ANNUAL REPORT 2004
For the year ended March 31, 2004

What, Why, and How
A GLOBAL PLAYER WITH A PREMIUM BRAND

Fuji Heavy Industries Ltd. (FHI) is a global manufacturerof transportation and aerospace-related products andthe maker of Subaru automobiles. FHI’s roots go back to
1917, when Japan’s first Aircraft Research Laboratory(later Nakajima Aircraft Co., Ltd.) was established, 14
years after the Wright Brothers’ first successful flight of
the Kitty Hawk flyer in 1903. While some of the world’s
automakers have their roots in the aircraft industry, FHI is
the only automaker who continues to build aircraft today.
Effective on July 15, 2003, the 50th anniversary of theCompany’s founding in 1953, FHI introduces the 6-star(“mutsuraboshi”) Subaru automobile emblem design as
its new corporate symbol. The Company uses both the
new symbol and logo to further fortify its brand image
and awareness on a global basis.

Disclaimer Regarding Forward-Looking Statements
Statements herein concerning plans and strategies, expectations or projections about the future, FHI’s efforts with regard to various management
issues, and other statements, except for historical facts, are forward-looking
statements. These forward-looking statements are subject 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 todevelop 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
To the Stakeholders of Fuji Heavy Industries Ltd. ......................2
For Quality in the Customer’s Eye
Think. ........................................................................................8With Emotions on Wheels
Feel. ........................................................................................14
On the Road to the Future
Drive. ......................................................................................18
Management ...............................................................................22
Corporate Social Responsibility (CSR) ......................................23
Financial Section ........................................................................25
Consolidated Subsidiaries and Affiliates...................................65
Investor Information ...................................................................66

Think. Feel. Drive.
TAKING OFF
Subaru, our basic competitive strategy depends upon the ability to impress our customers’hearts and minds with Subaru cars on the global stage. We came up with “Think. Feel. Drive.”as the brand message which is our promise to deliver consistent value to people all over theworld who love cars and appreciate the feel of driving performance.

Annual Report 20041

To the Stakeholders of Fuji Heavy Industries Ltd.

HOW
we will reachthe targets

Kyoji Takenaka
President and CEO

2 FUJI HEAVY INDUSTRIES LTD.

Fiscal 2004, ended March 31, 2004—the second year of the Fuji Dynamic Revolution–1 (FDR-1) mediumterm business plan—was a year for solidifying the Company’s brand strategy of becoming “a global
player with a premium brand” and evaluating the progress. In product development, we launched the
all-new Legacy in May 2003 and the Subaru R2 in December 2003, both of which have garnered fervent
market acclaim. In particular, our flagship Legacy made a substantial contribution by maintaining
strong sales not only in Japan, but also in Europe and Australia. Furthermore, seemingly in recognitionof the significant juncture represented by our 50th anniversary, the year witnessed a series of milestone
events. Not only did the Legacy win the Car of the Year Japan 2003-2004 Award, but Subaru took thedriver’s champion title at the World Rally Championship (WRC) for the third time. At the same time,with the sudden appreciation of the yen during the second half of the year and slow sales of the prior
Legacy model, which was in its final model year, the Company faced heavy odds in its businessendeavors in the United States. Fiscal 2004 was thus a year of both achievement and concern.
Consolidated net sales for fiscal 2004 rose 4.9%, to ¥1,439.4 billion, on the strength of firm Legacy
sales in Japan, growth in Legacy sales in Europe, and the contributions of consignment production at
our local manufacturing subsidiaries in the United States. However, operating income slipped 25.5%,
to ¥50.3 billion, due to the yen’s strength against the U.S. dollar, struggling sales in the United States,
and increases in initial costs related to the introduction of new models.

Nevertheless, net income for the term climbed 15.4%, to ¥38.6 billion.
Against this backdrop, we, Fuji Heavy Industries Ltd. (FHI), made definite progress toward attaining
the ideals to which Subaru aspires, giving us new confidence in the accuracy of the direction we havebeen taking. Looking ahead, we have designated fiscal 2005 as the year for going on the offensive insales by reaping continued benefits from our previous efforts. In particular, we will aim to achieve success in the important U.S. market with the new Legacy and Outback launches.

Annual Report 2004

3

FDR-1 results for fiscal 2004
We make it a corporate objective to enhance the value of the Subaru brand in the FDR-1 so as to continue to exert aworldwide presence for FHI, which now holds a 1% share of the global automobile market. After reforming our management structure and making other fundamental improvements in the first year of FDR-1, we then turned our attention to
the full-scale commencement of our brand strategy in the second year.
In rolling out our plan, we aimed to establish Subaru as a premium brand by publicizing Subaru’s brand philosophy
at the world’s four major motor shows (Detroit, Geneva, Frankfurt, and Tokyo) and coordinating product and advertising
operations.
Specifically, starting with the unveiling of the Subaru B11S—a concept car that harmonizes with Subaru’s design
innovations—at the March 2003 Geneva Motor Show, FHI went on to introduce, one after another, the various models
in its Legacy series. In May 2003 and June 2003, it brought out the Touring Wagon and B4 sedan versions of the Legacy,
respectively, and staged the world premier of the new Outback as well as the 3.0-liter six-cylinder Legacy 3.0R at theFrankfurt Motor Show in September 2003. Continuing to make strides in brand deployment throughout the fiscal year,
we rolled out the B9 Scrambler and the R1e—two concept cars that represent a further evolution in Subaru’s stylingmessage—at the Tokyo Motor Show in 2003. In December 2003, we launched the Subaru R2, suggesting a new segment of mini passenger car.
Meanwhile, regarding reforms to management structure and business operations, on the manufacturing side, extensive programs were implemented to coincide with the launch of the Legacy. Along with the introduction of FMS (Flexible
Manufacturing System) for assembly lines, we integrated the passenger and commercial assembly lines for the minicars,
thus establishing a manufacturing system capable of flexible response to changes in market demand. In purchasing andprocurement operations, we are working to reduce costs and improve quality by applying our companywide total cost
reduction activities, CSR-1 (Cost Structure Revolution-1), not only to our Japan operations but also to those in the
United States.
We also made substantial progress on the product level in our alliance with the General Motors Corporation (GM)Group. For Saab Automobiles AB, a Swedish company under the GM umbrella, we solidified plans for joint developmentof the Saab 9-2X based on a Subaru chassis. Production was commenced in March 2004 at FHI’s Yajima Plant, andshipments also began to Saab’s North American sales network.
FHI’s internal companies also made significant progress toward sales expansion. The Aerospace Company began its first
shipments of A380 components to Airbus S.A.S. and made the decision to participate in various new large-scale projects. The
Industrial Products Company launched its new model portable generators. Meanwhile, the Eco Technologies Company benefited from special demand for its sanitation trucks as a result of exhaust emission restrictions on diesel-powered vehicles,
which in turn helped to strengthen its business foundation ahead of its becoming a wholly self-sustaining company.
With our FDR-1 plan thus producing steady results, in fiscal 2005, the third year of the plan, we intend to achieve asubstantial increase in sales volume fed by a solid product lineup, including the Legacy and the Subaru R2, and concentrate on compiling our resources toward the establishment of Subaru as a premium brand.

Performance Overview (Billions of yen)
Actual Results
2003
2004

Automotive Sales Volume (thousand units)
Net Sales
Operating Income
Net Income
Depreciation
Capital Investment
R&D Expenses
Interest Bearing Debt
Exchange Rate (¥/$)

4 FUJI HEAVY INDUSTRIES LTD.

555
1,372.3
67.5
33.4
48.8
64.6
60.1
389.1
123

553
1,439.4
50.3
38.6
53.2
74.6
57.5
378.9
116

Forecast for
2007

715
1,720.0
91.0
48.0
66.0
65.0
63.0
420.0
105

Market changes and revisions to the medium-term business plan
Although the FDR-1 plan, which we initiated in fiscal 2003, has by and large proceeded as expected, we anticipate
that the appreciation of the yen, which began in the second half of fiscal 2004, will have a substantial effect on future
progress.
In response to these changes in the market environment, FHI has revised its final targets for the FDR-1. The main
points of these revisions are a change in the yen-dollar exchange rate conditions, from ¥115 to ¥105, and a postponement of local production in China, which was included in the original plan, due to the Company’s decision to place priority
on sales of exported cars in light of the current market situation.
To minimize the effects of these issues, FHI will step up its CSR-1 implementation and work cost reduction into its
plans, including fixed costs, through close investigation of investment spending. As a result, we have set new targets forfiscal 2007, the final year of the FDR-1 plan, of 715,000 units in sales, a decrease of approximately 6%, net sales of¥1,720.0 billion, and operating income of ¥91.0 billion, a decline of 17% from the original plan.
Regarding FHI’s strategy for the Chinese market, which has an effect on sales volume, Subaru had been conducting
feasibility studies on local production through our alliance with GM. The Chinese market is currently experiencing tremendous growth. However, taking into account the scale of Subaru’s business, we came to the decision that Subaru should
put the first priority on raising its brand recognition and thus decided to concentrate on establishing the Subaru brandthrough the export of completed vehicles. At the June 2004 Beijing Motor Show, we announced our full-scale entry into
the export of completed vehicles through distributors in the north, east, and south China regions.
Thus, we have made practical revisions to the content of the FDR-1 plan while at the same time adhering to ourbasic direction, and we will continue to grow our brand value up and strengthen our sales network. In doing so, weare establishing a durable foundation in response to changes in the business environment and reforming our corporate
framework to enable prompt response to such changes.

HOW we will reachthe targets
Future product rollout and sales framework enhancement
Subaru’s product strategy is composed of its crossover strategy, represented by its All-Wheel Drive (AWD) technology
and its high-performance strategy, symbolized by its horizontally-opposed turbo-charged engine.
In its all-new Legacy lineup, Subaru expanded the marketing scope of its Outback to Japan, which had hitherto been
an exclusively overseas product, thus making it a global standard carline brand. The response of domestic sales has
exceeded all expectations, resulting in great acclaim for Subaru’s crossover concept in Japan as well. Given this opportunity to further accelerate our progress in this marketing direction, we will work to strengthen our crossover line throughsuch collaboration as that with L.L.Bean over the Legacy Outback and Forester.
Meanwhile, in the high-performance lineup, with our long history of success in the WRC, we will make maximum useof the opportunity presented by the first WRC races to be held in Japan, the September 2004 Rally Japan, to further raise
recognition of the Subaru brand and its reputation for superior active driving. In the United States, we will also introduce
the GT and XT turbo-charged engine series of the all-new Legacy and Outback, which we launched in June 2004, as well

Annual Report 20045

as the turbo-charged Forester XT, Impreza WRX-STi, and turbo-charged Baja. By offering such turbo-charged engine
models in all of our product lineup, we will further advance our high-performance strategy and work to expand sales.
Furthermore, in fiscal 2006, we plan to introduce a new crossover utility vehicle belonging to the E segment, luxury
SUVs, which is one segment above the Legacy. With this strategic new type of vehicle, we will raise our sales in the
United States to the next level. Subaru strategically developed this new category of vehicle—which will be produced at
Subaru of Indiana Automotive, Inc. (SIA), the U.S. production plant—primarily for the United States market. To coincidewith these product initiatives, we will make structural preparations to raise Subaru sales in North America from their current level of just below the 200,000 unit mark to 250,000 units
by fiscal 2007. With this sales intensive strategy, we will redevel-

Product Strategies

op our dealership network to focus on bolstering dealerships in
25 major cities, especially targeting the 14 cities mainly in the“sunbelt” region.
In Japan, along with strengthening our aforementioned
crossover strategy, in the domestic market category of minicars,in addition to the R2 and Pleo, we will introduce a new type ofcar in early 2005 that can be considered a coupe version of theR2. We are also currently developing a new concept multi-passenger car for introduction in fiscal 2007 that will stand together
with the Legacy, Forester, and Impreza as a new pillar of our

HOW we will reachthe targets
product lineup. Concurrent to these product enhancement initiatives, we will continue to establish new dealerships andrefurbish existing ones, which we have been doing over the past few years. Primarily by raising the quality of its sales
services, our target is a domestic sales network capable of achieving 320,000 units in annual sales by fiscal 2007.
In Europe, we will gradually augment the functions of Subaru Europe N.V./S.A., which we established in fiscal 2002,
and thoroughly implement consistent marketing operations. At the same time, we will strengthen sales in Russia, Ukraine,and other emerging markets that offer a strategic fit with Subaru cars.
In Australia, the improvements of marketing power that we have been implementing over the past several years havebeen highly successful, and we will go forward to sustain firm sales while maintaining premium value.
In China, as mentioned above, we will place priority on building brand image and developing marketing operations
that will distance ourselves from other already established mass production vehicle brands.

Future development for FHI’s other three companies
In non-automobile business operations, FHI is now ready to implement new endeavors, having completed in fiscal 2003 a
reorganization it had been conducting for the sake of developing future potential and synergistic effects.
In the Aerospace Company, from which FHI originated, we delivered our FFOS (Forward Field Observation System) to
the Japan Defense Agency—which leverages FHI’s individual technology of unmanned aerial vehicle system integration.
6 FUJI HEAVY INDUSTRIES LTD.

We have also taken a prime contract for the
next-generation AH-64D attack helicopter andare currently under way with our next-generation
Maritime Patrol Aircraft and Cargo Transport
Aircraft (P-X/C-X) development projects, whichshould gradually make contributions on sales
starting in fiscal 2005.
In the commercial sector, FHI has been
involved in numerous international and national
projects, including the development of the
Boeing 7E7 and an environmentally-friendly
regional jetliner program, a government-funded
R&D activity. In our own projects, we will begin
supplying mass-produced wings for the Eclipse
500, a small business jet project with Eclipse
Aviation Corporation of the United States.
In the Industrial Products Company, in our
aim to establish ourselves as a top-ranking
brand in professional use compact industrial
engines, we are completely revising our portfolio.
In the course of the strategy, we will focus onenvironmentally-friendly high value-added engines in the Japanese market, while strategically consolidating the production of cost-driven engines in China.
In the Eco-Technologies Company, in our main business of top-ranking brand sanitation trucks, in addition to raisingcompetitiveness through quality enhancement and streamlining in manufacturing, we will work to attain further productappeal through joint development of our next-generation models with the No. 2-ranking manufacturer. We are also
engaged in the development of a large-scale wind power generator system and intelligent robotics technologies.
Thus, by conducting business reforms in each of its internal companies and achieving mutual technological synergies
with the Subaru Automotive Business Unit, FHI will work to bring its original and unique comprehensive strengths intofull play.

Aiming at further growth for the Subaru brandIn November 2003, Subaru triumphantly won its first Car of the Year Japan Award with its all-new Legacy series. We at
Fuji Heavy Industries Ltd. consider the winning of this award to be a firm appreciation of Subaru’s unique car-developing
philosophy, pursuing “the value that cars should genuinely possess while ascertaining accurately the needs of the times”
based on customer-oriented mind simultaneously.
We believe that the months and years that lie ahead will increasingly put to the test our technological ability to meetglobal needs and maximize the unique characteristics of our brand, while at the same time placing top priority on environmental conservation. We will leverage our unique qualities to vie with mass-product manufacturers who compete on
quantity. It is our belief that the course FHI and Subaru must follow is none other than the pursuit to establish a premium
brand.
To become a company with a worldwide presence and appeal based on the strength of unrivalled “value-generating
craftsmanship”—that is the “Subaru spirit” that we constantly strive for.

Kyoji Takenaka
President and CEO

Annual Report 20047

For Quality in the Customer’s Eye

Think.

8 FUJI HEAVY INDUSTRIES LTD.

To be “a global player with a premium brand”—it is this aspiration under which we introduced the longawaited all-new Legacy in May 2003. Following the introduction of the flagship model Legacy Touring
Wagon, we completed the series lineup by introducing the Legacy B4 sedan in June 2003 and unveilingthe Legacy Outback at the October 2003 Tokyo Motor Show. As the fruits of our diligent development of
the entire Legacy series, the Legacy was the winner of the Car of the Year Japan 2003-2004 Award. In
June, we introduced the all-new Legacy in Europe and Australia, where resulting Subaru sales more thandoubled year on year, thereby advancing Subaru’s recognition as a global player.
Furthermore, in December 2003, in line with our new brand strategy, we launched the distinctive
Subaru R2 minicar, whose fresh design has kept the production lines busy keeping up with demand.
Having thus assembled its main product lineup, Subaru plans to assume a sales offensive in fiscal
2005. Particularly in North America, with the May 2004 introduction of the all-new Legacy, Subaru’s ability to rise to the occasion will be put to the test as its aims to break through the 200,000 unit barrier inannual sales for the first time.

Subaru’s automobile craftsmanship endeavors
With its long history and emphasis on safety, Subaru has
always shared common values with its customers, including an appreciation for the “Driving Pleasure.” Supporting
our safety-oriented mind-set, which we call “Active
Driving, Active Safety,” is our horizontally-opposed engine
based symmetrical AWD system—our core technology(see page 20 for details).
Subaru introduced Japan’s first horizontally-opposedengine in 1966 and the world’s first 4WD system for passenger vehicles in 1972. After relentless evolution ofthese technologies, our AWD system maximizes its fullpotential of both technologies to produce two types of driving experience with two product lines—the high performance lineup symbolized by numerous victories in the World Rally Championships and the crossover lineup, characterized by passenger car based sport utility vehicles (SUVs).
Toshio Masuda, the Legacy’s Project General Manager discussed the evolution of the Legacy as follows.
“During the 1990s, Subaru single-handedly created the unique market segments known as the ‘GT wagon’ inJapan and ‘crossover’ wagon in the United States. The crossover wagon segment has now evolved into a massive
global SUV trend and high-growth market, with all European premium brands following in its footsteps.
“Along with these trends, the new Legacy and Outback realized high performance in terms of an emotional
response, and above and beyond that, with the further evolution of its symmetrical AWD core technology.
Leveraging the unique features of the low-center of gravity horizontally-opposed engine, the Legacy and theOutback deliver firm road-gripping handling. Since the turbo-charged engine’s powerful character is gaining consumers’ preference in the United States, we took advantage of both high performance direction and crossover by

Annual Report 20049

putting a 2.5-liter turbo-charged engine in the Outback as well as the Legacy. This 2.5-liter turbo-charged engine
received the 2004 Ward’s 10 Best Engines award. We have also taken environmental conservation into account with ourturbo-charged engines by simultaneously pursuing high power throughout the entire rpm range and good fuel economy.
Furthermore, in Europe, our 3.0-liter six-cylinder DOHC engine model is a performance vehicle with Europe’s traditional
3.0-liter prestigious models in mind.
“The new Outback is even sportier. The
new packaging can be achieved with ourdesire for greater concord between car anddriver, a more fun driving experience, andeven a 10-mm lower center of gravity.

(Below) Legacy captured the top trophy for winning the Car of theYear Japan 2003-2004 Award.
(Right) Toshio Masuda, Project General Manager of Subaru Product &Portfolio Planning Division, holds the winning trophy.

“With a 50-mm greater height than the standard Legacy and an
average ground clearance of 200 mm, the Outback combines the
on-road performance of a passenger car with the benefits of an
SUV with additional off-road performance. With these unique characteristics, the Outback has been acclaimed as the ‘Best of Both
Worlds,’ enabling owners to experience an entirely different worldof driving.”

Creating a unified global brand image“With strong sales of both the wagon and sedan versions of the all-new Legacy in Japan, the lineup ranked among
the top 10 best selling cars in the second half of calendar year 2003. While the enhanced product appeal of both thewagon and sedan Legacy models was the source of this accomplishment, particularly noteworthy was that the Outback
accounted for more than 20% of overall sales. Subaru changed the model formerly known as the ‘Lancaster’ name to theglobally standard ‘Outback’ name and succeeded in achieving greater recognition of its product appeal. We now have afirm indication that the crossover line forged by the Outback has come to be accepted in Japan as well. In Japan ourbrand image has been received as one primarily of high performance, represented by such models as the GT Wagon. But
with the introduction of the Outback, we have succeeded in reaching out to a broader range of customer and age characteristics.” (Hideo Wada, Senior Executive Vice President)
In Europe as well, where each premium brand holds its own particular sphere of influence, sales of the all new Legacy
have grown steadily following its market launch. The Impreza, which has put in strong performances on the WRC circuit,and the crossover Forester are showing firm and stable sales. With the additional sales expansion of the Legacy andOutback, we are aiming to achieve a new annual sales record of 60,000 units in a few years.

10 FUJI HEAVY INDUSTRIES LTD.

In contrast to Japan, the Outback accounts for 80% of Legacy series sales in the United States.
“With the full model change of the Legacy, in addition to the crossover lineup, Subaru will roll out its high performance lineup in the United States as well. Indeed, we have an aggressive marketing approach, with a special U.S. market
2.5-liter turbo-charged engine powering all wagon, sedan, and Outback Legacy models. We expect our turbo-charged
models, pioneered by the Impreza WRX in 2001, will get results by this accumulated broad appeal and expertise. The
best way to get to know the advantages of the Legacy is to actually drive one. By diligently and continually holding test
drive fairs in Japan, we have succeeded in boosting sales. In the United States, as well, we plan to assemble caravans
and implement widespread test drive fairs that offer comparisons with European cars.”

Sales Balance by Models & Regions (CY 2003)
247

113

203

54

36

3%

5%

8%

5%
25%

19%
32%

54%

(1,000 units)

542

36%

35%

3%

21%

22%
21%

1%
9%
10%

27%
58%
42%

27%
Japan

Legacy

18%

38%

32%

32%

Asia
Pacific

Global

19%
Japan
North
excl. minicar America
ForesterEuropeMiddle East
AfricaImpreza

Other

Mini

Hideo Wada, Representative Director of the Board,
Senior Executive Vice President

In 2003, despite slow Legacy sales due to the impending model change, overall U.S. sales rose 4%, to a record of
187,000 units. This was driven by strong sales of the Forester and additional sales of the Baja. Forester sales set a newrecord by reaching the 60,000 unit, driven by its new turbo-charged engine and also by winning the highest evaluation
among 12 vehicles in its class on the collision safety test of the IIHS (Insurance Institute for Highway Safety).

Premium brand supporting sales framework
In terms of sales volume, Australia ranks in third place after Japan and the United States—having broken sales records
for the past six consecutive years. Subaru has achieved a resounding success in establishing its brand there with its
Subaru Interactive @ Docklands, a multipurpose mega-dealer without parallel in any part of the world.
Situated on a site of more than 20,000 m2, the dealership features a vast showroom capable of displaying more than
16 cars, cutting-edge service facilities, and two different test drive courses, offering rough road and paved surface driving.
There is also an abundance of mechanisms to help customers experience the Subaru advantage, including a theater
showing Subaru informational videos, a driving simulator, and a Subaru Technica International (STi) base. In addition tothese and other elements of the facility, including vehicle handover ceremonies, its activities have caught the attention ofother automakers’ in Melbourne.

Annual Report 2004

11

Subaru is beginning to introduce large-scale facilities rooted in the same concept in Japan and the United States. At
our BEST SHOP Kuryu in Miyagi Prefecture, we offer a driving simulator, an STi base and customized items, and “GPark,” a used car display area. Here, we also conduct vehicle handover ceremonies, through which we are expanding the
population of Subaru fans.
In Japan, we plan to expand ourcurrent 550 dealerships to 600 as wellas increase the number of “Subaru
Shops,” sub dealerships that supplement our sales network, from the current
200 to 250. Along with expanding our

Dealer Network in Japan
1,000

800

753

(Above) Subaru Interactive @ Docklands, a multipurpose mega-dealer in Melbourne, Australia(Below) BEST SHOP Kuryu in Miyagi Prefecture, Japan

850
250

600

209

400

544

600

200

0

FY 04
Outlet

FY 07 (Planned)
Subaru Shopsales force from the current approximately 4,400 sales persons to 5,000, we will also leverage our sales training facility,
which will be completed in autumn 2004, and be prepared to make great improvements in both quality and quantity.
Through these initiatives, we are aiming to reach the 320,000-unit mark in domestic sales.
Enhancing our ability to sell pre-owned vehicles is essential to establishing a premium brand. We are currently
strengthening our approach to this important part of our business through such steps as outfitting large-scale used car
display facilities in the major cities.
Subaru has also enhanced its dealership network in the United States over the past few years. We are concentrating
on increasing the number of exclusive dealerships and separate showroom dealerships among our approximately 600
dealers as we aim to reach the 250,000 unit sales in fiscal 2007.

12 FUJI HEAVY INDUSTRIES LTD.

Sales expansion initiatives in the key
U.S. market

Subaru Market Share:
1.1% (CY 03)
1.5% (CY 06)

An examination of Subaru’s region-to-region market share in

Snowbelt market share: 1.5%

the United States reveals that Subaru has maintained strength
in the snowbelt area of the northeast and northwest, with a

San Francisco

share of 1.5%, by leveraging the advantages of its AWD prod-

Richmond
Louisville

Los Angeles

ucts. On the other hand, in many areas of the so-called sunbelt
in the south, Subaru’s share is less than 0.5%, which is an

San Diego
Phoenix

Market Share (%)
2.9 ~ 6.5
1.4 ~ 2.9
0.8 ~ 1.4
0.5 ~ 0.8
0.1 ~ 0.5

issue to be addressed. (Overall U.S. market share: 1.1%)

Atlanta
Dallas
HoustonAustinJacksonville

San Antonio

Tampa
Miami

Sunbelt market share: 0.5%

U.S. Sales and Fleet Trends

Upgrading Sales Network
in U.S.

250

800

186

200

148
121

100

25

134
16
24

40

157
50

19

19

89

87

600

585

62
55

54

60

36

38

37

57
19

204

180

172
150

187

600
25%

38%
36

400

33%
29%
200

50

95

93

96

95

88

91

106
33%

0

42%

0

CY 96
Legacy+Baja

CY 97

CY 98
Impreza

CY 99

CY 00

Forester

CY 01
Fleet

CY 02

CY 03

CY 04
(Planned)

CY 03
Exclusive Dealer
Dual Dealer

CY 06 (Planned)
Separate Showroon

Three main factors underlie the fundamental business enhancements needed to achieve sales of 250,000 units
and augment our brand power in the United States. The first of these is improving our products. Specifically, in addition
to the Impreza and Forester, we have taken advantage of the introduction of the Legacy by adding a turbo-charged
model to the series, thus completing our high performance lineup. Our aim in these measures is to establish dual pillars
for our business: crossover and high performance. In addition, by introducing a new XUV (Crossover Utility Vehicle),
produced exclusively for the U.S. market, as our flagship model, we aim to establish ourselves as a premium brand in
the United States.
Second, by leveraging this enhanced product power, we plan to raise our share of the sunbelt market from the current 0.5% to 0.9% by fiscal 2007. We plan to also seek to raise our share of the snowbelt market from the current 1.5%
to 1.9% and achieve an overall U.S. market share of 1.5%.
Third, it is essential to improve the quality of the sales network to become a premium brand. We will increase the percentage of exclusive and separate showroom dealerships from the current 62% to 75% by fiscal 2007 while at the sametime upgrading our sales bases with high-quality storefronts and showrooms and implement new customer satisfaction
initiatives. Through these actions, we aim to raise annual per dealer sales from the current 300 unit level to the 400 unit
level and beyond, then establish a premium franchise linked directly to our products.

Annual Report 2004

13

With Emotions on Wheels

Feel.

14 FUJI HEAVY INDUSTRIES LTD.

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

Aiming for dramatic improvement in brand image
Brand strategy is the element most emphasized in our FDR-1 mid-term business plan. In the past,
greater priority has generally been given to improving function. However, establishing a dynamic Subaru
design language that thoroughly expresses the unique sensation of driving a Subaru automobile in tangible terms is an essential condition for building a premium brand.
Under the design innovation that we initiated concurrently with our FDR-1 plan, we have reacheddeep into Subaru’s individuality, unique technologies, and other such characteristics handed down fromgeneration to generation. At the same time, we have charged ahead with endeavors aimed at an evocative design that possesses the functional beauty of a Japanese brand as well as global ubiquity. While
we are now seeking innovative designs that transcend the boundaries of traditional frameworks, we arealso continuing to steadily perfect our design skills from a longer-term perspective. Our winning of the
Car of the Year Japan 2003-2004 Award at this time—the halfway point in our FDR-1 plan and themoment when we are about to deliver the results of that plan to the market in fiscal 2005 and beyond—has affirmed our confidence that Subaru’s new direction has captured the acclaim of the market.
Today, automakers the world over are staking their survival on the building of their own original brands, and they are
vying with each other to develop designs that will set them apart from the competition. This trend has gained sudden momentum, particularly in Japan, in the realm of such new demand-creating products as minivans and SUVs.
Furthermore, as consumers more quickly turn to emerging trends, the life spans of top-selling products are becoming increasingly shorter.
Against this backdrop, Subaru consistently continues to develop cars that deliver the pleasure and fun of operating a “driver’s car.” In addition to the Subaru spirit that our customers have come to recognize through the generations, other essential elements of our product development include the pursuit of advanced technologies, theAnnual Report 200415

Andreas Zapatinas, Subaru Advanced Chief Designer, and the Subaru Advanced Design Team

proactive safety features of a “driver’s car,” space-saving packaging, and simple lean form. Our participation in motor
sports also enables verification of our new technologies.
In our approach to design innovation, we aim to achieve a design language that will enhance the brand value ofSubaru’s unique individuality and continue to capture the admiration of the market, even on the global level.
In creating any new Subaru design, we strive for perfection in evocative design that will garner global appreciation
for unique functional beauty based on our heritage in aircraft manufacturing and such technological attributes as thehorizontally-opposed engine and AWD features. Of course, when model life and development time frames are considered, such design can hardly be developed in a single day. That is why Subaru continues to spread its design message
by coordinating its product development with the display of its concept cars at the world’s major motor shows (Tokyo,
Detroit, Geneva, Frankfurt and Paris).
Our new styling message, which incorporates Subaru’s individuality as a “New Design Language,” contains the following unique features:- Emotional and flowing beautiful form: featuring proportions that overflow with elegance and uplifting emotion.
- Expectation of exciting driving: expressing the pleasure and fun of driving by the individual and dynamic wheel-oriented
design with the use of large-diameter tires.
- Surface quality: displaying a dynamic and beautiful character line from the side.
- Spread Wing Grill: a complete front design renovation on the traditional trapezoidal grill. The triple air intake front grillfeatures an airplane engine motif that evokes the working of the horizontally-opposed engine that lies behind it.
- Enhanced rear-end design with a lean driving feel and uplifting emotion: integrating the rear bumper with body and rear
combination lamps positioned at a high level.
16 FUJI HEAVY INDUSTRIES LTD.

Andreas Zapatinas
A company with a strong identity that has a precise knowledge of what its goals are. Subaru is a great brand for a designer to workwith. My overall approach is to respect Subaru’s identity and goals—working toward them and never forgetting them.

SubaruSubaru B9

To provide driving pleasure in the future to all people
who love cars, Subaru unveiled the Subaru B9 at theTokyo Motor Show. B9 is just like the “scrambler”
motorcycle, which has generated so much excitement,
and provides open air and on/off-road availability.

B9

Elegance and uplifting emotion
Pleasure and the fun of driving
Dynamic and beautiful character line
Spread Wing Grill
R1e

R1e

After getting rid of everything but the bare-bone necessities
required, Subaru has slashed body size down to “minimallycompact.” That’s Subaru’s message to the new breed ofurban sophisticates, whose “less is more” lifestyles are stylishin and of themselves.

Annual Report 200417

On the Road to the Future

Drive.

18 FUJI HEAVY INDUSTRIES LTD.

While there are many automakers who have their origins in aircraft manufacturing, among the world’s
major automakers today only FHI continues to make aircraft. Let us explain the significance of this
attribute by way of introducing our approach to the making of automobiles.
What exactly are the basic thought processes that go into aircraft design? These may be summed up
in the following three points:
First, “Pursue Ultimate Performance.” Always seeking technological innovation and pursuing functionality.
Second, “Smart and Practical Packaging.” Condensing cutting-edge technologies and functions in alimited space and laying them out in economic fashion.
And finally, “Safety First in Any Environment.” The imperative to enable long-distance flight, fromtakeoff to landing, under a full range of weather conditions.
The engineer’s spirit, comprising the inseparable qualities of functionality, economy, and safety, is an
integral part of Subaru’s proud heritage.

The pursuit of the ultimate driving experience and maximum
consideration for safety and the environment
Building the future with a superior
powertrain
The engineer’s spirit of the Nakajima Aircraft era wasembodied in the Subaru 360, which Subaru, now reinvented as an automaker, introduced in 1958. As a “people’s vehicle” supporting Japan’s motorization, theSubaru 360, with a body not much larger than a motorcycle—less than three meters in length—and powered bya diminutive 360cc engine, nevertheless seated four passengers. Into the sophisticated packaging and thoroughweight-saving of the Subaru 360 were introduced suchaircraft making ideas as Japan’s first monocoque construction and the use of aluminum components. With the
Subaru 360’s success in the early 1960s, other minicars emerged on the scene in rapid succession, giving rise to aunique Japanese category of cars.
One of the technologies that we have honed through these original layout concepts is our symmetrical AWD
system. This unique element of Subaru technology combines a horizontally-opposed engine with a longitudinallyconfigured drivetrain. With its low center of gravity, the horizontally-opposed engine delivers the car lower rolling
forces in corners and stable surface traction. At the same time, the longitudinally configured drivetrain delivers superior maneuverability by placing the heavy transmission between the wheelbases, thereby making the yaw moment ofinertia smaller. The superiority of symmetrical AWD has already been proven at the World Rally Championships(WRC), in which the performances of the world’s mass-production cars are matched against each other in competition for the No. 1 position. In April 2004, Subaru again won the title in New Zealand, its 40th overall since its initial vic-

Annual Report 200419

tory in 1993. Throughout this span of history, Subaru has constantly triumphed without changing its basic mechanism; itdraws forth the benefits of both its horizontally-opposed engine and its longitudinally configured drivetrain. Although AWD
is gradually becoming a standard car powertrain configuration, this trend will in no way detract from the technologicaladvantages held by Subaru, which it has built up in the ultimate development arena of the WRC.
Based on this symmetrical AWD system, Subaru will aim to enhance its environmental performance as it strides
ahead into the future while retaining its unique Subaru driving performance, and it is taking the advanced step of developing a horizontally-opposed diesel engine and researching new hybrid systems.

The advantages of symmetrical AWD
Through incorporating the same core technologies in its production models as those used in its WRC cars, Subaru has created excellent drivability with unprecedented balance andlinear steering response when cornering. The laterally symmetrical design allows the engine to be mounted much lower in the
chassis, adding unparalleled stability and balance.
Encompassing a multitude of features, the horizontallyopposed engine is an engineering triumph that makes
Subaru AWD possible.

20 FUJI HEAVY INDUSTRIES LTD.

Going the distance in the WRC and appealing to
Subaru’s superior performance
The FIA World Rally Championship (WRC) is a contest of speed conducted on theworld’s harshest roads, and Subaru chose this motorsport, pitting mass-production
vehicle-based machines against each other, as the ultimate arena for honing, and thendemonstrating, its technologies.
Subaru began its full-fledged participation in the WRC in April 1990 with the firstgeneration Legacy. In the debuted event Safari Rally, Subaru achieved the first everGroup N completion in the Safari Rally history and won first place in its class. Subaru
continued to claim Safari Rally class wins from 1991 through 1997 and placed
first in Group N for four consecutive years. Then, in the 1993 New Zealand
Rally, Subaru won the long-sought overall victory.
The Impreza also marked its first full-fledged WRC entry in the latter halfof the 1993 season. Winning second place overall and proving its superior
performance in its debut at the 1000 Lakes Rally, the Impreza won three consecutive FIA WRC Manufacturers’ Champion in 1995, 1996, and 1997. Subaru
also won the FIA WRC Drivers’ Champion in 1995, 2001, and 2003. Through these achievements, Subaru has integrated technologies
gained in the WRC into its mass-production vehicles and leveraged its success in the branding development.
The grass roots of the motor sports challenge, the notion that the mastery of driving ensures safety, lie at the heart of the engineer’s spirit of Subaru.

Subaru’s 41 World Rally Championship Victories
Victory

Year

Event

Car

Driver/Co-Driver

Wins

1
2
3
4
5
6
7
8
9

1993
1994
1994
1994
1995
1995
1995
1995
1995

New ZealandAcropolis
New Zealand
RAC
Monte Carlo
Portugal
New Zealand
Catalunya
RAC

LegacyImpreza
Impreza
Impreza
Impreza
Impreza
Impreza
Impreza
Impreza

C. McRae/D. Ringer
C. McRae/D. Ringer
C. McRae/D. Ringer
C. McRae/D. Ringer
C. Sainz/L. Moya
C. Sainz/L. Moya
C. McRae/D. Ringer
C. Sainz/L. Moya
C. McRae/D. Ringer

SUBARU’s first ever overall winning since its participation in WRC
SUBARU Impreza’s first ever overall winning WRC event

10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33

1995
1996
1996
1997
1997
1997
1997
1997
1997
1997
1997
1998
1998
1998
1999
1999
1999
1999
1999
2000
2000
2000
2000
2001

Acropolis
Sanremo
CatalunyaMonte Carlo
SwedenSafariTour de Corse
New Zealand
Sanremo
Australia
RAC
Portugal
Tour de Corse
Acropolis
Argentina
Acropolis
Finland
Australia
Great Britain
SafariPortugal
Argentina
Great Britain
New Zealand

Impreza
Impreza
Impreza
Impreza
Impreza
Impreza
Impreza
Impreza
Impreza
Impreza
Impreza
Impreza
Impreza
Impreza
Impreza
Impreza
Impreza
Impreza
Impreza
Impreza
Impreza
Impreza
Impreza
Impreza

C. McRae/D. Ringer
C. McRae/D. Ringer
C. McRae/D. Ringer
P. Liatti/F. Pons
K. Eriksson/S. Parmander
C. McRae/N. Grist
C. McRae/N. Grist
K. Eriksson/S. Parmander
C. McRae/N. Grist
C. McRae/N. Grist
C. McRae/N. Grist
C. McRae/N. Grist
C. McRae/N. Grist
C. McRae/N. Grist
J. Kankkunen/J. Repo
R. Burns/R. Reid
J. Kankkunen/J. Repo
R. Burns/R. Reid
R. Burns/R. Reid
R. Burns/R. Reid
R. Burns/R. Reid
R. Burns/R. Reid
R. Burns/R. Reid
R. Burns/R. Reid

34
35
36
37
38
39

2002
2002
2003
2003
2003
2003

Monte Carlo
Great Britain
CyprusAustralia
Tour de Corse
Great Britain

Impreza
Impreza
Impreza
Impreza
Impreza
Impreza

T. Makinen/K. Lindstrom
P. Solberg/P. Mills
P. Solberg/P. Mills
P. Solberg/P. Mills
P. Solberg/P. Mills
P. Solberg/P. Mills

40
41

2004
2004

New ZealandAcropolis

Impreza
Impreza

P. Solberg/P. Mills
P. Solberg/P. Mills

C. McRae won his first ever FIA WRC Drivers’Champion with SUBARUSUBARU won first ever FIA WRC
Manufacturers’ Champion

SUBARU won 2-year consecutive FIA WRC Manufacturers’ Champion

SUBARU won 3-year consecutive FIA WRC Manufacturers’ Champion

R. Burns won his first ever FIA WRC Drivers’Champion with SUBARU

P. Solberg won his first ever FIA WRC Drivers’Champion with SUBARU

Annual Report 200421

Management(As of June 25, 2004)

Kyoji Takenaka

Hideo Wada

Representative Director of the Board
President and CEO

Representative Director of the Board
Senior Executive Vice President

Hiroshi Suzuki

Koichi Arasawa

Takao Tsuchiya

Representative Director of the Board
Senior Executive Vice President

Director of the Board
Executive Vice President

Director of the Board
Executive Vice President

Hiroyuki Nakatsubo

Shunsuke Takagi

Troy A. Clarke

Director of the Board
Executive Vice President

Director of the Board
Executive Vice President

Director of the Board

Executive Officers
Representative Director of the Board
President and CEO
Kyoji Takenaka
Representative Directors of the Board
Senior Executive Vice Presidents
Hideo Wada
Hiroshi Suzuki
Directors of the Board
Executive Vice Presidents
Koichi Arasawa
Takao Tsuchiya
Hiroyuki Nakatsubo
Shunsuke Takagi
Director of the Board
Troy A. Clarke

22 FUJI HEAVY INDUSTRIES LTD.

Executive Vice Presidents
Kunitaka Nakahara
Kiyoshi Inoh
Hiroshi Komatsu
Senior Vice Presidents
Yutaka Tsukahara
Kisaburo Wani
Hiroyuki Oikawa
Yoji Ishimaru
Kazushige Okuhara
Norihisa Matsuo
Minoru Tamura
Shoichi Washizu
Toshifumi Terao
Kunio Ishigami
Jun Kondo

Vice Presidents
Ichiro Kudo
David J. Malik
Kiyoshi Sugimoto
Tsunenori Hoshi
Ikuo Mori
Takashi Ishihara
Shizuhiro Okazaki
Masaharu Yuasa
Satoshi Sakurai
Hideki Ishido
Takashi Mochizuki
Derek C. Leck
Yoichi Serizawa
Kazuyoshi Shimizu

Standing Corporate Auditors
Takeo Tsumuji
Masayoshi Nagano
Masatake Yashiro
Corporate Auditor
Morihiko Tashiro

Corporate Social Responsibility (CSR)

Environmental Conservation
Fuji Heavy Industries Ltd. formulated its new voluntary environmental plan, the “FHI Environmental Conservation Program,”
to promote activities aimed at reducing the burden on the environment at every stage of business—from product development to procurement, production, use, and disposal. In addition, the Group as a whole is engaged in this issue.
Environmental Audit: Following the Gunma, Saitama, and Utsunomiya Manufacturing divisions, which have all been
evaluated and maintain ISO 14001 environmental certification, both the corporate headquarters and Tokyo officeacquired ISO 14001 environmental certification in January 2004.
Environmental Accounting: In the fiscal year ended March 31, 2004, the environmental costs were ¥25,043 million(¥26,017 million in the previous fiscal year) and the economic effects were ¥2,044 million (¥1,226 million in the previous
fiscal year).
FHI improved its rankings in the Nihon Keizai Shimbun Inc.’s Eco-Oriented Business Survey (published December 11,2003) to 52nd out of 599 manufacturers and 4th out of 11 automakers. This compared with 64th out of 703 manufacturers and 4th out of 11 automakers in the previous year.
Eco Technologies Company handles a wide range of products that contribute to a better living environment andachievement of an all-resources recycling society. It also develops products that promote global environmental conservation, such as wind turbine generation systems to produce clean energy.

Corporate Governance
Basic Policy
FHI is working to strengthen its corporate governance policies to measure up to the trust and confidence placed in the
Company by all its stakeholders, including shareholders and customers.
The Board of Directors is responsible for making decisions on important matters related to the conduct of business
operations, and the Board of Corporate Auditors supervises and monitors this process. The Board of Directors is composed of eight directors who carry out prompt decision making regarding business operations. The Board of Corporate
Auditors is comprised of four auditors who obtain reports on key issues and deliberate accordingly. The Executive
Management Board performs a pre-review function for the Board of Directors and deliberates on companywide management strategies and the execution of priority business operations.

Implementation of Corporate Governance Policies
In June 1999, FHI introduced an executive officer system as a means to clarify administrative and executive responsibility
for each business. In June 2002, further steps were taken to clarify the separation of the functions of management andexecution as well as further accelerate management activities by reforming the management system through the adoptionof an enterprise holding company system, structured around FHI’s core automotive business. In addition, in order to
respond promptly and flexibly to the changes in a challenging business environment, the length of terms for Directors andoperating officers were shortened from two years to one year in June 2003.

General Meeting of Shareholders
Board of Corporate Auditors Meeting

Executive Management
Board

Board of Directors Meeting

President
Representative Director

entrusted

Executive Nomination Meeting
Members: More than half of directors

entrusted

Executive Compensation Meeting
Members: More than half of directors

Annual Report 2004

23

Compliance
Aiming to obtain the trust and support of society, FHI has launched systematic compliance activities across all companies
in the Group. Our compliance charter was set up in 2001. We place compliance as a management priority and strongly
believe rigorous compliance observance across the Company is the cornerstone of our business. In addition to observing
government legislation and internal regulations, we will conduct our corporate activities in a just and fair manner in linewith social norms. We have also set up a companywide compliance promotion committee to deliberate, discuss, anddecide on important compliance issues and serve as a platform for the exchange of information. Additionally, in February
2003, we launched a “compliance hotline system” enabling employees to report directly to the Compliance Hotline Deskof the Legal Department when compliance problems arise.

■ The Compliance Hotline System

Compliance Hotline
If a superior fails to take appropriate
action or if there is a specific reason not
to report the incident directly

Employees

Writtenreportsubmitted

Normal reporting route

Compliance Hotline Desk
(Legal Department)

Immediatesuperior

Information received regarding possible
compliance violations

Social Action Programs
As a good corporate citizen, FHI considers it important to be a part of and prosper together with society and the communities in which our plants carry out their daily manufacturing operations.
In line with this philosophy, we also engage in social action programs. In July 2003, we set up the Subaru Visitor
Center within the Yajima plant at the Gunma Manufacturing division. This will enable us to increase the number of annual
visitors to our plant tour, including elementary school students, from 60,000 to 100,000.

Customers
FHI strives to create safe vehicles that put people’s needs first. We also established a Subaru Customer Center toimprove customer consultation, customer satisfaction, and services.
Especially in terms of Quality Assurance, we gather information from around the world. We immediately assess its
importance and then execute the necessary and secured measures. We are building better quality into our products at allstages, from development to manufacture.

Employees
While maintaining our traditional emphasis on cultivating our people, we are reforming our corporate culture to create an
imaginative, proactive, and adaptable workforce. We are setting up a wide range of mechanisms in the areas of employment policy, nurturing of talent, health and welfare, and safety to create a vibrant organization in which individuality isprized.

24 FUJI HEAVY INDUSTRIES LTD.

Financial Section
CONTENTS
Consolidated Five-Year Financial Summary ..............................26
Management’s Discussion and Analysis ofResults of Operations and Financial Position ..........................27
Consolidated Balance Sheets ......................................................34
Consolidated Statements of Income...........................................36
Consolidated Statements of Shareholders’ Equity ....................37
Consolidated Statements of Cash Flows....................................38
Notes to Consolidated Financial Statements .............................39
Independent Auditors’ Report......................................................64

Annual Report 2004

25

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 shareholders’ equity
to total assets (%)
Per Share (in yen and U.S. dollars):
Net income:
Basic
DilutedShareholders’ equity
Other Information:
Depreciation/amortization expenses
Capital expenditures(addition to fixed assets)
R&D expenses
Number of shares issued(thousands of shares)*
Number of shareholders*Number of employees*:
Parent only
Consolidated

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

2004

2003

2002

2001

2000

2004

¥1,439,451
1,085,716
353,735¥1,372,337
1,011,582
360,755¥1,362,493
992,950
369,543¥1,311,887
978,841
333,046¥1,330,125
995,131334,994$13,619,557
10,272,646
3,346,911

303,41150,324

293,234
67,521

281,063
88,480251,373
81,673

243,593
91,4012,870,764
476,147

56,266
38,64946,97033,48456,13630,283

21,291
22,62864,83931,348532,369
365,683¥ 453,708
1,349,727¥ 411,252
1,344,072¥ 396,112
1,269,558¥ 357,455
1,168,501¥ 206,404
1,038,558$ 4,292,819
12,770,622

33.6%

30.6%

31.2%

30.6%

19.9%

¥

50.62
49.66
582.60

¥

44.84
42.91
553.90

¥

40.74
38.83
532.88

¥

30.44
29.06
480.86

¥

51.90
48.53
338.75

$

0.48
0.47
5.51

¥

71,112¥

67,896¥

63,964¥64,070¥60,190$672,835

128,026
57,541

119,423
60,110118,376
54,903102,301
46,622103,922
40,123782,866
34,704

746,52135,584

746,506
33,094

746,502
32,996

614,553
49,381

12,92827,296

13,06427,47813,374
26,483

13,60326,502

13,66826,914

1,211,335
544,432

Note: U.S. dollar figures have been translated from yen, for convenience only, at the rate of ¥105.69 to US$1.00, the approximate rate of exchange at March 31, 2004.
* As of March 31

Operating Income

Net Sales(Billions of yen)(Billions of yen)

1,500

100

1,200

80

900

60

600

40

300

20

0

0

2000

2001

1,330
Automobile

1,311

2002
1,362

Industrial Products

26 FUJI HEAVY INDUSTRIES LTD.

2004

2000

2001

2002

2003

2004

1,372

1,439

91.4

81.6

88.4

67.5

50.3

Aerospace

Others2003

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

By the same token, in North America, the need to increase

The launch of the new Legacy in Japan and Europe and a

incentive payments and other factors reduced operating

positive contribution of consignment production by Subaru ofincome to 2% of the total (from 23% in the previous year) on

Indiana Automotive, Inc. (SIA) in the United States drove con-a similar 41% of sales. Europe and other area contributed

solidated net sales growth of 4.9%, to ¥1,439.4 billion, in theapproximately 1% of sales and income. The operating marginfiscal year to March 2004. However, operating income

declined in all three regions: from 7.3% to 4.5% in Japan,

declined 25.5%, to ¥50.3 billion, due principally to the rapid

from 2.7% to 0.2% in North America, and from 3.4% to 2.9%

strengthening of the yen against the dollar and an increase inin Europe and other area. The continued heavy reliance on

expenses associated with new vehicle launches. Income

producing vehicles in Japan for sale in other regions exposes

before income taxes and minority interest increased to ¥56.2

the Company to fluctuations in exchange rates. Increased

billion, 19.8% compared to the previous term, due to positive

local production, principally at SIA, will reduce this exposure

factors including the amortization of the consolidation adjust-to some extent going forward. Sales to Europe are bookedments account as SIA became a wholly owned subsidiary,

largely in yen, reducing exposure to the yen-euro rate.

and foreign exchange gains associated with currency conversion at the U.S. subsidiaries. Net income increased 15.4%, to

REVIEW OF OPERATIONS BY DIVISION¥38.6 billion, as the improvement in securities performance

Net Sales

led to gains on the sale of marketable securities and a

Consolidated net sales in the year to March 2004 rose 4.9%

decrease in devaluation. Earnings per share rose from ¥42.91

compared to the previous year, to ¥1,439.4 billion. This fol-to ¥49.66, boosting the return on equity from 8.3% to 8.9%.

lows gains of 0.7% in fiscal 2003 and 3.9% in fiscal 2002.

The Company generated 91% of consolidated sales from

Information for each division is presented below.

the Automobile division, 4% from Aerospace, 3% from
Industrial Products, and 2% from Other (notably Echo Tech-

Automobile Division

nologies and Housing). Automobiles account for the entirety

Sales of the Automobile division grew ¥87.7 billion, toof operating profit, as the other three business division all¥1,320.7 billion. The importance of the Automobile division toposted losses during the year. The dominance of thethe Company in terms of sales and income makes the perfor-

Automobile division extends to assets (84% of the total),mance of individual models of great significance. The consoli-

depreciation (92%), and capital expenditure (93%).

dated division sold 245.5 thousand vehicles in Japan, same

By region, the Japan division, including export from Japan,

level with the previous year. Overseas sales totaled 305.7

accounted for 58% of sales and 75% of operating income

thousand units (up 3.7% compared to the previous year),(57% of sales and 85% of income in the previous year), andwith 62.0% in the United States and 17.5% in Europe.

results from the contribution to earnings of the new Legacy.

Worldwide sales totaled 576.5 thousand units, including 25.2
thousand units produced on consignment at SIA.
In Japan, the Company sold 111.1 thousand passenger cars

Net Income

and 134.4 thousand minicars. Passenger car sales advanced(Billions of yen)40

8.2% over the previous year, principally due to the solid start
made by the new Legacy after its launch in May 2003. Sales of30

the Impreza and the Forester declined moderately.
Sales of minicars declined 5.9%, due to a substantial
decline in sales of the Pleo. This offset the positive contribu-

20

tion of the innovative new R2, released in December 2003,
and some growth in sales of the Sambar.

10

0

2000

2001

2002

2003

2004

31.3

22.6

30.2

33.4

38.6

Annual Report 2004

27

Sales in the United States totaled 214.9 thousand units,

Automobile Inventory(1,000 units)

including the contribution of contracted production by SIA.

50

Sales of the Legacy declined ahead of the new model roll-out
in summer 2004. However, the Company was successful in40

selling inventory of the old model, suggesting a clean start tosales of the new Legacy. The Impreza sales also declined
30

moderately. However, growth in sales of the Forester drove
overall growth in the U.S. market.
20

2000

2001

2002

2003

2004

Japan

26.1

29.7

33.5

22.9

28.4

U.S.

29.2

40.0

41.2

44.7

48.1

Consolidated Automobile Sales by Region (Number of units)
Japan
U.S.
CanadaEuropeAustralia
OthersSubtotal
CKD* Overseas
Total
SIA Consignment Production

2004

2003

2002

2001

245,541
189,633
16,15453,57830,685
15,652551,2432,800
554,043
25,239245,525
192,389
17,69941,32529,455
14,051
540,4441,500
541,944—264,257
191,381
15,63232,37326,923
12,675543,241
3,288
546,529—

290,301
172,686
15,00539,951
27,976
14,378560,297
3,941
564,238—* CKD: Complete Knocked Down

Non-Consolidated Automobile Sales by Model (Number of units)
Domestic Units:
LegacyImpreza
ForesterOthersSubtotal
Minicars
Total
Export Units:
LegacyImpreza
ForesterOthersSubtotal
Minicars
Total
CKD Overseas(SIA Portion)
U.S. Unit Sales*:LegacyImpreza
Forester
Baja
Total
U.S. Production Units*:
Legacy

2004

2003

2002

2001

2000

73,67622,26320,097
2,479
118,515
143,502
262,01749,17925,471
25,3894,174
104,213
147,712251,925

59,20924,89922,922
4,244
111,274
167,265
278,539

67,42432,362
28,994297
129,077
173,754
302,831

67,97225,65425,985308
119,919
177,842
297,761

33,86567,51099,463
161
200,999—
200,999

21,42175,354
99,145—
195,920—
195,920

24,72775,70072,629—173,05622
173,078

26,25454,72185,453—
166,428
108
166,536

34,30458,53083,928—
176,762760
177,522

90,15887,358

107,576
106,076

104,234
100,946

111,783
107,842

103,001
98,861

79,83936,52559,761
10,694
186,819

85,35938,22653,9222,513
180,020

95,29135,61255,041—
185,944

96,391
19,22056,605—
172,216

87,267
19,35650,183—
156,806

96,993102,813103,010

107,955

93,07* U.S. Unit Sales and U.S. Production Units are the aggregate figures for the calendar year from January through December.

28 FUJI HEAVY INDUSTRIES LTD.

Volumes sold in the European market increased as a result

amount was ¥4.8 billion. The Company is now scheduled toof continued sound performance by the Impreza and thebook other income of ¥21.3 billion to the consolidated state-

Forester, the launch of the new Legacy and the new G3X

ments of income in the year to March 2005, following the ear-

Justy. Sales also expanded in Australia, led by growth inlier than initially expected termination of Isuzu SUV

sales of the Forester and a sound performance by the

production.

Impreza.
The Company’s two U.S. subsidiaries, Subaru of America,

Industrial Products Division

Inc. (SOA) and SIA, both report to December fiscal year-

Sales in the Industrial Products division increased 2.2% overends. The U.S. retail sales (SOA and Hawaii sales) were

the previous year, to ¥42.5 billion. Sales in Japan were driven

186.8 thousand vehicles during January-December 2003,

by growth in sales of power generator engines and engines

and SIA produced 97.0 thousand units, excluding the 25.2

for compact construction machinery. Overseas, the principal

thousand on consignment.

contributors were sales of engines for leisure vehicles in the

The January 2003 acquisition by the FHI Group of theUnited States, and engines for in the Middle East andremaining 49% in SIA led to the creation of a ¥48.8 billion

Europe. The division posted an operating loss of ¥0.2 billion,

consolidated adjustment account. It had initially been planned

an improvement from the ¥0.8 billion loss of the previous

to amortize ¥6.7 billion during the year under review, as otheryear. It is intended to return the division to profit in the year toincome in the consolidated statements of income. The actual

March 2006.

Change in Units Sold by Model Comparison of units sold in fiscal 2004 and fiscal 2003
Japan (Non-consolidated)

Export Units (Non-consolidated)(1,000 units)(1,000 units)

30

30

20

20

10

10

0

0

-10

Change-10Total

LegacyImpreza

ForesterTraviq

Minicars

+10.1

+24.5

-3.2

-5.3

-1.7

-4.2

ChangeTotal

LegacyImpreza

ForesterOthers

+5.1

+12.4

-7.8

+0.3

+0.2

Retail Sales in U.S.
(1,000 units)
30

20

10

0

-10

ChangeTotal

LegacyImpreza

Forester

Baja

+6.8

-5.5

-1.7

+5.8

+8.2

Annual Report 2004

29

Aerospace Division

Other Businesses

Overall sales declined 9.9%, to ¥56.8 billion, with lower sales

Net sales declined 35.1% from the previous year, to ¥26.8

to The Boeing Company outweighing growth in deliveries tobillion. The Eco Technologies division posted a sales decline,

the Japan Defense Agency. The volume of products sold to

due to reduced sales of refuse management equipment. This

Boeing has continued to decline due to a variety of factors

was despite growth in sales of Fuji Mighty sanitation trucks,

affecting the airline industry since September 2001. The com-as the introduction of new diesel emission standards in thepletion during the previous fiscal year of delivery of productsTokyo Metropolitan Area prompted one-off demand. Net

such as the High-Speed Flight Demonstrator also contributed

sales fell in the House division due to reduced sales of con-to commercial sector sales declining. In sales to the Japan

tainer houses. The withdrawal from production of railway cars

Defense Agency, increased sales of the next-generation

and buses at the end of March 2003 impacted sales. The

fixed-wing patrol airplane and transport aircraft, an increaseother businesses recorded a combined operating loss of ¥1.4

in the number of T-7 primary trainers, and the start of delivery

billion, compared with a ¥3.1 billion loss in the previous year.

of production-model Forward Field Observation System. This
offset a reduction following the completion of delivery of the

COST OF SALES, EXPENSES, AND OPERATING INCOME

T-4 intermediate trainer the previous year. The division madeThe cost of sales rose 7.3%, to ¥1,085.7 billion. Thisan operating loss of ¥0.3 billion, following profit of ¥3.3 billion

depressed gross profit by 1.9%, to ¥353.7 billion, and thethe previous year. It is intended to return the division to profit

gross margin declined 1.7 points, from 26.3% to 24.6%.

in the year to March 2006.

SG&A expenses rose 3.5%, to ¥303.4 billion, lowering oper-

Net sales in the division were increased by ¥4.0 billion, andoperating income by ¥0.2 billion, due to a change in theating income by 25.5%, to ¥50.3 billion. The ratio of operating income to net sales fell 1.4 points, from 4.9% to 3.5%.

accounting policy for revenue recognition. Revenues in the

The ¥17.1 billion declines in operating income was the net

Aerospace division were previously recognized at the time ofresult of three positives and two negatives. On the positive

completed product delivery to customers. This was changedside, cost reductions added ¥19.4 billion, sales mix improve-in this term under review to the percentage-of-completion

ment ¥7.7 billion, and a reduction in R&D spending ¥2.6 bil-

method for contracts with a production term exceeding one

lion. The cost reductions resulted principally from reducing

year and a value in excess of ¥5 billion. The change wascomponent costs and the Company accounted for ¥14.3 bil-made to match revenues against costs more accurately,lion of the decline, and SIA ¥5.1 billion. The sales mix

given the recent trend for production contracts to extend over

improvement was the net result of a ¥13.5 billion gain in

longer periods and the sum of contracts to become larger.

Japan, a ¥11.3 billion decline overseas, and a ¥5.5 billion
gain from inventory reduction and others. The ¥13.5 billion
gain in Japan resulted from the contribution of the new

Net Sales by Division(Billions of yen)

2004

2003

2002

2001

2000

Automobile
Industrial Products
Aerospace
Others¥1,316.9
42.2
56.6
23.6

¥1,229.8
41.5
63.0
37.9

¥1,219.7
39.4
66.2
37.0

¥1,167.2
44.2
65.5
34.9

¥1,175.4
51.8
66.1
36.6

Total

¥1,439.4¥1,372.3¥1,362.4¥1,311.8¥1,330.1

Operating Income (Loss) by Division(Billions of yen)

2004

2003

2002

2001

2000

Automobile
Industrial Products
Aerospace
OthersCorporate and Elimination

¥52.1
(0.2)
(0.3)
(1.4)
0.3

¥67.3
(0.8)
3.3
(3.1)
0.8

¥85.6
(0.2)
7.4
(4.2)
(0.0)

¥82.2
0.7
2.4
(4.1)
0.3

¥92.3
1.2
2.0
(4.4)
0.1

Total

¥50.3

¥67.5

¥88.4

¥81.6

¥91.4

30 FUJI HEAVY INDUSTRIES LTD.

Legacy, and the R2 minicar. Overseas, the continuing sales¥5.6 billion in deferred taxes. Minority interests amounted toof the previous model Legacy in the United States led to the

only ¥16 million. Consequently, net income rose 15.4%, todecline.

¥38.6 billion, marking the third straight annual rise. Net

On the negative side, changes in the exchange rateincome as a percentage of sales improved 0.3 point, todepressed operating income by ¥14.6 billion, as the average

2.7%, and the return on equity improved 0.6 point, to 8.9%.

yen-dollar exchange hedging rate moved from ¥124/$ in theyear to March 2003 to ¥116/$. This created a deficit of ¥18

FINANCIAL POSITION

billion, which was partially offset by the yen’s weakening

Total assets at year-end increased ¥5.6 billion, or 0.4%, toagainst the euro and the Canadian dollar. Other expenses¥1,349.7 billion. If excluding a foreign exchange loss aroundincreased by ¥32.3 billion. Major items included increased¥35 billion by consolidating overseas subsidiaries at the end

costs associated with the cost of molds for the new Legacy,of year, more than ¥40 billion increase.

an increase in incentive payments at North America, dealer

Total current assets decreased by ¥15.2 billion, due to adevelopment, advertising and others. The higher incentive

reduction in cash and time deposits (minus ¥23.0 billion) andpayments followed an increase in incentive costs from $900

inventories (minus ¥19.3 billion). Property, plant and equip-

to $1,300 per vehicle. The ¥32.3 billion expense increase alsoment increased by ¥13.2 billion, due to the investment in SIA

includes ¥4.8 billion in costs related to Isuzu’s departure fromfor the new car production, the purchase of dealer properties

SIA, which was canceled out by the consolidation adjust-and others.

ments account gain at the income before income taxes andInvestments and other assets increased ¥7.7 billion, as theminority interest line.

improved stock market boosted the value of investment

Net other income totaled ¥5.9 billion, an improvement of

securities by ¥10.5 billion.

¥26.4 billion from the previous fiscal year. The major items

Total liabilities at the end of March 2004 declined towere the inclusion of the ¥4.9 billion amortization of the con-¥892.7 billion, a fall of ¥36.7 billion from the end of the previ-

solidation adjustments, an ¥8.8 billion increase in foreignous fiscal year. The consolidation adjustments accountexchange gains mainly from adjustment for currency conver-

totaled ¥44.0 billion (the initial ¥48.8 billion minus the ¥4.8 bil-sion at the U.S. subsidiaries, a ¥5.1 billion increase in gain onlion amortized portion), which was recorded as a long-termsales of securities, and a ¥3.6 billion reduction in loss on

liability. The amortized amount in the consolidated adjust-devaluation of securities due to the improvement in the equity

ments account in each year will be recognized as othermarket.

income (see attached chart). Total interest-bearing debt was

As a result, income before income taxes and minority inter-¥378.9 billion, down ¥10.1 billion from the previous fiscal

ests increased 19.8%, to ¥56.2 billion. Net income taxes foryear, due mainly to a reduction in long-term debts andthe year increased to ¥17.6 billion, owing to the inclusion ofredemption of convertible bonds.

Analysis of Increases and Decreases in Operating Income (Consolidated)(Billions of yen)

7.7

2.6

19.4
Amortization of
consolidation
adjustments

-14.6
67.5

4.9
-32.3

OperatingincomeEnded
March 2003

Reductionin material
costs, etc.

Improvementof sales mix

Reduction in
R&D expenses

Loss oncurrency
exchange

Increasein otherexpenses

50.3

OperatingincomeEnded
March 2004

Annual Report 200431

Shareholders’ equity rose ¥42.4 billion, to ¥453.7 billion,

amount. As this balance was ¥160.1 billion at the end of

mainly reflecting a ¥32.0 billion increase in retained earnings.

March 31, 2004, which above monthly sales ¥119.9 billion of

Shareholders’ equity per share increased from ¥553.9 toFY2004, our financial liquidity was sufficient.

¥582.6. On the other hand, translation adjustments accountHereafter, though we continue to keep balance of cash

(subtracted from shareholders’ equity) increased ¥15.0 billion

and time deposits adding marketable securities will exceed

over the previous fiscal year, as a result of the yen apprecia-

the monthly sales amount, there is a possibility of decreasingtion. Because of the smaller increase in shareholders’ equity

the cash and time deposits or raising the fund depending on

compared with that of total assets, the shareholders’ equity

the payment schedule of capital expenditures or R&D

ratio increased 3.0 points, from 30.6% to 33.6%. However,expenses.

the debt/equity ratio fell to 0.84, from 0.95, owing to thedecline in interest-bearing debt. Our target of debt/equity

CAPITAL EXPENDITURES

ratio is under 1.0 for the financial solidity.

The FHI Group’s capital expenditures totaled ¥74.5 billion in

We control the balance of cash and time deposits adding

fiscal 2004 excluding leased assets as a lessor and weremarketable securities will not fall below the monthly sales

mainly concentrated in the Automobile division. This represents an increase of ¥9.9 billion over the previous fiscal year.
The Company accounted for ¥32.7 billion of the total, SIA

SIA Financial Settlement
Summary of assets and liabilities at the time of consolidation
as of January 1, 2003
(Billions of yen)

Current Iiabilities: ¥5.2
Fixed Iiabilities: ¥7.0

Current assets: ¥20.6¥24.7 billion.
It is planned to increase capital spending to ¥82.0 billion in
the fiscal year ending March 31, 2005: ¥32.0 billion at The
Company, and SIA ¥30.5 billion.
Capital spending exceeded depreciation in the year underreview (¥74.5 billion against ¥53.2 billion). This trend is
expected to continue next fiscal year.

Consolidation
adjustments: ¥48.8(Amortized by each fiscal
year according to theincurred expenses)

Fixed assets: ¥40.4

CASH FLOWSCash and cash equivalents at the end of the year underreview totaled ¥139.4 billion, down ¥30.5 billion from theprevious fiscal year-end.
Free cash flow, defined as net cash provided by operating

Total Iiabilities
and consolidation
adjustments: ¥61.0

Total assets: ¥61.0

activities plus net cash used in investing activities, was anegative ¥27.3 billion. This resulted from the decline inPlan to Amortize Consolidation Adjustments(Millions of U.S. dollars)(Billions of yen)

500

50

400

40

300

30

200

20

100

10

0

0

2004

Net assets
Depreciation of net assets

32 FUJI HEAVY INDUSTRIES LTD.

2005

2006

2007

2008

2009
and
beyondBalance Sheet: Consolidation
adjustments
Statement of income: Income before
income tax and minority interest

2004

2005

2006

2007

2008

2009
and
beyond

4.9

21.3

5.7

4.4

0.9

11.7

48.8

operating cash flows and a major increase in the net cash

negative. The outlook for materials prices is also unclear. The

outflow from investment activities.

Company can expect to benefit from the recovery in the U.S.

Cash flows from operating activities decreased by ¥8.2

economy and continued rapid growth in the Chinese econo-

billion, to ¥99.7 billion. This reflected primarily ¥56.2 billion inmy, but the potential for an economic slowdown in Europe

income before income taxes and minority interest, adjust-suggests that the situation will remain testing. The Company

ments for ¥71.1 billion in depreciation and amortization, ¥3.0

forecasts consolidated net sales of ¥1,470 billion (up 2.1%),

billion in losses on the sale and disposal of property, plant

operating income of ¥45 billion (down 10.6%), and net

and equipment, net, and a ¥5.8 billion decrease in invento-

income of ¥32 billion (down 17.2%).

ries. And these increase setoff mainly by ¥13.9 billion

The forecast of 2.1% growth in sales is based on an 8.3%

decrease in notes and accounts payable, trade and ¥18.3

expansion in Japan, offset by a 2.7% decline overseas. The

billion paid in income taxes.

driver of the growth is set to be minicars (up 36.2%, to 183.1

Net cash used in investing activities increased ¥71.0 billion

thousand units), leading to a 21.2% increase in overall

from the previous year-end, to ¥127.1 billion. Major cash

domestic sales (to 297.6 thousand units). Particular drivers

outflows included net sales and purchases of marketable

will include the R2 as well as the one more minicar. Overseas

securities (¥10.9 billion), net sales and purchases of property,

sales are set to advance 7.5%, to 328.6 thousand units

plant, and equipment (¥86.7 billion), and net growth in loans

expecting the expansion of sales by the New Legacy inreceivable (¥19.9 billion).

North America, giving an overall volume increase of 13.6%

Net cash provided by financing activities increased ¥14.0(to 626.2 thousand units). The addition of a turbo-charged

billion from the previous year-end, to ¥2.3 billion. Net short-model for the New Legacy, followed by a new crossover

term borrowings increased by ¥22.6 billion and net long-term

SUV in 2005 in the United States, is also set to raise unit sell-

debts decreased ¥23.3 billion. Redemption and issuance ofing prices.

bonds generated a net cash inflow of ¥9.8 billion, while the

Operating income is set to decline by 10.6%, despite thepayment of cash dividends amounted to ¥6.8 billion, com-rise in sales, as cost reduction makes a smaller contribution

pared to ¥6.6 billion in the previous year. Cash dividends perthan in the year to March 2004, and the impact of a stronger

share remained at ¥9 for the full year.

yen. These forecasts are based on an assumed exchange
rate of ¥105 to the US dollar, suggesting a decline of ¥28.8

OUTLOOK

billion on the move from the average ¥116/$ rate of the year

Despite signs of recovery in the Japanese economy, eco-

to March 2004. We will change our calculation of sales of thenomic conditions remain unpredictable. The Company

Company by foreign currency from hedging rate to average

is inevitably exposed to exchange rates, particularly themarketing rate since the term ending March 2005.

yen-dollar rate, and further yen appreciation is a potential

Interest-Bearing Debt Balance and D/E Ratio

Investment in Plant and Equipment/Depreciation Expenses(Billions of yen)(Times)

500

2.5

400

2.0

(Billions of yen)
80

60

300

1.5

200

1.0

100

0.5

40

20

0

0

0

2000

2001

2002

2003

2004

2000

2001

2002

2003

2004

Interest-bearing debt 449.0

365.1

396.7

389.1

379.0

Amount of investment
in plant and equipment

57.3

43.6

70.6

64.6

74.6

D/E ratio

1.0

1.0

0.9

0.8

Depriciation expenses

40.3

45.3

45.0

48.8

53.2

2.2

Annual Report 200433

Consolidated Balance Sheets
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIESAs of March 31, 2004 and 2003

ASSETS
Current assets (Note 3):
Cash and time deposits (Note 4)
Marketable securities (Notes 4 and 5)
Notes and accounts receivable, trade (Note 9)
Allowance for doubtful accounts
Inventories (Note 6)
Short-term loans (Note 4)
Deferred tax assets (Note 12)
Other current assets (Note 9)
Total current assets

Property, plant and equipment (Notes 3, 7, 8 and 9)
Less accumulated depreciation
Net property, plant and equipment

Investments and other assets (Note 3):
Investment securities (Note 5)
Investments in non-consolidated subsidiaries and affiliated companies
Long-term loans
Goodwill
Intangibles, net
Deferred tax assets (Note 12)
Other assets (Notes 3 and 9)
Allowance for devaluation of investments
Allowance for doubtful accounts
Total investments and other assets
Total assets

34 FUJI HEAVY INDUSTRIES LTD.

¥

Millionsof yenMillionsof yenThousands of
U.S. dollars(Note 1)

2004

2003

2004

46,684
113,490122,724(661)
179,338
101,871
34,14957,284¥69,781
94,636
128,523(486)
198,656
98,17740,34040,522$441,707
1,073,801
1,161,170(6,254)
1,696,830
963,866
323,105
542,000

654,879

670,149

6,196,225

1,125,117(615,374)

1,102,849(606,307)

10,645,444(5,822,443)

509,743496,542

4,823,001

52,926
5,298
4,918
17,75322,70029,70756,759(280)(4,676)

41,505
6,139
4,829
20,15818,01533,46656,990—(3,721)

500,766
50,12846,532
167,972
214,779
281,077
573,033(2,649)(44,242)

185,105

177,381

1,751,396¥1,349,727¥1,344,072$12,770,622

Millionsof yenMillionsof yenThousands of
U.S. dollars(Note 1)

2004

2003

2004

¥ 207,029
40,888
193,186
113,908
5,092
43,128¥ 182,084
57,660213,748
115,177
10,047
41,104$ 1,958,832
386,867
1,827,855
1,077,756
48,179408,061

603,231619,820

5,707,550

131,079
61,65444,02752,709149,362
61,17048,94050,166

1,240,222
583,348416,567
498,713289,469

309,638

2,738,850

Minority interest in consolidated subsidiaries (Note 12)

3,319

3,362

31,403

Contingent liabilities (Note 17)
Shareholders’ equity (Note 13):
Common stock
Authorized—1,500,000,000 shares
Issued 2004—782,865,873 shares
2003—746,520,881 shares
Capital surplus
Revaluation reserve for land (Notes 8 and 12)
Retained earnings
Net unrealized holding gains on securities
Translation adjustments
Less treasury stock, at cost, 2004—4,480,160 shares
2003—3,992,806 shares

153,795—
160,107421
165,192
10,291(33,300)(2,798)——144,455
150,766
389
133,186
3,446(18,237)—(2,753)

1,455,152—
1,514,874
3,983
1,562,986
97,370(315,072)(26,474)—

453,708

411,252

4,292,819¥1,349,727¥1,344,072$12,770,622

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilities (Note 3):
Short-term borrowings (Note 9)
Current portion of long-term debts (Note 9)
Notes and accounts payable, trade
Accrued expenses (Note 2)
Accrued income taxes (Note 12)
Other current liabilities (Note 12)
Total current liabilities
Long-term liabilities (Note 3):Long-term debts (Note 9)
Accrued pension and severance liability (Note 11)
Consolidation adjustments (Note 3)
Other long-term liabilities (Notes 2, 8 and 12)
Total long-term liabilities

Total shareholders’ equity
Total liabilities and shareholders’ equity
The accompanying notes are an integral part of these balance sheets.

Annual Report 200435

Consolidated Statements of Income
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2004, 2003 and 2002

Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars(Note 1)

2004

2003

2002

2004

¥1,439,451
1,085,716¥1,372,337
1,011,582¥1,362,493
992,950$13,619,557
10,272,646

353,735
303,411

360,755
293,234

369,543
281,063

3,346,911
2,870,764

50,32467,521

88,480476,147

2,081(2,416)
4,153
7,348
(221)
(3,089)
—
—
4,912
1,049
(1,268)(6,607)

1,855(2,941)(994)(1,538)(3,884)(4,822)—(1,882)———(6.345)

2,868(3,499)0(4,996)(8,970)(3,670)(6,880)————(7,197)

19,690(22,859)
39,29469,524(2,091)(29,227)——
46,476
9,925(11,997)(62,513)

5,942(20,551)(32,344)

56,222

Income before income taxes and minority interest

56,266

46,97056,136532,369

Income taxes (Note 12):Current
Reversal of prior year’s accrued income taxes
Deferred

12,030—
5,603

20,359(2,973)(3,810)38,325—(10,042)

113,823—53,014

17,633

13,57628,283

166,837

38,63316

33,39490

27,8532,430

365,532151

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 (loss) on sale of securities
Foreign exchange gains (losses)
Loss on devaluation of securities
Loss on sale and disposal of property, plant and equipment, net
Loss on liquidation of affiliated companies (Note 15)
Loss on discontinued operations (Note 15)
Amortization of consolidation adjustments (Note 3)
Gain on prior period adjustment
Pension and severance cost (Note 11)
Other, net

Income before minority interest
Minority interest in consolidated subsidiaries
Net income

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

36 FUJI HEAVY INDUSTRIES LTD.

¥

38,649¥33,484¥30,283$

365,683

Yen

Yen

Yen

U.S. dollars(Note 1)¥50.6249.66
9.00¥44.8442.91
9.00¥40.74
38.83
9.00

$0.48
0.47
0.09

Consolidated Statements of Shareholders’ Equity
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2004, 2003 and 2002

Thousands

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 reserve for land
Increase in unrealized holding gains on securities
Net income
Balance, March 31, 2002
Foreign currency translation adjustment
Cash dividends
Payment of bonuses to directors
and statutory auditors
Shares issued upon conversion of convertible bonds
Increase in treasury stock
Revaluation reserve for land
Increase in unrealized holding gains on securities
Comprehensive loss
Net income
Balance, March 31, 2003
Foreign currency translation adjustment
Cash dividends
Payment of bonuses to directors
and statutory auditors
Shares issued upon conversion of convertible bonds
Increase in treasury stock
Gain on disposal of treasury stockReversal of revaluation reserve for land
Revaluation reserve for land
Increase in unrealized holding gains on securities
Comprehensive income
Net income
Balance, March 31, 2004

Millions of yen

Number ofsharesissuedCommonstock

Capitalsurplus

Revaluation
reservefor land746,502¥144,449¥150,761

¥ —

4

1

Retainedearnings

Net
unrealized
holding
gains onsecurities¥ 83,680 ¥ 1,701

Translation
adjustment¥(20,921)
11,342

Treasurystock,
at costTotal
shareholders’equity¥(2,215)¥357,455
11,342

211(6,694)211(6,694)

(152)

(152)
2
(12)
381
3,296
30,283396,112(8,658)(6,689)

1
(12)
381
3,296

746,506

144,450

150,762381

30,283
107,328

4,997(9,579)(8,658)(2,227)(6,689)
(161)
15

5

4
(526)
8
(1,551)

746,521

144,455

150,766

389(776)
33,484133,186

3,446(18,237)(15,063)(2,753)(6,846)(171)
36,345

9,340

9,305
(45)
36
(31)
32

782,866¥153,795¥160,107

¥421

6,845
405
38,649¥165,192 ¥10,291¥(33,300)¥(2,798)

(161)
9
(526)
8
(1,551)(776)
33,484
411,252(15,063)(6,846)(171)
18,645
(45)
36
(31)
32
6,845
405
38,649¥453,708

Thousands of U.S. dollars (Note 1)

Balance, March 31, 2003
Foreign currency translation adjustment
Cash dividends
Payment of bonuses to directors
and statutory auditors
Shares issued upon conversion of convertible bonds
Increase in treasury stock
Gain on disposal of treasury stockReversal of revaluation reserve for land
Revaluation reserve for land
Increase in unrealized holding gains on securities
Comprehensive income
Net income
Balance, March 31, 2004

$1,366,780 $1,426,493$3,681 $1,260,157 $32,605(64,774)(1,618)88,372

88,040
341
(294)
302

$1,455,152 $1,514,874

64,765
3,832
365,683$3,983 $1,562,986 $97,370$(172,552) $ (26,048) $3,891,116(142,520)(142,520)(64,774)(1,618)
176,412
(426)
(426)
341
(294)
302
64,765
3,832
365,683$(315,072) $(26,474) $4,292,819

The accompanying notes are an integral part of these statements.

Annual Report 200437

Consolidated Statements of Cash Flows
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2004, 2003 and 2002

Cash flows from operating activities:
Income before income taxes and minority interest
Adjustments to reconcile income before income taxes andminority interest to net cash provided by operating activities:
Depreciation/amortization expenses
Loss on sale and disposal of property, plant and equipment, net
Increase (decrease) in accrued pension and severance liability
Gain (loss) on sale of securities
Loss on devaluation of securities
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
Loss on discontinued operations
Amortization of consolidation adjustments
Gain on prior period adjustments
Other, net

Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars(Note 1)

2004

2003

2002

2004

¥ 56,266¥ 46,970¥ 56,136$ 532,369

71,112
3,089
73(4,153)
221
1,191
5,889
(13,979)(18,374)——(4,912)(1,049)4,400

67,896
4,822
(106)
994
3,884
2,613
(12,017)
16,534(31,099)
—
1,882
—
—
5,690

63,964
3,670(3,097)0
8,970
474(14,989)(13,378)(21,608)
6,880
—
—
—
(1,301)

672,835
29,227691(39,294)
2,091
11,26955,719(132,264)(173,848)——(46,476)(9,925)
41,631

99,774

108,063

85,721

944,025(125,351)
38,634(11,718)(54,192)
11,17843,239(115,553)
32,213(10,167)(38,596)
9,114
72,588(109,117)
36,634(4,754)(56,013)
1,832
39,493(1,186,025)
365,541(110,871)(512,745)
105,762
409,111—(8,070)(90,041)
70,101(920)

12,989(6,240)(75,898)
62,889573—(6,577)(52,115)
52,958586—(76,355)(851,935)
663,270(8,705)(127,140)(56,088)(97,073)(1,202,952)

5,269(28,635)
20,000(10,129)
22,662(49)
70(6,846)(7)

55,150(58,324)
10,000(22,027)
10,732(531)—(6,689)—27,704(40,489)
50,500—(11,237)(47)
35(6,694)—49,853(270,934)
189,233(95,837)
214,420(464)
662(64,774)
(66)

2,335

(11,689)

19,77222,093

Net cash provided by operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchase of investment securities
Purchase of marketable securities
Proceeds from sale of investment securities
Proceeds from sale of marketable securities
Increase due to acquisition of Isuzu’s shareof Subaru of Indiana Automotive, Inc. (Note 4)
Purchase of intangible assets
Disbursement of loans receivableCollection of loans receivable
Other, net (Note 4)
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from long-term debts
Repayment on long-term debts
Issuance of bonds
Redemption of bonds
Net increase (decrease) in short-term borrowings
Purchase of treasury stock
Proceeds from disposal of treasury stock
Dividends paid
Other, net
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents(5,512)(4,050)4,704(52,153)

Net increase (decrease) in cash and cash equivalents(30,543)

36,236

13,124(288,987)

Cash and cash equivalents:
Balance at beginning of year
Net increase in cash and cash equivalents due to mergers

169,944—

133,708—

120,436148

1,607,948—

Balance at end of year (Note 4)¥139,401¥169,944¥133,708$1,318,961

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

¥

¥

¥

$

The accompanying notes are an integral part of these statements.

38 FUJI HEAVY INDUSTRIES LTD.

2,361
18,645

3,327
9

3,384
2

22,339176,412

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

1. Basis of Presentation of the Financial Statements
The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Securities and Exchange Law and its related accounting regulations, andin conformity with accounting principles generally accepted in Japan, which are different in certain
respects as to application and disclosure requirements of International Financial Reporting Standards.
The accounts of overseas subsidiaries are based on their accounting records maintained in conformity
with generally accepted accounting principles prevailing in the respective countries of domicile. The
accompanying consolidated financial statements have been restructured and translated into English (withsome expanded descriptions and the inclusion of consolidated statements of shareholders’ equity) fromthe consolidated financial statements of the Company prepared in accordance with Japanese GAAP and
filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the Securities
and Exchange Law. Some supplementary information included in the statutory Japanese language consolidated financial statements, but not required for fair presentation, is not presented in the accompanying consolidated financial statements.
The translation of the Japanese yen amounts into U.S. dollars are included solely for the convenienceof readers outside Japan, using the prevailing exchange rate at March 31, 2004, which was ¥105.69 to
U.S.$1. The convenience translations should not be construed as representations that the Japanese yenamounts have been, could have been, or could in the future be, converted into U.S. dollars at this or any
other rate of exchange.

2. Summary of Significant Accounting Policies
Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its
significant subsidiaries. All significant intercompany transactions and balances have been eliminated inconsolidation. The fiscal year-end of the consolidated domestic subsidiaries is the same as that of theparent company, while the fiscal year-end of the consolidated foreign subsidiaries is December 31.
Although these consolidated foreign subsidiaries are included based on their fiscal year ended December
31, significant transactions that incurred for the period between December 31 and March 31 are reflectedin the consolidated financial statements.
The consolidated financial statements include the accounts of the Company and 66 subsidiaries in thefiscal years 2004 and 2003 and 67 subsidiaries in the fiscal year 2002. There is no affiliated company
accounted for by the equity method in the fiscal year 2004, while an affiliated company was accounted
for by the equity method in the fiscal years 2003 and 2002.
Investments in insignificant non-consolidated subsidiaries and affiliated companies not accounted forby the equity 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 consolidation
adjustments and goodwill, and is amortized over a period of 5 years on the straight-line basis. However,consolidation adjustments that arose from making Subaru of Indiana Automotive, Inc. (SIA), a wholly
owned subsidiary of the Company, are amortized differently. The portion that clearly corresponds to theforecasted future losses is amortized according to the generation of those losses, and the remaining
portion of the consolidation adjustments is amortized by the straight-line method over 5 years.
All assets and liabilities of subsidiaries, which include not only the Company’s interest in the subsidiary
but also the minority interest portion, are valued based on fair value at the date the Company acquires control over the subsidiary.

Annual Report 200439

Translation of foreign currency accounts
Under Japanese accounting standard for foreign currency translation, monetary assets and liabilities
denominated in foreign currencies are translated into Japanese yen at the exchange rates prevailing at
each balance sheet date with the resulting gain or loss included in the current statements of income.
Assets and liabilities of foreign subsidiaries and affiliated companies are translated into Japanese yenat the exchange rates in effect at the balance sheet date of the foreign subsidiaries and affiliated companies, except for common stock and capital surplus, which are translated at historical rates. Revenue andexpense accounts are translated at the average exchange rates during the current year. The resulting foreign currency translation adjustments are included in “Translation adjustments” in shareholders’ equity
and minority interest in the accompanying consolidated balance sheet.
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.
The Company changed the revenue recognition policy for the Aerospace Division's production contracts with the production term exceeding one year and the amount of each contract exceeding ¥5,000
million, from the delivery basis to the percentage-of-completion method since the fiscal year ended
March 31, 2004. The Company changed the accounting policy for the purpose of more accurately matching revenues against costs in the period in which they were incurred in light of the recent trend that terms
of production contracts of the Aerospace Division tend to extend over periods and the amounts of suchcontracts tend to become larger, and such trend is expected to continue. As a result of the change, net
sales increased by ¥4,013 million (US$37,970 thousand) and gross profit, operating income and income
before income taxes and minority interest increased by ¥231 million (US$2,186 thousand).
Allowance for doubtful accounts
Allowance for doubtful accounts is 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.
Allowance for devaluation of investments
Allowance for devaluation of investments is provided for losses from decrease in the value of investment
securities for which fair value is not available and investments in non-consolidated subsidiaries and affiliated companies based on the evaluation of the investees' financial conditions, such as net assets andthe probability of recovering the value.
Marketable securities and investment securities
Under Japanese accounting standards for financial instruments, securities for which fair value is available
are stated at the 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 not available
are stated at cost as determined by the moving-average method, after devaluation for any permanent
impairment. Held-to-maturity debt securities are stated using the amortized interest cost method.
Derivative financial instruments and hedge accounting
Japanese accounting standard for financial instruments requires the Company and consolidated subsidiaries to state derivative financial instruments at fair value and to recognize changes in the fair value as
gains or losses unless derivative financial instruments are used for hedging purposes.
For derivative financial instruments used as hedges and which meet certain hedging criteria, theCompany and consolidated subsidiaries defer recognition of gains or losses resulting from changes infair value of derivative financial instruments until the related gains or losses on the hedged items arerecognized.

40 FUJI HEAVY INDUSTRIES LTD.

For interest rate swap contracts used as hedges and which meet certain hedging criteria, the net
amount to be paid or received under the interest rate swap contract is added to or deducted from theinterest on the assets or liabilities for which the swap contract is 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 foreign exchange rates and interest rates are hedged
according to the Company’s and consolidated subsidiaries’ 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 related transactions, 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, ordinary repairs, minor renewals and minor improvements are charged to consolidated statement of income as incurred.
Depreciation of the property, plant and equipment of the Company and consoliated domestic subsidiaries is principally computed by the declining-balance method, except for the buildings (excluding
building improvements) acquired on or after April 1, 1998, for which the straight-line method is applied.
Depreciation of the property, plant and equipment of consolidated foreign subsidiaries is computed by
the straight-line method at rates based on the estimated useful lives of the assets according to generalclass, type of construction and use.
Estimated useful lives for depreciable assets are as follows:
Building and structures: 7–50 years
Machinery, equipment and vehicles: 2–11 years
In the fiscal year ended March 31, 2004, the Company and the consolidated subsidiaries did not adopt
early the new accounting standard for impairment of fixed assets (“Opinion Concerning Establishment of
Accounting Standard for Impairment of Fixed Assets” issued by the Business Accounting Deliberation
Council on August 9, 2002) and the implementation guidance for accounting standard for impairment of
fixed assets (the Financial Accounting Standard Implementation Guidance No. 6 issued by the
Accounting Standards Board of Japan on October 31, 2003).
Accounting for leases
In principle, finance leases are accounted for on a similar basis to sales by lessors or purchases bylessees. However, finance leases which do not transfer ownership of the leased assets to lessees as
stipulated in lease contracts can be accounted for as operating leases. Therefore, as a lessee, theCompany and consolidated subsidiaries have accounted for those leases as operating leases and havecharged periodic lease payments to expenses as incurred. Certain “as if capitalized” information is disclosed in Note 16 to the financial statements.
Intangible assets
Goodwill is principally amortized by the straight-line method based on the accounting principles generally
accepted in the respective countries of domicile. However, goodwill of the consolidated subsidiary in the
U.S. is not amortized in accordance with SFAS 142, while other identifiable assets are amortized by thestraight-line method.
Computer software used internally by the Company and consolidated subsidiaries is amortized by thestraight-line method over the relevant economic useful lives (3 or 5 years).

Annual Report 200441

Accrued pension and severance liability
On terminating employment, employees of the Company and consolidated subsidiaries in Japan are entitled, under most circumstances, to lump-sum indemnities or pensions as described below, based on current rates of pay, length of service, 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 otherdefined reasons.
Certain consolidated 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 the governmental welfare pension program, under which the contributions are made by thecompanies and their employees, and an additional portion representing the substituted noncontributory
pension plan.
Under Japanese accounting standards for pension and severance benefits, accrued pension and severance liability for employees has been provided based on the estimated amounts of projected pension
and severance obligation and fair value of plan assets at the end of the fiscal year. Prior service cost is
being amortized as incurred by the straight-line method over the period (14 years), which is shorter than
the average remaining service periods of the eligible employees. Actuarial gains and losses have beenamortized from the following fiscal year by the straight-line method over the periods (5–18 years), which
are shorter than the average remaining service periods of the eligible employees.
Accrued pension contribution for defined benefit pension plans is included in accrued pension andseverance liability.
Retirement benefits to directors and statutory auditors, which are included in “Other long-term liabilities” in the accompanying consolidated balance sheets, are subject to approval at a meeting of shareholders. Previously, severance and retirement benefits for directors and statutory auditors 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 from April 1,
2001. The impact of such change on statements of income has not been significant and is also stated in
Note 19.
Accrued warranty claims
The Company and consolidated subsidiaries provide for accrued warranty claims on products soldbased on their past experience of warranty services and estimated future warranty costs, which areincluded in “Accrued expenses” in the accompanying consolidated balance sheets.
Research and development costs
Research and development costs are expensed as incurred and amounting to ¥57,541 million(US$544,432 thousand), ¥60,110 million and ¥54,903 million for the years ended March 31, 2004, 2003
and 2002, respectively.
Income taxes
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 financial statement carrying amounts and the tax bases of assets andliabilities. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than notthat a tax benefit will not be realized.
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.
Effective April 1, 2002, the Company and consolidated subsidiaries adopted the new accounting standard for earnings per share and related guidance (Accounting Standards Board Statement No. 2,“Accounting Standard for Earnings Per Share” and Financial Standards Implementation Guidance No. 4,

42 FUJI HEAVY INDUSTRIES LTD.

“Implementation Guidance for Accounting Standard for Earnings Per Share,” issued by the AccountingStandards Board of Japan on September 25, 2002). Earnings per share for the fiscal year 2002 would
have been ¥40.52, if this new accounting standard were applied retroactively.
Accounting Standard for Treasury Stock and Reversal of Statutory Reserves
Effective April 1, 2002, the Company and consolidated subsidiaries adopted the new accounting standard for treasury stock and reversal of statutory reserves (Accounting Standards Board Statement No. 1,“Accounting Standard for Treasury Stock and Reversal of Statutory Reserves,” issued by the AccountingStandards Board of Japan on February 21, 2002). The effect on consolidated financial statements of the
adoption of this new accounting standard was immaterial.
Reclassifications
Certain reclassifications within the financial statements for the years ended March 31, 2003 and 2002
have been made to conform to the presentation for the year ended March 31, 2004.

3. Acquisition of Isuzu’s Share of Subaru of Indiana Automotive, Inc.
Subaru of Indiana Automotive, Inc. (SIA, formerly Subaru-Isuzu Automotive Inc.), a consolidated subsidiary in the United States, had been a joint venture company of Isuzu Motors Ltd. and the Company(the Company had held a 51% of SIA share). On January 1, 2003, as a result of dissolution of the joint
venture relationship with Isuzu Motors Ltd. and execution of an agreement for the consignment of
production, the Company acquired Isuzu’s share of SIA to make SIA a wholly owned subsidiary of theCompany, and SIA was assigned to produce certain Isuzu vehicles as well as Subaru vehicles.
Due to the use of a class stock system at SIA, the Company had previously consolidated only the
Subaru Division of SIA which had been governed by the Company through ownership of class F common
stock, while the Isuzu Division of SIA, which had been governed by Isuzu Motors Ltd. through ownershipof class I common stock, was excluded from the consolidated financial statements of the Company.
However, as a result of the acquisition of Isuzu’s share of SIA, the Company consolidates SIA as a whole
including the Consignment Division (formerly the Isuzu Division).
Assets and liabilities of the Consignment Division of SIA at the beginning of its consolidation were as
follows:
Millionsof yenCurrent assets
Long-term assets¥20,691
40,464

Total assets
Current liabilities
Long-term liabilities

61,1555,287
7,010

Total liabilities
Difference: Net assets
Acquisition cost of Isuzu’s share

12,29748,8580Consolidation adjustments¥48,858 (credit side)

Prior to the Company’s acquisition of Isuzu’s share of SIA, Isuzu Motors Ltd. had made a capital injection into SIA in connection with the forecasted future losses related to the former Isuzu Division. In relation to the consignment of production agreement with Isuzu, the Company has operated the former Isuzu
Division as the Consignment Division. As the consigned production activities have been completed, SIA
has been expected to incur certain losses on the disposal of fixed assets, losses on cancellation of capital leases, and losses related to personnel reduction. Consequently, the consolidation adjustments (creditside) arose.
The portion of the consolidation adjustments that clearly corresponds to the forecasted future losses
has been amortized according to the generation of those losses, and the remaining portion has beenamortized by the straight-line method over 5 years.

Annual Report 2004

43

The amortization of the consolidation adjustments for the year ended March 31, 2004 was ¥4,892 million(US$46,286 thousand), and the annual amortization based on currently forecasted losses was as follows:

March 31, 2005
March 31, 2006
March 31, 2007
March 31, 2008
March 31, 2009 and thereafter

Millionsof yenThousands of
U.S. dollars¥21,300
5,700
4,400
900
11,666$201,533
53,931
41,631
8,516
110,379¥43,966$415,990“Other assets” under investments and other assets included ¥29,088 million (US$275,220 thousand)and ¥32,794 million in restricted collateral cash of SIA, has been pledged as alternative credit for collateral to secure the lease payment of production equipment of Isuzu vehicles as of March 31, 2004 and2003, respectively. The restricted collateral cash was part of the capital injection by Isuzu Motors Ltd.
made before acquisition of Isuzu’s share of SIA.

4. Additional Cash Flow Information(a) Cash and cash equivalents as of March 31, 2004 and 2003 consisted of the following:
Millionsof yenMillionsof yenThousands of
U.S. dollars

2004

2003

2004

Cash and time deposits
Marketable securities
Short-term loans¥ 46,684
113,490
101,871¥ 69,781
94,636
98,177$ 441,707
1,073,801
963,866

Less maturity over three months

262,045(122,644)

262,594(92,650)

2,479,374(1,160,413)

Cash and cash equivalents¥139,401¥169,944$1,318,961(b) Assets and liabilities of newly consolidated subsidiary through acquisition of shares:
Assets and liabilities of NIIGATA SUBARU Inc. and relationship with acquisition cost and net cash outflow of such acquisition, which included in “Other, net” under “Cash flows from investing activities” forthe year ended March 31, 2004, were as follows:

44 FUJI HEAVY INDUSTRIES LTD.

Millionsof yenThousands of
U.S. dollars

Current assets
Long-term assets
Goodwill
Current liabilities
Long-term liabilities¥2,2684,065
212(3,145)(1,217)$21,459
38,462
2,006(29,757)(11,515)

Acquisition cost of NIIGATA SUBARU Inc.
Cash and cash equivalents of NIIGATA SUBARU Inc.

2,183
(324)

20,655(3,066)

Net cash used for acquisition of NIIGATA SUBARU Inc.

¥1,859$17,589

Assets and liabilities of YAMANASHI SUBARU MOTOR CO., LTD. and relationship with acquisition
cost and net cash outflow of such acquisition, which included in “Other, net” under “Cash flows frominvesting activities” for the year ended March 31, 2003, were as follows:
Millionsof yenCurrent assets
Long-term assets
Goodwill
Current liabilities
Long-term liabilities

¥333
520
277
(572)
(273)

Acquisition cost of YAMANASHI SUBARU MOTOR CO., LTD.
Cash and cash equivalents of YAMANASHI SUBARU MOTOR CO., LTD.

285
(167)

Net cash used for acquisition of YAMANASHI SUBARU MOTOR CO., LTD.

¥118

Assets and liabilities of the Consignment Division of Subaru of Indiana Automotive, Inc. (SIA) at the
beginning of its consolidation and relationship with acquisition cost of Isuzu’s share of SIA and net
increase in cash and cash equivalents due to such acquisition of the share for the year ended March 31,
2003, were as follows:
Millionsof yenCurrent assets
Long-term assets
Current liabilities
Long-term liabilities
Consolidation adjustments¥20,691
40,464(5,287)(7,010)(48,858)

Acquisition cost of Isuzu’s share
Cash and cash equivalents of the Consignment Division of SIA

0(12,989)

Net increase in cash and cash equivalents due to acquisition of Isuzu’s share of SIA¥12,989

5. Marketable Securities and Investment Securities
Information as to the value of marketable securities and investment securities as of March 31, 2004 and2003 was as follows:(1) Held-to-maturity debt securities for which fair market value was available:(a) As of March 31, 2004:
Millions of yen

Fair market value not exceeding book value:
Government bonds
TotalBook value

Fair market value

Difference

¥5

¥5

¥—

¥5

¥5

¥—

Book value

Fair market value

Difference

$47

$47

$—

$47

$47

$—

Thousands of U.S. dollars

Fair market value exceeding book value:
Government bonds
Total

Annual Report 200445

(b) As of March 31, 2003:
Millions of yen

Fair market value exceeding book value:
Government bonds
TotalBook value

Fair market value

Difference

¥5

¥5

¥0

¥5

¥5

¥0)

(2) Other investment securities (available-for-sale securities) for which fair market value was available:(a) As of March 31, 2004:
Millions of yen

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

Acquisition cost

Book value

Difference¥18,869¥36,167¥17,298

6,818
5,299
36
5,570

6,821
5,331
161
5,573

3
32
125
3

36,59254,053

17,461

2,011

1,889

(122)

—
4,801
1,546
848

—
4,799
1,546
845

—
(2)
0
(3)

9,206

9,079

(127)

¥45,798¥63,132¥17,334

Acquisition cost

Book value

Difference$178,532$342,199$163,667

64,50950,137341
52,70164,53850,4401,523
52,730

29
303
1,182
29

346,220

511,430

165,210

19,027

17,873(1,154)—45,425
14,6288,024—
45,406
14,628
7,995

—
(19)
0
(29)

87,10485,902(1,202)$433,324$597,332$164,008

Thousands of U.S. dollars

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

46 FUJI HEAVY INDUSTRIES LTD.

(b) As of March 31, 2003:
Millions of yen
Acquisition cost

Book value

Difference¥ 6,181¥13,974¥7,793

4,966
6,566
201
300

5,142
6,631
201
300

176
65
0
0

18,214

26,248

8,034

15,844

13,634(2,210)

—
4,317
1,959
325

—
4,309
1,958
306

—
(8)
(1)
(19)

Sub-total

22,44520,207(2,238)

Total¥40,659¥46,455¥5,796

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

Annual Report 200447

(3) Other investment securities (available-for-sale securities) sold during the years ended March 31, 2004
and 2003:(a) For the year ended March 31, 2004:
Sales amount

Total gain

Total loss

¥426,839 million
US$4,038,594 thousand¥4,760 million
US$45,037 thousand¥420 million
US$3,974 thousand

The above sales amount included sales of short-term investments in commercial paper etc. amounting¥372,422 million (US$3,523,721 thousand).
(b) For the year ended March 31, 2003:
Sales amount¥431,864 million

Total gain

Total loss

¥51 million¥31 million(4) Book value of major securities without available fair market value (except for held-to-maturity debt
securities stated in (1) above) as of March 31, 2004 and 2003:
Millionsof yenMoney management fundCommercial paper
Beneficiary rights to the trust
Unlisted stocks (excluding over-the-counter stocks)
Medium-term government bond fundFree financial fund
Negotiable certificated deposit

Millionsof yenThousands of
U.S. dollars

2004

2003

2004

¥52,202
31,062
8,367
6,640
4,500
501
—

¥33,064
35,646
4,122
6,787
6,504
—
2,000

$493,916
293,897
79,16562,82542,5574,740—

Note: The Company and consolidated subsidiaries recognized ¥198 million (US$1,873 thousand) and ¥3,188 million in loss on devaluation of securities forthe years ended March 31, 2004 and 2003, respectively, out of which, the devaluation of investment securities with fair market value was ¥10 million(US$95 thousand) and ¥2,950 million for the years ended March 31, 2004 and 2003, respectively.
For purpose of recording the loss on devaluation of securities, the Company and consolidated subsidiaries consider all securities whose fair market value has fallen below 50% of the book value to be permanently impaired, and records the relevant loss on devaluation. For securities whose fairvalue has declined between 30% to 50% in relation to book value, the Company and consolidated subsidiaries specifically consider the probability ofrecovery of the fair value, and records a loss on devaluation in an amount deemed sufficient.

(5) Schedule of redemption for other securities with maturity and held-to-maturity debt securities as ofMarch 31, 2004 and 2003:(a) As of March 31, 2004:
Millions of yen

Debt securities
Government andmunicipal bonds
Corporate bonds
Other
Other
Total

48 FUJI HEAVY INDUSTRIES LTD.

Within 1
year

1 to 5years

5 to 10years

Over 10
years

¥

960
8,440
32,604
10,124¥4,760
1,125
161
174

¥ 875
403
—
103

¥232
—
—
228

¥52,128¥6,220¥1,381¥460

Thousands of U.S. dollars
Within 1
year

1 to 5years

5 to 10years

Over 10
years

$

9,083
79,856308,487
95,790$45,038
10,644
1,523
1,646$ 8,279
3,813
—
975

$2,195——2,157$493,216$58,851$13,067$4,352

(b) As of March 31, 2003:
Millions of yen
Within 1
year

Debt securities
Government andmunicipal bonds
Corporate bonds
Other
Other
Total

1 to 5years

5 to 10years

Over 10years¥
68
10,06237,814
4,424¥3,843 ¥1,010
505
699
161
—
—
—

¥225
505
—
—

¥52,368¥4,509 ¥1,709¥730

6. Inventories
Inventories as of March 31, 2004 and 2003 consisted of the following:

Finished products
Work in process
Raw materials
Supplies

Millionsof yenMillionsof yenThousands of
U.S. dollars

2004

2003

2004

¥107,679
55,491
13,5882,580¥120,986
55,69820,005
1,967$1,018,819
525,035
128,565
24,411¥179,338¥198,656$1,696,830

7. Property, Plant and Equipment
Property, plant and equipment as of March 31, 2004 and 2003 were summarized as follows:
Millionsof yenMillionsof yenThousands of
U.S. dollars

2004

2003

2004

Buildings and structures
Machinery and vehicles
Other¥263,128
468,636
205,900¥254,567
477,782
198,164$2,489,621
4,434,062
1,948,150

Less accumulated depreciation
Land
Construction in progress

937,664(615,374)
166,518
20,935930,513(606,307)
157,895
14,4418,871,833(5,822,443)
1,575,532
198,079¥509,743¥496,542$4,823,001

Total

8. Revaluation Reserve for Land
In accordance with the Land Revaluation Law (Law No. 34, enacted on March 31, 1998), land owned by aconsolidated subsidiary for business use was revalued on March 31, 2002. The unrealized gains from therevaluation were included in shareholders’ equity as “Revaluation reserve for land,” net of deferred taxes.
The deferred taxes of the unrealized gains were included in other long-term liabilities. Unrecorded loss onrevaluation as of March 31, 2004 was ¥308 million (US$2,914 thousand). According to the Law, theCompany and consolidated subsidiaries are not permitted to revalue the land after April 1, 2002.

Annual Report 2004

49

9. Short-Term Borrowings and Long-Term Debts
Short-term borrowings as of March 31, 2004 and 2003 consisted of the following:

Bank loans with average interest rate of 0.69% and 1.09%
per annum as of March 31, 2004 and 2003, respectively
Commercial paper with average interest rateof 0.03% per annum as of March 31, 2004 and 2003

Millionsof yenMillionsof yenThousands of
U.S. dollars

2004

2003

2004

¥197,029¥173,084$1,864,216

10,0009,000

94,616¥207,029¥182,084$1,958,832

Millionsof yenMillionsof yenThousands of
U.S. dollars

2004

2003

2004

¥ 97,448$ 673,356

18,77410,00010,00010,00020,00030,00010,000—300——
94,616
94,616
189,233
283,849
94,616
189,233
2,839

Long-term debts as of March 31, 2004 and 2003 consisted of the following:

Loans principally from banks and insurance companies due
through 2014 with average interest rate of 2.50%
and 2.17% per annum as of March 31, 2004
and 2003, respectively¥ 71,167
Unsecured 0.90% convertible bonds due September 30, 2003,
convertible at ¥513.00 for one common share,
redeemable before due date—Unsecured 2.10% bonds due August 29, 2003—
Unsecured 2.30% bonds due September 30, 2005
10,000Unsecured 1.76% bonds due April 30, 2004
10,000Unsecured 0.97% bonds due May 15, 2006
20,000Unsecured 1.22% bonds due September 30, 2008
30,000Unsecured 0.89% bonds due September 28, 2007
10,000Unsecured 0.68% bonds due June 18, 2010
20,000
Secured 1.80% bonds of a consolidated subsidiary due July 7, 2005
300
Unsecured 0.93% bonds of a consolidated subsidiary
due February 15, 2007
500
Less—Portion due within one year

50 FUJI HEAVY INDUSTRIES LTD.

500

4,731

171,967(40,888)

207,022(57,660)

1,627,089(386,867)¥131,079¥149,362$1,240,222

Annual maturities of long-term debts as of March 31, 2004 were as follows:

2005
2006
2007
2008
2009
2010 and thereafter

Millionsof yenThousands of
U.S. dollars¥ 40,888
37,96829,428
11,24331,22521,215$ 386,867
359,239
278,437
106,377
295,440
200,729¥171,967$1,627,089

The following assets as of March 31, 2004 and 2003 were pledged as collateral for certain loans:

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

Millionsof yenMillionsof yenThousands of
U.S. dollars

2004

2003

2004

¥ 30,924
415
95,904248¥ 34,843
1,079
105,815—$ 292,592
3,927
907,408
2,346¥127,491¥141,737$1,206,273

The unexecuted balance of commitments for borrowings by the Company and consolidated
subsidiaries (Subaru of America, Inc. and Subaru Europe N.V./S.A.) as of March 31, 2004 was as follows:
Millionsof yenThousands of
U.S. dollars

Total commitments
Less amounts currently executed¥103,500
19,318$979,279
182,780

Unexecuted balance¥ 84,182$796,499

10. Unexecuted Balance of Overdraft Facilities and Lending Commitments
The unexecuted balance of overdraft facilities and lending commitments at a consolidated subsidiary(Subaru Finance Co., Ltd.) as of March 31, 2004 was as follows:
Millionsof yenThousands of
U.S. dollars

Total overdraft facilities and lending commitments
Less amounts currently executed¥8,1704,244$77,301
40,155Unexecuted balance¥3,926$37,146

A portion of the overdraft facilities and lending commitments above is subject to credit considerations
as documented in the customer contracts. Therefore, the total balance above is not always executable.

11. Pension and Severance Plans
The Company and consolidated domestic subsidiaries 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 50 or over. Consolidated foreign subsidiaries primarily have defined contribution plans.

Annual Report 2004

51

“Pension and severance cost” under “Other income (expenses)” in the accompanying consolidated
statement of income for the year ended March 31, 2004 represents cost resulted from changes made bycertain consolidated subsidiaries in the method of calculating projected pension and severance obligation from the simplified method to the principal method. Under the simplified method, accrued pension
and severance liability is provided at the amount that would have been payable if all employees had voluntarily retired at the end of the fiscal year, less the amount covered by the plan assets, while accrued
pension and severance liability is provided based on the estimated amount of pension and severance
obligation (projected benefit obligations), less the fair value of plan assets at the end of the fiscal year
under the principal method.
One of the consolidated subsidiaries changed the calculation method to the principal method because
the number of employees exceeded 300 due to a merger, and other subsidiaries changed the calculation
method as a result of reliability of actuarial calculation based on certain assumptions increased.
As a result, other income decreased by ¥1,268 million (US$11,997 thousand) and income before
income taxes and minority interest decreased by the same amount.
Reconciliation between the projected pension and severance obligation and accrued pension and severance liability as of March 31, 2004 and 2003 was as follows:
Millionsof yenMillionsof yenThousands of
U.S. dollars

2004

2003

2004

a. Projected pension and severance obligationb. Plan assets¥139,686(54,946)¥130,994(44,873)$1,321,658(519,879)

c. Unfunded pension and severance obligations
d. Unamortized actuarial gain/loss
e. Unamortized prior service cost

84,740(19,613)(3,546)

86,121(21,137)(3,841)

801,779(185,571)(33,551)

f. Net amount recorded in balance sheet
g. Prepaid pension cost

61,581(73)

61,143(27)

582,657(691)

h. Accrued pension and severance liability¥ 61,654¥ 61,170$ 583,348

Notes: 1. The above amounts included the government pension plan funded by social security taxes paid by employees and employer.
2. Certain insignificant consolidated subsidiaries calculated the liability using the simplified method.
3. Unamortized prior service cost arose from the change of retirement regulation for employees by certain consolidated subsidiaries.
4. In addition to the above plan assets, there were plan assets for the multi-employer pension plan amounting to ¥16,824 million (US$159,183
thousand) and ¥17,560 million for the years ended March 31, 2004 and 2003, 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.

Periodic pension and severance costs for the years ended March 31, 2004, 2003 and 2002 consistedof the following:
Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2004

2003

2002

2004

a. Service costb. Interest costc. Expected return on plan assets
d. Amortization of actuarial gain/loss
e. Amortization of prior service cost

¥10,695
3,075(1,155)
1,269
295¥10,004
3,047(1,262)770
296¥ 9,099
3,284(1,856)422—$101,192
29,094(10,928)
12,0072,791

f. Pension and severance cost

¥14,719¥12,855¥10,949$134,156

Notes: 1. The above amounts did not include the social security taxes paid by employees.
2. Service costs of consolidated subsidiaries using the simplified method were included in service cost above.
3. Service costs above included service cost for the multi-employer pension plan amounting to ¥1,096 million (US$10,370 thousand), ¥907 millionand ¥846 million for the years ended March 31, 2004, 2003 and 2002, respectively, for which plan assets could not be allocated to each specificparticipating employer.
4. Service costs above included contributions for the defined contribution plans of consolidated foreign subsidiaries amounting to ¥1,549 million(US$14,656 thousand), ¥1,579 million and ¥1,286 million for the years ended March 31, 2004, 2003 and 2002, respectively.
5. In addition to the pension and severance cost above, additional retirement payments amounting to ¥120 million (US$1,135 thousand), ¥137 million and ¥56 million for the years ended March 31, 2004, 2003 and 2002, respectively, were included in general and administrative expenses.

52 FUJI HEAVY INDUSTRIES LTD.

Actuarial assumptions used in computation of pension and severance liability were as follows:a. Attribution of expected benefit obligation
The straight-line method
b. Discount rate
2.0%–2.5% (FY2003: 2.5%–3.5%)
c. Expected rate of return on plan assets
1.4%–4.0%
d. Amortization of actuarial gain/loss
5–18 years (It is amortized by the straight-line
method starting from the following fiscal year basedon the periods shorter than the average remaining
service periods of the eligible employees)e. Amortization of prior service cost
14 years

12. Income Taxes
The Company and consolidated subsidiaries were subject to a number of taxes based on income, whichin aggregate, resulted in normal statutory income tax rates of approximately 41.8% for the years ended
March 31, 2004, 2003 and 2002.
A reconciliation of the statutory income tax rate in Japan to the Company’s effective income tax rate
for the years ended March 31, 2004, 2003 and 2002 was as follows:
2004

2003

2002

Statutory income tax rate in Japan
Increase (reduction) in taxes resulting from:
Changes in valuation allowance and tax benefit realized fromthe losses carried forward
Adjustment of past corporate income taxes
and corporate income taxes refundable
Special deduction on corporate income taxes
Entertainment and other non-deductible expenses
Effect of change in the statutory income tax rate in Japan
Effect of lower taxes on foreign income
Amortization of consolidation adjustments
Other

41.8%

41.8%

41.8%

1.6

(8.1)

6.8

(5.3)
(4.9)
0.9
1.3
—
(3.4)
(0.7)

(6.3)
(3.1)
2.5
1.5
—
—
0.6

1.4
—
1.4
—
(0.7)
—
(0.3)

Effective income tax rate

31.3%

28.9%

50.4%

Annual Report 2004

53

Significant components of the deferred tax assets and liabilities as of March 31, 2004 and 2003 wereas follows:
Millionsof yenMillionsof yenThousands of
U.S. dollars

2004

2003

2004

¥ 4,696
7,660
22,294
10,631
6,924
8,049
—
6,477
—
18,979¥ 4,733
11,28020,409
5,047
6,005
7,452
3,964
6,491
3,400
25,303$ 44,432
72,476
210,938
100,587
65,512
76,157—
123,597—
179,572

85,710(9,202)

94,084(8,967)873,271(149,380)

Total deferred tax assets, net of valuation allowance

76,50885,117

723,891

Deferred tax liabilities:
Depreciation/amortization expenses
Net unrealized holding gains on investment securities
Revaluation reserve for land
Advanced depreciation reserve
Other(11,946)(6,999)(478)(468)(1,745)(15,931)(2,332)
(442)
—
(721)

(113,029)(66,222)(4,523)(4,428)(16,510)

Total deferred tax liabilities(21,636)(19,426)(204,712)

Net deferred tax assets¥54,872¥65,691$519,179

Deferred tax assets:
Deficit carry forwards
Unrealized gain on sales of inventories
Accrued pension and severance liabilities
Accrued expenses
Accrued bonuses
Accrued warranty claims
Loss on valuation of investment securities
Unrealized gain on sales of property, plant and equipment
Loss on valuation of property, plant and equipment
Other
Total deferred tax assets
Valuation allowance

Net deferred tax assets were included in the following accounts in the accompanying consolidated balance
sheets.
Millionsof yenMillionsof yenThousands of
U.S. dollars

2004

2003

2004

Current assets—Deferred tax assets
Investments and other assets—Deferred tax assets
Current liabilities—Other current liabilities
Long-term liabilities—Other long-term liabilities¥34,149
29,7070(8,984)¥40,340
33,466(1)(8,114)$323,105
281,0770(85,003)

Total net deferred tax assets¥54,872¥65,691$519,179

Effective for years commencing on April 1, 2004 or later, according to the revised local tax law, income
tax rates for enterprise taxes will be reduced as a result of introducing the assessment by estimation on
the basis of the size of business. Based on the change of income tax rates, for calculation of deferred tax
assets and liabilities, the Company and consolidated domestic subsidiaries used the aggregate statutory
income tax rates of 41.8% for current items and 40.5% for non-current items as of March 31, 2003 and40.5% for both current and non-current item as of March 31, 2004.
As a result of the change in the aggregate statutory income tax rates, net deferred tax assets
decreased by ¥640 million and income taxes—deferred on the consolidated statement of income, net
unrealized holding gains on securities, revaluation reserve for land and minority interest increased by¥728 million, ¥73 million, ¥8 million and ¥7 million, respectively, in the fiscal year 2003.

54 FUJI HEAVY INDUSTRIES LTD.

13. Shareholders’ Equity
Under the Commercial Code of Japan, the entire amount of the issue price of shares is required to beaccounted for as capital, although a company may, by resolution of its Board of Directors, account for an
amount not exceeding one-half of the issue price of the new shares as additional paid-in capital, which isincluded in capital surplus.
Effective October 1, 2001, the Commercial Code provides that an amount equal to at least 10% of
cash dividends and other cash appropriations shall be appropriated and set aside as a legal earnings
reserve until the total amount of legal earnings reserve and additional paid-in capital equals 25% of common stock. [The total amount of legal earnings reserve and additional paid-in capital of the Company has
been reached to 25% of common stock, and therefore the Company is not required to provide legal
earnings reserve any more.] The legal earnings reserve and additional paid-in capital may be used toeliminate or reduce a deficit by resolution of the shareholders’ meeting or may be capitalized by resolution of the Board of Directors. On condition that the total amount of legal earnings reserve and additional
paid-in capital remains being equal to or exceeding 25% of common stock, they are available for distribution by the resolution of shareholders’ meeting. Legal earnings reserve is included in retained earnings
in the accompanying financial statements.
The maximum amount that the Company can distribute as dividends is calculated based on the nonconsolidated financial statements of the Company in accordance with the Commercial Code.
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, 2004 include amounts
representing final cash dividends of ¥3,504 million (US$33,154 thousand), ¥9 (US$0.09) per share,and directors’ bonuses of ¥100 million (US$946 thousand), which were approved at the shareholders’meeting held on June 25, 2004.

14. Selling, General and Administrative Expenses
Selling, general and administrative expenses for the years ended March 31, 2004, 2003 and 2002
consisted of the following:Transportation and packing expenses
Advertisement cost
Sales incentives
Salary and bonus
Research and development cost
OthersMillionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2004

2003

2002

2004

¥ 14,004
53,25733,15052,211
56,405
94,384¥ 14,089
51,27925,64055,44658,78887,992¥ 14,171
51,19622,18255,29853,73584,481$ 132,501
503,898
313,653494,001
533,684
893,027¥303,411¥293,234¥281,063$2,870,764

15. Loss on Liquidation of Affiliated Companies and Discontinued Operations
In fiscal 2002, the Company recorded loss on liquidation of affiliated companies to cover potential losses
from liquidation and guarantees based on the reasonable assessment of the financial condition of theaffiliated companies.
The Company terminated the operation of Bus and Train Production by March 31, 2003. Loss on discontinued operations due to the termination of bus production was ¥893 million and train production was¥989 million.

Annual Report 2004

55

16. Leases(1) Information as lessee
As allowed under Japanese accounting standards, the Company and consolidated subsidiaries in Japanaccount for finance leases, which do not transfer ownership of leased assets to lessees as stipulated inlease 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

2004

2003

2004

Machinery, equipment and vehicles
Other tangible assets
Intangibles assets¥1,465
2,634
435¥1,156
2,677
536$13,861
24,922
4,116

Accumulated depreciation/amortization

4,534(2,268)4,369(2,671)42,899(21,459)

Net¥2,266¥1,698$21,440

Information related to finance leases for the years ended March 31, 2004, 2003 and 2002 was as follows:
Millionsof yenRent paid
Depreciation/amortization expenses
Interest expense portion

Millionsof yenMillionsof yenThousands of
U.S. dollars

2004

2003

2002

2004

¥757
739
51

¥990
895
54

¥1,331
1,246
73$7,162
6,992
483

The future minimum lease/rent payments, excluding the portion of interest thereon, as of March 31,
2004 and 2003 were as follows:

Finance leases:
Due within one year
Due after one year
Operating leases:
Due within one year
Due after one year¥

Millionsof yenMillionsof yenThousands of
U.S. dollars

2004

2003

2004

581
1,773

¥

597
868

$

5,497
16,776¥ 2,354¥ 1,465$ 22,273¥ 8,538
50,700¥ 6,296
65,570$ 80,783
479,705¥59,238¥71,866$560,488(2) Information as lessor
Capitalized lease assets for finance leases as of March 31, 2004 and 2003 were as follows:

56 FUJI HEAVY INDUSTRIES LTD.

Millionsof yenMillionsof yenThousands of
U.S. dollars

2004

2003

2004

Machinery, equipment and vehicles
Other tangible assets
Intangible assets¥22,505
9,353
1,261

¥21,5447,742
755$212,934
88,495
11,931

Accumulated depreciation/amortization

33,119(14,814)30,041(12,585)

313,360(140,165)¥18,305¥17,456$173,195

Information related to finance leases for the years ended March 31, 2004, 2003 and 2002 was as follows:

Rent received
Depreciation/amortization expenses
Interest income portion

Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2004

2003

2002

2004

¥8,882
6,438
1,579¥9,273
6,236
1,688¥7,832
5,894
1,153$84,038
60,914
14,940The future minimum lease/rent payments receivable, excluding the portion of interest thereon, as ofMarch 31, 2004 and 2003 was as follows:

Finance leases:
Due within one year
Due after one year
Operating leases:
Due within one year
Due after one year

Millionsof yenMillionsof yenThousands of
U.S. dollars

2004

2003

2004

¥ 7,663
13,947¥ 7,083
13,071$ 72,505
131,961¥21,610¥20,154$204,466¥ 4,161
4,502¥ 5,084
3,291$ 39,370
42,596¥ 8,663¥ 8,375$ 81,966

Millionsof yenThousands of
U.S. dollars

17. Contingent Liabilities
Contingent liabilities as of March 31, 2004 were as follows:

Trade notes receivable discounted with banks
As guarantor of the indebtedness from financial institutes¥

23
38,031$

218
359,835

18. Derivative Financial Instruments
In the normal course of business, the Company and consolidated subsidiaries employ derivative financial
instruments, including foreign exchange forward contracts, foreign currency options and interest rate
swaps, to manage their 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 as of March 31, 2004 and 2003 was as follows:(1) Foreign currency contracts:(a) As of March 31, 2004:
Millions of yen
Contract
amountForeign currency options contracts:
Sell—
Call U.S. dollar¥29,726[398]
Buy—
Put U.S. dollar
29,571[398]

Thousands of U.S. dollars

Fair value

Valuation
gains (losses)

Contract
amountFair value

Valuation
gains (losses)

¥ 93

¥305

$281,257[3,766]$ 880$2,886255(143)

279,790[3,766]2,413(1,353)

Annual Report 200457

(b) As of March 31, 2003:
Millions of yen
Contract
amountForeign currency options contracts:
Sell—
Call U.S. dollar¥10,582[97]
Buy—
Put U.S. dollar
10,582[97]

Fair value

Valuation
gains (losses)¥196¥ (99)

127

30

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

(2) Interest rate contracts:(a) As of March 31, 2004:
Millions of yen

Interest swap contracts:
Receive floating rate
pay fixed rate

Contract
amount¥5,300Thousands of U.S. dollars

Fair value

Valuation
gains (losses)

Contract
amountFair value

Valuation
gains (losses)

¥(74)

¥(74)

$50,147$(700)$(700)(b) As of March 31, 2002:
Millions of yen

Interest swap contracts:
Receive floating rate
pay fixed rate

Contract
amountFair value

Valuation
gains (losses)¥5,800¥(134)¥(134)

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

58 FUJI HEAVY INDUSTRIES LTD.

19. Segment Information
Information by industry segment
The Company and consolidated subsidiaries operate principally in four industry segments: automobiles,
industrial products, aerospace and other business fields (including eco-related equipment).
A summary of net sales, operating income, assets, depreciation/amortization expenses and capital
expenditures by industry segments for the years ended March 31, 2004, 2003 and 2002 was shown below:
Net sales:
Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2004

2003

2002

2004

¥1,316,951
3,847¥1,229,807
3,231¥1,219,766
2,970$12,460,507
36,399Sub-total
Industrial products—
Outside customers
Inter-segment

1,320,798

1,233,038

1,222,736

12,496,906

42,257333

41,58675

39,419136

399,820
3,151

Sub-total
Aerospace—
Outside customers
Inter-segment

42,59041,661

39,555402,971

56,632
218

63,00976

66,27653535,8312,063

Sub-total
Other—
Outside customers
Inter-segment

56,85063,08566,329537,894

23,611
3,284

37,935
3,526

37,032
3,658

223,398
31,072

Net sales:
Automobiles—
Outside customers
Inter-segment

Sub-total

26,89541,461

40,690254,470

Total
Corporate and elimination

1,447,133(7,682)

1,379,245(6,908)1,369,310(6,817)

13,692,241(72,684)

Consolidated total¥1,439,451¥1,372,337¥1,362,493$13,619,557

Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2004

2003

2002

2004

Operating income (loss):
Automobiles
Industrial products
Aerospace
Other¥52,114(299)(327)(1,482)¥67,307(866)
3,359(3,114)¥85,649(290)
7,412(4,209)$493,083(2,829)(3,094)(14,022)

Total
Corporate and elimination

50,006318

66,686835

88,562(82)

473,138
3,009

Consolidated total¥50,324¥67,521¥88,480$476,147

Segment profit or loss:

Annual Report 200459

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

2004

2003

2002

2004

Total assets:
Automobiles
Industrial products
Aerospace
Other¥1,139,138
57,432
109,684
76,695¥1,140,525
55,793
101,130
75,360¥1,053,708
62,126110,156
70,233$10,778,106
543,400
1,037,790
725,660

Total
Corporate and elimination

1,382,949(33,222)

1,372,808(28,736)

1,296,223(26,665)

13,084,956(314,334)

Consolidated total¥1,349,727¥1,344,072¥1,269,558$12,770,622

Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2004

2003

2002

2004

¥ 65,486
2,115
1,712
1,799

¥ 61,743
2,133
1,772
2,248

¥ 57,724
2,055
2,084
2,101

$ 619,605
20,011
16,19817,021

71,112—

67,896—

63,964—

672,835—

Other significant items:

Depreciation/amortization expenses:
Automobiles
Industrial products
Aerospace
Other
Total
Corporate and elimination
Consolidated total¥ 71,112¥ 67,896¥ 63,964$ 672,835

Capital expenditures for segment assets:
Automobiles
Industrial products
Aerospace
Other¥118,591
852
2,893
5,690

¥111,584
3,551
1,284
3,004

¥109,054
3,223
988
5,111

$1,122,065
8,061
27,372
53,837

Total
Corporate and elimination

128,026—

119,423—

118,376—

1,211,335—

Consolidated total¥128,026¥119,423¥118,376$1,211,335

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
Eco-related equipment, houses, real estate
3. All operating costs and expenses are allocated to each business segment.
4. All figures in corporate and elimination represent elimination.
5. “Rail cars” and “buses” are excluded from main products of “Other segment” as a result of termination of the operation of Bus and Train
Production by March 31, 2003.
6. Change of accounting policy(Fiscal 2004)
Revenue recognition
As stated in “Summary of Significant Accounting Policies,” the Company changed the revenue recognition policy for the Aerospace Division’s production contracts with the production term exceeding one year and the amount of each contract exceeding ¥5,000 million, from the delivery basis
to the percentage-of-completion method since the fiscal year ended March 31, 2004. As a result of the change, in the Aerospace segment, net
sales increased by ¥4,013 million (US$37,970 thousand) and operating income increased by ¥231 million (US$2,186 thousand) as compared withamounts assumed by application of previous policy.
(Fiscal 2003)
None.
(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.

60 FUJI HEAVY INDUSTRIES LTD.

Information by geographic area
A summary of net sales, operating income and assets by geographic area for the years ended March 31,
2004, 2003 and 2002 was shown below:
Net sales:
Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2004

2003

2002

2004

¥ 840,330
263,260¥ 786,257
295,900¥ 801,351
280,213$ 7,950,894
2,490,870

Sub-total
North America—
Outside customers
Inter-segment

1,103,590

1,082,157

1,081,564

10,441,764

590,271
1,692

582,326
1,971

557,509
1,972

5,584,928
16,009Sub-total
Other—
Outside customers
Inter-segment591,963584,297559,4815,600,937

8,850
344

3,754
231

3,633
85

83,735
3,255

Sub-total

9,194

3,985

3,718

86,990Total
Corporate and elimination

1,704,747(265,296)

1,670,439(298,102)

1,644,763(282,270)

16,129,691(2,510,134)

Consolidated total¥1,439,451¥1,372,337¥1,362,493$13,619,557

Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2004

2003

2002

2004

Operating income:Japan
North America
Other¥37,670
1,071
259¥57,136
15,824
127¥72,393
20,70563$356,420
10,133
2,451

Total
Corporate and elimination

39,00011,32473,087(5,566)

93,161(4,681)

369,004
107,143

Consolidated total¥50,324¥67,521¥88,480$476,147

Net sales:
Japan—
Outside customers
Inter-segment

Segment profit or loss:

Annual Report 2004

61

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

2004

2003

2002

2004

Assets:Japan
North America
Other¥1,077,341
309,8422,102¥1,020,224
373,125
1,141¥1,031,129
282,230
1,220$10,193,405
2,931,611
19,889Total
Corporate and elimination

1,389,285(39,558)

1,394,490(50,418)

1,314,579(45,021)

13,144,905(374,283)

Consolidated total¥1,349,727¥1,344,072¥1,269,558$12,770,622

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 expenses are allocated to each segment.
4. All figures in corporate and elimination represent elimination.
5. Change of accounting policy(Fiscal 2004)
Revenue recognition
As stated in “Summary of Significant Accounting Policies,” the Company changed the revenue recognition policy for the Aerospace Division’s production contracts with the production term exceeding one year and the amount of each contract exceeding ¥5,000 million, from the delivery basis
to the percentage-of-completion method since the fiscal year ended March 31, 2004. As a result of the change, in the Japan segment, net sales
increased by ¥4,013 million (US$37,970 thousand) and operating income increased by ¥231 million (US$2,186 thousand) as compared withamounts assumed by application of previous policy.
(Fiscal 2003)
None.
(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.

Overseas sales
Overseas sales for the years ended March 31, 2004, 2003 and 2002 were summarized as follows:
Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2004

2003

2002

2004

Overseas sales:
North America
EuropeOther¥ 624,372
101,049
86,113

43.4% ¥ 622,783
7.0
72,841
6.0
77,453

45.4% ¥ 607,630
5.3
56,820
5.6
66,778

44.6% $ 5,907,759
4.2
956,0884.9
814,770

Total¥ 811,534

56.4% ¥ 773,077

56.3% ¥ 731,228

53.7% $ 7,678,437

Consolidated net sales¥1,439,451 100.0% ¥1,372,337 100.0% ¥1,362,493 100.0% $13,619,557

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
3. Overseas sales are sales outside of Japan by the Company and consolidated subsidiaries.

62 FUJI HEAVY INDUSTRIES LTD.

20. Subsequent Event
On May 14, 2004, the Company concluded a share exchange agreement with Yusoki Kogyo K.K., a consolidated subsidiary. As a result, Yusoki Kogyo K.K. will become a wholly owned subsidiary of theCompany for the years ending March 31, 2005. Detail information about the share exchange agreement
is as follows:(1) Condition of the share exchange:(a) Schedule:
Date

May 14, 2004
June 29, 2004
August 3, 2004

Signing of the share exchange agreement
Approval of the share exchange agreement at shareholders’ meeting of Yusoki Kogyo K.K.
Date of the share exchange

Pursuant to Article 358 of the Japanese Commercial Code (simple exchange of stock), the Company will
exchange shares without approval at shareholders’ meeting.
(b) Share exchange ratio:
FUJI HEAVY INDUSTRIES LTD.
(to be 100% parent company)

Yusoki Kogyo K.K.
(to be 100% subsidiary)

1

0.17

Share exchange ratio(c) Cash distribution upon share exchange:
There will be no cash distribution in relation to the share exchanges.
(2) Condition after share exchange:(a) Company name, main business, representative and location of head office:Both the Company and Yusoki Kogyo K.K. will not change their company name, main business, representative and location of head office.
(b) Common stock of the Company:
The Company will utilize treasury shares for this share exchange, therefore no increase in common stock.
(c) Effects on consolidated financial results:
Yusoki Kogyo K.K. has been a consolidated subsidiary of the Company, so that the impact of the shareexchange on consolidated financial results will be insignificant.

Annual Report 2004

63

Independent Auditors’ Report

To the Board of Directors of
FUJI HEAVY INDUSTRIES LTD.
We have audited the accompanying consolidated balance sheets of FUJI HEAVY INDUSTRIES LTD. (“the Company”) andconsolidated subsidiaries as of March 31, 2004 and 2003, and the related consolidated statements of income, shareholders’equity and cash flows for each of the three years in the period ended March 31, 2004, expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to independently
express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of the Company and subsidiaries as of March 31, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 2004, in conformity with accounting principles generally accepted in Japan.
Without qualifying our opinion, we draw attention to the following.
(1) As discussed in Note 2 to the consolidated financial statements, the Company changed the method of the revenue recognition policy for Aerospace Division’s production contracts in fiscal year 2004.
(2) As discussed in Note 2 to the consolidated financial statements, the Company and subsidiaries changed the method of
accounting for retirement benefit to directors and statutory auditors in fiscal year 2002.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31,
2004 are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts
and, in our opinion, such translation has been made on the basis described in Note 1 to the consolidated financial statements.

Tokyo, Japan
June 25, 2004

64 FUJI HEAVY INDUSTRIES LTD.

Consolidated Subsidiaries and Affiliates (As of March 31, 2004)

JAPAN
Fuji Robin Industries Ltd. (57.9%)
Manufacture, service, and sales of agricultural/forestry equipment,
engines, fire pumps, and related parts
http://www5.mediagalaxy.co.jp/fujirobin/

Fuji Machinery Co., Ltd. (69.5%)
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. (97.5%)
Manufacture of Subaru specially equipped automobiles and distribution of Subaru automobile parts
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.
Phone: +1-856-488-8500
Fax: +1-856-488-3137
Distribution and sales of Subaru automobiles and parts
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.
Phone: +1-856-488-8532
Fax: +1-856-488-9279
Distribution and sales of Subaru automobiles and parts
Subaru Research & Development, Inc.

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

Subaru UI Co., Ltd. (100.0%)
Refurbishment, distribution, and sales of used Subaru automobiles

Subaru of Indiana Automotive, Inc. (100.0%)
and one subsidiary

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

Subaru of Taiwan Co., Ltd.

Manufacture and sales of parts for car trailers, crane trucks,
construction machinery, and automobiles
http://www.yusoki.co.jp/

8F-1, No. 100, Sec. 2, Chung Hsiao E. Rd.,
Taipei, Taiwan
Phone: +886-2-8866-6630
Fax: +886-2-2832-4021
http://www.subaru-sot.com.tw/

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

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

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

5990 Falbourne Street, Mississauga, Ontario, Canada L5R 3S7
Phone: +1-905-568-4959
Fax: +1-905-568-8087
Distribution and sales of Subaru automobiles
http://www.subaru.ca/

Yusoki Kogyo K.K. (45.6%)

Subaru Europe N.V./S.A. (100.0%)
Hermesstraat 6C, 1930 Nossegem-Zaventem, Belgium
Phone: +32-2-714-0400
Fax: +32-2-725-7792
Distribution, sales and marketing of automobiles, parts andaccessories

Robin Manufacturing U.S.A., Inc. (60.0%)1201 Industrial Road, Hudson, WI 54016, U.S.A.
Phone: +1-715-381-5902
Fax: +1-715-381-5901
Manufacture and sales of general-purpose, four-wheel buggy
and golf cart engines

Annual Report 2004

65

Investor Information (As of March 31, 2004)

Head Office

Major Shareholders

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

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

General Motors of Canada Limited
Japan Trustee Services Bank, Ltd.
The Chase Manhattan Bank, N.A. London
The Master Trust Bank of Japan, Ltd.
Mizuho Corporate Bank, Ltd.
Suzuki Motor Corporation
The Nippon Life Insurance Company
Sompo Japan Insurance Inc.
The Nomura Trust & Banking Co., Ltd
The Share Holding Association of FHI Business Partners

Established

Stock Listings

July 15, 1953

Tokyo Stock Exchange

Paid-in Capital

Transfer Agent¥153,795 million

Mizuho Trust & Banking Co., Ltd.
2-1, Yaesu 1-chome, Chuo-ku, Tokyo 103-8670, Japan

Investor Relations Office

Number of Shareholders
Web Site Address

45,178

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

Number of Common Stock Issued and Outstanding
782,865,873

Domestic Manufacturing Divisions
Gunma Manufacturing Division (Automobile Division)
Utsunomiya Manufacturing Division (Aerospace Division and
Eco technologies Division)
Saitama Manufacturing Division (Industrial Products Division)

Quarterly Common Stock Price Range (Tokyo Stock Exchange)
(Yen)
1200
1000
800
600
400
200
0

FY

2000

2001

2002

2003

2004

High

¥1,189

¥925

¥944

¥712

¥668

Low

647

608

471

362

414

66 FUJI HEAVY INDUSTRIES LTD.

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

Printed on recycled paper in Japan

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