over the next decade.

Q

Although FHI has pursued product manufacturing based on its

Takenaka: In today’s world of dramatic fluctuations in businesstechnological strength, I believe a slight change of focus to total

environments, speed in managerial decision making has

human-oriented corporate activities is now required. We at FHI

become a critical issue. FHI had already adopted an executive

are now positioning ourselves to achieve our desired form. We

officer system, but now, to further separate managerial andwill attain this form by converting from technologies that focus

executive functions and accelerate decision making in a moreon material goods to technologies that resonate in peoples’organized manner, we have converted to a holding-company-

hearts and minds, as well as by raising the premium on not only

style management strategy centered around the automotive

the added value of manufactured goods, but also the entire

business. We will place the Subaru Automotive Business Unit—

value chain that our automobile business and other divisions

which accounts for approximately 90% of our net sales—undercreate. We have also added to these goals the attainment of

the direct control of the head office. In addition, we will establish

top-ranking status in the categories in which we specialize,a Subaru Strategy Development Division and give that division

which we have compiled into our FDR-1 plan.

cross-functional features so that we can take action along

I witnessed numerous changes in social values and fully expect

zational strategy entail?

Under FDR-1, in pursuing the form that we seek to havespecific vectors in planning, development, production, andattained in 10 years’ time, we have set net sales targets forsales. In other business divisions, we have concentrated

Japan and the United States of ¥1 trillion each. We will conduct

authority and appropriately distributed resources among thoseplanning, development, production, and sales for each market

with independent growth potential and established the three

and assemble a customer-focused business framework. We

in-house companies of Aerospace, Industrial Products, andhave also set a 10-year ROA target of 10%, a recurring profit

Eco Technologies in preparation for the creation of new value

margin target of 10%, and an R&D investment target of ¥100

chains. Regarding bus and railroad car operations, we havebillion. I consider these figures to be the goals that will enable us

decided to withdraw from new vehicle production and retain

to follow through with the next stage of growth by generating athese operations within the head office for conversion andcontinuous cycle in which revenue is secured and then invested

reorganization into new businesses.

in the next stage of new product creation.

4 FUJI HEAVY INDUSTRIES LTD.

New Management Structure (The Holding-Company-Style Management Structure)

Targeted Sales by Region(thousand)
900<Head Office>
FHI Group Management
Planning Unit

Shareholders’ meeting

President (COO)

SUBARU Automotive
Business Unit

760

+37%

30
75

Chairman (CEO)Compliance Unit

600

<In-House Companies>

556

71

42
30

Japan

Europe

28

Other

70
60

North +100%
America
+37%

280

+25%
205
300

Eco
Technologies

Industrial
Products

Aerospace

SUBARU Strategy
Development Div.

SUBARU Sales &Marketing Div.

SUBARUEngineering Div.

SUBARU
Manufacturing Div.

SUBARU
Purchasing Div.

Bus Div
House Div
Transportation
Div.

Auditors’meeting

Board meeting

FHI Group Management
Administration Unit
<Divisions>

Corporate
auditors

350
279

0

2002

2007 (FY)Q: What are the premium brands being pursued

automobiles to the North American market. Given the volatility

by FHI?

of currency exchange rates, we will strive to achieve business

Takenaka: In its product strategy, FHI is aiming to assemble

operations that are not affected by exchange rates and establish

world-class premium brands. The objective of our corporate

the foundation for United States–Japan bipolar operations.

activities is not simply greater quantity, but higher quality, strength,

Through this framework, we will strive to develop locally designed,

and growth in our operational foundation. In a group of 100

produced, and marketed products such as a crossover concept

customers, premium brands would not necessarily be the

car that is one step above the Legacy that we will position as a

products that satisfy the majority, but would be those that delightflagship car for North America.

and leave a lasting impression on as few as 10. FHI aims toPreviously, we have considered such strategic new cars as

develop such products and to constantly propose solutions thatcandidates for joint development with General Motors Corporation.

will triumph in the competition for individuality. Brands are not

However, with emphasis on respect for the individual identities

composed of products alone. We must increase customerof both the GM and Subaru brands, it was decided that joint

satisfaction from a variety of perspectives, including global

development would best be leveraged in other concepts. Ourservices, supply of service parts, and the visual appeal of sales

aim is to further elevate the identity and added value of theoutlets. FHI will cast off the traditional perception that sees it as

Subaru brand and firmly establish its position in the market.

a purely technology-driven company, fuse design and technology

Not limited merely to joint development, the alliance with

together, leverage Subaru’s unique qualities—both interior and

GM is a comprehensive and deeply rooted partnership. We

exterior—and pursue individuality from a worldwide perspective

expect to attain excellent results on the sales side in the North

as a global supplier.

American market, particularly in the development of marketingand dealership operations in the Sunbelt region of the United: Please describe FHI’s brand strategy.

Q

States. We are also implementing a variety of other joint busi-

Takenaka: In 2003, we will introduce the next-generationand development, but manufacturing and information as well.

nesses, encompassing close cooperation not only in technology

Legacy in Japan, and then roll it out all over the world, which we

FHI holds a 1% share of the world’s 60 million unit automo-

believe will be perfectly suited to the new value standard of thebile market. It is because our share is 1% that we are able toglobal market.

concentrate marketing efforts on our specialty segments and

Next, we will introduce our new concept minicars. Subaru

adopt coherent strategies. We face the tasks of emphasizing

will not simply produce a model following the current market

the merits of our small market share—promoting our quality

trends, but will bring out new minicars with premium value andover quantity—and implementing innovation in the three main

individualism specific to the compact car category. We arepillars of our Subaru’s individuality: the uniqueness of thetargeting 2004 for the launch of these new cars. In the next

Subaru driving experience, its safety, and its environmental

stage, we will expand our introduction of new concept

soundness.

Annual Report 2002

5

President's Interview

Kyoji Takenaka
Product Strategies
High
speed
cruising

앫Realize strategic product portfolio andbrand-building scenario앫Reform organization and design mindset

Next-generation “premium” compact cars
(N-PF, N-PS)*

Brand value

Development of flagship car
for North America
Accel eration
Start
Warm-up

Development of new concept
minicars
Introduction ofpremium Legacy

Revolution in design

IGN-ON

Developing new design language
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Developing strategies on a global scale*N-PF: Next-generation new platform
N-PS: Next-generation hybrid power sourceQ: Please describe your marketing strategies to raise

evaluation. In particular, demand is growing for new environ-brand awareness.

mentally compliant power sources, and FHI has spent many

Takenaka: On the sales side, we will strive to attain uniformity inyears studying the feasibility of producing a hybrid car thatthe establishment of the Subaru brand in each region. There is aretains the successful Subaru characteristics. The question has

great difference in brand image in the northern and mid-southernbeen whether we could deliver these essential characteristics

regions of the United States, and we will work to upgrade thealong with the three fundamentals of driving performance,

quality of our sales operations in those areas, thereby raisingsafety, and environmental friendliness. In other words, webrand recognition in regions where it is currently low. To achieve

have worked to achieve a hybrid car that not only contributes

this goal, we will add high performance lines to our existing

to environmental protection, but also retains the unique Subaru

crossover lines and fuse the two together. In Japan as well,driving experience. The biggest challenge was the question ofas in the case of the Legacy, there is a significant difference inthe battery. After a long period of joint development together

brand recognition between the Tokyo area and other regions.

with NEC Corp., we settled on the development of a manganese-

The key to the Japanese market is the reform of sales systems

lithium battery and have decided to establish a joint venture

through incorporating IT tools. We are currently developing our

to make mass production feasible. FHI is aiming to develop

Partner 21 System, which uses such IT tools to directly tie intoa battery with 2.5 times the capacity of the nickel-hydridecustomer needs and predict future requirements. With thisbatteries used in most hybrid cars on the market today insystem, we will provide equal quality service nationwide, fromterms of both energy density (cruising distance) and powersales systems through to the supply of service parts. We will

density (torque). We also believe that these second-generation

also establish customer centers as the focal point for data suchmanganese-lithium batteries will aid the development of fuelas service information and concentrate customer interaction atcell units. We are aiming to make the new battery the de facto

these centers.

standard and have attracted the keen interest of the world’s

Sales volume for the North American market is currently justpremier automakers.

under 200 thousand units, but in pursuit of our 10-year goal, we

In closing, I would like to add that the reforms that FHI is

aim to increase this to the 300 thousand unit level. As a compre-

currently implementing will not be able to succeed without

hensive result of all of these efforts, we will strive to attain a 35%

corresponding reforms to its corporate culture. These reforms

increase in sales volume, to 760 thousand units, by fiscal 2007.

are not merely additions to previous improvement efforts. We
will thoroughly indoctrinate the three keywords of Innovative,: What is FHI’s policy concerning hybrid cars,

Q

Individual, and Courageous; implement selection, concentration,

which are considered the key to the future ofcreation, and innovation; and strive to become an innovative

the automobile industry?

and proactive Company.

Takenaka: With the turning of the century, corporate efforts toprotect the global environment are now a standard criterion for

6 FUJI HEAVY INDUSTRIES LTD.

Focusing on

Our New Brand Equity

Annual Report 2002

7

Automobiles

The New Forester:

The Embodiment of the Subaru Philosophy.

Hideki Ishido
Project General Manager
SUBARU Product & Portfolio Planning Division

Sales objectives and

In February 2002, the Forester received its first full model change. The sales objectives and develop-

developmental philosophy

mental philosophy of the new Forester can be summed up in our desire to bring the true value of theof the new Forester

Forester and the essence of the Subaru brand to the world. We have always deeply infused every
product we have developed with the Subaru philosophy, and our purpose in changing the Forester
was to communicate this philosophy. Subaru’s approach to automobiles and technology is that alltechnologies are meant to benefit humanity and must be rational and place top priority on functionality.
Therefore, Subaru has its own philosophy on automobile production, the actualization of which
requires core competence, design identity, and—above all—individuality. This mindset also sums up
Subaru’s brand philosophy. For example, the reason Subaru insists upon all-wheel drive is that yearsof research have shown that it is essential for safe, fast, and comfortable driving under any conditions,no matter the driver. It has therefore been adopted as Subaru’s core competence.

The original Forester and The original Forester was Subaru’s first “trendy” product. However, that is not to say that we simply
Subaru’s SUVs copied whatever happened to be popular at the time. Rather than mimic the SUVs on the U.S. market,
we wanted to make an SUV with Subaru DNA, and sought to discover what that would be like. Further
weighing of SUV merits under the scrutiny of the Subaru development ideals resulted in the first Forester.
The advantages of SUVs lie in their superior drivabililty through high ground clearance and the senseof security from an elevated vantage point. By pursuing the “Best of Both” concept—incorporating thebenefits of both SUVs and general passenger cars—Subaru has become acknowledged as the forerunner of the crossover segment of the U.S. automobile market.
The Forester is rooted in the original Subaru core technologies of low center of gravity, lateral symmetry, a horizontally opposed engine, and all-wheel drive, and it embodies all Subaru development
criteria for the essential automobile functions of stable operation, collision safety, fuel efficiency, driving
comfort, and handling. Hence, the Forester—a fully functional car with hitherto unknown vehicle height
and original packaging—was born.

Striving for the ideal car The new Forester retains all of the fundamental concepts of the original. From the outset, the Forester
for the 21st century: embodied an outstanding spirit of innovation and delivered all the fundamental functions of the ideal
The new Forester automobile—safety, speed, and comfort under any conditions—and was ultimately the most ideal
vehicle to drive anywhere around the world. By enhancing these features in the second-generation

8 FUJI HEAVY INDUSTRIES LTD.

Annual Report 2002

9

Automobiles

Forester, we drew forth its latent potential to be the ideal means of transportation for the 21st
century and seized the opportunity to show the world the Forester’s true value and the essenceof the Subaru brand.
In designing the new model, we wanted to emphasize the Forester’s superior features.
We strove to evoke the idea that the Forester’s superb performance is a form ofbeauty. Without pursuing the superiority of its design, neither development efforts
nor the product’s contributions to society will reach their fruition. It is well known
that Subaru places priority on functionality, but with the new Forester, we heavily
emphasized the improvement of the design quality of both its exterior and interior.
We have also made improvements in the areas of safety and environment-friendliness, which are major demands of the current era and its markets. In basic features, we used a compact body that delivers light weight and efficient use of spaceand further enhanced comfort, primarily by improving handling and collision safety.
For the Japanese market, we installed a faster and more responsive use turbo
engine with outstanding fuel economy—the highest for a turbocharged model—
while retaining top horsepower.

Aspiring to produce the Although the Forester may appear to be a product that follows current trends, it isworld’s No. 1 crossover in fact quite different. It is the culmination of the essence of Subaru—the uncomsports vehicle promising pursuit of excellence in fundamental automobile functions—and its target market is formed of customers who want to share in this essence. Subaru’s
best customers are those who understand Subaru’s individuality, philosophy, driving
experience, and core technologies. Even if they account for only 20% of car buyers,
our intention is to impart our philosophy to those customers who share Subaru’s ideals, andwe believe that the second-generation Forester is precisely the car to communicate Subaru’s
philosophy.
We are also planning to incorporate a turbo engine into the new Forester in all world markets
and are determined to make it the world’s top crossover sports vehicle. Our goal is to make theForester not only the ideal means of transportation but also the world’s top “triathlete.”

10 FUJI HEAVY INDUSTRIES LTD.

Annual Report 2002

11

Design Strategies

for Establishing Premium Brands
Andreas Zapatinas
Chief Designer, Advanced Design
Born in Athens, Greece, in 1957. After working in the design departments of Pininfarina S.p.A., Fiat, and BMW, joined Alfa
Romeo as Chief Designer in 1998. Worked on numerous design projects, including the 147 model that won the 2001
European Car of the Year and the 2001-2002 Import Car of the Year (Japan).

In order to sell customers on a brand image and to strengthen it, a company must continually provide
a consistent message, encompassing not only the product itself, but also the design, advertising, promotion, storefront image, and all areas of contact with the customer. As Subaru
strives to establish premium brands with global appeal, it is working at the design level—
the cornerstone of all brand identity—to create brand innovation and presence.
Subaru has always maintained a policy of individuality and has established its own
brand position among Japanese automobile manufacturers. However, its superb functionality and consistency has not been fully expressed in its designs. Subaru has consistently maintained its unique functions and technologies, such as all-wheel drive,
horizontally opposed engines, and unparalled driving experience, as part and parcel of
its vehicles. Now we must fuse these technological attributes with attractive designs
and produce unique products with superb competitiveness. In our organizational
reforms, this goal is illustrated by the transfer of the Design Department from theEngineering Division to the Product Planning Division. Our partnership with consulting firmsthat have overseas experience in our brand image building efforts and the stimulation of
our overall design organization through the appointment of overseas designers is astrong indication of our design-oriented stance.
Subaru is a company that has always undertaken new challenges. By basing ourefforts on clear policies and goals for our premium brand vision, we are able to pursue
Subaru designs with optimum timing. In the design selection, we will adopt an extremely simple and straight process, maximize top management’s contact with designers, and clearly express
Subaru’s brand philosophy in product design. The Subaru that was built on a technological foundation
is now taking the first step toward the fusion of technology and design and the establishment of global
brand value.

12 FUJI HEAVY INDUSTRIES LTD.

Kiyoshi Sugimoto
Corporate Vice President
Chief General Manager of Design Dept.
SUBARU Product & Portfolio Planning Division

Annual Report 200213

A e ro s p a c e

FHI’s Unique Technological Capabilities Used in

the High-Speed-Flight Demonstration
Project
Eiji Tanikawa
Project General Manager (High-Speed-Flight Demonstrator)
Unmanned Air Vehicles Engineering Dept.
Engineering & Development Center, Aerospace Company

Since 1999, FHI has been engaged in the development of unmanned experimental vehicles for demonstration testing, as part of the reusable space transportation system development efforts of the National
Aerospace Laboratory of Japan (NAL) and the National Space Development Agency of Japan (NASDA).
The purpose of these experiments is to develop the basic technology for reusable space transportation,
which will enable safe space travel for all. FHI was selected from a number of domestic manufacturers that
responded to the challenge of this project and is taking part in every stage, from basic design to production and testing.
FHI started producing unmanned target drones in the 1970s and succeeded in test-flying an unmanned
observation aircraft in 1982 for the first time in Japan. FHI has accumulated a great many technologies andbusiness dealings in this area, both in Japan and around the world, and is highly regarded in the field. FHI
has also steadily produced results in the field of reusable space transportation testing projects, having
worked together with other domestic manufacturers on the OREX (Orbital Reentry Experiment), HYFLEX(Hypersonic Flight Experiment), and ALFLEX (Automatic Landing Flight Experiment) projects.
The High-Speed-Flight Demonstration Project consists of two phases. In Phase I, various subsonic flightdata are verified. Once the launch command is given, the unmanned vehicle flies completely autonomously
and collects flight data, a unique exercise even on a global scale. Approximately 3.3 meters in length, thejet-engine-powered vehicle has a top speed of mach 0.6. Its automatic control uses a flight control computer and, through the application of a high-precision differential Global Positioning System (GPS), it iscapable of identifying its own position within less than a meter. Phase I flight tests will be conducted inautumn 2002 by NASDA and NAL in the Republic of Kiribati, with support provided by FHI.
In Phase II, to record flight data at speeds between mach 0.8 and mach 1.2, the vehicle will be suspended from a high altitude balloon and launched from an altitude of approximately 30 km. These tests, tobe conducted under a partnership with the Centre National d’Etudes Spatiales (CNES), are scheduled tostart in March 2003 at the European Space Range (ESRange), which is operated by the Swedish Space
Corporation (SSC). Fully autonomous control devices and advanced technologies and equipment areincorporated into the body of this compact 3.3-meter-long vehicle, and only through the use of FHI’s
superior system integration technology has such a test been made possible.
FHI will continue to engage itself in a wide range of developmental efforts under the policy of its
Aerospace Company to develop world-leading technologies in the field of unmanned aircraft.

14 FUJI HEAVY INDUSTRIES LTD.

Courtesy of NASDA
Courtesy of NAL

Annual Report 2002

15

E n v i ro n m e n t

Environmental

Protection Efforts

Environmental Management

requires that exhaust emissions be reduced by an additional 25%

As a manufacturer of automobiles and other transportationfrom levels approved under Japan’s 2000 exhaust emission reg-machinery, FHI makes efforts to reduce environmental impact atulations. Both ease of dismantling and recyclability have been

all stages of its business activities. In May 2002, FHI formulated

improved through the greater use of recyclable materials andits new voluntary environmental plan, the Fuji Heavy Industries

greater interchangeability of components. The use of lead has

Environmental Protection Project (fiscal 2003 to fiscal 2007).

been drastically reduced to meet 2005 reduction targets* well

The goals of the plan are to contribute to society through theahead of schedule.

Company’s projects and attain clean operations at all stages of* Voluntary Japan Automotive Manufacturers Association, Inc. (JAMA) Guidelines

business, with the ultimate objective of achieving an economic

Hybrid Vehicles

system based on an activity cycle with minimal environmental

The Pleo Nesta Hybrid represents the culmination of all of FHI’s

impact. In environmental accounting for fiscal 2002, ended

achievements in hybrid electric minicar technology thus far. Public

March 31, 2002, environmental costs amounted to ¥25,378 mil-road fleet tests on the Pleo Nesta commenced in October 2000.

lion (¥21,732 million in the previous year), with economic effects

Furthermore, at the 35th Tokyo Motor Show, in 2001, theworking out to ¥976 million (¥1,216 million in the previous year).

Company unveiled its HM-01 hybrid AWD-system concept car,

FHI continues to implement environmental protection efforts on

which features an idling stop & restart system and rear wheels

a Groupwide basis, with such efforts now being expanded tocontrolled by a 42-V power source.

seven of the Group’s consolidated subsidiaries that are involvedin manufacturing operations, which are historically the greatest
burden to the environment. We also widely disclose our environmental activities and have been publishing annual environmental
reports since 2000, to further our stakeholders’ understandingof our efforts.

Environmentally Sound Products
and Technologies
New Subaru Forester
Introduced in February 2002, the New Forester achieves bothsuperb mobility and outstanding environmental performance.

HM-01 hybrid AWD-system concept car

Even the turbo engine manual transmission model achieves fueleconomy of 13.0 km per liter in Japan’s 10-15 model fuel econ-Wind Turbine Generator Systems

omy. The automatic transmission model achieves the same results

In November 2000, FHI introduced the Subaru Small Wind

when in ECO mode. All models pass year 2010 fuel economy

Turbine Generator System, the result of the developmental

standards and have attained Japan’s G-LEV certification, whichapplication of technologies accumulated in aircraft manufacture,

16 FUJI HEAVY INDUSTRIES LTD.

such as an aerodynamic design for blades, a structure that uses
composite material, and computerized control. FHI is currently
engaged in testing for the introduction of wind-power generation
at small and medium-sized remote island communities. The system is the recipient of the Fiscal 2001 New Energy Award, theDirector-General of Agency of Natural Resources and Energy
Prize, and the 2001-2002 Good Design Award.

Convenience Store Recycler

Zero Emissions Efforts
FHI strives to reduce waste at all of its production plants. In fiscal 2001, the Gunma Plant (automobiles) first achieved zero
emissions—the elimination of all final landfill disposal wastes. In
fiscal 2002, our Utsunomiya Plant (aircraft and environmentrelated machinery) and Saitama Plant (general-purpose engines)
also achieved zero emissions. Also, in the carrying out of these
efforts, on-site incinerators at both the Utsunomiya and Saitama
plants were closed, thus making all of FHI’s plants entirely incinerator-free. Furthermore, in fiscal 2002 the Utsunomiya Plant
stepped up its recycling cost reduction efforts by establishing acomprehensive recycling center on the premises that collects,
sorts, compacts, and stores waste products.
Subaru Small Wind Turbine Generator System

Eco Technologies Company
In June 2002, as part of its structural reforms, FHI created theCVSR

Eco Technologies Company. The new internal company will fur-

FHI’s Convenience Store Recycler (CVSR) is a refuse-collection

ther promote environmentally compliant businesses throughvehicle that carries an apparatus that automatically separates

such efforts as the continual development of refuse collection

the containers and organic refuse of disposed packaged foodvehicles, which command the top share of the domestic

products—such as those past their expiration date—into item-

market, and the expansion of plant businesses that handle

ized waste for disposal. Organic refuse collected by these vehi-

the intermediary disposal of waste and its pulverization,cles is recycled as compost or livestock feed.

transport, and sorting.

Annual Report 2002

17

Management(As of June 26, 2002)

Seated, from left: Kyoji Takenaka, Takeshi Tanaka, Frederick A. Henderson
Standing, from left: Hideshige Gomi, Koichi Arasawa, Teruo Hanada, Hiroshi Suzuki, Hideo Wada

Executive Officers
Board of Directors
Chairman and Chief
Executive Officer
Takeshi Tanaka*
President and Chief
Operating Officer
Kyoji Takenaka*
Senior Executive Vice
President
Teruo Hanada*
Corporate Executive Vice
Presidents
Hiroshi Suzuki
Koichi Arasawa
Hideo Wada
Hideshige Gomi
Director
Frederick A. Henderson*Representative Director

18 FUJI HEAVY INDUSTRIES LTD.

Corporate Senior Vice
Presidents

Corporate Vice Presidents
Masatoshi Iwasaki

Standing Corporate
Auditor

Masayoshi Nagano

Edward Pasternak

Takayoshi Yoshihashi

Takeo Tsumuji

Yoji Ishimaru

Takao Tsuchiya

Minoru Tamura

Hiroyuki Nakatsubo

Kazushige Okuhara

Kunitaka Nakahara

Norihisa Matsuo

Kiyoshi Inoh

Noboru Daikuhara

Masaru Katsurada

Toshifumi Terao

Takao Saito

Shoichi Washizu

Hiroshi Komatsu

Kunio Ishigami

Shunsuke Takagi

Ichiro Kudo

Yutaka Tsukahara

Kiyoshi Sugimoto

Kisaburo Wani

Tsunenori Hoshi

Hiroyuki Oikawa

Ikuo Mori

Corporate Auditors
Kunitake Nomura
Hiroshi Takaku
Akira Furuya

Financial Section

Consolidated Five-Year Financial Summary ..............................20
Management’s Discussion and Analysis ofResults of Operations and Financial Position ..........................21
Consolidated Balance Sheets ......................................................26
Consolidated Statements of Income...........................................28
Consolidated Statements of Shareholders’ Equity ....................29
Consolidated Statements of Cash Flows....................................30
Notes to Consolidated Financial Statements .............................31
Report of Independent Certified Public Accountants................54

Annual Report 2002

19

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

For the Year:Net sales
Cost of sales
Gross profit
Selling, general andadministrative expenses
Operating income
Income before income taxes
and minority interest
Net income
At Year-End:
Shareholders’ equity
Total assets
Ratio of shareholder’s equity
to total assets (%)
Per Share (in yen and U.S. dollars):
Net income:
Basic
DilutedShareholders’ equity
Other Information:
Depreciation and amortization
Capital expenditures(addition to fixed assets)
R&D expenses
Number of shares issued at year-end(thousands of shares)
Number of shareholders*Number of employees*:
Parent only
Consolidated

Millionsof yenMillionsof yenMillionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2002

2001

2000

1999

1998

2002

¥1,362,493
992,950
369,543¥1,311,887
978,841
333,046¥1,330,125
995,131334,994¥1,352,520
1,067,868
284,652¥1,303,989
1,027,782
276,207$10,225,088
7,451,782
2,773,306

281,063
88,480251,373
81,673

243,593
91,401

194,720
89,932

195,770
80,4372,109,291
664,015

56,13630,283

21,291
22,62864,83931,34868,42333,70656,60930,708421,283
227,265¥ 396,112
1,269,558¥ 357,455
1,168,501¥ 206,404
1,038,558¥ 200,220
981,256¥ 168,833
904,571$ 2,972,698
9,527,640

31.2%

30.6%

19.9%

20.4%

18.7%

¥

40.74
38.83
532.88

¥

30.44
29.06
480.86

¥

51.90
48.53
338.75

¥

56.18
51.79
332.41

¥

51.33
47.18
282.09

$

0.31
0.29
4.00

¥

63,964¥64,070¥60,190¥38,708¥32,574$

480,030

118,376
54,903102,301
46,622103,922
40,12357,56638,51256,41938,231

746,506
33,094

746,502
32,996

614,553
49,381

602,333
55,044

598,507
72,107

13,374
26,483

13,60326,502

13,66826,914

13,41919,882

13,435
19,113

Note: U.S. dollar figures have been translated from yen, for convenience only, at the rate of ¥133.25 to US$1.00, the approximate rate of exchange at March 31, 2002.
* As of March 31

20 FUJI HEAVY INDUSTRIES LTD.

888,375
412,030

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

OVERVIEW
During the year ended March 31, 2002 (“fiscal 2002”), conditions
surrounding the economy and the automotive industry both inJapan and overseas became increasingly difficult, as the corporate
environment grew even more challenging. Against this backdrop,
the FHI Group carried out dynamic business developments toachieve its goal of being a “global player with premium brands.”
These efforts included partnerships with General Motors
Corporation and Suzuki Motor Corporation under the FHI New
TQF21 01 Rolling Plan.
As a result, negative factors including a decline in the domestic
automobile unit sales volume and an increase in expenses werecompensated for by such positive factors as an increase in overseas automobile unit sales volumes as well as a favorable
exchange rate and reduction of costs. Consolidated performancefor the term saw increases in both sales and profit. Net sales rose afirm 3.9%, to ¥1,362.4 billion, operating income climbed 8.3%, to¥88.4 billion, and net income surged 33.8%, to ¥30.2 billion, primarily due to the effect of the full amortization of net pension andseverance obligation at transition on the prior year’s results.
In free cash flow, despite the increase in cash generated fromoperating activities and the overall rise in income, the high level ofcash used in investing activities—primarily facilities investments
including the acquisition of leased property—resulted in a net cash
outflow of ¥11.3 billion.
In light of the favorable consolidated performance for the fiscal
year, and following its policy of long-term stable dividends, the parent company set the dividend for the term—including the interim
dividend—at ¥9.00 per share, the same as for the previous year.

SEGMENT INFORMATION AND CONSOLIDATIONThe FHI Group conducts business in the four segments ofAutomobiles, Industrial Products, Aerospace, and Other and maintains a wide-ranging product mix. In fiscal 2002, the Automobile
segment accounted for 89.5% of net sales, with the other threesegments accounting for the remaining 10.5%.
As of March 31, 2002, the FHI Group consisted of a total of 136
companies: the parent company, 121 subsidiaries, 12 affiliates, and2 other related companies. Of these, 67 were consolidated subsidiaries and 1 was accounted for by the equity method. The
remaining unconsolidated companies did not have a material
impact on the consolidated financial statements as a whole andhave therefore been excluded from the scope of consolidation.

REVIEW OF OPERATIONS BY SEGMENT
Automobile segment
The volume of automobile sales for the term was 543 thousand
units, a decline of 17 thousand units, or 3.0%, compared with theprevious term. In terms of new passenger car introductions in theJapanese market, FHI strove to expand sales by launching theTraviq seven-seater passenger wagon, adding the GT30 (six-cylinder engine touring wagon) and the RS30 (six-cylinder engine B4
sedan) to our flagship Legacy lineup, and introducing the new

Net Sales(Billions of yen)
1,500

1,200

900

600

300

0

1998 1999 2000■■ Automobile■■ Industrial Products■■ Aerospace■■ Other2001 2002

Forester in February 2002. However, as new introductions to ourcore product lines occurred near the end of the term, overall passenger car sales unfortunately slid 12.3%, to 108 thousand units.
In minicars, although the Sambar produced strong sales
throughout the year, exceeding those of the previous fiscal year,
sales of the Pleo were less than those for the previous fiscal year,
having dropped off in the second half due to a string of new model
introductions by FHI’s competitors. Overall domestic minicar sales
declined 11 thousand units, or 6.5%, to 157 thousand units.
Consequently, total domestic sales fell 26 thousand units, or 9.0%,
to 264 thousand units.
On the other hand, in overseas markets, strong sales wererecorded in North America, increasing to 207 thousand units.
Although FHI faced a weak euro and strong competition from
European manufacturers, total overseas sales increased 9 thousand units, or 3.3%, to 279 thousand units.
As a result, net sales for the segment increased ¥52.3 billion, or
4.5%, to ¥1,222.7 billion, and operating income rose ¥3.4 billion, or4.2%, to ¥85.6 billion. Also, looking at domestic and overseas net
sales separately, domestic net sales declined due to the decreasein sales volume, while overseas net sales increased due to theincrease in sales volume and the weakened yen.
Industrial Products segment
In the Japanese market, sales of small engines for construction
machinery declined due to the economic slowdown. Overseas aswell, sales of engines declined in the European market, as did salesof recreational vehicle engines in the North American market.
Consequently, net sales for the segment decreased ¥4.8 billion, or
10.8%, to ¥39.5 billion. Operating income declined ¥1.0 billion andamounted to an operating loss of ¥0.2 billion.
Aerospace segment
Although the sales volume of the UH-1J utility helicopter to theJapan Defense Agency increased, the sales volume of the F-2 support fighter declined and delivery of the AH-1S anti-tank helicopter
was concluded, resulting in a decline in total domestic sales volume

Annual Report 2002

21

Consolidated Sales by Region (Number of vehicles)
2002

2001

264,257
191,381
15,63232,37326,923
12,675

290,301
172,686
15,00539,951
27,976
14,378543,241

560,297

3,288
546,5293,941
564,238

2002

2001

2000

1999

1998

59,20924,89922,922
4,244

67,42432,362
28,994297

67,97225,65425,985308

63,49933,531
24,4891,438

55,00137,04940,032
2,184

Subtotal
Minicars

111,274
167,265

129,077
173,754

119,919
177,842

122,957
156,186

134,266
144,366

Total

Japan
U.S.A.
CanadaEuropeAustralia
OthersSubtotal
CKD* in Overseas
Total* CKD: Complete Knocked Down

Non-Consolidated Sales by Model (Number of vehicles)
Domestic Units:
LegacyImpreza
ForesterOthers278,539

302,831

297,761

279,143

278,632

Export Units:
LegacyImpreza
ForesterOthers

24,72775,70072,629026,25454,72185,453034,30458,53083,928029,53054,861
81,385439

27,85752,25158,005819

Subtotal
Minicars

173,056
22

166,428108

176,762760

166,2152,152

138,932
3,337

Total

173,078

166,536

177,522

168,367

142,269

CKD in Overseas(SIA Portion)

104,234
100,946

111,783
107,842

103,001
98,861

100,440
98,464

110,689
105,237

U.S. Unit Sales*:LegacyImpreza
ForesterOthers95,29135,61255,041—

96,391
19,22056,605—87,267
19,35650,183—

88,66019,04140,132—

92,91324,242
15,988640

185,944

172,216

156,806

147,833

133,783

103,010

107,955

93,070104,229

102,180

Total
U.S. Production Units*:
Legacy* U.S. Unit Sales and U.S. Production Units are the aggregate figures for the calendar year from January 2001 through December 2001.

in the defense sector. On the other hand, in the commercial sector,
despite the impact of the September 11 terrorist attacks, productsales to The Boeing Company of the United States increased. The
yen-to-dollar exchange rate was also favorable. As a result, net
sales increased ¥0.7 billion, or 1.1%, to ¥66.3 billion. Operating
income surged ¥4.9 billion, or 200.4%, to ¥7.4 billion. This
improvement in operating income was primarily the result of theincrease in sales to Boeing and the favorable exchange rate.

22 FUJI HEAVY INDUSTRIES LTD.

Other segment
Despite an overall slow climate for demand in bus operations, net
sales exceeded those for the previous fiscal year due to brisk salesof FHI’s new tour bus. Amid protracted weakness in the construction industry and long-standing stagnation in demand, sales in the
housing segment declined.
In transportation and ecology systems, net sales increased dueto the delivery of FHI’s tilting railway motor car to JR Hokkaido andfirm product sales from intermediate plants, such as the Fukui
Recycling Plant. As a result, net sales of this segment increased¥3.1 billion, or 8.5%, to ¥40.6 billion. However, conditions remained

severe for the Company’s subsidiaries, and an operating loss of¥4.2 billion was recorded. Moreover, after reviewing our troubled
bus chassis and rail car manufacturing operations, we have decided to end new production of those product lines in fiscal 2003.

NET SALES
FHI’s consolidated net sales for fiscal 2002 increased ¥50.6 billion,
or 3.9%, to ¥1,362.4 billion, primarily as a result of a ¥52.3 billion
increase in automobile revenues. Examining domestic and overseas net sales separately, domestic net sales declined ¥56.9 billion,
or 8.3%, to ¥631.2 billion, due to the decrease in the volume ofautomobile sales in Japan, while overseas net sales grew a substantial ¥107.5 billion, or 17.2%, to ¥731.2 billion, due to theincreased sales volume in North America and the depreciated yen.
Consequently, the portion of consolidated net sales accounted forby overseas net sales climbed 6.2 percentage points, to 53.7%.
Examined by individual region, North American sales climbed 7.2
percentage points, to 44.6% of the Group’s total sales, and were
the primary reason for the increase in the proportion of overseas
net sales. For reasons stated previously, sales to the European
market fell 0.9 percentage point, to 4.2%.
Net Sales

Net Income(Billions of yen)
1,500(Billions of yen)
350
300

1,200
250
900

200
150

600

COST, EXPENSES, AND OPERATING INCOME
In comparison to the 3.9% increase in revenue, the cost of
sales increased ¥14.1 billion, or 1.4%, to ¥992.9 billion, andthe cost of sales ratio declined 1.7 percentage points, from
74.6% to 72.9%. This was due to a favorable exchange rate,
which accounted for approximately ¥32.6 billion in increased
revenue, as well as the FHI Group’s achievement of approximately ¥21.6 billion in cost reductions, which offset negative
factors stemming from a deterioration of sales mix and anincrease in expenditures for specified improvements in safety
and other features. Hence, gross profit increased ¥36.4 billion,or 11.0%, to ¥369.5 billion, and the gross margin rate rosefrom 25.4%, to 27.1%.
On the other hand, SG&A expenses increased a substantial¥29.6 billion, or 11.8%, to ¥281.0 billion. This was due primarily
to an ¥8.5 billion increase in overall advertising expenses aswell as increases in sales promotion expenses in North
America. In addition, R&D expenses increased ¥7.9 billion,
mostly in new automobile development. As a result, the ratioof SG&A expenses to net sales rose 1.4 percentage points, to20.6%. Moreover, total R&D expenses included in SG&A
expenses and manufacturing expenses increased ¥8.2 billion,to ¥54.9 billion, with the ratio of R&D expenses to net sales
rising 0.4 percentage point, to 4.0%.
As a result, operating income increased ¥6.8 billion, to¥88.4 billion, mainly due to increased operating income in the
Automobile and Aerospace segments. The ratio of operating
income to net sales increased 0.3 percentage point, from
6.2% to 6.5%.
The following chart summarizes factors contributing to fluctuations in operating income.

100
300

Analysis of Factors Affecting in Operating Income(Consolidated Basis)

50(Unit: ¥ billion)
0
1998 1999■■ Japan■■ Overseas

2000

2001 2002

1998 1999

2000 2001 2002

Favorable factors

Unfavorable factors+54.2

R&D Expenses(Billions of yen)
600

0Increase in profit of¥6.8 billion year on year

Capital Expenditures andDepreciation and Amortization(%) (Billions of yen)
4.0 1,200

1,000

500

400

3.5

-47.4

Gain on currency
exchange

Increase in selling,
general andadministrative expenses

-15.1

+32.6

800

Deterioration of sales mix

200

-14.6

600

300

3.0

400

200

100

Reduction in costs

+21.6
0

1998 1999 2000 2001 2002■■ R&D Expenses■■ R&D Expenses as a Percentage
of Net Sales (right scale)

2.501998 1999 2000 2001 2002■■ Capital Expenditures■■ Depreciation and Amortization

Increase in R&D
expenses-8.3

Expenditure for specified
improvements in safety
and other features -9.4

Annual Report 2002

23

OTHER INCOME (EXPENSES)
Other expenses, net, plummeted ¥28.0 billion, to ¥32.3 billion,
thus contributing to increased income. Principal positive andnegative factors were as follows.
Principal positive factors
The principal positive factor was the absence of a ¥44.5 billion
provision for the one-time amortization of net pension andseverance obligation at transition, implemented in the previous
fiscal year.
Principal negative factors
Principal negative factors included an ¥8.4 billion increase in
the loss on devaluation of securities, ¥6.8 billion in losses
incurred on the liquidation of affiliated companies, and a ¥2.8
billion decrease in the gain on sales of securities.

NET INCOME
As a result, income before income taxes surged ¥34.8 billion, or
163.7%, to ¥56.1 billion. Net income climbed ¥7.6 billion, or
33.8%, to ¥30.2 billion. The effective tax rate for the previous fiscal
year was an extremely low of 0.9% due to such exceptional factors
as the recognition (subtraction) of deferred losses on subsidiaries
based on the deferred tax accounting. With no such special factors
for fiscal 2002, the effective income tax rate after the considerationof the deferred tax accounting surged 50.4%, which accounted forthe large difference in the percentage of increase between income
before income taxes and net income. Net income per share
increased ¥10.30, from ¥30.44 to ¥40.74. As stated above,
the parent company dividend for the fiscal year was set at ¥9.00
per share.

FINANCIAL POSITION
AssetsUnder the severe business conditions of fiscal 2002, the FHIGroup continued to strive for effective use of invested capitalby concentrating its resources on priority fields in accordancewith its New TQF21 financial strategy.
Total assets at year-end increased ¥101.0 billion, or 8.6%,
to ¥1,269.5 billion, primarily due to the management of funds
raised in preparation for bond redemption and capital expenditures in fiscal 2003. Other factors included a rise in current
assets due to increased inventories as well as an increase inproperty, plant and equipment as a result of the relatively highlevel of facilities investment during the term.
Total current assets increased ¥63.4 billion, to ¥636.8 billion,
primarily due to a ¥26.8 billion increase in marketable securities
through surplus fund management of the above mentioned
funds and a ¥22.6 billion increase in inventories due to thedecline in domestic automobile demand and the increase on thecurrency conversion of inventories of overseas subsidiaries dueto the depreciation of the yen.
A total of ¥70.6 billion was invested in property, plant andequipment during fiscal 2002, primarily in facilities in the

24 FUJI HEAVY INDUSTRIES LTD.

Automobile segment. Property, plant and equipment, net,increased ¥25.1 billion, to ¥481.7 billion, after depreciation. The
investment figure stated above does not include automobiles forlease and other lease assets.
Investments and other assets increased ¥12.4 billion, to ¥150.9
billion. Of this, intangible fixed assets increased ¥5.4 billion, primarily
in computer software. Due to the application of the deferred tax,
non-current deferred income tax assets increased ¥5.0 billion.
Liabilities and shareholders’ equity
Total liabilities at year-end increased ¥64.6 billion, or 8.0%, to¥869.9 billion. Of this, short- and long-term interest-bearing debt
increased ¥31.6 billion, to ¥396.7 billion. This was due primarily
to advanced fund raising through new bond issuance and longterm bank loans in preparation for bond redemption and capital
investment in fiscal 2003. A portion of these funds procured wasallocated to the repayment of short-term bank loans.
The net increase in liabilities through procurement and repayment on a cash flow basis amounted to ¥26.4 billion. The
remaining increase of ¥5.2 billion was due to increases on theconversion of overseas consolidated subsidiaries’ foreign currency denominated loans as a result of the yen’s depreciation.
Operating liabilities—which consisted primarily of notes andaccounts receivable—and other long-term liabilities increased¥33.0 billion, to ¥473.2 billion. This was due primarily to ¥16.8
billion in accrued income taxes due to the increase in income
and the application of accounting for income taxes and a ¥16.1
billion increase in accrued expenses due to the aforementioned
increase in SG&A expenses.
Following the lump-sum amortization implemented in the previous fiscal year, accrued pension and severance liabilities
declined slightly in this term.
Shareholders’ equity increased ¥38.6 billion, to ¥396.1 billion,
and the shareholders’ equity ratio climbed 0.6 percentage
points, to 31.2%. This was due primarily to a ¥23.6 billion
increase as a result of increased retained earnings and a ¥11.3
billion decline in currency translation adjustments due to the
yen’s depreciation. Furthermore, net unrealized holding gains on
securities increased ¥3.2 billion, from ¥1.7 billion, to ¥4.9 billion
due mainly to an improvement in the position of investment
securities previously devalued.

CAPITAL EXPENDITURESThe FHI Group’s capital expenditures, which were higher in fiscal
2002 than in previous periods, increased by ¥27.0 billion compared with the prior fiscal year, to ¥70.6 billion, primarily in the
Automobile segment. These expenditures were incurred mainlyfor production, R&D, and sales facilities in the Automobile segment. The majority of these expenditures were covered by internal reserve. Expenditures by individual segment were as follows.
Automobile segment
A total of ¥34.3 billion was invested in the parent company’s
streamlining initiatives in R&D facilities and efforts to enable interflowing production through flexible production lines. In addition,

¥10.6 billion was invested in FHI’s manufacturing subsidiary in
the United States, Subaru-Isuzu Automotive Inc., for the introduction of new models and the augmenting of engine production capacity.
Other segments
The parent company invested ¥2.4 billion in the Industrial
Products segment, mostly in equipment for the launching of new
products, and ¥0.7 billion in the Aerospace segment for maintenance and renewal. In other segments, a total of ¥2.2 billion wasinvested primarily for spare parts equipment.
The parent company’s portion of these capital expenditures
was ¥39.7 billion and the subsidiaries’ portion was ¥30.9 billion.
In addition to the aforementioned investments, ¥41.0 billion wasinvested in the Automobile segment in the acquisition of leasevehicles and other business assets.

CASH FLOWSCash and cash equivalents (hereinafter “cash”) at year-end
increased ¥13.2 billion, to ¥133.7 billion. However, in free cash
flows, despite the increase in cash generated from operating
activities and the overall rise in income, the high level of cashused in investing activities—primarily investments in facilities—
resulted in a cash outflow of ¥11.3 billion. The cash level at yearend was equivalent to approximately a 1.1 month portion of
FHI’s average monthly sales of ¥113.5 billion, which theCompany determines to be of sufficient liquidity to conduct normal business operations. Furthermore, the parent company andtwo overseas consolidated subsidiaries possess a balance of¥90.8 billion in unexecuted loans on loan commitments fromfinancial institutions, giving the Group an advantage in terms ofcapital mobility and efficiency.
Net cash provided by operating activities increased ¥6.6 billion, to ¥85.7 billion. Cash inflow comprising income before
income taxes and minority interest, adjusted for depreciation
and amortization as well as other non-cash items, and excluding
expenditures for income tax, increased ¥17.4 billion, to ¥113.6
billion. This was due primarily to the increase in income coupledwith a decline in such non-cash inflows as the lump-sum amortization of net pension and severance obligation at transition,
which was recorded in the previous term.
However, changes in operating assets and liabilities increased¥10.8 billion and resulted in a cash outflow of ¥27.8 billion. Thiswas due primarily to the fact that the decline in accounts
payable exceeded the decline in accounts receivable.
On the other hand, net cash used in investing activities
increased ¥8.6 billion, to ¥97.0 billion. Net cash outflows for thepurchase and sale of marketable securities and investment
securities increased ¥2.2 billion, to ¥19.4 billion, and net cashused for the purchase and sale of property, plant and equipment(including leased assets) increased ¥2.1 billion, to ¥72.4 billion.
In addition, repayments on lendings declined ¥1.7 billion, to ¥0.8
billion.

Net cash provided by financing activities increased ¥1.3 billion, to ¥19.7 billion. This was due to funds raised amounting to¥26.4 billion as a result of the advanced fund-raising in preparation for bond redemption and capital investment in fiscal 2003,
as previously mentioned. A total of ¥50.5 billion in new funds
was raised during the year from bond issuance. Short- and longterm interest-bearing debt amounted to a net decline of ¥24.0
billion. Expenditures for shareholder dividends totaled ¥6.6 billion. Cash increases on currency conversions due to the yen’s
depreciation amounted to ¥4.7 billion.

OTHER ISSUES
Please refer to the President’s interview for information on the
new five-year medium-term business plan, structural reforms,
and the introduction of an internal company system.
At the general meeting of shareholders held on June 26,
2002, the upper limit for buyback and retirement of stock was
set at 215 million shares or ¥140.0 billion and the upper limit on
the issuance of new share subscription rights for stock options
was set at 1.1 million shares of the Company’s common stock.

OUTLOOKThe environment surrounding corporations in fiscal 2003 is expected to remain intense, making no allowance for optimism. Against
this backdrop, FHI expects increases in sales in North America andother overseas markets despite stagnation in the increasingly competitive domestic market. However, due to increases in investments
for future development, while an increase in sales is expected compared with fiscal 2002, income is expected to decline. The yen to
dollar exchange rate is predicted at ¥125.0 / US$1.00.
The Company predicts consolidated net sales to increase 2.0%,
to ¥1,390.0 billion, and net income to decline 21.0%, to ¥24.0 billion.
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 historicalfacts, are forward-looking statements. These forward-looking statements are subject to uncertainties that could cause actual results todiffer materially from those anticipated. These uncertainties include,
but are not limited to, general economic conditions, demand forand prices of FHI’s products, FHI’s ability to continue to develop
and market advanced products, and currency exchange rates.
FHI disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events, orotherwise.

Annual Report 2002

25

Consolidated Balance Sheets
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIESAs of March 31, 2002 and 2001

Millionsof yenMillionsof yenThousands of
U.S. dollars(Note 4)

2002

2001

2002

58,61089,573
130,593(862)
169,936
66,51929,891
29,174$ 423,760
874,004
1,003,287(4,285)
1,445,013
537,914257,246
242,566

636,869

573,434

4,779,505

1,061,179(579,422)

1,005,331(548,750)

7,963,820(4,348,383)

Net property, plant and equipment

481,757

456,5813,615,437

Investments and other assets:
Investment securities (Notes 6 and 10)
Investments in non-consolidated subsidiaries and affiliates
Long-term loans
Goodwill
Intangibles, net
Deferred tax assets (Note 12)
Other assets (Note 10)
Allowance for doubtful accounts

48,275
6,536
8,351
22,24915,284
31,79022,256(3,809)48,185
7,930
7,910
20,143
11,97826,763
20,478(4,901)

362,289
49,05062,672
166,972
114,702
238,574
167,024(28,585)

150,932

138,486

1,132,698¥1,269,558¥1,168,501$9,527,640

ASSETS
Current assets:
Cash and time deposits (Note 5)
Marketable securities (Notes 5 and 6)
Notes and accounts receivable, trade (Note 10)
Allowance for doubtful accounts
Inventories (Note 7)
Short-term loans (Note 5)
Deferred tax assets (Note 12)
Other current assets (Note 10)
Total current assets

Property, plant and equipment (Notes 8, 9 and 10)
Less accumulated depreciation

Total assets

26 FUJI HEAVY INDUSTRIES LTD.

¥56,466
116,461
133,688(571)
192,548
71,67734,27832,322¥

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilities:
Short-term borrowings (Note 10)
Current portion of long-term debt (Note 10)
Notes and accounts payable, trade
Accrued expenses
Accrued income taxes (Note 12)
Other current liabilities
Total current liabilities
Long-term liabilities:
Long-term debts (Note 10)
Accrued pension and severance liability (Note 11)
Other (Notes 9 and 12)

Minority interest in consolidated subsidiaries
Contingent liabilities (Note 16)
Shareholders’ equity (Note 13):
Common stock
Authorized—1,500,000,000 shares
Issued 2001—746,502,402 shares
2002—746,505,560 shares
Additional paid-in capital
Revaluation reserve for land (Notes 9 and 12)
Retained earnings
Net unrealized holding gains on securities
Translation adjustments
Less treasury stock, at cost

Total liabilities and shareholders’ equity

Millionsof yenMillionsof yenThousands of
U.S. dollars(Note 4)

2002

2001

2002

¥ 169,807
43,845204,959
107,70723,48836,589¥ 180,227
37,943
207,477
91,574
6,625
34,737$1,274,349
329,043
1,538,154
808,308
176,270
274,589

586,395

558,583

4,400,713

183,090
62,57937,896

146,93165,674
34,114

1,374,034
469,636
284,398

283,565

246,719

2,128,068

3,486

5,744

26,161—
144,450
150,762381
107,328
4,997(9,579)(2,227)

144,449—
150,761—
83,6801,701(20,921)(2,215)—
1,084,053
1,131,422
2,859
805,463
37,501(71,887)(16,713)396,112357,455

2,972,698¥1,269,558¥1,168,501$9,527,640

The accompanying notes are an integral part of these balance sheets.

Annual Report 2002

27

Consolidated Statements of Income
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2002, 2001 and 2000

Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars(Note 4)

2002

2001

2000

2002

¥1,362,493
992,950¥1,311,887
978,841¥1,330,125
995,131$10,225,088
7,451,782

369,543
281,063333,046
251,373

334,994
243,593

2,773,306
2,109,291

88,48081,67391,401

664,015

2,868(3,499)0(4,996)(8,970)(3,670)(6,880)

3,663(4,623)2,815(3,027)(487)(2,551)—

2,569(10,422)
12,092(5,356)(6,569)(2,440)—21,523(26,259)
0(37,494)(67,317)(27,542)(51,632)——(7,197)(44,520)—(11,652)—(9,855)(6,581)——(54,011)(32,344)(60,382)(26,562)(242,732)

Income before income taxes and minority interest

56,136

21,291

64,839421,283

Income taxes (Note 12):Current
Deferred

38,325(10,042)

25,814(25,631)

36,151(2,621)

287,617(75,362)

28,283

183

33,530212,255

Income before minority interest
Minority interest in consolidated subsidiaries

27,853
2,430

21,1081,520

31,30939

209,028
18,237

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses (Note 14)
Operating income
Other income (expenses):
Interest and dividend income
Interest expenses
Gain on sale of securities
Foreign exchange losses
Loss on devaluation of securities
Loss on sales or disposal of property, plant and equipment, net
Loss on liquidation of affiliated companies
Full amortization of net pension andseverance obligation at transition
Write-down of land
Other, net

Net income

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

28 FUJI HEAVY INDUSTRIES LTD.

¥

30,283¥

22,628¥31,348$227,265

Yen

Yen

Yen

U.S. dollars(Note 4)¥40.7438.83
9.00¥30.44
29.06
9.00¥51.90
48.53
9.00

$0.31
0.29
0.07

Consolidated Statements of Shareholders’ Equity
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2002, 2001 and 2000

Thousands

Balance, March 31, 1999
Accumulated foreign currency translation
adjustment transferred from assets
Foreign currency translation adjustment
Cumulative effect of changes
in accounting for income taxes
Stock class change of Subaru-Isuzu Automotive Inc.
Merger of a consolidated subsidiary
Cash dividends
Payment of bonuses to directors
and statutory auditors
Shares issued upon conversionof convertible bonds
Accumulated deficit of subsidiaries
newly included in consolidation
Treasury stock held by subsidiaries
newly included in consolidation
Net income
Balance, March 31, 2000
Foreign currency translation adjustment
Retained earnings of merger ofa consolidated subsidiary
Cash dividends
Payment of bonuses to directors
and statutory auditors
Shares issued to GM
Shares issued upon conversion of convertible bonds
Treasury stock held by subsidiaries
newly included in consolidation
Adoption of new accounting standard
for financial instruments
Net income
Balance, March 31, 2001
Foreign currency translation adjustment
Retained earnings of merger of
non-consolidated subsidiaries
Cash dividends
Payment of bonuses to directors
and statutory auditors
Shares issued upon conversion of convertible bonds
Increase in treasury stock
Revaluation of land
Increase in unrealized holding gains on securities
Net income
Balance, March 31, 2002

Millions of yen

Number ofsharesissuedCommonstock

Additional
paid-in
capital602,333¥ 85,121¥ 91,567

Revaluation
reservefor landRetainedearnings¥ — ¥ 23,535

Net
unrealized
holding
gains onsecurities¥—

Accumulatedtranslation
adjustment¥—

Treasurystock,
at cost¥(3)(26,194)(2,060)740

11,480

37

2,957

46

6,582
3,495
2,199
(5,122)

6,582
3,495
2,282
(5,122)

(209)

(209)

2,946

5,903
(8,699)(1,142)

131,896
54

88,11556,31914

94,559—31,34853,129—(28,254)
7,333(1,145)

14,484(6,394)

(167)

(167)
112,50828

56,188
14

1,701

4

144,4491

150,761—

22,62883,6801,701(20,921)
11,342(2,215)

(152)

(152)
2
(12)
381
3,296
30,283¥396,112

1
3,296
30,283¥381 ¥107,328¥150,762

1,701
22,628357,455
11,342
211(6,694)(12)¥144,450(1,070)211(6,694)

381

746,506(1,142)
31,348206,404
7,333

14,484(6,394)(1,070)746,502¥200,220(26,194)(2,060)(8,699)614,553

Total
shareholders’equity¥4,997¥ (9,579)¥(2,227)

Thousands of U.S. dollars (Note 4)

Balance, March 31, 2001
Foreign currency translation adjustment
Retained earnings of merger of
non-consolidated subsidiaries
Cash dividends
Payment of bonuses to directors
and statutory auditors
Shares issued upon conversion of convertible bonds
Increase in treasury stock
Revaluation of land
Increase in unrealized holding gains on securities
Net income
Balance, March 31, 2002

$1,084,045 $1,131,414

8$— $627,992 $12,765

1,583(50,236)

1,583(50,236)(1,141)(1,141)
16
(90)
(90)
2,859
24,736227,265$ (71,887) $(16,713) $2,972,698

8
2,859

$1,084,053 $1,131,422$(157,005) $ (16,623) $2,682,588
85,11885,11824,736227,265$2,859 $805,463 $37,501

The accompanying notes are an integral part of these statements.

Annual Report 2002

29

Consolidated Statements of Cash Flows
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2002, 2001 and 2000

Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars(Note 4)

2002

2001

2000

2002

¥ 56,136¥ 21,291¥ 64,839$ 421,283

63,964
3,670(3,097)
—
0
8,970
474
(14,989)(13,378)(21,608)
6,880(1,301)64,0702,551
40,546—(2,815)487(10,231)(15,053)
8,243(37,165)—
7,175

60,190
2,440
—
9,855
(12,092)
6,569
12,7193,572(1,440)(37,774)—(13,745)

480,030
27,542(23,242)—
067,317
3,557(112,488)(100,397)(162,161)
51,632(9,763)85,72179,09995,133643,310

Cash flows from investing activities:
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of investment securities
Purchase of marketable securities
Proceeds from sales of investments securities
Proceeds from sales of marketable securities
Purchase of intangible assets
Disbursement of loans receivableCollection of loans receivable
Other, net(109,117)
36,634(4,754)(56,013)
1,832
39,493(6,577)(52,115)
52,958586(91,734)
21,439(2,714)(50,274)
7,355
28,423(5,992)(52,216)
54,815
2,520(98,429)
21,734(11,064)(1,171)—
12,343(3,018)(56,109)62,647(4,854)(818,889)
274,927(35,677)(420,360)
13,748296,383(49,358)(391,107)
397,433
4,397

Net cash used in investing activities(97,073)(88,378)(77,921)(728,503)

27,704(40,489)
50,500——(11,237)—(47)
35(6,694)46,443(63,677)—(10,000)(30,000)(31,831)112,224(2,249)3,901(6,394)

31,670(33,816)
10,300(42,474)
30,000(65,340)———(5,122)

207,910(303,858)
378,987——(84,330)
—
(353)
263
(50,236)

Net cash provided by (used in) financing activities

19,772

18,417(74,782)

148,383

Effect of exchange rate changes on cash and cash equivalents

4,704

2,529

(2,218)35,302

Net increase (decrease) in cash and cash equivalents

13,124

11,667(59,788)

98,492

120,436

108,769

145,907903,835

—
—
148

—
—
—

(10,635)
33,285
—

—
—
1,110

Balance at end of year

¥133,708¥120,436¥108,769$1,003,437

Supplemental information on cash flows:
Cash paid during the period for interest
Conversion of convertible bonds¥¥¥ 11,067
5,903$

Cash flows from operating activities:
Income before income taxes and minority interest
Adjustments to reconcile income before income tax andminority interest to net cash provided by operating activities:
Depreciation and amortization
Loss on sale or disposal of property, plant and equipment, net
Increase (decrease) in provision for pension and severance liability
Write-down of land
Gain on sale of securities
Loss on devaluation of securities(Increase) decrease in notes and accounts receivable, trade(Increase) decrease in inventories
Increase (decrease) in notes and accounts payable, trade
Income taxes paid
Loss on liquidation of affiliated companies
Other, net
Net cash provided by operating activities

Cash flows from financing activities:
Proceeds from long-term debt
Repayment of long-term debt
Issuance of bonds
Redemption of bonds
Repayment of commercial paper
Decrease in short-term borrowings
Issuance of common stock
Purchase of treasury stock
Proceeds from sales of treasury stock
Dividends paid

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

The accompanying notes are an integral part of these statements.

30 FUJI HEAVY INDUSTRIES LTD.

3,384
2

4,573
28

25,39615

Notes to Consolidated Financial Statements
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES

1. Basis of Presentation of the Financial Statements
Fuji Heavy Industries Ltd. (the “Company”) and its subsidiaries in Japan maintain their books of accountand prepare their financial statements in accordance with accounting principles and practices generally
accepted in Japan, while its foreign subsidiaries maintain their books of account and prepare their financial statements in conformity with those of the countries of their domicile.
The accompanying consolidated financial statements are basically an English-translated version of
those prepared in accordance with accounting principles and practices generally accepted in Japan,
which are different in certain respect from the application and disclosure requirement of International
Accounting Standards (“IAS”), and filed with the appropriate Local Finance Bureau of the Ministry of
Finance and the Tokyo, Osaka and Nagoya Stock Exchange as required by the Securities and Exchange
Law of Japan. Certain reclassifications of accounts and modifications have been made in the accompanying financial statements to facilitate understanding by readers outside of Japan. Such reclassifications
and modifications had no effect on the consolidated net income. In addition, the statements of shareholders’ equity and certain information in the notes to the consolidated financial statements, which are
not required under accounting principles and practices generally accepted in Japan, are presented herein
as additional information.

2. Summary of Significant Accounting Policies
Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its significant subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. The fiscal year-end of the consolidated domestic subsidiaries is the same as that of the parent
company, while the fiscal year-end of the consolidated foreign subsidiaries is December 31. Althoughthese foreign subsidiaries are included based on their fiscal year ended December 31, significant transactions that incurred between December 31 and March 31 are reflected in the consolidated financial
statements.
The consolidated financial statements include the accounts of the Company and 67 subsidiaries in theyear 2002 (68 in the year ended March 31, 2001 and 72 in the year ended March 31, 2000). In addition,
1 non-consolidated affiliate in the year 2002 (2 in the year ended March 31, 2001 and 2000) are accounted for by the equity method.
Investments in insignificant non-consolidated subsidiaries and affiliates not accounted for under theequity method are carried at cost.
The difference between the cost and underlying net equity of investments in subsidiaries and affiliatedcompanies is allocated to identifiable assets based on fair value at the date of acquisition. The unallocated residual value of the excess of the cost over the underlying net equity is recognized as goodwill, andis amortized over a period of five years on the straight-line basis.
All assets and liabilities of subsidiaries acquired on or after April 1, 1999, which include not only theCompany’s interest in the subsidiary but also the minority interest portion, are valued based on fair values atthe date the Company acquires control over the subsidiary. The investment cost of the Company is allocatedto the identifiable assets and liabilities of the subsidiary; the unallocated cost is recorded as goodwill.

Annual Report 200231

Translation of foreign currency accounts
Effective April 1, 2000, the Company and its subsidiaries in Japan adopted the revised accounting standard for foreign currency translation, under which monetary assets and liabilities denominated in foreign
currencies are translated into Japanese yen at each balance sheet date with the resulting gains or loss
included in the current statements of income.
All asset and liability accounts of foreign subsidiaries and affiliates are translated into Japanese yen at
the exchange rates in effect at the balance sheet date of the foreign subsidiaries, except for common
stock and capital surplus, which are translated at historical rates. Revenue and expense accounts arealso translated at the average exchange rates during the current year. The resulting foreign currencytranslation adjustments are included in shareholders’ equity and minority interest.
Cash equivalents
Cash and cash equivalents include all highly liquid investments, generally with original maturities of threemonths or less that are readily convertible to known amounts of cash and have negligible risk of changes
in value due to their short maturities.
Revenue recognition
Revenue from sales of finished products is generally recognized when such products are shipped to dealers
or customers. Provisions for sales allowances and incentives are recognized at the time of the sale.
Revenue from operating leases is recognized on a straight-line basis over the lease term.
Allowance for doubtful accounts
Allowances for doubtful accounts are provided based on the amount calculated as the actual ratio of bad
debt for ordinary receivables, and an amount required for uncollectible account for specific doubtfulreceivables.
Marketable securities and investment securities
Prior to April 1, 2000, securities listed on stock exchanges were stated at the lower of cost or market
value, cost being determined by the moving-average method. Securities not listed on stock exchanges
were stated at cost, as determined by the moving-average method, after devaluation for any permanent
impairment.
The Company adopted new Japanese accounting standards for financial instruments from the fiscal
year ended March 31, 2001. In accordance with the new standards, securities for which fair value isavailable are stated at fair value as of the balance sheet date with unrealized holding gains and losses
included as a component of shareholders’ equity until realized, while securities for which fair value is notavailable are stated at cost as determined by the moving-average method. Bonds and debentures heldto-maturity are stated using the amortized interest cost method.
As a result of such adoption, income before income taxes and minority interest has increased by¥1,759 million for the year ended March 31, 2001, as compared with the amounts under the previous
accounting standards. Based on the review of the purposes of holding securities at April 1, 2000, securities held-to-maturity and other securities with maturities of one year or less have been classified as marketable securities in current assets and all other securities as investment securities. As a result,marketable securities in current assets decreased by ¥21,894 million and investment securities increasedby the same amount as of April 1, 2000. Also, from the year ended March 31, 2001, impairment losses of¥5,226 million for investment securities previously recorded in a separate allowance account have been
directly offset against investment securities balance.

32 FUJI HEAVY INDUSTRIES LTD.

Derivative financial instruments and hedge accounting
The new accounting standard for financial instruments, effective from the year ended March 31, 2001,
requires companies to state derivative financial instruments at fair value and to recognize changes in thefair value as gains or losses unless derivative financial instruments are used for hedging purposes.
If derivative financial instruments are used as hedges and meet certain hedging criteria, theCompanies defer recognition of gains or losses resulting from changes in fair value of derivative financial
instruments until the related losses or gains on the hedged items are recognized.
Also, if interest rate swap contracts are used as hedges and meet certain hedging criteria, the net
amount to be paid or received under the interest rate swap contract is added to or deducted from theinterest on the assets or liabilities for which the swap contract was executed.
Derivative financial instruments qualifying as a hedge, along with the related transactions, assets andliabilities, are summarized as follows:
Financial Instrument

Transaction, Assets and Liabilities

Forward exchange contracts
Interest swaps

Future foreign exchange transactions
Borrowings

The risk exposures to movements in the exchange rates and interest rates are hedged according to
the Company’s risk management policy. Evaluation of hedge effectiveness is not considered necessary
as the terms and notional amounts of these hedge instruments are the same as those of the relatedtransactions, assets and liabilities, and therefore they are assumed to be highly effective in offsetting
movements in the exchange rates and interest rates at their inception as well as during their term.
Inventories
Finished products are stated principally at cost determined by the moving-average method. 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 are capitalized; ordinary maintenance and repairs, and minor renewals and improvements are charged to statement ofincome as incurred.
Depreciation of property, plant and equipment is principally computed using the declining-balancemethod for the Company and subsidiaries in Japan, and using the straight-line method for foreign subsidiaries at rates based on the estimated useful lives of the assets according to general class, type of
construction and use.
Accounting for leases
Under Japanese accounting standards for leases, finance leases are, in principle, accounted for on asimilar basis to sales by lessors or purchases by lessees. However, finance leases which do not transfer
ownership of leased assets to lessees as stipulated in lease contracts can be accounted for as an operating lease if certain “as if capitalized” information is disclosed in the notes to the financial statements.
Therefore, as a lessee, the Company has accounted for those leases as operating lease and has charged
periodic lease payments to expenses when paid.
Intangible assets
Goodwill are principally amortized by the straight-line method based on the accounting records maintained in conformity with generally accepted accounting principles and practices prevailing in the respective countries of domicile.
Computer software used internally by the Company is amortized by the straight-line method over the
economic useful lives (three or five years).

Annual Report 2002

33

Accrued pension and severance liability
On terminating employment, employees of the Company and subsidiaries in Japan are entitled, undermost circumstances, to lump-sum indemnities or pensions as described below, based on current rates
of pay, length of service, and conditions under which the termination occurs. The minimum payment is
an amount based on voluntary retirement. In addition to the minimum payment based on voluntary
retirement, employees receive additional benefits for retirement due to age limit, death or other definedreasons.
Certain subsidiaries in Japan have contributory funded defined benefit pension plans, which are pursuant
to the Japanese Welfare Pension Insurance Law. The contributory pension plans cover a portion of thegovernmental welfare pension program, under which the contributions are made by the companies andtheir employees, and an additional portion representing the substituted noncontributory pension plan.
Prior to April 1, 2000, the Company and subsidiaries in Japan recorded the accrued severance indemnities for employees, which represented 40% of the liability which would have been payable if all employees voluntarily terminated their services at the balance sheet date.
Effective April 1, 2000, new Japanese accounting standards for pension and severance benefits wereadopted. In accordance with the new accounting standards, accrued pension and severance liability for
employees has been provided based on the estimated amounts of projected benefit obligation and fairvalue of plan assets at the end of the fiscal year. Actuarial gains and losses will be amortized from thenext fiscal year by the straight-line method over the periods (5–18 years); which are less than the estimatedremaining service periods of employees. As a result of such adoption, pension costs have increased by¥40,591 million, and income before income taxes and minority interest has decreased by ¥40,934 million forthe year ended March 31, 2001, as compared with the amounts under the previous accounting standards.
Accrued pension contribution for defined benefit pension plans is included in accrued pension andseverance liability.
Retirement benefits to directors and statutory auditors are subject to approval at a meeting of shareholders. Previously, severance and retirement benefits for directors were recorded as expense when
paid. However, for the purpose of more accurately matching them with the period in which they arise, anaccrual method of recording such expenses has been employed from the beginning of current year. The
impact of such change on statements of income has not been significant and is also stated in Note 18.
Research and development costs
Research and development costs are expensed as incurred and amounted to ¥54,903 million(US$412,030 thousand), ¥46,622 million and ¥40,123 million for the years ended March 31, 2002, 2001
and 2000, respectively.
Other costs
The Company provides for accrued warranty claims on its products sold based on past experience of
warranty services performed on actual claims and estimated warranty costs to be incurred in the future at
the time of sale.
Loss on liquidation of affiliated companies
Loss on liquidation of affiliated companies provides for potential losses from liquidation and guarantees
based on the reasonable estimation of the liquidation of the affiliated companies.
Income taxes
Deferred tax accounting, similar to IAS 12, was adopted from the beginning of the fiscal year ended
March 31, 2000 in accordance with the new Japanese accounting standards. The provision for income
taxes is computed based on the pretax income for the financial reporting purposes. Deferred tax assets
and liabilities are recognized for expected future tax consequences of temporary differences between the

34 FUJI HEAVY INDUSTRIES LTD.

financial statement carrying amounts and the tax bases of assets and liabilities. Valuation allowances arerecorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. The cumulative effect, as of April 1, 1999, of the accounting change resulting from the adoption ofdeferred tax accounting was directly credited to retained earnings in the amount of ¥6,582 million.
Net income per share
Basic net income per share (EPS) is computed based on the average number of shares of common stock
outstanding during each year. Diluted EPS assumes the potential dilution that could occur if all convertible securities were converted or other contracts to issue common stock were exercised to the extent
that it is not antidilutive.
Reclassifications
Certain reclassifications within the financial statements for the years ended March 31, 2000 and 2001
have been made to conform to the presentation for the year ended March 31, 2002.

3. Effect of Bank Holiday on March 31, 2002 and 2001
As financial institutions in Japan were closed on March 31, 2002 and 2001, ¥1,647 million (US$12,360
thousand) and ¥2,065 million of notes receivable and ¥209 million (US$1,568 thousand) and ¥238 millionof notes payable maturing on March 31, 2002 and 2001, respectively, were settled on the following business day, April 1, 2002 and April 2, 2001 and accounted for accordingly.

4. U.S. Dollar Amounts
The U.S. dollar amounts included in the accompanying consolidated financial statements and the related
notes represent a translation using the exchange rate of ¥133.25 to US$1, the approximate exchange
rate at March 31, 2002. The U.S. dollar amounts are included solely for the convenience of the reader,
and these translations should not be construed as a representation that the yen amounts actually represent, or have been or could be converted into U.S. dollars at the above or any other rate.

5. Additional Cash Flow Information(a) Cash and cash equivalents as of March 31, 2002 and 2001 consisted of the following:
Millionsof yenMillionsof yenThousands of
U.S. dollars

2002

2001

2002

Cash and time deposits
Marketable securities
Short-term loans¥ 56,466
116,461
71,677¥ 58,610
89,57366,519$ 423,760
874,004
537,914

Less maturity over three months

244,604(110,896)

214,702(94,266)

1,835,678(832,241)

Cash and cash equivalents¥133,708¥120,436$1,003,437

Annual Report 200235

(b) Assets and liabilities of subsidiaries merged into the Company:
Assets and liabilities of Subaru Research Center Co., Ltd. and Technical Association Center Subaru
Limited, which have been merged into the Company during the year ended March 31, 2002, were as follows:
There is no increase in common stock or additional paid-in capital due to these mergers.
Millions of yen

Current assets
Fixed assets

¥739
70

Total assets

809

Current liabilities
Long-term liabilities
Total liabilities

265
22
¥287

Cash and cash equivalents included in the above current assets figures amounted to ¥148 million.

6. Marketable Securities and Investment Securities
Information as to the value of marketable securities and investment securities at March 31, 2002 and2001 is presented below according to the disclosure requirements applicable to the respective year:(1) Held-to-maturity debt securities for which fair value are available:(a) As of March 31, 2002:
Millions of yen
Book value

Fair value exceeding book value:
Government bonds¥

Sub-total
Fair value not exceeding book value:
Corporate bonds

5

Fair value¥

Difference

5

¥

0

5

5

0

5,000

4,860

(140)

Sub-total

5,000

4,860

(140)

Total

¥5,005¥4,865¥(140)

Book value

Fair value

Difference

$

$

$

Thousands of U.S. dollars

Fair value exceeding book value:
Government bonds
Sub-total
Fair value not exceeding book value:
Corporate bonds

36 FUJI HEAVY INDUSTRIES LTD.

38

38

0

38

38

0

37,52336,472(1,051)

Sub-total

37,52336,472(1,051)

Total$37,561$36,510$(1,051)

(b) As of March 31, 2001:
Millions of yen

Fair value exceeding book value:
Government bonds
Sub-total
Fair value not exceeding book value:
Corporate bonds

Book value

Fair value

¥

¥

4

Difference

5

¥ 1

4

5

1

5,000

4,930

(70)

Sub-total

5,000

4,930

(70)

Total

¥5,004¥4,935¥(69)(2) Other securities (available for sale securities) with fair value:(a) As of March 31, 2002:
Millions of yen

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

Acquisition cost

Book value

Difference¥10,215¥19,906¥ 9,691

1,068
674
2,636
6,505

1,074
677
2,637
6,575

6
3
1
70

21,09830,8699,771

14,714

13,624(1,090)

1,998
15,955
4,450
198

1,972
15,921
4,445
172

(26)
(34)
(5)
(26)

Sub-total

37,31536,134(1,181)

Total¥58,413¥67,003¥ 8,590

Annual Report 2002

37

Thousands of U.S. dollars

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

Acquisition cost

Book value

Difference$ 76,661$149,388$72,727

8,015
5,058
19,782
48,818

8,060
5,081
19,79049,343

45
23
8
525

158,334

231,662

73,328110,424

102,244(8,180)14,994
119,737
33,396
1,486

14,799119,482
33,359
1,291

(195)
(255)
(37)
(195)

Sub-total

280,037

271,175(8,862)

Total$438,371$502,837$64,466

Acquisition cost

Book value

Difference¥ 8,558¥15,595¥7,037

1,847
11,1604,874

1,849
11,166
4,930

2
6
56

26,43933,540

7,101

23,91619,804(4,112)

1
10,0982,551

010,097
2,542

(1)
(1)
(9)

Sub-total

36,56632,443(4,123)

Total¥63,005¥65,983¥2,978(b) As of March 31, 2001:
Millions of yen

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

38 FUJI HEAVY INDUSTRIES LTD.

(3) Other securities (available for sale securities) sold during the years ended March 31, 2002 and 2001:(a) For the year ended March 31, 2002:
Sales amount

Total gains¥815,133 million
US$6,117,321 thousand

Total losses¥49 million
US$368 thousand¥136 million
US$1,021 thousand(b) For the year ended March 31, 2001:
Sales amount

Total gains

Total losses¥ 35,773 million¥ 2,815 million¥ 14 million(4) Book value of major securities without available fair value (except for held-to-maturity debt securities
stated in (1)) as of March 31, 2002 and 2001:
Millionsof yenMoney management fundCommercial paperFree financial fundMedium-term note
Medium-term government bond fund
Unlisted stocks (excluding over-the-counter stocks)

Millionsof yenThousands of
U.S. dollars

2002

2001

2002

¥31,897
20,17417,806
8,000
7,103
6,523

¥31,272
21,819———6,622$239,377
151,400
133,62960,03853,306
48,953

Note: The Company recognized loss on devaluation of securities of ¥8,970 million (US$67,317 thousand) in the current year in which loss on devaluation of
securities with fair value was ¥7,577 million (US$56,863 thousand).

The Company treated the above loss by separately recognizing the decline in fair value of the securities worth more than fifty percent of the acquisition cost and for the decline in fair value of the securities
between thirty and fifty percent of the acquisition cost. Where the loss was between thirty and fifty percent, an analysis of recoverability of fair value was performed for each security.
(5) Schedule of redemption for other securities with maturity (available for sale securities) and held-tomaturity debt securities as of March 31, 2002 and 2001:(a) As of March 31, 2002:
Millions of yen

1) Debt securities
Government andmunicipal bonds
Corporate bonds
Other2) Other
Total

Thousands of U.S. dollars

Within 1
year

1 to 5years

5 to 10years

Over 10years

Within 1
year

1 to 5years

5 to 10years

Over 10
years

¥ 750
24,20027,1091,190¥1,483
115
5,147
202

¥671
243
—
—

¥147
28
—
—

$ 5,628
181,613203,445
8,931$11,129863
38,627
1,516$5,036
1,823——$1,103
210——¥53,249¥6,947¥914¥175$399,617$52,135$6,859$1,313

Annual Report 2002

39

(b) As of March 31, 2001:
Millions of yen

1) Debt securities
Government and municipal bonds
Corporate bonds
Other2) Other
Total

Within 1 year

1 to 5 years¥ 1,099
1,499
41,570
4,100

¥ 753
5,001
10
202

¥48,268¥5,966

7. Inventories
Inventories at March 31, 2002 and 2001 consisted of the following:

Finished products
Work in process
Raw materials
Supplies

Millionsof yenMillionsof yenThousands of
U.S. dollars

2002

2001

2002

¥119,925
53,364
17,1572,102¥106,061
53,2448,672
1,958$ 900,000
400,480
128,758
15,775¥192,548¥169,936$1,445,013

8. Property, Plant and Equipment
Property, plant and equipment at March 31, 2002 and 2001 are summarized as follows:
Millionsof yen40 FUJI HEAVY INDUSTRIES LTD.

Millionsof yenThousands of
U.S. dollars

2002

2001

2002

Buildings and structures
Machinery and vehicles
Other¥239,229
459,791
189,630¥227,437
457,931
168,521$1,795,340
3,450,589
1,423,114

Less accumulated depreciation
Land
Construction in progress

888,650(579,422)
150,649
21,880853,889(548,750)
140,810
10,632

6,669,043(4,348,383)
1,130,574
164,203

Total¥481,757¥456,581$3,615,437

9. Revaluation Reserve for Land
In accordance with the Law to Partially Revise the Land Revaluation Law (Law No. 34, enacted on March
31, 1998), land owned by a consolidated subsidiary for business use was revalued. The unrealized gains
from the revaluation are included in shareholders’ equity as “Revaluation reserve for land”, net ofdeferred taxes. The deferred taxes of the unrealized gains are included in long-term liabilities other. The
land was revalued as of March 31, 2002 as follows:Book value of land for business use before revaluation
Book value of land for business use after revaluation

Millionsof yenThousands of
U.S. dollars

¥ 592
1,704

$ 4,443
12,788The fair value of land is determined based on official notice prices that are assessed and published by
the Commissioner of the National Tax Administration, as stipulated in Article 2, paragraph 3 of theOrdinance Implementing the Law Concerning Land Revaluation. Reasonable adjustments, including
those for the timing of assessment, are made to the official notice prices.

10. Short-Term Borrowings and Long-Term Debts
Short-term borrowings at March 31, 2002 and 2001 consisted of the following:

Bank loans with an average interest rate of 1.6% per annum

Millionsof yenMillionsof yenThousands of
U.S. dollars

2002

2001

2002

¥169,807¥180,227$1,274,349

Millionsof yenMillionsof yenThousands of
U.S. dollars

2002

2001

2002

¥105,325¥113,762$ 790,431

2,033

2,035

15,257

18,77720,00010,00010,00010,00020,00030,000300

18,77720,00010,00010,00010,000——300

140,916150,094
75,04775,04775,047150,094
225,141
2,251

500

—

3,752

226,935(43,845)

184,874(37,943)

1,703,077(329,043)¥183,090¥146,931$1,374,034

Long-term debts at March 31, 2002 and 2001 consisted of the following:

Loans principally from banks and insurance companies due
through 2019 with average interest rate of 4.3% per annum
Unsecured 1.8% convertible bonds due in 2003, convertible
currently at ¥633.3 ($4.75) for one common share,
redeemable before due dateUnsecured 0.9% convertible bonds due in 2003, convertible
currently at ¥513 ($3.85) for one common share,
redeemable before due dateUnsecured 2.25% bonds due July 31, 2002
Unsecured 2.10% bonds due August 29, 2003
Unsecured 2.30% bonds due September 30, 2005
Unsecured 1.76% bonds due April 30, 2004
Unsecured 0.97% bonds due April 15, 2006
Unsecured 1.22% bonds due September 30, 2008
Secured 1.8% bonds of a consolidated subsidiary due July 7, 2005
Secured 0.93% bonds of a consolidated subsidiary
due February 15, 2007
Less—Portion due within one year

Annual Report 2002

41

Annual maturities of long-term debts at March 31, 2002 were as follows:

2003
2004
2005
2006
2007
2008 and thereafter

Millionsof yenThousands of
U.S. dollars¥ 43,845
55,802
41,393
24,101
29,452
32,342$ 329,043
418,777
310,642
180,870
221,028
242,717¥226,935$1,703,077

The following assets as of March 31, 2002 and 2001 were pledged as collateral for certain loans:

Notes and accounts receivable, trade
Other current assets
Property, plant and equipment
Investment securities
Other assets

Millionsof yenMillionsof yenThousands of
U.S. dollars

2002

2001

2002

¥ 22,934
784
116,311
206
376

¥

2,746
1,690
135,247234—$ 172,112
5,884
872,878
1,546
2,822

¥140,611¥139,917$1,055,242

Unsecured lines of credits for borrowings by the Company and subsidiaries (Subaru of America, Inc.
and Subaru Europe N.V./S.A.) at March 31, 2002 were as follows:
Millionsof yenThousands of
U.S. dollars

Total commitments
Less amounts executed¥105,906
15,053$794,792
112,968

Net balance¥ 90,853$681,824

11. Pension and Severance Plans
The Company and certain subsidiaries in Japan have non-contributory funded defined benefit pension
plans. The plan of the Company covers 80% of retirement and severance benefits for employees who
terminate employment at age fifty or over. Foreign subsidiaries primarily have defined contribution plans.

42 FUJI HEAVY INDUSTRIES LTD.

Reconciliation between the projected pension and severance obligation and allowance for pension andseverance liability as of March 31, 2002 and 2001 were as follows:
Millionsof yenMillionsof yenThousands of
U.S. dollars

2002

2001

2002

Projected pension and severance obligation
Plan assets¥127,801(49,856)¥122,929(50,333)$959,107(374,154)

Unfunded pension and severance obligations
Unamortized actuarial gain/loss
Unamortized prior service cost

77,945(13,779)(2,172)

72,596(6,933)—584,953(103,407)(16,300)

Net amount recorded in balance sheet
Prepaid pension cost

61,994(19)

65,664(10)465,246(142)¥ 62,013¥ 65,674$465,388

Allowance for pension and severance liability

Notes: 1. The above amounts include the government pension plan funded by social security taxes paid by employees and employer.
2. Certain insignificant subsidiaries calculate the liability using a simplified method.
3. In addition to the above plan assets, there are plan assets for the multi-employer pension plan amounted to ¥18,001 million (US$135,092 thousand) and ¥18,213 million for the years ended March 31, 2002 and 2001, respectively. The plan assets for the multi-employer pension plan could
not be allocated to each specific participating employer and were allocated based on the number of participants.
4. Unrealized prior service cost arose from the change of accounting policy by certain consolidated subsidiaries.

Periodic pension and severance costs for the year ended March 31, 2002 and 2001 consisted of thefollowing:
Millionsof yenMillionsof yenThousands of
U.S. dollars

2002

2001

2002

Service cost
Interest cost
Expected return on plan assets
Amortization of transition liability
Amortization of actuarial gain/loss
Amortization of prior service cost

¥ 7,8133,284(1,856)—422—¥ 8,405
3,187(1,886)44,520——$58,634
24,646(13,929)—
3,167—

Pension and severance cost

¥9,663¥54,225$72,518

Notes: 1. The above amounts do not include the social security taxes paid by employees.
2. Service costs of subsidiaries using the simplified method are included in Service cost above.
3. Service cost above includes service cost for the multi-employer pension plan amounted to ¥846 million (US$6,349 thousand) and ¥704 million forthe years ended March 31, 2002 and 2001, respectively, in which plan assets could not be allocated to each specific participating employer.
4. Service cost above includes contributions for the defined contribution plans of foreign subsidiaries amounted to ¥1,286 million (US$9,651 thousand) and ¥1,046 million for the years ended March 31, 2002 and 2001, respectively.

Annual Report 2002

43

Actuarial assumptions used in computation of pension and severance liability were as follows:a. Attribution of expected benefit obligation
Straight-line method
b. Discount rate
Primarily 3.0%
c. Expected rate of return on plan assets
Primarily 4.0%
d. Amortization of actuarial gain/loss
Primarily 18 years (will be amortized by the straightline method starting from the next fiscal year basedon periods less than the estimated average remaining service period of employees)e. Amortization of prior service costPrimarily 18 years (will be amortized by the straightline method based on periods less than estimatedaverage remaining service period of employees)
f. Amortization of transition liability
One year

12. Income Taxes
The Company is subject to a number of taxes based on income, which in aggregate, resulted in normal
statutory tax rates of approximately 41.8% for the years ended March 31, 2002, 2001 and 2000.
A reconciliation of the statutory tax rate in Japan to the Company’s effective income tax rate for theyears ended March 31, 2002, 2001 and 2000 was as follows:

44 FUJI HEAVY INDUSTRIES LTD.

2002

2001

2000

Statutory tax rate
Increase (reduction) in taxes resulting from:
Valuation allowance provided
Non-deductible expenses
Adjustment of past corporation taxes
Effect of lower taxes on foreign income
Tax credit
Other

41.8%

41.8%

41.8%

6.8
1.4
1.4
(0.7)
—
(0.3)

(35.3)
2.1
—
(2.3)
(4.0)
(1.4)

9.0
0.9
—
(0.3)
—
0.3

Effective income tax rate

50.4%

0.9%

51.7%

Significant components of the deferred tax assets and liabilities at March 31, 2002 and 2001 wereas follows:
Millionsof yenMillionsof yenThousands of
U.S. dollars

2002

2001

2002

¥ 4,190
9,078
22,428
3,858
1,676
5,008
7,843
4,067
7,417
1,842
1,383
—
1,377
2,876
13,539¥ 4,308
7,489
20,419
6,556
697
4,093
6,392
2,006
5,683
1,774
1,838
2,294
1,343
—
5,991

$ 31,445
68,128168,315
28,953
12,57837,58358,85930,522
55,662
13,824
10,379—10,334
21,583
101,606

86,582(10,378)

70,883(7,464)

649,771(77,884)

Total deferred tax assets, net of valuation allowance

76,204

63,419571,887

Deferred tax liabilities:
Depreciation and amortization
Net unrealized holding gains on investment securities
Revaluation reserve for land
Other

(12,442)(3,619)
(457)
(146)

(10,027)(1,462)—(351)(93,373)(27,159)(3,430)(1,096)

Total deferred tax liabilities(16,664)(11,840)(125,058)

Net deferred tax assets¥59,540¥51,579$446,829

Deferred tax assets:
Deficit carry forwards
Unrealized gain on sales of inventories
Accrued pension and severance liabilities
Accrued expenses
Accrued enterprise taxes
Accrued employees bonuses
Warranty claims
Loss on valuation of investment securities
Unrealized gain on sales of property, plant and equipment
Loss on valuation of inventories
Allowance for doubtful accounts
Unearned revenue
Foreign tax credit
Loss on liquidation of affiliated companies
Other
Total deferred tax assets
Valuation allowance

Annual Report 2002

45

Net deferred tax assets were included in the following accounts in the accompanying consolidated balance
sheets.

Current assets—Deferred tax assets:
Investments and other assets—Deferred tax assets:Long-term liabilities—Deferred tax liabilities on revaluation of land:Long-term liabilities—Other:
Total net deferred tax assets

Millionsof yenMillionsof yenThousands of
U.S. dollars

2002

2001

2002

¥34,278
31,790(457)(6,071)¥29,891
26,763—(5,075)$257,246
238,574(3,430)(45,561)¥59,540¥51,579$446,829

13. Shareholders’ Equity
The Japanese Commercial Code provides that an amount equal to at least 10% of cash dividends andother distributions from retained earnings paid by the parent company and its subsidiaries in Japan isappropriated as a legal reserve. No further appropriation is required when the legal reserve equals 25%of stated capital. The Japanese Commercial Code, amended effective on October 1, 2001, provides thatan amount equal to at least 10% of appropriations paid in cash be appropriated as a legal reserve until
an aggregated amount of additional paid-in capital and the legal reserve equals 25% of common stock,and this legal reserve and additional paid-in capital excess 25% of common stock may be reduced byresolution of the shareholders. Legal reserve included in retained earnings as of March 31, 2002 and2001 were ¥7,901 million (US$59,295 thousand) and ¥7,555 million, respectively, and are restricted to be
used as dividends.
In accordance with customary practice in Japan, the appropriations are not accrued in the financial
statements for the period to which they relate, but are recorded in the subsequent accounting period
after shareholders’ approval has been obtained. Retained earnings at March 31, 2002 include amounts
representing final cash dividends of ¥3,346 million (US$25,111 thousand), ¥9 (US$0.07) per share, anddirector’s bonuses of ¥110 million (US$826 thousand), which were approved at the shareholders’ meeting held on June 26, 2002.

14. Selling, General and Administrative Expenses
Selling, general and administrative expenses for the years ended March 31, 2002, 2001 and 2000 consisted of the following:Transportation and packing expenses
Advertising cost
Sales incentives
Salaries and bonuses
Research and development cost
Others46 FUJI HEAVY INDUSTRIES LTD.

Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2002

2001

2000

2002

¥ 14,171
51,19622,18255,29853,73584,481¥ 14,578
42,633
15,24854,02645,78079,108¥ 13,495
41,265
16,69655,84040,12376,174$ 106,349
384,210
166,469
414,994403,265
634,004¥281,063¥251,373¥243,593$2,109,291

15. Leases(1) Information as lessee
As allowed under Japanese accounting standards, the Company and subsidiaries in Japan account for
finance leases, which do not transfer ownership of leased assets to lessees as stipulated in lease contracts, as an operating lease. The “as if capitalized” information of such leases was as follows:
Details of the leased assets:
Millionsof yenMillionsof yenThousands of
U.S. dollars

2002

2001

2002

Machinery and vehicles
Tools and other
Intangibles assets¥1,1594,556
659¥1,702
6,116
797$ 8,698
34,191
4,946

Accumulated depreciation

6,374(3,785)8,616(5,480)47,835(28,405)

Net¥2,589¥3,136$19,430

Information related to finance leases for the years ended March 31, 2002, 2001 and 2000 was as follows:
Millionsof yenLease expenses
Depreciation expense
Interest expense portion

Millionsof yenMillionsof yenThousands of
U.S. dollars

2002

2001

2000

2002

¥1,331
1,246
73¥1,8791,725
111¥2,017
1,757
141$9,9899,351
548

Future minimum lease payments, excluding the portion of interest thereon, as of March 31, 2002 and2001 were as follows:

Finance leases:
One year or lessMore than one year
Operating leases:
One year or lessMore than one year

Millionsof yenMillionsof yenThousands of
U.S. dollars

2002

2001

2002

¥ 1,026
1,518¥ 1,325
1,977$¥ 2,544¥ 3,302$ 19,092¥ 3,317
36,779¥ 2,558
34,215$ 24,893
276,015¥40,096¥36,773$300,908

7,700
11,392

Annual Report 200247

(2) Information as lessor
Capitalized lease assets for finance leases at March 31, 2002 and 2001 were as follows:
Millionsof yenMillionsof yenThousands of
U.S. dollars

2002

2001

2002

Machinery and vehicles
Tools and other
Intangible assets¥11,961
7,781
213¥13,062
5,515
215$ 89,764
58,394
1,598

Accumulated depreciation

19,955(8,867)

18,792(6,818)

149,756(66,544)¥11,088¥11,974$ 83,212

Information related to finance leases for the years ended March 31, 2002, 2001 and 2000 was as follows:
Millionsof yenLease income
Depreciation expense
Interest income portion

Millionsof yenMillionsof yenThousands of
U.S. dollars

2002

2001

2000

2002

¥7,832
5,894
1,153¥5,086
3,901
1,286¥ 8,852
10,4201,163$58,777
44,233
8,653

Future minimum lease income, excluding the portion of interest thereon, as of March 31, 2002 and2001 was as follows:

Finance leases:
One year or lessMore than one year
Operating leases:
One year or lessMore than one year

Millionsof yenMillionsof yenThousands of
U.S. dollars

2002

2001

2002

¥ 5,624
10,710¥ 4,159
7,949$ 42,207
80,375¥16,334¥12,108$122,582¥ 9,086
6,962¥ 8,490
7,263$ 68,187
52,248¥16,048¥15,753$120,435

Millionsof yenThousands of
U.S. dollars

16. Contingent Liabilities
Contingent liabilities at March 31, 2002 were as follows:

Trade notes discounted with banks
As guarantor of indebtedness from financial institutes
As guarantor of indebtedness of affiliated companies

48 FUJI HEAVY INDUSTRIES LTD.

¥203
39,904
15,164$

1,523
299,467
113,80117. Derivative Financial Instruments
In the normal course of business, the Company and its consolidated subsidiaries employ derivative financial instruments, including foreign exchange forward contracts and interest rate swaps, to manage their
exposure to fluctuations in foreign currency exchange rates and interest rates. The Company and consolidated subsidiaries do not use derivatives for speculative or trading purposes.
Fair value information of the derivative financial instruments at March 31, 2002 and 2001 is summarized below according to the disclosure requirements applicable to the respective year:(1) Foreign currency contracts:(a) As of March 31, 2002:
Millions of yen
Contract
amountForeign currency options contracts:
Sell—
Call U.S. dollar¥2,648[22]
Buy—
Put U.S. dollar
2,522
[22]

Thousands of U.S. dollars

Fair value

Unrealized
gains (losses)

Contract
amountFair value

Unrealized
gains (losses)¥48¥ (26)$19,872
[165]

$360

$(195)

6(16)

18,927
[165]

45

(120)

(b) As of March 31, 2001:
Millions of yen
Contract
amountForeign currency options contracts:
Sell—
Call U.S. dollar¥29,172[442]
Buy—
Put U.S. dollar
27,931[433]

Fair value

Unrealized
gains (losses)¥926¥(484)

240(193)

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

Annual Report 200249

(2) Interest rate contracts:(a) As of March 31, 2002:
Millions of yen

Interest swap contracts:
Receive floating rate
pay fixed rate

Contract
amount¥3,000Thousands of U.S. dollars

Fair value

Unrealized
gains (losses)

Contract
amountFair value

Unrealized
gains (losses)

¥(34)

¥(34)

$22,514$(255)$(255)

Method to determine fair value is based on quotations obtained from financial institutions.
Derivative financial instruments, principally forward exchange contracts and currency and interest
swaps, that qualify as a hedge and are accounted for using the deferred hedge accounting method, areexcluded from the above table according to the disclosure requirements.

18. Segment Information
Information by industry segment
The Company and its consolidated subsidiaries operate principally in four industry segments, automobiles, industrial products, aerospace, and other business fields (including transportation equipment).
A summary of net sales, operating income, assets, depreciation and capital expenditures by industry
segments for the years ended March 31, 2002, 2001 and 2000 are shown below:
Net sales:
Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2002

2001

2000

2002

¥1,219,766
2,970¥1,167,209
3,131¥1,175,471
4,474$ 9,153,966
22,289Total
Industrial products—
Outside customers
Inter-segment

1,222,736

1,170,340

1,179,945

9,176,255

39,419136

44,224140

51,847150

295,827
1,021

Total
Aerospace—
Outside customers
Inter-segment

39,55544,36551,997

296,848

66,27653

65,504
118

66,144
185

497,381
398

Total
Other—
Outside customers
Inter-segment

66,32965,622

66,329497,779

37,032
3,658

34,951
2,555

36,663
2,172

277,91427,452

Total
Elimination

40,690(6,817)37,505(5,944)

38,835(6,981)

305,366(51,160)¥1,362,493¥1,311,887¥1,330,125$10,225,088

Net sales:
Automobiles—
Outside customers
Inter-segment

Consolidated total

50 FUJI HEAVY INDUSTRIES LTD.

Segment profit or loss:
Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2002

2001

2000

2002

Operating income (loss):
Automobiles
Industrial products
Aerospace
Other¥85,649(290)
7,412(4,209)¥82,211
784
2,467(4,100)¥92,314
1,283
2,034(4,411)$642,769(2,176)55,624(31,587)

Total
Corporate and elimination

88,562(82)

81,362
312

91,220181

664,630(615)¥88,480¥81,673¥91,401$664,015

Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

Consolidated operating income
Assets:

2002

2001

2000

2002

Total assets:
Automobiles
Industrial products
Aerospace
Other¥1,053,708
62,126110,156
70,233¥ 956,131
57,372
106,955
74,851¥ 849,046
49,47898,06447,993$7,907,752
466,236
826,687
527,077

Total
Corporate and elimination

1,296,223(26,665)

1,195,309(26,808)

1,044,581(6,023)

9,727,752(200,112)

Consolidated total¥1,269,558¥1,168,501¥1,038,558$9,527,640

Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2002

2001

2000

2002

¥ 57,724
2,055
2,084
2,101

¥ 57,225
1,943
2,392
2,510

¥ 53,651
2,024
2,739
1,821

$433,201
15,422
15,64015,767

Total
Corporate and elimination

63,964—64,070—60,235(45)

480,030—

Consolidated total¥ 63,964¥ 64,070¥ 60,190$480,030

Capital expenditures for segment assets:
Automobiles
Industrial products
Aerospace
Other¥109,054
3,223
988
5,111

¥ 95,255
2,155
1,535
3,356

¥ 98,428
2,296
1,671
3,489

$818,416
24,188
7,415
38,356

Total
Corporate and elimination

118,376—

102,301—

105,884(1,962)

888,375—

Consolidated total¥118,376¥102,301¥103,922$888,375

Other significant items:

Depreciation:
Automobiles
Industrial products
Aerospace
Other

Notes: 1. Definition of business segments
Business segments are defined based on product line and market.
2. Main products by each business segment
Business segment
Main products
Automobiles
Passenger cars, minicars
Industrial products
General-purpose engines, power generators
Aerospace
Aircraft, parts of space-related devices
Other
Rail cars, specialized vehicles, buses, houses, real estate
3. All operating costs and expense are allocated to each business segment.

Annual Report 2002

51

4. All figures in corporate and elimination represent elimination.
5. Change of accounting policy(Fiscal 2002)
Accrued directors’ severance and retirement benefits.
Previously, severance and retirement benefits for directors were recorded as expense when paid. However, for the purpose of more accurately
matching them with the period in which they arise, an accrual method of recording such expenses has been employed beginning from the current
year. The impact of such change on statements of income has not been significant.
(Fiscal 2001)
None.

Information by geographic area
A summary of net sales, operating income and assets by geographic areas for the years ended March 31,
2002, 2001 and 2000 is shown below:
Net sales:
Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2002

2001

2000

2002

¥ 801,351
280,213¥ 866,161
218,288¥ 903,697
188,984$ 6,013,891
2,102,912

Total
North America—
Outside customers
Inter-segment

1,081,564

1,084,448

1,092,681

8,116,803

557,509
1,972

441,566
1,645

420,457
1,799

4,183,933
14,799Total
Other—
Outside customers
Inter-segment559,481443,211422,256

4,198,732

3,633
85

4,161
69

5,971
72

27,264638

3,718(282,270)

4,230(220,002)

6,043(190,855)

27,902(2,118,349)¥1,362,493¥1,311,887¥1,330,125$10,225,088

Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

Net sales:
Japan—
Outside customers
Inter-segment

Total
Elimination
Consolidated total
Segment profit or loss:

52 FUJI HEAVY INDUSTRIES LTD.

2002

2001

2000

2002

Operating income:Japan
North America
Other¥72,393
20,705
63¥62,818
21,84862¥61,800
27,154181$543,287
155,385472

Total
Corporate and elimination

93,161(4,681)

84,728(3,055)

89,1352,266

699,144(35,129)

Consolidated total¥88,480¥81,673¥91,401$664,015

Assets:
Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2002

2001

2000

2002

Assets:Japan
North America
Other¥1,031,129
282,230
1,220¥ 963,528
244,201
1,281¥ 856,235
212,958
1,918$7,738,304
2,118,049
9,155

Total
Corporate and elimination

1,314,579(45,021)

1,209,010(40,509)

1,071,111(32,553)

9,865,508(337,868)

Consolidated total¥1,269,558¥1,168,501¥1,038,558$9,527,640

Notes: 1. Geographic areas are based on geographical proximity.
2. Principal countries or districts in each geographic area:
North America: United States and Canada
Other:
Europe3. All operating costs and expense are allocated to each segment.
4. Change of accounting policy(Fiscal 2002)
Accrued directors’ severance and retirement benefits.
Previously, severance and retirement benefits for directors were recorded as expense when paid. However, for the purpose of more accurately
matching them with the period in which they arise, an accrual method of recording such expenses has been employed beginning from the current
year. The impact of such change on statements of income has not been significant.
(Fiscal 2001)
None.

Overseas sales
Overseas sales for the years ended March 31, 2002, 2001 and 2000 are summarized as follows:
Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2002

2001

2000

2002

Overseas sales:
North America
EuropeOther¥ 607,630
56,82066,778

44.6% ¥ 491,068
4.2
66,463
4.9
66,16037.4% ¥ 480,588
5.1
99,192
5.0
63,87636.1% $ 4,560,075
7.5
426,4174.8
501,148

Total¥ 731,228

53.7% ¥ 623,691

47.5% ¥ 643,656

48.4% $ 5,487,640

Consolidated net sales ¥1,362,493 100.0% ¥1,311,887 100.0% ¥1,330,125 100.0% $10,225,088
Notes: 1. Geographic areas are based on geographical proximity.
2. Principal countries or districts in each geographic area:
North America: United States and Canada
Europe:Germany, Switzerland and England
Other:
Australia, Chile and Taiwan
3. Overseas sales are sales outside of Japan by the Company and consolidated subsidiaries.

Annual Report 2002

53

Report of Independent Certified Public Accountants

To the Board of Directors of
FUJI HEAVY INDUSTRIES LTD.
We have audited the accompanying consolidated balance sheet of FUJI HEAVY INDUSTRIES LTD. (a Japanese corporation)and consolidated subsidiaries as of March 31, 2002 and the related consolidated statements of income, shareholders’ equity
and cash flows for the year then ended, expressed in Japanese yen. Our audit was made in accordance with generally accepted auditing standards in Japan and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. The financial statements of FUJI HEAVY INDUSTRIES LTD. andconsolidated subsidiaries for year 2001, which are presented for comparative purposes, were audited by other auditors whose
report dated June 27, 2001 expressed an unqualified opinion on those statements.
In our opinion, the consolidated financial statements referred to above present fairly the consolidated financial position of FUJIHEAVY INDUSTRIES LTD. and consolidated subsidiaries as of March 31, 2002, and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in Japan (seeNote 1) applied on a consistent basis during the period, except as noted in the following paragraph.
FUJI HEAVY INDUSTRIES LTD. and consolidated subsidiaries changed the method of accounting for retirement benefit todirectors and statutory auditors, effective April 1, 2001, as referred to in Notes 2 and 18 with which we concur.
Also, in our opinion, the U.S. dollar amounts in the accompanying consolidated financial statements have been translated
from Japanese yen on the basis set forth in Note 4.
Tokyo, Japan
June 26, 2002

Asahi & Co.

54 FUJI HEAVY INDUSTRIES LTD.

Consolidated Subsidiaries and Affiliates (As of March 31, 2002)

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

Fuji Machinery Co., Ltd. (74.0%)
Manufacture and sales of automobile parts and industrial product parts
http://www.fuji-machinery.co.jp/

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

Kiryu Industrial Co., Ltd. (100.0%)
Manufacture of Subaru specially equipped automobiles and management of Subaru automobile parts distribution
http://www.kiryu-kougyo.co.jp/

Subaru Kosan Co., Ltd. (100.0%)
Sales and leasing of real estate and travel agency operations

OVERSEAS
Subaru of America, Inc. (100.0%)
and 10 subsidiaries
Subaru Plaza, 2235 Route 70 West, Cherry Hill, NJ 08002, U.S.A.
Tel: (856) 488-8500
Fax: (856) 665-3346
Distribution and sales of Subaru automobiles
http://www.subaru.com/

Fuji Heavy Industries U.S.A. Inc. (100.0%)
and one subsidiaryc/o Subaru of America, Inc.
Subaru Plaza, 2235 Route 70 West, Cherry Hill, NJ 08002, U.S.A.
Tel: (856) 488-8532
Fax: (856) 488-9279
Distribution and sales of Subaru automobiles
Subaru Research & Development, Inc.
3995 Research Park Drive, Ann Arbor, MI 48108, U.S.A.
Tel: (734) 623-0075
Fax: (734) 623-0076
Research and development of automobiles

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

Subaru-Isuzu Automotive Inc. (51.0%)
and one subsidiary

FICS Corporation (100.0%)5500 State Road 38 East, Lafayette, IN 47903, U.S.A.
Tel: (765) 449-1111
Fax: (765) 449-6952
Manufacture of Subaru and Isuzu automobiles
http://www.subaru-isuzu.com/

Distribution and service of Volvo automobiles

Subaru Finance Co., Ltd. (100.0%)
Leasing and rental of Subaru automobiles and industrial products
and credit, financing, accounting service, and sales of insurance
http://www.subaru-finance.co.jp/

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

TOKYO SUBARU INC. (100.0%)
and 40 other dealerships

Subaru of Taiwan Co., Ltd. (As of May 30, 2002)
11, Lane 157, SEC. 6, Chung Shan N Rd.,
Taipei, Taiwan
Tel: 886-2-8866-6630
Fax: 886-2-2832-4021
Subaru Canada, Inc. (100.0%)
and one subsidiary

NIIGATA SUBARU, Inc.* (46.7%)

5990 Falbourne Street, Mississauga, Ontario, Canada L5R 3S7
Tel: (905) 568-4959
Fax: (905) 568-8087
Distribution and sales of Subaru automobiles
http://www.subaru.ca/

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

Subaru Europe N.V./S.A. (100.0%)

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

c/o Hermesstraat 6C, 1930 Nossegem-Zaventem, Belgium
Tel: (02) 714-0400
Fax: (02) 725-7792
Distribution and sales of automobiles, parts, and accessories

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

Annual Report 2002

55

Investor Information (As of March 31, 2002)

Head Office

Major Shareholders

Subaru Building, 7-2, Nishi-Shinjuku 1-chome, Shinjuku-ku,
Tokyo 160-8316, Japan
Tel: (03) 3347-2111
Fax (03) 3347-2338

Subaru Building, 7-2, Nishi-Shinjuku 1-chome, Shinjuku-ku,
Tokyo 160-8316, Japan
Tel: (03) 3347-2655
Fax: (03) 3347-2295

General Motors of Canada Limited
Japan Trustee Services Bank, Ltd.
The Mitsubishi Trust and Banking Corporation
The Industrial Bank of Japan, Ltd.
The Nippon Life Insurance Company
The Chase Manhattan Bank, N.A. London
Suzuki Motor Corporation
Trust & Custody Services Bank, Ltd.
UFJ Trust Bank Ltd.
J.P. Morgan Trust Bank Ltd.

Established

Stock Listings

July 15, 1953

Tokyo Stock Exchange, Osaka Securities Exchange,
Nagoya Stock Exchange

Investor Relations OfficePaid-in Capital¥144,450 million

Transfer Agent

Number of Shareholders

Mizuho Trust & Banking Co., Ltd.
5-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8240, Japan

44,089Web Site Address
Number of Common Stock Issued and Outstanding

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

746,505,560

Domestic Manufacturing Divisions
Gunma Manufacturing Division (Automobile Division)
Utsunomiya Manufacturing Division (Aerospace Division andTransportation & Ecology Systems Division)
Isesaki Manufacturing Division (Bus Manufacturing & House
Prefabricating Division)
Saitama Manufacturing Division (Industrial Products Division)

Quarterly Common Stock Price Range (Tokyo Stock Exchange)
(Yen)
1,200
1,000
800
600
400
200
0

FY

1998

1999

2000

2001

2002

High

¥649

¥871

¥1,189

¥925

¥944

Low

305

469

647

608

471

56 FUJI HEAVY INDUSTRIES LTD.

50p10/66p2

2

FUJI HEAVY INDUSTRIES LTD. Annual Report 2002

Subaru Building, 7-2, Nishi-Shinjuku 1-chome, Shinjuku-ku, Tokyo 160-8316, Japan

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

Printed on recycled paper in Japan

C4