Annual Report For the year ended March 31, 2007

PROFILE

Fuji Heavy Industries Ltd. (FHI) is a global manufacturer of transportation- andaerospace-related products and the 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 theworld’s automakers have their roots in the aircraft industry, FHI is the only
automaker who continues to build aircraft today.
On July 15, 2003, the 50th anniversary of the Company’s founding in 1953,
FHI introduced the six-star (“mutsuraboshi”) Subaru automobile emblem design as
its new corporate symbol. The Company has been using this symbol to further
fortify its brand image and awareness on a global basis.

CONTENTSPERFORMANCE OVERVIEWA MESSAGE TO OUR STAKEHOLDERSDISCUSSION WITH THE PRESIDENT
BLUEPRINT FOR A GLOBAL SUBARU IDENTITYTO INCREASE SALES GLOBALLYGROWTH THROUGH THE BUSINESS ALLIANCE WITH TOYOTA OVERVIEW OF THE MEDIUM-TERM MANAGEMENT PLAN

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, raw material prices, and currency exchange rates. FHI disclaims any obligation to update any
forward-looking statements, whether as a result of new information, future events, or otherwise.

   . Annual Report PERFORMANCE OVERVIEW

Automobile Sales Volume (thousand units)
Net Sales
Operating Income
Ordinary Income
Net Income
Capital Expenditures
Depreciation Expenses
R&D Expenses
Interest-bearing Debt
Exchange Rate (¥/$, non-consolidated)
ROE
ROA*
Total Assets
Net Assets**

FY2003

FY2004

FY2005

FY2006

FY2007

Billions of yen(Forecast)
FY2008540
1,372.3
67.5
58.6
33.5
64.6
48.8
60.1
389.1
124
8.3
5.3
1,344.1551
1,439.5
50.3
56.6
38.6
74.6
53.2
57.5
379.0
116
8.9
3.9
1,349.7582
1,446.5
42.0
43.6
18.2
85.3
51.1
53.0
412.2
108
3.9
3.3
1,357.5571
1,476.4
58.3
46.8
15.6
56.2
57.5
46.9
374.1
112
3.3
4.6
1,348.4

578
1,494.8
47.9
42.2
31.9
59.6
58.9
50.7
343.9
117
6.6
3.9
1,316.0584
1,550.0
35.0
30.0
16.0
60.0
64.0
53.0
329.0
115
—
—
—

414.6

457.0

474.6

467.8

495.7

—

* ROA was calculated as “(operating income + interest and dividend income)/(average of assets at the beginning and end of term)”** Net Assets were restated according to the change in accounting policy (see page 43).

 SUBARU SPIRIT BUILT IN
 MANAGEMENT CORPORATE SOCIAL RESPONSIBILITY (CSR)

 FINANCIAL SECTION
 CONSOLIDATED SUBSIDIARIES AND AFFILIATES INVESTOR INFORMATION







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.Annual
AnnualReportReport
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A MESSAGE TO OUR STAKEHOLDERS

Fiscal 2003 saw Fuji Heavy Industries Ltd. (FHI) embark on the Fuji Dynamic Revolution-1 (FDR-1) mediumterm business plan. This initial effort was later followed by a revised version of the plan enacted from fiscal
2006. Now with the drafting of a new medium-term management plan running from fiscal 2008, FHI is making
a bold new start towards the “customers come first” mindset essential to providing a distinctive Subaru experience. Underpinning the new plan is a product development concept that integrates the pleasure of driving andenvironmental responsibility. Guided by this concept, FHI will build a solid earnings base over the four-year
period to fiscal 2011, along with the steady enactment of business strategies aimed at supporting further
growth in the future.

Ikuo Mori
Representative Director of the Board,
President and CEO   . Annual Report 
Welcome to our Annual Report for fiscal year 2007, ended March 31, 2007. In opening this message, there issomething that I would like to share with all of you as stakeholders in FHI.
At FHI, we are very excited today because we unveiled a full model change for the Impreza in June. This
milestone marks the first such change for a Subaru passenger car in four years. As an automaker, the announcement of a new vehicle is an event that invigorates everyone and everything within the company. From product development, sales, and marketing, to our back office, every employee, myself included, is full of energy
right now. From a personal standpoint, I am convinced that with the new Impreza we have produced an
appealing car that proves a popular choice among a broad range of customers.
Of course, beyond the release of the new car itself, another important point underlying this activity is
whether or not the car will succeed. And there is definitely a sense that we have taken the right steps toensure success as we look toward our new growth plan.

         Although net sales in fiscal 2007 surpassed those of the previous year, operating income decreased. Unit
volume and earnings conditions were especially severe, most notably in the Japanese market, where passenger car sales volume declined sharply. Looking at overseas markets, conditions remained extremely adverse
with respect to earnings in the United States. While retail sales volume exceeded 200 thousand units, growthin high-value-added vehicles, namely turbo-charged and six-cylinder engine models, stagnated. This mainlyreflected the impact of rising gasoline prices on these models. Elsewhere, though, positive signs were present
as sales grew in Russia, China and other emerging markets. There is a growing need in these regions for cars
with the exceptional technological reliability that the Subaru brand is noted for. Russia in particular is amarket from which we expect substantial growth going forward.
Fiscal 2007 was also the final year of the FDR-1 and the revised FDR-1 medium-term business plans.
Under FDR-1, we pursued a brand strategy that sought to establish Subaru as a premium brand. Unfortunately, brand value is not something that we can boost rapidly over a short timeframe. Upon reflection, theoutcome of this strategy was that we produced cars at a substantially higher cost, which resulted in raising ourbreak-even point and lowering profitability.
We reassessed this strategy with the revised FDR-1 plan. Here, our mission was to achieve a turnaroundin profitability by focusing particularly on promoting a rapid reduction in total costs and improving asset
turnover. To this end, one measure we enacted aimed to cut direct materials costs for production vehicles by
16% in Japan and 13.5% in the U.S. over a two-year period. Another measure targeted new car development, where we sought to cut the cost per car by ¥100 thousand compared to present models and reduce
tooling and die costs, development costs, and other R&D investments by 30%. During the last two years of
the plan, these initiatives helped establish a base from which we made definitive progress in paring back costs,
which has given us the momentum needed to clear the benchmarks for success in our latest plan.
In non-automotive divisions, meanwhile, we have created profitable structures in our Industrial Products
and Aerospace divisions. This is certainly the case in Aerospace, where we are leveraging our technologicalcapabilities amid rising demand for commercial aircraft. Earnings in this division are constantly growing,
helping to solidify its position as one of our stable earnings sources.

        As part of the new medium-term management plan, we have set a consolidated operating income target of ¥80
billion for the fiscal year ending March 31, 2011 (see page 11 for more details). We have positioned the push
“to provide a distinctive Subaru experience” as our first task in meeting this objective. As we continue working to further harmonize our operations with the natural environment, this will require that we be in stepwith our customers’ expectations, including with the services that we offer. That means providing distinctly   . Annual Report     %,  %
New TQF

FDR-1
Revised FDR-1

New Medium-termManagement Plan

Subaru products that offer more comfort and safe driving performance, all while continuing to push ahead
with technological development. I believe that this is precisely the kind of distinctive value proposition that
Subaru is uniquely positioned to realize.
On the marketing front, we will advance a strategy that views sales from a global perspective. In terms of
expanding our earnings base, we have identified overseas markets as the main source for growth, among
which we consider the United States to be our highest priority market. Already, we have divided our former
Overseas Sales and Marketing Division into the Overseas Sales and Marketing Division I and II. By getting in
as close as possible to its target market, the Overseas Sales and Marketing Division I is working to boost both
our earnings power and flexibility through more centralized control of sales and production in North
America. The goal is ultimately to expand Subaru’s market share by better synchronizing the release of ourglobally strategic cars. In the European market, where diesel engine cars are the norm, we plan to launch a
new car early in 2008 equipped with the world’s first horizontally opposed (boxer) turbo diesel engine, madepossible by Subaru’s own technological capabilities. Including these cars, our target is to sell a total of 100
thousand cars per year by fiscal 2011 in Europe.
Another major point in the new plan is our business alliance with Toyota Motor Corporation (Toyota).
Over the long term, our collaboration with Toyota will be crucial to enhancing the competitiveness of bothcompanies as they are called on as automakers to make more substantial upfront investments with respect tothe environment, safety and other areas. That said, even as we proceed with building ties in production,
development technology and on other fronts, we will be more selective and focused regarding fields where
Subaru has advantages, and will remain committed to cultivating the distinctiveness of the Subaru brand.
In closing, I intend to take every opportunity to entrench what I consider to be a needed reform in our
corporate mindset—the idea that “customers come first.” All of our corporate activities should revolvearound the question of “What else can we do for our customers?” This question should be present not only
when in direct contact with customers through sales, but in everything from R&D, procurement, manufacturing and quality, to sales after-service. On top of this, we should be producing cars that will win support
from our customers. The new Impreza launched this year is in many ways the first product that embodies the
successful reforms we have made so far, and I invite you to expect good things from it. As always, yourencouragement and understanding will be vital to our future success.

Ikuo Mori
Representative Director of the Board, President and CEO   . Annual Report 

DISCUSSION WITH THE PRESIDENT

To increase sales Globally
Growth through the business alliance with Toyota

Ikuo Mori
Representative Director of the Board, President and CEO   . Annual Report GLOBAL MARKETING

As we look to fiscal 2011, we have two critical tasks
ahead in establishing a solid base for growth. One isto develop and promote strategic cars that cancompete in the global market. At the same time, wemust again work to further enhance our presence inthe United States, our highest priority market.
I consider products to be fundamental to any
global strategy. And our eyes are clearly on the
global market with the newly unveiled Impreza.
The car has a long wheelbase and roomy space. In
other words, it conforms to a more global standard
specification. The new Impreza offers sure handlingand agile drivability, which will heighten its appeal
to, say, baby boomers in Japan, or to young womenin the U.S. market. In this way, we will target amuch broader range of customers who have interestin cars. In the past, we found that an image based
solely on drivability tended to limit our base of
potential customers. But this change is rooted in adifferent concept—achieve the broadest customer
base possible.

In April 2007, we established the Overseas Sales
and Marketing Division I to serve as a unit specializing in the North American market. The head of thedivision resides in the U.S. We took this step toenhance both profitability and flexibility by promoting
more locally-oriented sales activities. Anotherbenefit is more centralized control of manufacturing
and sales with respect to production bases in the
U.S. Where marketing is concerned, we plan tocomplement Subaru’s recognized reputation in the
U.S. for practical all-wheel drive (AWD) cars.
Here, we will tout the brand’s image for highperformance six-cylinder and turbo-charged vehicles.
In this way, we will work to build a more sophisticated brand image in the U.S. market. Regionally,
we plan to reinforce our sales network through “SiteControl” program that will see us establish bases inmajor cities. This step will help the brand gain astronger foothold in the South of the U.S. This plan
will not, however, lead to more sales dealerships.
Rather, this effort will call for expanding sales

To increase sales Globally   . Annual Report 

Subaru of Plano:
In October 2006, the first dealership in the “Site Control” program
opened in Plano, Texas

volume per dealership by raising the quality ofexisting outlets, for example by upgrading Subaru“Signature Facility” showrooms.
In other markets, our plans for Europe call for
rolling out cars equipped with boxer turbo diesel
engines and launching subcompact cars produced
under OEM agreement with Daihatsu Motor Co.,
Ltd. These moves will help us to meet our fiscal
2011 sales target of 100 thousand units. We will
also continue to bolster our brand strategy inEurope by expanding and upgrading functions at
Subaru Europe N.V./S.A. Markets such as Russia,
China, Eastern Europe and Nordic countries, meanwhile, are spearheading the growth in our overseas
sales volume. In these markets, a more pronounced
desire to purchase high-value-added products is
emerging. This trend suggests that we can expect
market expansion in fields where Subaru is at home,which we will take advantage of by further enhancing our sales network.

   . Annual Report 

STRONGER ALLIANCE

Growth through the business alliance with Toyota
Our business partnership with Toyota is a major
element of Subaru’s latest medium-term
management plan, and we are viewing this relationship from a long-term perspective. I believe thatsuccesses that emerge from this alliance going
forward will ultimately enable us to forge a stronger
Subaru brand.
Toyota Camry production has started at SIA.
And I have a keen sense already that there will beenormous advantages as our engineers immediately
set about studying the production engineering andcontrol systems of Toyota’s cutting-edge production facilities introduced in our SIA plant. At thesame time, Toyota’s customer-focused spirit, as
opposed to the engineer-oriented thinking that
dominated the Subaru mindset of the past, hasprovided an important lesson to us at Subaru today.
This alliance also has tremendous meaning forus from the standpoint of being able to share information on development and production technology.
Our engineering team takes part in discussions at   . Annual Report Alliance Vision
Pursue Win-Win for Competitive Growth for Long-Term
1. Reinforce Business Foundation (Engineering, Manufacturing Engineering)
2. Mutual Leverage (Manufacturing Capacity, Resources)
3. Strengthen Subaru Brand (Laser Focus on Core Competence)
Areas in Agreement / Discussion
Manufacturing
Smooth start-up of Toyota Camry production at SIA
OEM
OEM production agreement on subcompact car for Europe
Co-Development Study development projects in consignment / joint development

Ceremony to commemorate the first Toyota Camry off the new
production line at SIA, in April 2007

Toyota pertaining to cars under development andthe development of hybrid systems, and is researching ways to apply these technologies to Subaru
vehicles. We are also exploring the possibility ofjoint development projects sometime in the future.
All that said, from the standpoint of building thebrand, our policy of expanding Subaru’s distinctive
brand power remains unchanged. In other words,
the basic core of Subaru will be developed andpromoted by us, and no one else. To give an
example, one of our alliances will see Daihatsu
begin supplying subcompact cars on an OEM basis
for the European market. But this partnership wasbased on the strategic growth merits of an alliancein this region. The most notable benefit, of course,is that it will enable us to better focus on boxer
engines and AWD, our core business domains.
Through this greater selectivity and focus, we plan
to strengthen Subaru’s distinctive brand.

We will continue to explore the feasibility ofserving as a development outsourcer and joint
development opportunities during our businessalliance with Toyota, as we strive to maximize
synergies across both companies. Furthermore, thisalliance will likely have benefits beyond just production and development. I am confident that it will
generate success not only in our creation of a“customers come first” corporate mindset, but also
in sales strategies, manufacturing methods,
benchmarking, and a wide range of other fields.

   . Annual Report 

OVERVIEW OF THE MEDIUM-TERM MANAGEMENT PLAN

FY2008-2011 Medium-term Management Plan
– Customer Satisfaction: Our Customers are Everything – 
In the long term

“A compelling company with strong market presence ”• Reinforce management base to achieve two important financial indices constantly:
Operating Margin more than 8%, ROA more than 10%• To pursue Quality rather than just size
• To fulfill its Corporate Social Responsibility• To provide Compelling and Distinctive products in response to changes in the social environment     With the philosophy of “customers come first” at its core, focusing on improving profitability and investing in
growth areas with management resources
Product/Technology

Realize the distinctive SUBARU experience, while taking environmental considerations into account.
Specify the uniqueness of the vehicles with Boxer engines as our core technology field

MarketU.S.: Strategically important market
Europe: Emerging market: Increase sales and enhance profitability
Japan: Improve profitability

CompetitivenessStrengthen competitiveness in quality, cost and operational efficiency ranked as the highest level in thebusiness segment

Business Alliance with Toyota

Make best use of alliance and gear toward advancing the long-term mutual competitivenessCorporate Culture

Instill the “customers come first” philosophy
Strengthen the management system in response to the business environment changes 
<Product Roadmap>
2006

2011~

Core Models (Further Globalize)

One or More Full Model Change
Every Year

Subcompact (Europe)

By Other OEM

Subcompact (Multi-market)

Model for Environmental Strategy

Multi Passenger Vehicle

Crucial to Japanese Market

Minicars<Technology Roadmap>
2006

Introduce New Chassis in
Sequence

Diesel Engines

Europe/Consider Other Markets

Eco-friendly Power Units

Introduce New Technology inSequence

Next Generation ADA*

Deploy Worldwide* Active Driving Assist: (Advanced Pre-Crash Safety Technology)



2011~

Boxer Engine Chassis   . Annual Report    ⁽-⁾: 2007

2011(Thousand units)Plan
Total 683

1,000

Results
Total 584

800

Overseas (ex. U.S.) 212(Diesel engine)

Overseas (ex. U.S.) 162
600

U.S. 236
U.S. 178

400

Japan 236

Japan 244
200

(Passenger Cars)(Passenger Cars)0

FY2007FY2011     Cost CompetitivenessStart of TSR*-VC
Total-Cost Structure Revolution

Maximize Value for Competitiveness / Customer

Highly Value-added Products with

Cost Distribution on

Continue 30% Reduction inHigh Quality & Reasonable Price

Customers’ Demand

Development Cost

TARGET
1. Production Vehicle: Continue cost reduction associated with each system target
2. Development Vehicle: ¥100,000 per vehicle cost improvement on each vehicle
3. Power Train: ¥100,000 per vehicle cost improvement on each unit
* TSR (Total-Cost Structure Revolution)  2011• Target Sales (non-consolidated): 683 thousand units• Consignment Production: 100 thousand units• Consolidated Operating Income: ¥80 billion• Consolidated Operating Margin: 5%• Consolidated ROA: 7%
FY2008 – 2011 (4 years)• Total Consolidated R&D Expenses: ¥230 billion• Total Consolidated Capital Expenditure: ¥270 billion• Total Consolidated Depreciation Expenses: ¥250 billion   . Annual Report 

I

SUBARU SPIRIT BUILT IN

Re-envisioning Product Planning
Two key themes of the new medium-term management plan—

Right now, we are reviewing every aspect of our operations as“customers come first” and “providing a distinctive Subaru experi-

we again return to our most basic rule—customers come first. In

ence”—forced us to face the issue of just who our customers really

doing so, we have made a clear commitment to provide a distinc-are. The Subaru brand got its start in 1958 with the debut of thetive Subaru experience for drivers and passengers in creating

Subaru 360. This reasonable car provided a superior overall pack-products from the customer’s viewpoint, and integrate the plea-

age and outstanding fuel consumption, becoming a popular hit

sure of driving with environmental performance. Even as weamong a wide range of customers. In 1989 we launched the highly

remain fundamentally committed to drivability, staying true toacclaimed Legacy, a milestone that brought with it tremendous

this spirit means allowing more customers to enjoy their ride in achanges. The direction of the brand took a major shift toward

Subaru wherever their day takes them. While ensuring that our“drivability.” The Impreza, a model long associated with thecars remain fun for drivers, our goal is a vehicle package that is

World Rally Championship (WRC), has significantly reinforced

enjoyable and comfortable for passengers too. We think that

this particular brand image. But the decision to focus development

pursuing exterior and interior design that enables customers toefforts on this notion of drivability, especially the pursuit of fasterfeel this enjoyment will ultimately lead to the distinctive Subaru

speeds had narrowed the scope of our potential customer base.

experience we envision.

Naoto Muto
Senior Vice President,
General Manager,
Subaru Product & Portfolio
Planning Division

1958~

1989~
SUBARU 360

   . Annual Report LEGACYOur first job is to win customer trust and expand our customer

Then there is the new Impreza. Designed for the global

base by creating cars that are both safe and comfortable for a wide

market, this product is the first to emerge so far from develop-

range of customers. If we can accomplish that, then we will bement efforts by the newly redefined Subaru. Featuring elegant yet

ready for our next challenge—offering new value propositions.

sporty styling and a spacious package, the flexible Impreza is

And it is this that will bring us one step closer to realizing the kinddesigned with drivability, pleasure, safety and comfort in mind. Inof premium brand once Subaru aimed at.

this new model, I can proudly say that Subaru has created a vehicle

As I mentioned earlier, another major theme for Subaru isenvironmental responsibility. Going forward, our introduction ofthat is among the best in its class anywhere in the world.
The globally strategic cars we aim for are vehicles that offer aboxer turbo diesel engines by ourselves and hybrid technology

fun and reliable driving experience but are also environmentally

through our business alliance with Toyota will enable us to pre-friendly. While these keywords have been missing from theserve the reliability and pleasure of Subaru’s core AWD technol-

Subaru of the past, we are determined to show as many customers

ogy. At the same time, we will achieve superb fuel efficiency. In

as possible that those words have found a permanent place with us

fact, we are already working towards this goal, which has assumed

today. In so doing, we hope to realize our vision of ensuring thata prominent role in our latest medium-term management plan.

customers do indeed come first at Subaru.

2007 NEW IMPREZADIMENSIONS (Unit: mm)

1505
Width 1740

2620
4415 in the total length   . Annual Report 

950

1200

102

0

Total height 1475

1985

1510



II

SUBARU SPIRIT BUILT IN

Providing a Distinctive Subaru Experience:
The Impreza

In June 2007, we unveiled the new Impreza in the first full model

Bringing these elements of our commitment to provide achange of a Subaru passenger car in four years. The bold concept

distinctive Subaru experience to life forced us to consciously

behind this product was “innovative yet exhilarating style.” With acrystallize Subaru’s technological capabilities and enhance ourshared commitment to three keywords—“sporty”, “casual” andenvironmental performance. Here, the new Subaru Dynamic“compact”—the development team harnessed the Subaru vision

Chassis Control Concept, born from the combination of a newly

and technological capabilities to create the new Impreza. Threedeveloped double wishbone suspension system and new car body

key themes guided the team’s work: comfortable and reliable

structures, became the base for these efforts. We knew thatdrivability, peace of mind, and environmental concerns. Beyond

capturing a greater market share in U.S. meant having to clear

the incorporation of basics like Subaru’s core boxer engine tech-high gas mileage standards. In this area, the new Impreza proudly

nology, which provides driving pleasure, and high safety stan-sits at the top of its class, with one of the highest fuel-efficiency

dards, the Impreza features a globally suited body size. At the

ratings among AWD vehicles.

same time, the Impreza embodies not only drivability, but is well

The Impreza is the first globally strategic car that embodies

balanced on various dimensions of both function and beauty,

both “customers come first” and our desire to “providing a distinc-featuring a refined exterior and a spacious and comfortable inte-

tive Subaru experience,” two important themes of our new

rior, along with superior functionality.

medium-term management plan. We aim to create products thatwill appeal to a wide range of customers. To this end, we havestrived to produce customer-focused cars that will enable both
long-time Subaru fans and a host of other customers to get a real   . Annual Report sense of the concepts and appeal that define Subaru cars. For thisreason, we have expanded our target customer base beyond its
traditional focus primarily on young men. This has meant creating
vehicle specs with a broader, yet more nuanced appeal. In Japan,
for example, we have created products that appeal more to
women, baby boomers and the post-baby boomer generation. In

Subaru DC 3
The new Subaru Dynamic Chassis Control Concept

the U.S., meanwhile, we have tailored our cars to appeal more tourban working women and young families.
In building a new concept for the brand, we have put everything possible into making the “distinctive Subaru experience” atangible reality, resulting in products that offer a new value
proposition that customer can feel an affinity for, and will use fora very long time. My hope is that the Impreza will spark a newrelaxing yet active lifestyle among our customers, and that it willbring real enjoyment to more customers than ever before.

Rear Gate
A spacious and comfortable interior

Akihide Takeuchi
Project General Manager,
Subaru Product & Portfolio
Planning Division   . Annual Report 



III

SUBARU SPIRIT BUILT IN

Total Cost Structure Revolution:
Transforming Our Mindset
We implemented the Total Cost Structure Revolution (TSR)

conducted this extensive cost-reduction effort. By the end of thecost-reduction program as a way to reassess Subaru’s mindset

two-year run of the revised FDR-1 plan it was clear that we hadwith respect to costs. After all, building good products at substan-indeed met these objectives.

tial cost means little if we fail to convey that product’s value to

The Impreza model that we launched in June 2007 is a concrete

our customers. So we pushed through extensive reforms in overall

example of our success. New cars under development are also

R&D investments. Our goal was to cut costs by 30% compared to

expected to meet our cost targets on every level, including forconventional levels by reducing tooling and die costs and usingdevelopment, manufacturing, and procurement. For previous

capital expenditures and R&D expenses more efficiently. Profit-

versions of the Impreza, the car’s reputation for drivability limited

ability on this front is also important. This is why we joined forces

our options in certain respects. As a result, we met with substan-with our suppliers in setting an ambitious target of reducing directtial costs just to ensure it could turn in fast circuit performance.

materials costs for our mass-produced vehicles by 16% in JapanOne of the more practical points about the new Impreza, though,and 13.5% in the U.S. over a two-year period. We also identified

is that we have now invested more into making the car easy, safe

certain automotive parts that would receive special attention as weand fun for ordinary car lovers to drive. On the interior and   . Annual Report exterior, we cut costs where we could and allocated costs whereas a follow-up to TSR, we are finally ready to roll out highly

necessary. That, in a nutshell, describes the approach we took

profitable cars. As we do, the questions of how to balance thewith the new Impreza.

distinctive Subaru experience with cost reductions, and how toWith all that said, one concern still lingers—where is Subaru
making its presence most felt? To achieve the cost reductions weare eyeing company-wide, if we lower the baseline cost of themaintain the high level of motivation needed to realize both, are
key issues that we must address in the process.
In promoting TSR-VC, we aim to lower baseline costs for ourvehicles we develop simply to produce cars at the lowest possible

well-rationalized production cars, to continue to make cost

cost, we could end up losing the very distinctive Subaru experi-

improvements of around ¥100,000 per vehicle for cars underence we are after. We have to avoid the situation in which wedevelopment, and reform the cost structure by around ¥100,000

essentially meet our cost-reduction targets by creating products

per unit for our engines and transmissions. The mission here is tothat appeal to no one. As we follow up the Impreza with fullturn on its head the notion that boxer engines and AWD mean

model changes for the Forester and Legacy, and promote TSR-VC

higher costs.

(Value for Competitiveness/Customers) cost-reduction measures

Jun Kondo
Senior Vice President;
General Manager,
Strategy Development Divisionand the Subaru Cost Planning& Management Division   . Annual Report 

MANAGEMENT (As of June 26, 2007)

From Left

Kazushige Okuhara

Hiroyuki Oikawa

Norihisa Matsuo

Shoichi Washizu

Director of the Board,
Executive Vice President

Director of the Board,
Executive Vice President

Director of the Board,
Executive Vice President

Director of the Board,
Executive Vice President

Ikuo Mori

Shunsuke Takagi

Hiroshi Komatsu

Representative Director of the Board,
President and CEO

Representative Director of the Board,
Executive Vice President

Representative Director of the Board,
Senior Executive Vice President   . Annual Report 

Representative Director of the Board,
President and CEO

Vice Presidents

Yoichi Serizawa
Ikuo Mori
Kazuyoshi Shimizu
Tamaki Kamogawa
Representative Director of the Board,
Senior Executive Vice President

Masakazu Kimura

Hiroshi Komatsu

Tomohiko Ikeda
Takeshi Tachimori

Representative Director of the Board,
Executive Vice President

Hisashi Nagano
Mitsuru Takahashi

Shunsuke Takagi
Motokiyo Nomura
Motohisa Miyawaki
Directors of the Board,
Executive Vice Presidents

Masahiro Kasai

Hiroyuki Oikawa

Naoto Arai

Norihisa Matsuo

Yasuo Ueno

Kazushige Okuhara
Shoichi Washizu

Standing Corporate Auditors

Masatsugu Nagato

Takeo Tsumuji
Masatake Yashiro

Senior Vice Presidents

Yoji Ishimaru

Jun Kondo
Takashi Ishihara

Corporate Auditor

Tsunenori Hoshi

Morihiko Tashiro

Yoshio Hasunuma
Naoto Muto
Yasuyuki Yoshinaga
Akira Mabuchi

Masatsugu Nagato
Director of the Board,
Executive Vice President   . Annual Report 

CORPORATE SOCIAL RESPONSIBILITY (CSR)  
One of the core elements of FHI’s latest medium-term management plan is a commitment to “pursue Quality rather than just Size tofulfill its Corporate Social Responsibility.”
In drafting this tenet, FHI conducted an in-house CSR survey in fiscal 2007 from which two clear suggestions for improvement emerged.
1. Heighten awareness among employees of the relationship that their individual actions have to CSR.
2. Enhance the framework for sharing, coordinating, promoting and consolidating CSR-related information in an efficient andreasonable manner.
To address each of these issues, the Corporate CSR and Environment Committee is implementing PDCA (Plan, Do, Check, Act)
cycles devised by senior management to unify CSR on all fronts company-wide and to promote more visible activities. In this way, thecommittee is helping employees to recognize the relationship that corporate social responsibility has with all corporate activities. Alongwith promoting understanding of the Corporate Philosophy, which serves as the Company’s CSR Policy, FHI is striving to spread greaterawareness than ever before of the need to act and think with two distinct CSR postures in mind: active and passive. The former compels
FHI to contribute to society through its core business activities, while the latter entails strict compliance with laws and regulations.

Shareholders andInvestors

Customers

Local
Communities

CUSTOMERS AND PRODUCTS
Customer satisfaction is our firstpriority; we provide the highest quality
products and services, as well as
contribute to improvement in theeconomy and social life.

CORPORATE GOVERNANCE
We strive to continue to be a company
that is trustworthy and meets the
expectations of society by clarifying thefunctions of management and executing a transparent, effective, andrespectable business.

ENVIRONMENT
We acknowledge the deep relationshipbetween the environment and businessactivities and strive to create productsthat are friendly to society, its people,
and the earth.

Corporate Philosophy

Government

COMPLIANCE
We carry out open and fair corporate
activities in compliance with societal
norms, as well as all laws and regulations; FHI behaves as a respected
member of society, not only as acorporation but also as individual
officials and employees.

NPO and NGO
SOCIAL CONTRIBUTION
We strive to disseminate and developscience and technology, traffic safety,
and a vehicle culture, and contribute tonurturing those responsible for manufacturing. We contribute to the development of communities and support each
employee’s contribution to society.
Media

CORPORATE CODE
OF CONDUCTPROCUREMENT
We provide a broad range of opportunities to many companies domesticallyand overseas, establish win-win
relationships with suppliers based on
mutual trust, and conduct business
impartially and fairly.

INFORMATION DISCLOSURE
Information is disclosed promptly,
appropriately, impartially, and faithfully
to all stakeholders.

EMPLOYEESFHI promotes the creation of a satisfying work environment, respecting each
employee’s human rights and individuality, and maintains a healthy, safe
workplace.

Business Partners

Employees

Stakeholders   . Annual Report Financial
Institutions

Education andResearch
Institutions 
In line with the Corporate Philosophy, FHI views the strengthening of corporate governance as one of management’s highest priorities, toensure that it can measure up to the trust and confidence placed in the Company by all its shareholders, customers and other stakeholders.
In the pursuit of more efficient management, FHI is working to clarify management and execution functions to enhance decision-making
speed. The Company is also ensuring proper management and business execution through a well-developed auditing system that includes
the presence of outside corporate auditors. In this way, FHI is working to augment both its compliance and risk management frameworks.
Fair and timely information disclosure is also leading to more transparent management.

General Meeting of Shareholders
Elect/
Dismiss

Elect/
Dismiss
Audit

Executive Nomination
Meeting

Board of Corporate Auditors Meeting

ReportFour Corporate Auditors(including two outside corporate auditors)

Board of Directors Meeting
Eight Directors

Executive Compensation
Meeting

Elect/
Dismiss

Independent Auditor

ReportElect/Dismiss/Supervise
Audit

President
Representative Director of the Board

CSR Committee
Recommend/Propose

Compliance Committee

Elect/
Dismiss
ReportExecutive Management Board
Instruct/Supervise

Corporate Environment Committee

Submit important issues/Report

Recall Committee

Executive Officers(Business execution)
Twenty Executive Officers

Export Compliance Committee
Propose plans,
report, etc.

Present policies,
approve plans, etc.

Staff Department, Subaru Automotive Business Unit, Three Internal Companies, Affiliated Companies   . Annual Report   
Internal control systems comprise mechanisms indispensable to the proper functioning of any corporation. Company managers have a duty
both to develop such systems, and to ensure that their effectiveness and efficiency is maintained. Moreover, in response to the so-called J-SOX
Law (Japanese Securities and Exchange Law), FHI has added specialized project teams to its organizational structure. These teams arecharged with four tasks designed to promote the readiness and robustness of internal control systems across the Group: 1) ensure effectiveness and efficiency of business operation; 2) ensure the reliability of financial reporting; 3) ensure compliance with applicable laws andregulations relevant to business activities; and 4) safeguarding of assets.
FHI further contributes to the readiness of these systems of internal control through an active compliance system and organization—
the most fundamental element of risk management. In terms of compliance, the Company has announced a compliance policy and set up aCompliance Committee dedicated to promoting compliance company-wide. As part of Group compliance, FHI has also extended the“Compliance Hotline System” to Group subsidiaries in Japan.

 
The FHI Environmental Policy states that the Company “recognizes the integral relationship between the environment and its businessactivities and strives to provide products that are friendly to the earth, society, and people. FHI is protecting the environment to ensure
our future.” Guided by this policy, the Company has drafted its Voluntary Plan for the Environment, the “FHI Environmental Conservation Program,” through which FHI undertakes activities aimed at reducing the burden on the environment at every stage of business—from product development to procurement, production, use and disposal. The Company is presently enacting its fourth New VoluntaryPlan for the Environment that will run from fiscal 2008 through fiscal 2012.
In the latest medium-term management plan, FHI has positioned the pursuit of a product development concept that integrates thepleasure of driving and environmental responsibility as the way to provide customers with a “distinctive Subaru experience.” Whilecontinuing to enable drivers and passengers alike to experience the distinctive sense of comfort and reliability that comes with driving a
Subaru, FHI is developing technology that aims to improve the fuel consumption of its vehicles from the ground up.
Specific measures by the Company for creating more ecological cars include:
1. The introduction of cars equipped with Subaru’s own boxer turbo-charged diesel engine in Europe beginning in 2008 to comply withexhaust emission regulations.
2. Joint development of hybrid systems through a business alliance with Toyota.
3. Measures to develop “R1e” electric cars in cooperation with Tokyo ElectricPower Company; 10 vehicles have already been delivered, with another 30
scheduled for delivery in the first half of fiscal 2008. Public road trials areunder way to verify the potential role that such cars might play as “commutercars” in urban areas.
Other detailed CSR activities by FHI can be found in the Company’s
Environmental & Social Report.

“R1e” electric car   . Annual Report 

FINANCIAL SECTIONCONTENTS

 CONSOLIDATED EIGHT-YEAR FINANCIAL SUMMARY MANAGEMENT’S DISCUSSION AND ANALYSIS OFRESULTS OF OPERATIONS AND FINANCIAL POSITION

 CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENTS OF INCOME
 CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
 CONSOLIDATED STATEMENTS OF CASH FLOWS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 INDEPENDENT AUDITORS’ REPORT   . Annual Report 

CONSOLIDATED EIGHT-YEAR FINANCIAL SUMMARY
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31

Millions of yen
2001
2000

Thousands of
U.S. dollars
2007¥1,494,817 ¥1,476,368 ¥1,446,491 ¥1,439,451 ¥1,372,337 ¥1,362,493 ¥1,311,887 ¥1,330,125
1,142,674 1,125,293 1,107,718 1,085,716 1,011,582
992,950
978,841995,131
352,143
351,075
338,773353,735
360,755
369,543
333,046
334,994$12,658,286
9,676,298
2,981,988

2007

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:
Net assets*
Shareholders’ capital
Total assets
Ratio of shareholders’ capitalto total assets (%)
Per Share (in yen and U.S. dollars):
Net income:
Basic
DilutedNet assets
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

2006

2005

2004

2003

2002

304,237
47,906

292,736
58,339296,756
42,017

303,41150,324

293,234
67,521

281,063
88,480251,373
81,673

243,593
91,4012,576,314
405,674

45,58931,89928,674
15,61121,066
18,23856,266
38,64946,97033,48456,13630,283

21,291
22,62864,83931,348386,053
270,124¥ 495,703 ¥ 467,786 ¥ 474,616 ¥ 457,027 ¥ 414,614 ¥ 399,598 ¥ 363,199 ¥ 213,806
494,004
465,522471,149
453,708
411,252
396,112357,455
206,404
1,316,041 1,348,400 1,357,459 1,349,727 1,344,072 1,269,558 1,168,501 1,038,558$ 4,197,671
4,183,284
11,144,390

37.5%

34.5%

34.7%

33.6%

30.6%

31.2%

30.6%

19.9%

¥

44.46 ¥
44.44
687.81

20.66 ¥
20.66
649.4123.27 ¥
23.27
604.5150.62 ¥
49.66
582.6044.84 ¥
42.91
553.9040.74 ¥
38.83
532.8830.44 ¥
29.06
480.8651.90
48.53
338.75

$

0.38
0.38
5.82

¥

81,454 ¥80,073 ¥71,010 ¥71,112 ¥67,896 ¥63,964 ¥64,070 ¥60,190$689,762

126,32950,709119,289
46,893

147,759
52,962

128,026
57,541

119,423
60,110118,376
54,903102,301
46,622103,922
40,123782,866
42,920782,866
46,367

782,866
34,558782,866
34,704

746,52135,584

746,506
33,094

746,502
32,996

614,553
49,381

11,752
25,598

11,998
26,115

12,703
26,98912,92827,296

13,06427,47813,374
26,483

13,60326,502

13,66826,914

1,069,769
429,410

Note: U.S. dollar figures have been translated from yen, for convenience only, at the rate of ¥118.09 to US$1.00, the approximate rate of exchange at March 31, 2007.
* Prior year amounts have been reclassified to conform to the current year presentation.
** As of March 31

  (Billions of yen) /  (Billions of yen)
80

1,500

60
1,000
40
500
20

0

0

Total
■ Automobiles



2003

2004

2005

2006

2007

1,372.3

1,439.5

1,446.5

1,476.4

1,494.8■ Aerospace■ Industrial Products■ Other

2003

2004

2005

2006

2007

■ Operating Income

67.5

50.3

42.0

58.3

47.9

■ Net Income

33.5

38.6

18.2

15.6

31.9

   . Annual Report 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION



 

During fiscal 2007, ended March 31, 2007, the FHI Group was
engaged in production and sales activities in a wide range of
product sectors. Operations in the Group’s network of 109
subsidiaries and 9 affiliated companies were conducted underfour main business divisions: the Group’s mainstay Automobiles
division, the Industrial Products division, the Aerospace division, and the Other division.
As the final year of the FDR-1 medium-term business plan, allemployees of the FHI Group strove to meet plan targets for fiscal
2007. But while the push to improve asset turnover and reduce
costs in the Industrial Products and Aerospace divisions met withsome success, consolidated performance fell short of initial expectations, particularly in the Automobiles division. In accordancewith this result, FHI established a new medium-term management
plan announced in February 2007, which is scheduled to be implemented from fiscal 2008 to 2011. Putting a thorough commitment
to “customers come first” as our cornerstone, efforts to attain thetargets of this latest plan are already under way.
The following is an overview of operations during fiscal 2007.
In the Group’s mainstay Automobiles division, sales ofminicars in Japan increased atop sales of the Stella, a new passenger minicar model. This growth, however, proved unable toovercome pressures stemming from a drop in the number ofpassenger cars, resulting in lower sales volume compared to theprevious fiscal year. Overseas sales, meanwhile, rose year on year,
reflecting favorable sales in Europe, Australia and other markets.
Regarding the non-automobiles divisions, sales in the Aerospace division were sharply higher than in the previous fiscal year.
As a result, consolidated net sales, thanks to foreign exchange
gains, edged up ¥18.4 billion, or 1.2% year on year, to ¥1,494.8
billion. Operating income, however, declined ¥10.4 billion, or
17.9%, to ¥47.9 billion. Earnings were negatively impacted
primarily by deterioration in the sales volume and mix in the
Automobiles division, which overshadowed currency exchange
gains due to a relatively weak yen and a reduction in cost of materials, as well as selling, general and administrative (SG&A) andother expenses. However, net income surged ¥16.3 billion, or
104.3%, to ¥31.9 billion. Despite a decrease in gain on sales ofinvestment securities, this growth mainly reflected the absence ofa loss on termination of joint development projects and additional
retirement payments associated with a voluntary retirement
program, which were recorded as extraordinary loss items in theprevious fiscal year.

Automobiles Division
Sales from the Automobiles division increased by ¥10.1 billion, or
0.8% year on year, to ¥1,339.3 billion. However, operating
income was down ¥13.7 billion, or 26.6%, to ¥37.8 billion. The
decline in income largely mirrored the deterioration in the sales
volume and mix, which outstripped favorable foreign currency
exchange gains from a relatively weak yen, and efforts to reducematerial costs, SG&A and other expenses.
Global sales volume was 578 thousand units, up 7 thousand
units, or 1.1%, over the previous fiscal year. In Japan, demand forminicars rose steadily, stimulated by net growth in sales of theStella, a new minicar model launched in June 2006. Minicar
growth was sufficient to cover declines elsewhere in existingvehicle models, climbing 13 thousand units, or 9.9%, to 146
thousand units. Nonetheless, passenger car sales volume declinedby 16 thousand units, or 16.9% year on year, to 81 thousand
units. Although our flagship model Legacy underwent a major
facelift in late May 2006, the sales decrease reflected lackluster
demand for passenger cars in Japan and lower sales of the Imprezaand Forester vehicle models. As a result of these factors, total
sales volume in Japan edged down 3 thousand units, or 1.5%, to
227 thousand units.
Overseas sales volume increased by 10 thousand units, or
2.9%, to 351 thousand units. In North America, sharply higher
sales of the Impreza were unable to cover declines in other vehicle
models, causing sales volume to decrease by 3 thousand units, or
1.6%, to 207 thousand units. In Europe, sales volume was up 7
thousand units, or 10.3%, to 71 thousand units. Sales of theForester and Impreza models were strong, with substantial growthparticularly in Russia and other emerging markets. Another boost
to sales volume came from the full start of the B9 Tribeca sales inthe second half of the fiscal year. The division also turned in firm
performance in Australia, with year-on-year growth recorded forall vehicle models. Sales volume grew by 2 thousand units, or
4.5%, to 38 thousand units, for a second consecutive year ofrecord growth in this market.

   . Annual Report    (Number of units)
2007

2006

2005

2004

2003

Domestic Units
LegacyImpreza
ForesterOthersMinicars

43,951
24,135
11,807
1,308
145,61050,61926,911
17,405
2,747
132,483

56,97725,194
17,7094,138
150,02165,907
21,20018,9885,000
134,446

47,13024,077
24,426
7,031
142,861

Subtotal

226,811230,165

254,039

245,541

245,525

190,276
16,247
71,404
38,13635,064

193,562
16,38464,72436,50630,034

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

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

192,389
17,69941,32529,455
14,051

351,127

341,210

327,595

305,702

294,919

133,720
90,927
102,969
18,2685,243

132,236
72,790104,059
24,187
7,938

150,987
66,67095,173—
14,765

128,994
72,72998,941
—
5,038

—
—
—
—
—

351,127

341,210

327,595

305,702

294,919

Overseas Units by Region
United States
CanadaEuropeAustralia
OthersSubtotal
Overseas Units by Model
LegacyImpreza
ForesterTribeca
OthersSubtotal
CKD* Overseas

Total

—

—

—

2,800

1,500

577,938

571,375

581,634

554,043

541,944——

13,15025,239—SIA Consignment Production* CKD: Complete Knocked Down     (Number of Units)  (1,000 units)

600,000

60

400,000

40

200,000

20

0

0

Total
■ Japan■ United States

2003

2004

2005

2006

2007

540,444551,243581,634

571,375

577,938■ Canada ■ Europe■ Australia■ Others

2003

2004

2005

2006

2007

Japan

22.9

28.4

24.5

18.5

16.5

United States

44.7

48.1

51.2

55.6

46.5

at the end of March   . Annual Report -   (Number of units)
2007

2006

2005

2004

2003

Domestic Units:
LegacyImpreza
ForesterOthers47,17626,15912,946057,01330,063
19,256
059,84327,437
19,457
1,397

73,67622,26320,0972,479

49,17925,471
25,3894,174

Subtotal
Minicars

86,281
157,453

106,332
138,398

108,134
164,624

118,515
143,502104,213
147,712

Domestic Total

243,734

244,730

272,758

262,017

251,925

Export Units:
LegacyImpreza
ForesterOthers46,41092,782
99,637894

42,80975,935
104,425
1,554

44,101
69,946
90,131
8,324

33,86567,34999,463
161

21,42175,354
99,145—

Export Total

239,723

224,723

212,502200,838

195,920CKD Overseas(SIA Portion)

100,972
100,972

119,784
119,784

115,317
115,317

90,15887,358

107,576
106,076

U.S. Retail Sales*:LegacyImpreza
Forester
Baja
Tribeca

84,442
41,14851,2585,241
18,61487,78833,63753,541
6,239
14,79789,45332,20958,424
7,316—

79,83936,52559,761
10,694—85,35938,22653,9222,513—

200,703

196,002

187,402

186,819

180,020

89,351
21,02291,51027,481

105,550—

96,993—102,813—

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

    (Number of units)    (Number of units)

300,000

300,000

200,000

200,000

100,000

100,000

0

0

Total
■ Legacy■ Impreza

2003

2004

2005

2006

2007

251,925

262,017

272,758

244,730

243,734■ Forester■ Others■ Minicars

Total■ Legacy■ Impreza

2003

2004

2005

2006

2007

195,920

200,838

212,502

224,723

239,723■ Forester   . Annual Report ■ Others

CKD Overseas      (Comparison of units sold in fiscal 2007 and fiscal 2006)  ⁽-⁾ (Number of units)  ⁽-⁾ (Number of units)
20,00020,00015,00010,00010,0005,000
0
0–10,000–5,000ChangeTotal

LegacyImpreza

Forester

Minicars–996–9,837–3,904–6,31019,055

ChangeTotal

LegacyImpreza

ForesterOthers

15,0003,601

16,847–4,788–660

..   (Number of units)
10,0005,000

0–5,000ChangeTotal

LegacyImpreza

Forester

Baja

Tribeca

4,701–3,346

7,511–2,283

–998

3,817

Industrial Products Division
Sales in the Industrial Products division declined ¥2.7 billion, or
5.2% compared to the previous fiscal year, to ¥49.7 billion, with
operating income down ¥0.5 billion, or 26.0%, to ¥1.5 billion.
Sales in Japan were lower as declining sales mainly of generator engines outweighed an increase in sales volume for pumpengines and small engines for construction machinery.
Similarly, overseas sales were lower year on year as firm sales
to Europe and the Middle East were unable to overcome declining
sales of leisure products and generator engines to North America,
primarily due to weak overall demand.



Aerospace Division
The division posted record sales for the second consecutive year,with sales up ¥12.2 billion, or 14.9%, to ¥94.0 billion. Operating
income also rose sharply, climbing ¥2.9 billion, or 103.0%, to¥5.7 billion.
The division has seen steady growth in sales of the “AH-64D”
combat helicopter, which FHI began supplying to the Japan Ministry of Defense in fiscal 2006, as well as sales of the “PX/CX”
prototype, a next-generation fixed-wing Maritime Patrol Aircraft
and Cargo Transport Aircraft. Sales to the Defense sector werelower year on year, however, largely due to fewer deliveries of   . Annual Report the “UH-1J” multi-purpose helicopter, and the shipment of
Forward Field Observation System prototype completed in fiscal
2007. In the commercial sector, the division saw sharply higher
shipments of existing products for the Boeing Company, including
the center wing for the Boeing 777 and elevator for the 737, inline with growing demand for passenger aircraft. Sales from two
new projects, the center wing for the Boeing 787 and the main
wing for the Eclipse 500 light business jet, for which deliveries
began in fiscal 2007, contributed to improved business performance. These and other factors contributed to the substantial sales
growth in this sector.

Other Division
Following the revised FDR-1 medium-term business plan, the Eco
Technologies Company has pursued various measures to improveasset turnover. Consequently, sales from the environmental
equipment business were lower as the company prepares to withdraw from this business in fiscal 2008. Sales were also lower due
to the restructuring of Japanese subsidiary Yusoki Kogyo K.K.
Total division sales declined ¥1.2 billion, or 9.0%, to ¥11.8
billion. However, operating income climbed ¥1.0 billion, or
83.3%, to ¥2.3 billion, as the division benefited from improved
profitability at the Eco Technologies Company.

    ⁽  ⁾
2007

2006

2005

2004

Billions of yen
2003

Automobiles
Industrial Products
Aerospace
Other¥1,339.3
49.7
94.0
11.8

¥1,329.2
52.4
81.8
13.0

¥1,319.6
46.8
59.4
20.6

¥1,316.9
42.2
56.6
23.6

¥1,229.8
41.5
63.0
37.9

Total

¥1,494.8¥1,476.4¥1,446.5¥1,439.4¥1,372.3

2007

2006

2005

2004

Billions of yen
2003

Automobiles
Industrial Products
Aerospace
Other
Corporate and Elimination

¥37.8
1.5
5.7
2.3
0.6

¥51.6
2.0
2.8
1.2
0.7

¥40.9
0.8
0.2
(0.6)
0.6

¥52.1
(0.2)
(0.3)
(1.4)
0.3

¥67.3
(0.8)
3.3
(3.1)
0.8

Total

¥47.9

¥58.3

¥42.0

¥50.3

¥67.5

  ⁽⁾  

  ⁽⁾   (Billions of yen)
100
80
60
40
20
0
–20

2003

2004

2005

2006

2007

67.5

50.3

42.0

58.3

47.9

Total
■ Automobiles■ Industrial Products■ Aerospace■ Other■ Corporate and Elimination   . Annual Report   ,    Net other income/expenses improved ¥27.3 billion to a lossof ¥2.3 billion. This result mainly reflected a currency exchangerelated loss of ¥7.7 billion from the posting of foreign exchange
losses of ¥11.9 billion, which was partially offset by a net gain on
revaluation of derivatives of ¥4.2 billion. Nevertheless, this loss
represented an improvement of ¥5.4 billion over the previous
fiscal year. Income before income taxes and minority interest
improved ¥16.9 billion, or 59.0%, to ¥45.6 billion, thanks
primarily to the absence of a loss on termination of joint development projects of ¥7.1 billion and ¥8.0 billion in additional retirement payments posted in the previous year, coupled with areduction in losses for the year. As a result, net income increasedby ¥16.3 billion, or 104.3%, to ¥31.9 billion.

Compared to the previous fiscal year, the cost of sales increased by¥17.4 billion, or 1.5%, to ¥1,142.7 billion, and the cost of sales
ratio edged up 0.2 of a percentage point to 76.4%. Higher prices
for parts, mainly due to rising prices for raw materials, were
responsible for the increase in the cost of sales ratio. Operating
income declined ¥10.4 billion, or 17.9%, to ¥47.9 billion, as
benefits from ¥13.8 billion in currency exchange gains, a reduction in material costs of ¥8.6 billion, and a decrease of ¥1.9
billion in SG&A and other expenses were outweighed by negative
factors on income stemming from a global deterioration in thesales volume and mix of ¥30.9 billion, and an increase of ¥3.8
billion in R&D expenses.

        ⁽⁾ (Billions of yen)
1.9

8.6

13.8

Amortizationof negative
goodwill
3.3

Amortizationof negative
goodwill
2.2
–30.9

58.3

–3.8
Operating income
FYE March 2006

Gain on currency
exchange

Decrease of SG&A Deterioration of sales volume& mixture and others
expenses and others

Reduction in costof materials , ,   ,    (Billions of yen)
1,500

60

1,000

40

47.9

Increase of R&D
expenses

Operating income
FYE March 2007   (%)
10

8

6

4
20

500

2

0

0

■ Total assets [ left scale ]■ Shareholders’ capital[ left scale ]Ratio of shareholders’capital to total assets(%) [ right scale ]



2003

2004

2005

2006

2007

1,344

1,350

1,357

1,348

1,316

411

454

471

465

494

0

2003

2004

2005

2006

2007

ROE

8.3

8.9

3.9

3.3

6.6

ROA

5.3

3.9

3.3

4.6

3.9

ROA was calculated as “(operating income + interest and dividend income) / (average of assets atthe beginning and end of term)”

30.6

33.6

34.7

34.5

37.5

   . Annual Report   
Securing Liquidity
FHI manages cash and cash equivalents with a view to maintaining
a level equivalent to average monthly sales. Cash and cash equivalents at the end of the year totaled ¥99.1 billion. While thisamount is less than average monthly sales for the term (¥124.6
billion), the difference is due to limiting assets in order to improveasset turnover. Liquidity is covered by a commitment line ofcredit. Cash and cash equivalents, combined with the amount ofcredit available, is sufficient to secure liquidity at the level of
average monthly sales.
Interest-bearing debt at the end of the year totaled ¥343.9
billion, a year-on-year decrease of ¥30.2 billion. The debt/equity
ratio improved 0.11 of a point to 0.70, as FHI maintained a soundfinancial position.
FHI plans to reduce interest-bearing debts 20% by the endof fiscal 2008, to ¥329.0 billion, from fiscal 2005’s total of¥412.2 billion.
Financial Position
Total assets at March 31, 2007 decreased ¥32.4 billion, or2.4% compared to the previous fiscal year-end, to ¥1,316.0
billion. Total current assets were ¥594.7 billion, down ¥24.5
billion, or 4.0%, from the previous year. These declines werelargely the result of a decrease in short-term loans due to thesecuritization of receivables at a financing subsidiary, andlower cash and cash equivalents.
Property, plant and equipment decreased by ¥5.4 billion, or
1.0%, to ¥550.6 billion, a change primarily attributable to a
decline in machinery, equipment and vehicles.
Investments and other assets totaled ¥170.8 billion, a decreaseof ¥2.5 billion, or 1.4%, over the previous fiscal year-end. Total
liabilities were down ¥60.3 billion, or 6.8%, to ¥820.3 billion,
mostly as a result of lower current liabilities due to declines innotes and accounts payable, trade and short-term borrowings, anda decline in long-term debts.
Effective this fiscal year, FHI adopted “Accounting Standard
for Presentation of Net Assets in the Balance Sheet” (The Accounting Standards Board of Japan (ASBJ), December 9, 2005, Statement No.5) and the related “Implementation Guidance on
Accounting Standard for Presentation of Net Assets in the Balance
Sheet” (ASBJ, December 9, 2005, Guidance No.8). The adoptionof this standard has no effect on income.

Shareholders’ equity (equal to net assets minus minority interest in consolidated subsidiaries) at March 31, 2007, rose ¥28.5
billion, or 6.2%, to ¥494.0 billion. This change is primarily
attributable to a year-on-year increase of ¥24.8 billion in retained
earnings to ¥214.8 billion. FHI also has ¥40.5 billion in treasury
stock that it plans to hold rather than cancel for the immediate
future in order to provide for the flexible implementation of its
capital policy. Net assets (equal to shareholders’ capital plus valuation, translation and other adjustments and minority interest inconsolidated subsidiaries) totaled ¥495.7 billion.
As a result of the above, return on equity (ROE) at the end ofyear was 6.6%, an improvement of 3.3 percentage points comparedto the previous fiscal year. Return on assets (ROA), which factors
in operating income and interest and dividend income, decreased
by 0.7 of a percentage point to 3.9%.
Cash FlowsNet cash provided by operating activities decreased by ¥71.9
billion, to ¥65.6 billion. This decline was largely attributable toan increase in inventories of ¥12.8 billion, and a decrease of¥20.5 billion in notes and accounts payable, trade. These factors
offset income before income taxes and minority interest of ¥45.6
billion and ¥81.5 billion in depreciation and amortization expenses.
Net cash used in investing activities declined ¥32.3 billion
year on year, to ¥43.4 billion. Uses of cash included ¥49.8 billion
for the purchase of property, plant and equipment (net of proceeds from sale of property, plant and equipment), and ¥12.0
billion for the purchase of leased assets (net of proceeds from saleof leased assets). These cash outflows were partially offset by¥23.5 billion from the collection of loans receivable (net of
disbursement of loans receivable).

-    /  (Billions of yen)
500

1.0

400

0.8

300

0.6

200

0.4

100

0.2

0.0

0

2003

2004

2005

2006

2007

389.1

379.0

412.2

374.1

343.9

0.95

0.84

0.87

0.80

0.70

■ Interest-bearing debt

[ left scale ]D/E ratio[ right scale ]   . Annual Report Net cash used in financing activities totaled ¥36.2 billion, representing a year-on-year improvement of ¥52.7 billion. This result
was largely attributable to a net decrease in short-term borrowingsof ¥27.2 billion, as well as ¥2.1 billion used for repayment on longterm debts (net of proceeds from long-term debts).

 
Capital expenditures increased ¥3.4 billion, or 6.0% over theprevious fiscal year, to ¥59.6 billion. Expenditures rose atop asales launch of the Impreza and consignment production for
Toyota at SIA in 2007. Depreciation increased ¥1.4 billion, or
2.5%, to ¥58.9 billion, largely due to the depreciation oftooling costs.

   
Research and development expenses at FHI as a whole increased¥3.8 billion, or 8.1%, to ¥50.7 billion, mainly from promotion of
the development of new Impreza, Forester, and Legacy models inline with the product portfolio put forth in the revised FDR-1
medium-term business plan.


In Japan, capital expenditures and exports are expected to remain
major factors underpinning business expansion in fiscal 2008.
Nevertheless, severe economic conditions are likely to persist as
the sales numbers for passenger cars in the overall automobile
market decline for a fourth consecutive year, and the shift toward
minicar models continues. FHI’s operating environment will requirecaution, with U.S. economic trends pointing to an impending
slow down. Other sources of concern are also present, including
rising prices for raw materials and volatility in the currency
exchange markets. Given this environment, FHI is forecasting thefollowing operating results in fiscal 2008:
Net sales:¥1,550.0 billion (up 3.7% year on year)
Operating income: ¥35.0 billion (down 26.9% year on year)
Net income:¥16.0 billion (down 49.8% year on year)-  -  

FHI views the return of profits to shareholders as a priority task
for management, and follows a basic policy of maintaining stablelong-term dividends while taking comprehensive consideration ofsuch factors as its earnings performance and dividend payout ratio.
FHI uses retained earnings with the intent of strengthening its
financial position. Funds are also allocated for investments to
support future growth and development in areas such as R&D forthe development of appealing products, and investments to bolster
FHI’s production and sales network.

In February 2007, FHI announced a new four-year, medium-term
management plan scheduled to run from fiscal 2008 to 2011.
While retaining FHI’s long-term vision of becoming a compellingcompany with a strong market presence, the new plan places
priority on building stronger foundations to underpin future
growth, and aims for solid improvements in enterprise value,
guided by an unswerving commitment to FHI customers. Centered on the philosophy that “Customers come first,” the planseeks to 1) provide a distinctive Subaru experience for drivers andpassengers, 2) increase sales globally, 3) strengthen competitiveness in quality and cost, 4) grow through the business alliance with
Toyota, and 5) grow the level of employee competence and soenhance the organization. Financial targets include attaining an
operating margin at the level of 5% and a target ROA level of 7%
by fiscal 2011.

 /  (Billions of yen)    (Billions of yen)     

100

80

75

60

50

40

25

20

0



0

2003

2004

2005

2006

2007

■ Capital expenditures

64.6

74.6

85.3

56.2

59.6

■ Depreciation expenses

48.8

53.2

51.1

57.5

58.9

R&D expenses

2003

2004

2005

2006

2007

60.1

57.5

53.0

46.9

50.7

   . Annual Report      (1,000 units)
2008

2007

ChangeJapan
Passenger cars
Minicars

89.4
128.6

81.2
145.6

8.2
–17.0

Subtotal

218.0

226.8

–8.9

Overseas
United States
CanadaEuropeAustralia
Other

196.5
18.5
79.6
38.0
33.1

190.3
16.2
71.4
38.1
35.1

6.2
2.3
8.2
–0.1
–1.9

Subtotal

365.8

351.1

14.7

583.7

577.9

5.8

Total
Principal Risks
Business risks faced by FHI with the potential to have a significant
impact on investor decisions are as follows. These are not an
exhaustive list, so for more details please see FHI’s website at
http://www.fhi.co.jp/english/ir/index.html

Currency Fluctuations
FHI’s operating income for the year decreased compared to theprevious fiscal year, but one factor was the substantial impact of
currency fluctuations. Overseas sales account for a majority(61.5%) of FHI’s net sales, and some items associated with net
sales, operating income, assets, etc. are denominated in local
currencies, primarily the U.S. dollar. These items are converted
to the Japanese yen for preparation of the consolidated financial
statements. Accordingly, if there is a discrepancy between theexchange rate assumed for forecasts for the coming year and theactual exchange rate at closing, there is a chance that it will have anegative impact on FHI’s results and financial position if the yen isrelatively strong, or a positive impact if the yen is relatively weak.
In order to minimize currency exchange risk, FHI performs
hedge operations with forward exchange contracts depending on
the conditions prevailing. However, extreme currency fluctuations at the end of the term may impact gains or losses on therevaluation of derivatives and may substantially affect otherincome (expenses).

Purchase of Specific Raw Materials and Parts
FHI procures raw materials, parts and other products from alarge number of suppliers, and is at times dependent on certain
suppliers. If supply and demand conditions tighten and FHI isunable to procure these goods at stable costs, delivery and quality, it could substantially affect the FHI Group’s operating
results and financial position.
Legal Regulations Pertaining to the Environment andOther Areas
FHI is subject to a variety of legal regulations both in Japan andoverseas on emissions, energy conservation, noise, recycling,levels of discharge of pollutants from manufacturing plants, andautomobile safety, etc. Cost increases resulting from more stringent regulations in the future have the potential to affect the FHIGroup’s financial results.

   . Annual Report 

CONSOLIDATED BALANCE SHEETSFUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIESAs of March 31, 2007 and 2006ASSETS
Current assets:
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
Total current assets

2007

¥

52,40632,017
99,290(1,713)
224,919
101,184
27,07259,501¥Millions of yen

Thousands of
U.S. dollars(Note 1)

2006

2007

65,54237,444
104,972(2,163)
216,396
118,41432,99245,604$

443,780
271,124
840,799(14,506)
1,904,641
856,838
229,249
503,861594,676

619,183

5,035,786

Property, plant and equipment (Notes 7, 8 and 9)
Less — accumulated depreciation

1,284,660(734,076)

1,245,642(689,669)

10,878,651(6,216,241)

Net property, plant and equipment

550,584

555,973

4,662,410

72,34915,136
3,696
19,092
16,10020,82526,806(3,223)69,963
11,532
8,141
18,92819,283
23,612
24,133(2,348)612,660
128,173
31,298
161,673
136,337
176,349
226,997(27,293)

170,781

173,2441,446,194¥1,316,041¥1,348,400$11,144,390

Investments and other assets:
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 (Note 9)
Allowance for doubtful accounts
Total investments and other assets
Total assets   . Annual Report 

LIABILITIES AND NET ASSETS
Current liabilities:
Short-term borrowings (Note 9)
Current portion of long-term debts (Note 9)
Notes and accounts payable, trade
Accrued expenses
Accrued income taxes (Note 12)
Other current liabilities (Note 12)
Total current liabilities
Long-term liabilities:
Long-term debts (Note 9)
Accrued pension and severance liability (Note 11)
Negative goodwill (Notes 1 and 3)
Other long-term liabilities (Notes 8 and 12)
Total long-term liabilities
Contingent liabilities (Note 24)
Net assets: (Notes 1 and 13)
Shareholders’ capital:
Common stock
Authorized — 1,500,000,000 shares
Issued — 782,865,873 shares
Capital surplus
Retained earnings
Less — treasury stock, at cost, 2007 — 64,639,092 shares2006 — 66,193,286 shares
Total shareholders’ capital
Valuation, translation and other adjustments:
Net unrealized holding gain on securities
Revaluation reserve for land (Notes 8 and 12)
Foreign currency translation adjustments
Total valuation, translation and other adjustments
Minority interest in consolidated subsidiaries
Total net assets
Total liabilities and net assets

Millions of yen

Thousands of
U.S. dollars(Note 1)

2007

2006

2007

¥ 172,665
20,789190,394
94,9704,572
80,277¥ 199,784
24,223
211,412
100,667
11,47280,555$ 1,462,148
176,043
1,612,279
804,21738,717679,795

563,667

628,113

4,773,199

150,400
45,516821
59,934150,072
52,322
2,995
47,112

1,273,605
385,435
6,952
507,528

256,671

252,5012,173,520

153,795
160,104
214,831(40,511)

153,795
160,071
189,996(41,545)

1,302,354
1,355,780
1,819,214(343,052)

488,219462,317

4,134,296

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

21,145290(18,230)
3,205
2,264

187,840
2,455(141,307)
48,98814,387495,703467,786

4,197,671¥1,316,041¥1,348,400$11,144,390

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

   . Annual Report 

CONSOLIDATED STATEMENTS OF INCOME
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2007, 2006 and 2005

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses (Note 14)
Operating income
Other income (expenses):
Interest and dividend income
Interest expenses
Gain on sale of securities, net
Foreign exchange gains (losses)
Loss on devaluation of securities
Gain (loss) on sale and disposal of property, plantand equipment, net
Gain (loss) on revaluation of derivatives
Impairment loss on property, plant and equipment (Note 15)
Additional retirement payments (Note 11)
Loss on termination of development projects (Note 16)
Loss on devaluation of inventories
at Aerospace division (Note 17)
Loss on discontinued operations (Note 18)
Amortization of negative goodwill (Note 3)
Loss on compensation to suppliers (Note 19)
Prior period adjustment (Note 20)
Gain on transfer of the substitutional portionof the employees’ pension fund (Note 11)
Loss on liquidation of affiliated companies (Note 21)
Other, net

2006

2005

2007

¥1,494,817
1,142,674
352,143304,237
47,906¥1,476,368
1,125,293
351,075
292,736
58,339¥1,446,491
1,107,718
338,773296,756
42,017$12,658,286
9,676,298
2,981,988
2,576,314
405,674

3,864(4,017)40(11,906)
(335)

3,421
(3,181)
3,021(10,597)
(16)

2,393
(2,437)
541
915
(23)

32,721(34,016)
338(100,821)(2,837)

1,899
4,196
(550)
—
—

(401)
(2,470)(4,064)(7,991)(7,094)(4,752)(3,129)———16,08135,532(4,657)
—
—

—
—
2,175
—
1,451

—
—
3,296
—
—

(8,122)(3,467)
6,868(4,174)———
18,418—12,287

2,423
(913)
(644)
(2,317)45,589——(3,589)(29,665)
28,674——(5,564)(20,951)
21,066

20,518(7,731)(5,454)(19,621)386,053

7,231
6,411
13,642
31,947(48)
31,89913,231(303)
12,92815,746(135)
15,611

5,913(3,264)
2,649
18,417(179)
18,23861,23354,289115,522
270,531(407)
270,124

Income taxes (Note 12):Current
Deferred

Per share data (Note 2):
Net income — Basic— Diluted
Net assets
Cash dividends (Note 13)¥¥44.4644.44
687.81
9.00¥¥20.6620.66
649.41
9.00

The accompanying notes are an integral part of these statements.



Thousands of
U.S. dollars(Note 1)

2007

Income before income taxes and minority interest

Income before minority interest
Minority interest in earnings of consolidated subsidiaries
Net income

Millions of yen   . Annual Report 

¥

$

Yen

U.S. dollars(Note 1)

¥23.2723.27
604.51
9.00

$0.38
0.38
5.82
0.08

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2007, 2006 and 2005

Thousands
Number ofsharesissuedMillions of yen

Commonstock

CapitalsurplusRetainedearnings

Treasury
stock

Total
shareholders’capitalNet
unrealized Revalholding uation
gains on reserve
securities for land

Foreigncurrencytranslation
adjustments

Totalvaluation,translationand otheradjustment

Minority
interest inconsolidated
subsidiaries

Total
net
assetsBalance, March 31, 2004
782,866 ¥153,795 ¥160,107 ¥165,192 ¥ (2,798) ¥476,296 ¥10,291 ¥421 ¥(33,300) ¥(22,588)
Cash dividends(7,013)(7,013)—
Payment of bonuses to directors
and statutory auditors
(157)
(157)
—
Net income
18,23818,238—Purchase of treasury stock
(399)
(399)
—
Disposal of treasury stock
(36)
(77)
966
853
—
Increase in the number of companies accounted
for by the equity method
1,496
1,496
—
Other comprehensive income of foreign subsidiaries
343
343
—
Other changes in shareholders’ capital——
Changes (other than shareholders’ capital), net—
6,654(2,574) 4,080¥3,319 ¥457,027(7,013)

Balance, March 31, 2005
782,866
Cash dividends
Payment of bonuses to directors
and statutory auditors
Net income
Purchase of treasury stock
Disposal of treasury stock
Increase in the number of companies accounted
for by the equity method
Other comprehensive income of foreign subsidiaries
Other changes in shareholders’ capital
Changes (other than shareholders’ capital), net

153,795

3,467

Balance, March 31, 2006
782,866
Cash dividends
Payment of bonuses to directors
and statutory auditors
Net income
Purchase of treasury stock
Disposal of treasury stock
Increase in the number of companies accounted
for by the equity method
Other comprehensive income of foreign subsidiaries
Other changes in shareholders’ capital
Changes (other than shareholders’ capital), net

153,795

160,071

178,022(7,015)(2,231)(111)
15,611(8)(39,351)
37

3,466
31

160,071489,657 16,945(7,015)421(35,874) (18,508)—(111)
15,611(39,351)
29

3,466
31
—
—

—
—
—
21,7133,466
31—
20,510

4,200

(131)

17,644290(18,230)(107)
31,899(107)
31,899
(71)
1,138

1,038
(1,513)(30)

474,616(7,015)————462,317 21,145(6,452)

(71)
1,105

148

1,496
343
—
4,228

(111)
15,611(39,351)
29

189,996 (41,545)(6,452)

33(157)
18,238
(399)
853

1,038
(1,513)
(30)
—

(18)

1,037

1,561

3,205
—

(1,203)
2,264

467,786(6,452)

—
—
—
—

(107)
31,899
(71)
1,138

(18)
—
—
2,598

1,020
(1,513)(30)
2,033

Balance, March 31, 2007

782,866 ¥153,795 ¥160,104 ¥214,831 ¥(40,511) ¥488,219 ¥22,182 ¥290 ¥(16,687) ¥ 5,785

Balance, March 31, 2006

782,866 $1,302,354 $1,355,500 $1,608,908 $(351,808) $3,914,954 $179,058 $2,455 $(154,374) $27,140(565)¥1,699 ¥495,703

Thousands of U.S. dollars (Note 1)

Cash dividends
Payment of bonuses to directors
and statutory auditors
Net income
Purchase of treasury stock
Disposal of treasury stock
Increase in the number of companies accounted
for by the equity method
Other comprehensive income of foreign subsidiaries
Other changes in shareholders’ capital
Changes (other than shareholders’ capital), net
Balance, March 31, 2007

$19,172 $3,961,266(54,637)(54,637)—(54,637)(906)
270,125(906)
270,125
(601)
9,637

—
—
—
—

(906)
270,125
(601)
9,637

(152)
—
—
22,0008,638(12,812)(254)
17,215

(601)
9,357

280
8,790
(12,812)
(254)

8,790
(12,812)
(254)
—

(152)

8,782

13,219782,866 $1,302,354 $1,355,780 $1,819,214 $(343,052) $4,134,296 $187,840 $2,455 $(141,307) $48,988(4,785)$14,387 $4,197,671

The accompanying notes are an integral part of these statements.

   . Annual Report 

CONSOLIDATED STATEMENTS OF CASH FLOWSFUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2007, 2006 and 2005

Cash flows from operating activities:
Income before income taxes and minority interest
Adjustments to reconcile income before income taxes andminority interest to net cash provided by operating activities:
Depreciation and amortization expenses(Gain) loss on sale and disposal of property, plant and equipment, net
Decrease in accrued pension and severance liability
Gain on sale of investment securities
Loss on devaluation of securities
Decrease in notes and accounts receivable, trade
Increase in inventories
Increase (decrease) in notes and accounts payable, trade
Increase (decrease) in deposits received
Income taxes paid
Impairment loss on property, plant and equipment
Loss on termination of development projects
Loss on compensation to suppliers
Loss on discontinued operations
Amortization of negative goodwill(Gain) loss on revaluation of derivatives
Other, net
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchase of investment securities
Purchase of marketable securities
Proceeds from sale of investment securities
Proceeds from sale of marketable securities
Purchase of intangible assets
Disbursement of loans receivableCollection of loans receivable
Price adjustment of investments in subsidiary (Note 4)
Purchase of leased assets
Proceeds from sale of leased assets
Other, net
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from long-term debts
Repayment on long-term debts
Issuance of bonds
Redemption of bonds
Net increase (decrease) in short-term borrowings
Purchase of treasury stock
Proceeds from disposal of treasury stock
Dividends paid
Other, net
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents:
Balance at beginning of year
Net decrease related to the change in scope of consolidation
Balance at end of year (Note 4)
Supplementary information on cash flows:
Cash paid during the year for interest

Thousands of
U.S. dollars(Note 1)

2007

2006

2005

2007

¥ 45,589¥ 28,674¥ 21,066$ 386,053

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

71,0104,752(2,730)
(541)
23
5,353
(11,272)
33
150(6,197)
—
—
4,174
3,467
(31,675)
3,129(3,415)57,327689,762(16,081)(57,499)
(338)
2,837
54,129(108,282)(173,766)(6,986)(131,722)
4,657
—
—
—
(18,418)(35,532)(33,170)
555,644(57,388)
7,571(16,599)(3,517)
11,4308,472(3,100)(114,761)
138,280—(64,100)
52,112(1,828)(43,428)(60,942)3,616(9,063)(9,489)13,092
21,908(5,127)(124,989)
127,450(7,087)(59,933)
34,499290(75,775)(84,209)
5,719(7,690)(37,119)
5,395
50,474(8,009)(122,633)
101,195—(53,789)
30,69230,213(89,761)(485,968)
64,112(140,562)(29,782)
96,791
71,742(26,251)(971,810)
1,170,971—(542,806)
441,290(15,480)(367,753)

1,700(3,848)20,000(20,500)(27,169)(62)
224(6,452)(102)(36,209)756(13,265)

15,301(28,996)—(10,300)(18,538)(39,352)30(7,015)(15)(88,885)7,856(19,319)

49,867(37,166)
20,000(10,000)
10,898(399)
24(7,013)(12)
26,199
(1,481)(7,716)

14,396(32,585)
169,362(173,596)(230,070)
(525)
1,897
(54,636)(865)(306,622)
6,401(112,330)

112,366(41)¥ 99,060

131,685—¥ 112,366

139,401—¥ 131,685

951,529(347)$ 838,852

¥

¥

¥

$

3,945

2,920

The accompanying notes are an integral part of these statements.

Millions of yen   . Annual Report 2,432

33,407

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES

1. Basis of Presentation of the Financial Statements
The accompanying consolidated financial statements of Fuji Heavy Industries Ltd. (the “Company”) have been preparedin accordance with the provisions set forth in the Japanese Securities and Exchange Law and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different
in certain respects as to application and disclosure requirements of International Financial Reporting Standards.
The accounts of the company’s overseas subsidiaries are based on their accounting records maintained in conformity with generally accepted accounting principles prevailing in the respective countries of their domicile. The
accompanying consolidated financial statements have been restructured and translated into English (with certain
expanded disclosure and the inclusion of the consolidated statements of changes in net assets for 2006 and 2005) fromthe consolidated financial statements of the Company prepared in accordance with Japanese GAAP and filed with theappropriate Local Finance Bureau of the Ministry of Finance as required by the Securities and Exchange Law. Certain
supplementary information included in the statutory Japanese language consolidated financial statements, but notconsidered necessary for fair presentation, is not presented in the accompanying consolidated financial statements.
The translation of the Japanese yen amounts into U.S. dollars is included solely for the convenience of readers
outside Japan, using the prevailing exchange rate at March 31, 2007, which was ¥118.09 to U.S.$1. The conveniencetranslation should not be construed as representation that the Japanese yen amounts have been, could have been, or
could in the future be, converted into U.S. dollars at this or any other rate 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 in consolidation. The fiscal year-endof the consolidated domestic subsidiaries is the same as that of the 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 intervening transactions that occurred for the period between December
31 and March 31 are reflected in the consolidated financial statements.
The consolidated financial statements include the accounts of the Company and 61 subsidiaries in the fiscal year
2007 and 68 subsidiaries in the fiscal years 2006 and 2005.
In addition, 17 non-consolidated subsidiaries and an affiliated company are accounted for by the equity method in
the fiscal year 2007, while 10 non-consolidated subsidiaries and an affiliated company are accounted for by the equity
method in the fiscal year 2006, and there were 4 non-consolidated subsidiaries and an affiliated company accounted
for by the equity method in the fiscal year 2005.
Investments in insignificant non-consolidated subsidiaries and affiliated companies not accounted for by the equity
method are carried at cost. The difference between the cost and the underlying net equity of investments in subsidiaries and affiliated companies is allocated to identifiable assets based on their fair value at the date of acquisition. The
unallocated residual value of the excess of the cost over the fair value of the underlying net assets is recognized as
goodwill, and is amortized over a period of 5 years on a straight-line basis. However, the negative goodwill, whicharose from making Subaru of Indiana Automotive, Inc. (“SIA”) a wholly owned subsidiary of the Company, is amortized differently. The portion that clearly corresponds to the forecasted future losses is amortized according to thegeneration of those losses, and the remaining portion of the negative goodwill is being 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 theminority interest portion, are valued based on their fair value at the time the Company first consolidates the subsidiary.
Translation of foreign currency-denominated accounts
Under the Japanese accounting standards for foreign currency translation, monetary assets and liabilities denominatedin foreign currencies are translated into Japanese yen at the exchange rates prevailing at each balance sheet date withthe resulting gain or loss included currently in the statement of income.

   . Annual Report 

The assets and liabilities of foreign subsidiaries and affiliated companies are translated into Japanese yen at theexchange rates in effect at the balance sheet dates of the foreign subsidiaries and affiliated companies, except forcommon stock and capital surplus, which are translated at historical rates. Revenue and expense accounts are translated at the average exchange rates during the respective years. The resulting foreign currency translation adjustments
are included in “Foreign currency translation adjustments” and “Minority interest in consolidated subsidiaries” in the
net assets section of the accompanying consolidated balance sheets.
Revenue recognition
Revenue from sales of finished products is generally recognized when the products are shipped to dealers or customers. Revenue from operating leases is recognized on a straight-line basis over the lease term. In addition, revenue ofthe Aerospace division’s production contracts with the production term exceeding one year and the amount exceeding ¥5,000 million is recognized by the percentage-of-completion method.
Cash equivalents
Cash and cash equivalents include all highly liquid investments, generally with original maturities of three months orless that are readily convertible to known amounts of cash and have negligible risk of changes in value due to theirshort maturities.
Allowance for doubtful accounts
Allowance for doubtful accounts is provided based on the amount calculated based on the historical ratio of bad debt
for ordinary receivables, and an estimated amount of uncollectible account for specific over-due receivables.
Marketable securities and investment securities
Under the Japanese accounting standards for financial instruments, available-for-sale securities for which fair value isavailable are stated at their fair value as of the balance sheet dates with unrealized holding gains and losses included asa separate component of net assets until realized, while securities for which fair value is not readily available are statedat cost as determined by the moving-average method, after taking into consideration devaluation, if any, for permanent impairment. Held-to-maturity debt securities are stated using the amortized cost method.
Derivative financial instruments and hedge accounting
The Japanese accounting standards for financial instruments require the Company and consolidated domestic subsidiaries to state derivative financial instruments at their fair value and to recognize changes in the fair value as a gain orloss unless such derivative financial instruments are used for hedging purposes.
For interest rate swap contracts used as a hedge which meet certain hedging criteria, the net amount to be paid or
received under the interest rate swap contract is added to or deducted from the interest on the assets or liabilities forwhich the swap contract is executed.
Derivative financial instruments qualifying as a hedge, along with the underlying transactions, assets and liabilities
are as follows:
Financial Instrument

Transaction, Assets and Liabilities

Interest swaps

Borrowings

The risk exposures to movements in interest rates are hedged according to the Company’s and consolidated
subsidiaries’ risk management policy. An evaluation of hedge effectiveness is not considered necessary as the terms
and notional amounts of these hedging instruments are the same as those of the underlying transactions, assets andliabilities, and therefore they are presumed to be highly effective in offsetting the effect of movements in interest rates
at their inception as well as during their terms.

   . Annual Report (Change in accounting policy)(Fiscal 2005)
In the fiscal year 2005, the Company discontinued applying hedge accounting for its foreign exchange contracts. The
reason for the change was that the Company reconsidered the appropriateness of application of hedge accounting inconnection with its review of the hedge policy and management activities for foreign exchange contracts.
Previously, for foreign exchange contracts used as a hedge which meet certain hedging criteria, the Company
translated hedged foreign currency-denominated assets and liabilities using the contracted forward rates, and forforward exchange contracts hedging future transactions, the Company deferred the recognition of gains or losses
resulting from changes in fair value of the foreign exchange contracts until the related gains or losses on the hedged
items are recognized in earnings.
As a result of this change, operating income increased by ¥141 million and income before income taxes andminority interest decreased by ¥1,623 million in the fiscal year 2005 as compared with the amounts resulting fromapplication of the previous hedge accounting policy.
The impact of such change on segment information is stated in Segment Information (Note 26).
Inventories
Finished products are stated principally at cost determined by the moving-average method. Raw materials, work inprocess 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 the consolidated statements ofincome as incurred.
Depreciation of the property, plant and equipment of the Company and consolidated domestic subsidiaries isprincipally 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, plantand equipment of consolidated foreign subsidiaries is computed by the straight-line method at rates based on theestimated useful lives of the assets according to their general class, type of construction, and use.
Estimated useful lives for depreciable assets are as follows:
Building and structures:
7–50 years
Machinery, equipment and vehicles:
2–12 years(Change in accounting policy)(Fiscal 2006)
In the fiscal year 2006, the Company and the consolidated domestic subsidiaries adopted the new accounting standard
for impairment of fixed assets (“Opinion Concerning 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 the 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). As a result of this change,
income before income taxes and minority interest decreased by ¥3,263 million. (Impairment loss on property, plantand equipment in the consolidated statement of income in the fiscal year 2006 was ¥4,064 million, of which ¥801
million was related to consolidated subsidiaries in the United States.) The impact of such change on segment information is stated in Segment Information (Note 26).
An accumulated impairment loss is recorded as a direct deduction in the book value of the respective assets.
Accounting for leases
In principle, finance leases are accounted for on a similar basis to sales by lessors or purchases by lessees. However,finance leases which do not transfer ownership of the leased assets to lessees as stipulated in the lease contracts can be
accounted for as operating leases. Therefore, as a lessee, the Company and consolidated domestic subsidiaries accountfor those leases as operating leases and charge periodic lease payments to expenses as incurred. Certain “as-if capitalized” pro-forma information is disclosed in Note 23 to the consolidated financial statements.

   . Annual Report Goodwill and intangible assets
Goodwill is principally amortized by the straight-line method in accordance with accounting principles generally
accepted in the countries where such goodwill is recorded. However, goodwill of the consolidated subsidiary in the
U.S. is not amortized in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, while otheridentifiable assets are amortized by the straight-line method.
Computer software used internally by the Company and consolidated subsidiaries is amortized by the straight-line
method over the relevant economic useful lives of 3 or 5 years.
Accrued warranty claims
The Company and consolidated subsidiaries provide for accrued warranty claims on products sold based on their pastexperience of warranty services and estimated future warranty costs, which are included in “Accrued expenses” in theaccompanying consolidated balance sheets.
Directors’ bonuses
Directors’ bonuses are recognized as expenses for the period in which they are incurred.
(Change in accounting policy)(Fiscal 2007)
Accounting standard for directors’ bonuses
In previous fiscal years, directors’ bonuses were accounted for as a direct distribution from unappropriated retained
earnings. Effective the fiscal year 2007, they are recognized in earnings as incurred. This change in accounting standards had no material effect on income.
Accrued pension and severance liability
Upon termination of employment, employees of the Company and consolidated subsidiaries in Japan are entitled,under most circumstances, to lump-sum indemnities or pensions as described below, based on current rates of pay,
length of service, and conditions under which the termination occurs. The minimum payment is an amount based onvoluntary retirement. In addition to the minimum payment based on voluntary retirement, employees receive additional benefits for retirement due to age limit, death or other defined reasons.
Certain consolidated subsidiaries in Japan have contributory funded defined benefit employees’ welfare pension
funds, which are pursuant to the Japanese Welfare Pension Insurance Law. The contributory pension funds consist of
a portion of the governmental welfare pension program, under which the contributions are made by the companies
and their employees, and an additional portion representing the corporate noncontributory pension plans.
Under the Japanese accounting standards for pension and severance benefits, accrued pension and severance
liability for employees is provided based on the estimated amounts of projected pension and severance obligation andthe fair value of plan assets at the end of the fiscal year. Prior service cost is amortized by the straight-line method
over a period (12-18 years) which is shorter than the average remaining service period of the eligible employees.
Actuarial gains and losses are amortized from the following fiscal year by the straight-line method over a period(primarily 18 years) which is shorter than the average remaining service period of the eligible employees.
Accrued pension contribution for defined benefit pension plans is included in accrued pension and severance liability.
Directors and statutory auditors of the Company and consolidated domestic subsidiaries are entitled to receive alump-sum payment at the time of severance or retirement, subject to approval of the shareholders. The liabilities forsuch benefits are determined based on the Company’s and consolidated subsidiaries’ internal rules, and are included
in “Other long-term liabilities” in the accompanying consolidated balance sheets.
Research and development costs
Research and development costs are expensed as incurred and amounted to ¥50,709 million (US$429,410 thousand),¥46,893 million and ¥52,962 million for the fiscal years 2007, 2006 and 2005, respectively.
Income taxes
The provision for income taxes is computed based on the pretax income for financial reporting purposes. Deferred tax
assets and liabilities are recognized for expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. A valuation allowance is recorded to reducedeferred tax assets when it is more likely than not that a tax benefit will not be realized.

   . Annual Report (Change in accounting policy)(Fiscal 2007)
Accounting standard for business combinations
Effective the fiscal year 2007, the Company and consolidated domestic subsidiaries adopted the provisions of“Accounting Standard for Business Combination” (Business Accounting Deliberation Council, October 31, 2003),“Accounting Standard for Business Separation” (Statement No. 7 issued by the Accounting Standards Board of Japanon December 27, 2005), and the related “Implementation guidance for the accounting standard for business combination and the accounting standard for business separation” (the Financial Accounting Standard Implementation Guidance No. 10 issued by the Accounting Standards Board of Japan on December 27, 2005). The adoption of thesestandards had no effect on income.
Accounting Standard for Presentation of Net Assets in the Balance Sheet
Effective from the year ended March 31, 2007, the Company adopted the new accounting standard, “AccountingStandard for Presentation of Net Assets in the Balance Sheet” (Statement No. 5 issued by the Accounting Standards
Board of Japan on December 9, 2005), and the implementation guidance for the accounting standard for presentationof net assets in the balance sheet (the Financial Accounting Standard Implementation Guidance No. 8 issued by the
Accounting Standards Board of Japan on December 9, 2005), (collectively, “the New Accounting Standards”).
The consolidated balance sheet as of March 31, 2006 has been restated to conform to the 2007 presentation.
There were no effects on total assets or total liabilities from applying the New Accounting Standards to the balance
sheet as of March 31, 2006. The adoption of the New Accounting Standards had no impact on the consolidated
statements of income for the years ended March 31, 2007, 2006 and 2005.
Accounting Standard for Statement of Changes in Net Assets
Effective from the year ended March 31, 2007, the Company adopted the new accounting standard, “AccountingStandard for Statement of Changes in Net Assets” (Statement No. 6 issued by the Accounting Standards Board ofJapan on December 27, 2005), and the implementation guidance for the accounting standard for statement of changes
in net assets (the Financial Accounting Standard Implementation Guidance No. 9 issued by the Accounting Standards
Board of Japan on December 27, 2005), (collectively, “the Additional New Accounting Standards”).
Accordingly, the Company prepared the statement of changes in net assets for the year ended March 31, 2007 inaccordance with the Additional New Accounting Standards. Also, the Company voluntarily prepared the consolidated
statements of changes in net assets for 2006 and 2005 in accordance with the Additional New Accounting Standards.
Previously, consolidated statements of shareholders’ equity were prepared for the purpose of inclusion in the consolidated financial statements although such statements were not required under Japanese GAAP.
Net income per share
Basic net income per share (EPS) is computed based on the average number of shares of common stock outstanding
during each year. Diluted EPS assumes the potential dilution that could occur if all the convertible securities wereconverted or other contracts to issue common stock were exercised to the extent that they are not anti-dilutive.
Reclassification and restatement
Certain prior year amounts have been reclassified to conform to the current year presentation. Also, as describedabove, the consolidated balance sheet for 2006 has been restated to conform to new presentation rules of 2007. Also,in lieu of the consolidated statements of shareholders’ equity for the years ended March 31, 2006 and 2005, whichwere prepared on a voluntary basis for inclusion in the 2006 and 2005 consolidated financial statements, theCompany prepared the consolidated statements of changes in net assets for 2006 and 2005 as well as for 2007.
These reclassifications had no impact on previously reported results of operations or retained earnings.

   . Annual Report 

3. Acquisition of Isuzu’s Share of Subaru of Indiana Automotive, Inc.
Subaru of Indiana Automotive, Inc. (“SIA,” formerly Subaru-Isuzu Automotive Inc.), a consolidated subsidiary in the
United States, had been a joint venture company of Isuzu Motors, Limited (“Isuzu”) and the Company (the Company
had held a 51% interest in SIA). On January 1, 2003, as a result of dissolution of the joint venture relationship with
Isuzu and execution of an agreement for the consignment of production, the Company acquired Isuzu’s share of SIA
to make SIA a wholly owned subsidiary of the Company, and SIA was assigned to produce certain Isuzu vehicles aswell as Subaru vehicles.
The acquisition cost of Isuzu’s share of SIA was determined in consideration of certain losses on disposal of property, plant and equipment, losses on cancellation of operating leases, and losses related to personnel reduction, to be
incurred during and after the consigned production activities. Consequently, negative goodwill arose.
The portion of the negative goodwill that clearly corresponds to the forecasted future losses has been amortizedaccording to the generation of those losses, and the remaining portion has been amortized by the straight-line method
over 5 years.
The Company revised this amortization schedule in the fiscal year 2006 following the settlement of actual losses
with Isuzu according to the Master Agreement for Cancellation of Joint Venture Relationship and Consignment of
Production dated December 20, 2002.
As a result, negative goodwill became ¥1,949 million as of March 31, 2006, which was fully amortized during the
fiscal year 2007.

4. Additional Cash Flow Information(a) Cash and cash equivalents as of March 31, 2007, 2006 and 2005, consisted of the following:
Millions of yen

Thousands of
U.S. dollars

2007

2006

2005

2007

Cash and time deposits
Marketable securities
Short-term loans¥ 52,406
32,017101,184¥ 65,524
37,444
118,414¥ 40,742
87,003
128,202$ 443,780
271,124
856,838

Less maturity over three months

185,607(86,547)

221,382(109,016)

255,947(124,262)

1,571,742(732,890)

Cash and cash equivalents¥ 99,060¥ 112,366¥ 131,685$ 838,852(b) Significant non-cash transactions:(Fiscal 2005)
On August 3, 2004, the Company executed a share exchange agreement to make Yusoki Kogyo K.K. a wholly owned
subsidiary of the Company. As a result of the share exchange, goodwill increased by ¥833 million and treasury stock
decreased by ¥942 million in the fiscal year 2005.
(Fiscal 2006)
None.
(Fiscal 2007)
On October 1, 2006, the Company executed a share exchange agreement to make Fuji Machinery Co., Ltd., awholly owned subsidiary of the Company. As a result of the share exchange, goodwill increased by ¥307 million(US$2,600 thousand) and treasury stock decreased by ¥1,000 million (US$8,468 thousand) in the fiscal year 2007.
(c) Price adjustment of investments in subsidiary(Fiscal 2006)“Price adjustment of investments in subsidiary” included in the cash flows from investing activities represents a cash
payment related to the adjustment to the price of SIA shares transferred from Isuzu under the settlement of actual
losses in the fiscal year 2006, in accordance with the Master Agreement for Cancellation of Joint Venture Relationship and Consignment of Production with Isuzu, as described in Note 3. Acquisition of Isuzu’s Share of Subaru ofIndiana Automotive, Inc.

   . Annual Report 

5. Marketable Securities and Investment Securities
Information as to the value of marketable securities and investment securities as of March 31, 2007 and 2006, is as follows:(1) Other securities (available-for-sale securities) for which fair market value was available:(a) As of March 31, 2007:
Millions of yen

Book value exceeding acquisition cost:
Equity securities
Debt securities
Other

Acquisition cost

Book value

Difference¥20,348¥57,376¥37,028

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

36

272

236

20,38457,64837,264

293

274

(19)

9,746
2,929
2,181

9,722
2,919
2,173

(24)
(10)
(8)

Subtotal

15,14915,088

(61)

Total

¥35,533¥72,736¥37,203

Acquisition cost

Book value

Difference$172,309$485,867$313,558

Thousands of U.S. dollars

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

305

2,303

1,998

172,614488,170

315,556

2,482

2,320

(162)

82,53024,803
18,46982,327
24,71918,401

(203)
(84)
(68)

Subtotal

128,284

127,767

(517)

Total

$300,898$615,937$315,039

Acquisition cost

Book value

Difference¥20,162¥55,671¥35,509(b) As of March 31, 2006:
Millions of yen

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

35

344

309

20,19756,01535,818

223

196

(27)

11,297
3,632
1,335

11,154
3,572
1,314

(143)
(60)
(21)

Subtotal

16,487

16,236

(251)

Total

¥36,684¥72,251¥35,567   . Annual Report 

(2) Other securities (available-for-sale securities) sold during the fiscal years 2007 and 2006:(a) For the year ended March 31, 2007:
Sales amount

Total gains

Total losses¥616,735 million
US$5,222,584 thousand¥413 million
US$3,497 thousand¥370 million
US$3,133 thousand

The above sales amount included sales of short-term investments in commercial paper and other amounting to¥596,833 million (US$5,054,052 thousand).
(b) For the year ended March 31, 2006:
Sales amount

Total gains

Total losses¥615,171 million¥5,475 million¥2,313 million

The above sales amount included sales of short-term investments in commercial paper and other amounting to¥580,171 million.
(3) Book value of major securities without available fair market value as of March 31, 2007 and 2006:
Other securities (available-for-sale securities)

Millions of yen

Money management fund
Unlisted stocks (excluding over-the-counter stocks)

Thousands of
U.S. dollars

2007

2006

2007

¥29,656
1,967¥33,679
1,469$251,130
16,657

Note: The Company and consolidated subsidiaries recognized ¥335 million (US$2,837 thousand) and ¥16 million in loss on devaluation of securities
for the fiscal years 2007 and 2006, respectively.
For the purpose of recording a loss on devaluation of securities, the Company and consolidated subsidiaries consider all the securities whose fairmarket value has fallen below 50% of the acquisition cost to be permanently impaired, and record the relevant loss on devaluation. For securities
whose fair market value has declined between 30% to 50% in relation to their acquisition costs, the Company and consolidated subsidiaries specifically consider the probability of recovery of the fair value, and record a loss on devaluation in an amount deemed permanently impaired.

(4) Scheduled redemption of other securities (available-for-sale securities) with maturity and held-to-maturity debt
securities as of March 31, 2007 and 2006:(a) As of March 31, 2007:
Millions of yen

Debt securities
Government andmunicipal bonds
Corporate bonds
Other
Total

Within 1
year

1 to 5years

5 to 10years

Over 10years

Within 1
year

1 to 5years

5 to 10years

Over 10
years

¥ 767
599
994

¥ 7,825
1,987
720

¥286
333
210

¥ 844
—
249

$ 6,495
5,073
8,417

$66,263
16,826
6,097$2,422
2,820
1,778$7,147—2,109¥2,360¥10,532¥829¥1,093$19,985$89,186$7,020$9,256

Within 1
year

1 to 5years

5 to 10years

Over 10years¥2,846743
174¥ 7,086
2,632
469

¥ 693
196
175

¥ 529
—
496

¥3,763¥10,187¥1,064¥1,025(b) As of March 31, 2006:
Millions of yen

Debt securities
Government andmunicipal bonds
Corporate bonds
Other
Total



Thousands of U.S. dollars   . Annual Report 

6. Inventories
Inventories as of March 31, 2007 and 2006, consisted of the following:
Millions of yen

Thousands of
U.S. dollars

2007

2006

2007

Finished products
Work in process
Raw materials
Supplies¥117,272
84,786
20,936
1,925¥121,866
74,09018,583
1,857$ 993,073
717,978
177,289
16,301

Total¥224,919¥216,396$1,904,641

7. Property, Plant and Equipment
Property, plant and equipment as of March 31, 2007 and 2006, are summarized as follows:
Millions of yen

Thousands of
U.S. dollars

2007

2006

2007

Buildings and structures
Machinery and vehicles
Leased assets
Other¥ 298,614
452,166
97,576
241,504¥ 291,073
439,940
98,783
234,522$ 2,528,699
3,828,995
826,285
2,045,084

SubtotalLess accumulated depreciation
Land
Construction in progress

1,089,860(734,076)
176,465
18,335

1,064,318(689,669)
173,928
7,396

9,229,063(6,216,241)
1,494,326
155,262¥ 550,584¥ 555,973$ 4,662,410

Total

8. Revaluation Reserve for Land
In accordance with the Land Revaluation Law (Law No. 34, enacted on March 31, 1998), land owned by a consolidated subsidiary for business use was revalued on March 31, 2002. The unrealized gains from the revaluation were
included in the net assets as “Revaluation reserve for land,” net of income taxes. The deferred taxes for the unrealized
gains are included in other long-term liabilities. Unrecorded loss on the revalued land as of March 31, 2007, was¥483 million (US$4,090 thousand). According to the Law, the Company and consolidated subsidiaries are notpermitted to revalue the land after April 1, 2002.

9. Short-Term Borrowings and Long-Term Debts
Short-term borrowings as of March 31, 2007 and 2006, consisted of the following:

Bank loans with average interest rate of 0.79%
and 0.55% per annum as of March 31, 2007 and 2006, respectively
Commercial paper with average interest rate of 0.70%
and 0.24% per annum as of March 31, 2007 and 2006, respectively
Total

Millions of yen

Thousands of
U.S. dollars

2007

2006

2007

¥161,665¥191,784$1,368,999

11,0008,000

93,149¥172,665¥199,784$1,462,148

   . Annual Report 

Long-term debts as of March 31, 2007 and 2006, consisted of the following:
Millions of yen

Thousands of
U.S. dollars

2007

2006

2007

Loans principally from banks and insurance companies
due through 2025 with average interest rate of 2.42%
and 2.38% per annum as of March 31, 2007 and 2006, respectively
Unsecured 0.97% bonds due May 15, 2006
Unsecured 0.89% bonds due September 28, 2007
Unsecured 1.22% bonds due September 30, 2008
Unsecured 0.68% bonds due June 18, 2010
Unsecured 1.31% bonds due April 28, 2011
Unsecured 2.01% bonds due May 31, 2012
Unsecured 0.93% bonds of consolidated subsidiary
due February 15, 2007

¥ 71,189—
10,00030,00020,00020,00020,000¥ 73,795
20,00010,00030,00020,00020,000—$ 602,837—
84,681254,044
169,362
169,362
169,362—500—

SubtotalLess — Portion due within one year

171,189(20,789)

174,295(24,223)

1,449,648(176,043)¥150,400¥150,072$1,273,605

Millions of yen

Thousands of
U.S. dollars

2008
2009
2010
2011
2012
2013 and thereafter¥ 20,789
48,981
9,894
23,326
20,71947,480$ 176,043
414,777
83,784
197,527
175,451
402,066

Total¥171,189$1,449,648

Total

Annual maturities of long-term debts as of March 31, 2007, were as follows:

The following assets as of March 31, 2007 and 2006, were pledged as collateral for certain loans:
Millions of yen
2007

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

Thousands of
U.S. dollars

2006

2007

291
88,887180$ 1,118
484,105—¥89,358$485,223¥ 132
57,168—¥¥57,300

The unused balance of commitments for borrowings by the Company and consolidated subsidiaries (Subaru ofAmerica, Inc. and Subaru Europe N.V./S.A.) as of March 31, 2007 and 2006, was as follows:Millions of yen

Thousands of
U.S. dollars

2007

2006

2007

Total commitments
Less amounts currently borrowed¥82,599—¥81,174—$699,458—

Unused balance¥82,599¥81,174$699,458

   . Annual Report 10. Unexecuted Balance of Overdraft Facilities and Lending Commitments
The unexecuted balance of overdraft facilities and lending commitments at a consolidated subsidiary (Subaru FinanceCo., Ltd.) as of March 31, 2007 and 2006, were as follows:
Millions of yen

Thousands of
U.S. dollars

2007

2006

2007

Total overdraft facilities and lending commitments
Less amounts currently executed¥10,9102,312¥14,310
2,788$92,387
19,578Unexecuted balance¥ 8,598¥11,522$72,809

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

11. Pension and Severance Plans
The Company and consolidated domestic subsidiaries have lump-sum retirement payment plans, qualified retirement
pension plans, and contributory defined benefit employees’ welfare pension funds, and certain domestic subsidiaries
have defined contribution pension plans. In addition, in certain occasions, additional retirement payments are madeto employees for their retirement. Consolidated foreign subsidiaries primarily have defined contribution plans.
By the end of the fiscal year 2007, the Company had transferred 80% of prescribed retirement benefits from the
lump-sum retirement payment plan to the qualified retirement pension plan for employees who terminate theiremployment at the age of 50 or over.
As of March 31, 2007, the Company and 38 of its consolidated domestic subsidiaries, which add up to a total of
39 companies, have lump-sum retirement payment plans. Within the group, there are also 22 qualified retirement
pension plans, 3 defined contribution plans, 3 defined benefits pension plans, and a multi-employer employees’
welfare pension fund (excluding overlaps from joint trustee contracts, integration contracts, and joint establishmentof a multi-employer fund). In addition, there are 14 single-employer employees’ welfare pension funds subject to theprovisions of Article 33 of “Practice Guidelines of Accounting for Retirement Benefits.”
Certain insignificant consolidated subsidiaries calculated their pension liability using the simplified method. Under
the simplified method, an accrued pension and severance liability is provided at the amount that would have been
payable had all the employees voluntarily retired at the end of the fiscal year, less an amount to be covered from theplan assets, while the Company and significant subsidiaries provide an accrued pension and severance liability basedon the estimated amount of pension and severance obligation (projected benefit obligations), less the fair value of plan
assets at the end of the fiscal year under the actuarial method.
Additional information (Fiscal 2007)
Transfer to the government of the substitutional portion of employees’ welfare pension fundAs stipulated in the Japanese Defined Benefit Pension Insurance Law, the Tokyo Subaru Employees’ Pension Fund(a multi-employer employees’ welfare pension fund), of which certain consolidated subsidiaries are members, obtained
an approval from the Minister of Health, Labor and Welfare for exemption from the benefit obligations related tofuture employee service in respect of the substitutional portion on October 28, 2005, and obtained an approval from
the Minister of Health, Labor and Welfare for transferring the obligations related to past employee service on
November 1, 2006. The pension fund is currently in the process of transferring plan assets related to the obligations
related to past employee service to the government.
The amount of plan assets to be transferred (the minimum reserve obligations) to the government as of March 31,
2007, was ¥5,294 million (US$44,830 thousand). Assuming the transfer had taken place at the end of the fiscal year
2007, the Company recognized a resulting difference of ¥2,423 million (US$20,518 thousand) as “Gain on transfer ofthe substitutional portion of the employees’ pension fund” in other income in the fiscal year 2007, in accordance withthe provisions of Article 44-2 of “Practice Guidelines of Accounting for Retirement Benefits (Interim Report)”(JICPA Accounting Systems Committee Report No. 13).

   . Annual Report 

A reconciliation between the projected pension and severance obligation and accrued pension and severance
liability as of March 31, 2007 and 2006 was as follows:

Millions of yen

Thousands of
U.S. dollars

2007

2006

2007

a. Projected pension and severance obligationb. Plan assets¥120,177(71,200)¥125,549(65,763)$1,017,673(602,930)

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

48,977(4,003)488

59,786(7,062)(448)

414,743(33,898)
4,133

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

45,462(54)

52,276(46)

384,978(457)

h. Accrued pension and severance liability¥ 45,516¥ 52,322$ 385,435

Notes: 1. The above amounts include the substitutional portion of 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. In addition to the above plan assets, there were plan assets of the multi-employer pension plan amounting to ¥20,764 million (US$175,832
thousand) and ¥17,425 million as of March 31, 2007 and 2006, respectively. The plan assets for the multi-employer pension plan could not
be allocated to each participating employer. These amounts were based on the number of participants.

Periodic pension and severance costs for the fiscal years 2007, 2006 and 2005, consisted of the following:
Millions of yen

Thousands of
U.S. dollars

2007

2006

2005

2007

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

¥ 8,572
2,232(1,313)663
51
10,205¥ 9,351
2,557(1,266)
1,218
186
12,046¥ 9,647
2,636(1,175)
1,853
257
13,218$ 72,589
18,901(11,119)5,614
432
86,417(2,423)——(20,518)h. Total¥ 7,782¥12,046¥13,218$ 65,899

Notes: 1. The above amounts do not include the social security taxes paid by employees.
2. Service costs of consolidated subsidiaries using the simplified method are included in the service cost above.
3. Service cost above includes required funding for the multi-employer pension plan amounting to ¥797 million (US$6,749 thousand), ¥831
million and ¥877 million for the fiscal years 2007, 2006 and 2005, respectively, for which plan assets could not be allocated to each participating employer.
4. Service cost above includes contributions to the defined contribution plans of certain consolidated foreign subsidiaries amounting to ¥1,436
million (US$12,160 thousand), ¥1,397 million and ¥1,476 million for the fiscal years, 2007, 2006 and 2005, respectively.
5. In addition to the pension and severance cost above, additional retirement payments amounting to ¥971 million (US$8,223 thousand),¥7,467 million, and ¥371 million were made for the fiscal years 2007, 2006 and 2005, respectively. For the fiscal year 2007, ¥190 million(US$1,609 thousand) out of the total additional retirement payments is included in selling, general and administrative expenses, and theremaining ¥781 million (US$6,614 thousand) is reflected as part of “Other, net” in other expense in the accompanying consolidated statement of income. For the fiscal year 2006, ¥37 million out of the total additional retirement payments is included in selling, general andadministrative expenses, and the remaining ¥7,430 million is reflected as “Additional retirement payments” in other expense in the accompanying consolidated statement of income. For the fiscal year 2005, ¥92 million out of the total additional retirement payments is included inselling, general and administrative expenses, and the remaining ¥279 million is reflected as part of “Loss on discontinued operations” in otherexpense in the accompanying consolidated statement of income.

Actuarial assumptions used in computation of pension and severance liability were as follows:a. Attribution of expected benefit obligation
The straight-line method
b. Discount rate
2.0%–2.5%
c. Expected rate of return on plan assets
0.8%–4.0%
d. Amortization of actuarial gain/loss
Primarily 18 years (It is amortized by the straight-line
method starting from the following fiscal year over a period
shorter than the average remaining service periods of theeligible employees)e. Amortization of prior service cost
12 to 18 years (fiscal 2007)
14 to 18 years (fiscal 2006)   . Annual Report 12. Income Taxes
The Company and consolidated subsidiaries were subject to a number of taxes based on income, which in the aggregate,
resulted in a normal statutory income tax rate of approximately 40.5% for the fiscal years 2007, 2006 and 2005.
A reconciliation of the statutory income tax rates in Japan to the Company’s effective income tax rates for the
fiscal years 2007, 2006 and 2005 is as follows:
2007

2006

2005

Statutory income tax rate in Japan
Increase (reduction) in taxes resulting from:
Changes in valuation allowance and tax benefits realized fromloss carry forwards
Adjustment to past corporate income taxes payable
and corporate income taxes refundable
Adjustment to past deferred income taxes
Adjustment to past corporate income taxes
of consolidated subsidiary in the United StatesSpecial deductions on corporate income taxes
Entertainment and other non-deductible expenses
Equity income
Amortization of goodwill
Other

40.5%

40.5%

40.5%

(4.9)

20.2

19.8

(0.9)
(1.0)

2.8
(6.8)

(1.6)
—

—
(2.3)
1.1
(1.4)
(1.9)
0.7

—
(6.1)
1.1
(2.0)
(4.6)
0.0

15.8
(5.4)
1.6
0.7
(59.0)
0.2

Effective income tax rate

29.9%

45.1%

12.6%

Significant components of the deferred tax assets and liabilities as of March 31, 2007 and 2006, were as follows:
Millions of yen

Thousands of
U.S. dollars

2007

2006

2007

¥ 18,453
4,611
18,267
6,956
6,173
8,205
6,017
6,443
20,052¥ 17,843
5,240
20,933
10,114
6,296
8,318
6,382
5,458
14,423$ 156,262
39,046
154,687
58,90452,274
69,481
50,95354,560169,803

95,177(16,685)

95,007(18,149)805,970(141,291)

Total deferred tax assets, net of valuation allowance

78,492

76,858664,679

Deferred tax liabilities:
Depreciation and amortization expenses
Net unrealized holding gains on investment securities
Revaluation reserve for land
Advanced depreciation reserve
Other(8,782)(15,031)
(703)
(489)
(7,044)(5,823)(14,442)
(703)
(468)
(3,085)(74,367)(127,284)(5,953)(4,141)(59,649)

Deferred tax assets:
Net operating loss carry forwards
Unrealized gain on sale of inventories
Accrued pension and severance liabilities
Accrued expenses
Accrued bonus
Accrued warranty claims
Unrealized gain on sale of property, plant and equipment
Loss on devaluation of inventories
Other
Total deferred tax assets
Valuation allowance

Total deferred tax liabilities(32,049)(24,521)(271,394)

Net deferred tax assets¥ 46,443¥ 52,337$ 393,285   . Annual Report 

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

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

Thousands of
U.S. dollars

2007

2006

2007

¥27,072
20,825—(1,454)¥32,992
23,612(4)(4,263)$229,249
176,349—(12,313)¥46,443¥52,337$393,285

13. Net Assets
The Japanese Corporate Law (the “Law”) became effective on May 1, 2006, replacing the Japanese Commercial Code(the “Code”). The Law is generally applicable to events and transactions occurring after April 30, 2006 and for fiscal
years ending after that date.
Under Japanese laws and regulations, the entire amount paid for new shares is required to be designated ascommon stock. However, a company may, by a resolution of the Board of Directors, designate an amount notexceeding one-half of the price of the new shares as additional paid-in-capital, which is included in capital surplus.
Under the Law, in cases where a dividend distribution of surplus is made, the smaller of an amount equal to 10%of the dividend or the excess, if any, of 25% of common stock over the total of additional paid-in-capital and legal
earnings reserve must be set aside as additional paid-in-capital or legal earnings reserve. Legal earnings reserve is
included in retained earnings in the accompanying consolidated balance sheets.
Under the Code, companies were required to set aside an amount equal to at least 10% of the aggregate amountof cash dividends and other cash appropriations as legal earnings reserve until the total of legal earnings reserve andadditional paid-in-capital equaled 25% of common stock.
Under the Code, legal earnings reserve and additional paid-in-capital could be used to eliminate or reduce a deficit
by a resolution of the shareholders’ meeting or could be capitalized by a resolution of the Board of Directors. Under
the Law, both of these appropriations generally require a resolution of the shareholders’ meeting.
Additional paid-in capital and legal earnings reserve may not be distributed as dividends. Under the Code,however, on condition that the total amount of legal earnings reserve and additional paid-in-capital remained equal toor exceeded 25% of common stock, they were available for distribution by resolution of the shareholders’ meeting.
Under the Law, all additional paid-in-capital and all legal earnings reserve may be transferred to other capital surplus
and retained earnings, respectively, which are potentially available for dividends.
The maximum amount that the Company can distribute as dividends is calculated based on the non-consolidated
financial statements of the Company in accordance with Japanese laws and regulations.
At the annual shareholders’ meeting held on June 26, 2007, the shareholders approved cash dividends amounting to¥3,234 million (US$27,386 thousand). Such appropriations have not been accrued in the consolidated financial statements
as of March 31, 2007. Such appropriations are recognized in the period in which they are approved by the shareholders.

14. Selling, General and Administrative Expenses
Selling, general and administrative expenses for the fiscal years 2007, 2006 and 2005, consisted of the following:
Millions of yen

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



Thousands of
U.S. dollars

2007

2006

2005

2007

¥ 17,291
49,342
48,60647,21049,552
92,236¥ 16,184
45,82338,82748,42145,80997,672¥ 15,316
47,88433,67050,04752,042
97,797$ 146,422
417,834
411,601
399,778
419,612
781,067¥304,237¥292,736¥296,756$2,576,314

   . Annual Report 15. Impairment Loss on Property, Plant and Equipment
In the fiscal year ended March 31, 2006, the Company recorded an impairment loss with regard to the following
asset groups.
Use
Manufacturing facility

Location
United States

Category
Structures, machinery and equipment

Assets for dealership business

Wakayama prefectureand 3 other locations

Buildings and structures, machineryand equipment and land

Real estate for lease business

Gunma prefecture

Buildings

Underutilized real estate

Hokkaido prefecture and 3 otherlocationsLand, buildings
and structures, and other

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

Buildings and structures
Machinery and equipment
Land and otherTotal¥1,672782
1,610¥4,064

16. Loss on Termination of Development Projects
In the fiscal year ended March 31, 2006, the Company recorded a ¥7,094 million loss on termination of development
projects, which consisted of the following two components:(1) A joint development project for new model vehicle
In light of the termination of the Strategic Alliance between the Company and General Motors (GM), the Company
and GM agreed to terminate the joint development project for cross over vehicles with SAAB Automobile AB. As aresult, the Company has recorded other expense of ¥3,633 million on the joint project costs already incurred. As theCompany has since identified certain project assets to be used for another model development, the loss has been
reduced by ¥1,980 million compared to the amount recorded in the consolidated financial statements for the semiannual period of the fiscal year 2006.
(2) New software system development project
The Company started to develop a software operating system which was expected to support its business processes
from order entry to delivery. However, the Company has concluded that the new system would not be as cost effective as it was originally planned. As a result, the Company terminated the development project and has recorded
other expense of ¥3,461 million from the termination.

17. Loss on Devaluation of Inventories at Aerospace Division
In the fiscal year 2005, the Company recorded a ¥8,122 million loss on devaluation of inventories, because the prospect for realization of the “Work in process” inventories of the Aerospace division’s certain project become uncertain
due to a substantial delay in the progress of the project.

18. Loss on Discontinued Operations
The Company terminated the operations of Trailer, Train Parts, and other productions at Yusoki Kogyo K.K. in thefiscal year 2005. A loss on discontinued operation due to the termination of these operations was ¥3,467 million.

19. Loss on Compensation to Suppliers
In the fiscal year 2005, the Company recorded a ¥4,174 million loss on compensation to suppliers based on the
anticipated compensation payments for suppliers’ development costs which arose from the Company’s partial
rescheduling of a certain development plan in the Automotive Division.

   . Annual Report 

20. Prior Period Adjustment
Prior period adjustment recorded in the fiscal year 2007 represents a gain on reversal, as a result of the final settlement, of a portion of “Loss on termination of joint development projects (joint development projects for new model
vehicles)” which was recorded as other expense in the fiscal year 2006.

21. Loss on Liquidation of Affiliated Companies
Loss on liquidation for the fiscal year 2007 represents a loss of ¥913 million (US$7,731 thousand) upon liquidation of
Fuji AT Ltd., which was a joint venture with JATCO Ltd.

22. Business Combinations(Fiscal 2007)
The Company has integrated certain Subaru dealer subsidiaries for the purpose of enhancement of their sales force
and improvement of their profitability.
Those integrated companies are consolidated subsidiaries included in the automobiles segment, and the integration
has been accounted for as a reorganization of entities under common control.
(1) April 1, 2006, merger by surviving companies
Area
Hokkaido

Integrated companies
Asahikawa Subaru, Inc.
Hokkaido Subaru, Inc.*

New companies
Hokkaido Subaru, Inc.

Chubu

Hokuriku Subaru, Inc*
Fukui Subaru, Co., Ltd

Hokuriku Subaru, Inc.

Shikoku

Kagawa Subaru, Inc.*
Tokushima Subaru, Inc.

Higashishikoku Subaru, Inc.

Kita-Kyushu

Saga Subaru, Inc.
Nagasaki Subaru, Inc.*

Nishikyushu Subaru, Inc.

Minami-Kyushu

Miyazaki Subaru, Inc.
Kagoshima Subaru, Inc*

Minamikyushu Subaru, Inc.

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

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

New companies
Osaka Subaru, Inc.

* Surviving company

In addition, the number of consolidated subsidiaries decreased because Subaru Yard Operations, Inc (subsidiary of Subaru of America, Inc.) was merged into Subaru of America, Inc (sales company in America).
Share exchange
On October 2, 2006, the Company acquired additional common shares of Fuji Machinery Co., Ltd. through a shareexchange. The details of the transaction are as follows;
1. Acquired company and nature of its business, legal form of business combination, and a summary of the transaction
including the purpose(1) Acquired company and nature of its businessFuji Machinery Co., Ltd. (manufacturing and selling the parts of automobiles and industrial products)(2) Legal form of business combination
A share exchange (simplified share exchange method)   . Annual Report (3) Summary of the transaction including the purpose
Fuji Machinery Co., Ltd. accounts for approximately 90% of its sales to the Company. In order to enhancegroup management, the Company made Fuji Machinery Co., Ltd. a wholly owned subsidiary.
2. Accounting treatment
Transaction with minority shareholders
3. Information concerning the acquisition of additional shares of subsidiary(1) Acquisition cost and its breakdown
Price for acquisition
The shares of Fuji Heavy Industries Ltd.: ¥705 million (US$5,970 thousand)(2) Share exchange ratio by class of shares, method of determining the share exchange ratio, and the number ofshares issued and their valuation amount Class of shares and exchange ratio
Common shares
Fuji Heavy Industries Ltd. 1: Fuji Machinery Co., Ltd. 0.52
 Method of determining the share exchange ratio
The Company and Fuji Machinery Co., Ltd. individually engaged third party appraisers to analyze theexchange ratio. This analysis was performed based on the market stock prices, the comparable-company
comparisons, and the discounted cash flows. The Company and Fuji Machinery Co., Ltd. have agreed to theabove ratio, taking into consideration the results of such third party appraisals and certain other factors.
 The number of shares issued and their valuation amount
1,586,520 shares ¥1,066 million (US$9,027 thousand)(3) The amount of recognized goodwill, source of generated goodwill, and method of amortization andamortization period
 The amount of recognized goodwill: ¥307 million (US$2,600 thousand)
 Source of generated goodwill
The difference between the acquisition cost of the additional shares of subsidiary and the amount of minority
interest that were decreased by the additional acquisition
 Method of amortization and amortization period5-years amortization by the straight-line method
Stock option plans(Fiscal 2007)
1. Descriptions and volume and movement of stock options(1) Descriptions of stock option plans
Fiscal 2002
Stock option plan

Fiscal 2004
Stock option plan

Position and number of grantee

Directors, Executive Officers,
Corporate Auditors andemployees: 303

Directors, Executive Officers,
Corporate Auditors andemployees: 320

Class and number of stock (shares)

Common Stock 1,029,000

Common Stock 1,917,000

Date of grantVesting condition

Required service period
Exercise period

September 9, 2002

June 25, 2004

Directors, Executive Officers,
Corporate Auditors and employees
who are enrolled at the date thesubscription rights are granted

Directors, Executive Officers,
Corporate Auditors and employees
who are enrolled at the date thesubscription rights are granted

From September 9, 2002,
to July 31, 2004

From June 25, 2004,
to July 31, 2006

From August 1, 2004,
to July 31, 2009

From August 1, 2006,
to July 31, 2011

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

   . Annual Report 

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

Fiscal 2004
Stock option plan

At the end of the fiscal year 2006—

1,917,000

Stock options granted——

Not exercisable stock options (shares):

Forfeitures

—

8,000

Conversion to exercisable stock options—

1,909,000

Stock options outstanding——

Exercisable stock options (shares):At the end of the fiscal year 2006

962,000——

1,909,000

120,000

39,000——842,000

1,870,000

Fiscal 2002
Stock option

Fiscal 2004
Stock option¥489,000¥594,000

Average market price of the stock at the time of exercise (yen)

678

675

Fair value (date of grant) (yen)——Conversion from not exercisable stock options
Stock options exercised
Forfeitures
Stock options outstanding
 Price information of stock options

Exercise price (yen)23. Leases(1) Information as lessee
As allowed under the Japanese accounting standards, the Company and consolidated subsidiaries in Japan account for
finance leases, which do not transfer ownership of leased assets to lessees as stipulated in the lease contracts, as operatingleases. The “as-if capitalized” pro-forma information of such leases as of March 31, 2007 and 2006, was as follows:

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

Millions of yen

Thousands of
U.S. dollars

2007

2006

2007

¥ 1,195
2,230
55¥ 1,208
2,284
35$ 10,119
18,884466

3,480(1,815)

3,527(1,586)

29,469(15,370)¥ 1,665¥ 1,941$ 14,099

Pro-forma information related to finance leases for the fiscal years 2007, 2006 and 2005 was as follows:

Rent paid
Depreciation and amortization expenses
Interest expense portionMillions of yen

Thousands of
U.S. dollars

2007

2006

2005

2007

¥616
565
47

¥623
578
51

¥665
599
57

$5,2164,784
398

   . Annual Report The future minimum lease/rent payments, excluding the portion of interest thereon, as of March 31, 2007 and2006, were as follows:

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

Millions of yen

Thousands of
U.S. dollars

2007

2006

2007

¥ 536
1,222

¥ 540
1,491

$ 4,539
10,348¥1,758¥2,031$14,887

¥ 888
3,252

¥ 834
3,523

$ 7,520
27,538¥4,140¥4,357$35,058(2) Information as lessor
The carrying amounts of leased assets under finance leases as of March 31, 2007 and 2006, were as follows:

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

Millions of yen

Thousands of
U.S. dollars

2007

2006

2007

¥ 22,016
8,811
1,938

¥ 22,541
9,202
1,970

$ 186,434
74,613
16,411

32,765(18,663)

33,713(17,879)

277,458(158,041)¥ 14,102¥ 15,834$ 119,417

Information related to finance leases for the fiscal years 2007, 2006 and 2005, was as follows:

Rent received
Depreciation and amortization expenses
Interest income portion

Millions of yen

Thousands of
U.S. dollars

2007

2006

2005

2007

¥8,844
6,635
937¥9,357
7,109
1,231¥9,417
7,187
1,313$74,892
56,186
7,935

The future minimum lease/rent payments receivable, excluding the portion of interest thereon, as of March 31,
2007 and 2006, were as follows:

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

Millions of yen

Thousands of
U.S. dollars

2007

2006

2007

¥ 6,524
9,888¥ 6,966
11,487$ 55,246
83,733¥16,412¥18,453$138,979¥ 5,028
3,947¥ 4,904
4,261$ 42,578
33,423¥ 8,975¥ 9,165$ 76,001

   . Annual Report 

24. Contingent Liabilities
Contingent liabilities as of March 31, 2007 and 2006, were as follows:
Thousands of
U.S. dollars

Millions of yen

As guarantor of third-party indebtedness from financial institutions

2007

2006

2007

¥39,960¥41,451$388,386

25. Derivative Financial Instruments
In the normal course of business, the Company and consolidated subsidiaries employ derivative financial instruments,
including foreign exchange forward contracts, foreign currency options and interest rate swaps, to manage their
exposures to fluctuations in foreign currency exchange rates and interest rates. The Company and consolidated subsidiaries do not use derivatives for speculative or trading purposes.
The fair value information of derivative financial instruments as of March 31, 2007 and 2006, was as follows:(1) Foreign currency contracts:(a) As of March 31, 2007:
Millions of yen

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



Notional
amountThousands of U.S. dollars

Fair value

Valuation
gain (loss)

Notional
amountFair value

Valuation
gain (loss)¥64,166
9,232
5,888

¥64,805
9,708
5,909

¥(639)(476)(21)$543,365
78,17849,860$548,777
82,20850,038$(5,412)(4,030)
(178)

4,539
1,112

4,535
1,121

(4)
9

38,437
9,417

38,403
9,493

(34)
76

218

(40)

1,846

(339)

116

(57)

982

(482)

127

(34)

110,619[1,507]52,604[500]
68,880
[788]

1,075

(287)

19,196
[245]

167

(78)

162,554[2,075]

1,414

(661)

2,540
[33]

26

(7)

21,509
[279]

220

(59)

13,063
[178]
6,212
[59]
8,134
[93]

   . Annual Report (b) As of March 31, 2006:
Millions of yen

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

Notional
amountFair value

Valuation
gain (loss)¥108,109
5,911
10,041¥112,859
6,083
10,375¥(4,750)
(172)
(334)

20,374

20,333

(41)

314

(107)

44

4

20

14

176

(31)

32

(16)

26

(8)

24,689
[207]
7,916
[48]
3,641
[34]
24,586
[207]
690
[48]
3,477
[34]

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

(2) Interest rate contracts:(a) As of March 31, 2007:
Millions of yen

Interest rate swap contracts:
Receive floating rate pay fixed rate

Notional
amount¥7,743Thousands of U.S. dollars

Fair value

Valuation
gain

Notional
amountFair value

Valuation
gain

¥101

¥101

$65,569

$855

$855

(b) As of March 31, 2006:
None
The method to determine the fair value is based on quotations obtained from financial institutions.
Derivative financial instruments that qualify as a hedge and are accounted for using the deferred hedge accounting
method are excluded from the above table according to the disclosure requirements.

   . Annual Report 

26. Segment Information
Information by business segment
The Company and consolidated subsidiaries operate principally in four business segments: automobiles, industrial
products, aerospace and other business fields (including eco-related equipment).
A summary of net sales, operating income or loss, assets, depreciation and amortization expenses and capital
expenditures by business segment for the fiscal years 2007, 2006 and 2005, was as follows:

Net sales:
Automobiles —Outside customers
Inter-segment

Millions of yen

Thousands of
U.S. dollars

2007

2006

2005

2007

¥1,339,291
3,050¥1,329,161
3,688¥1,319,603
4,069$11,341,274
25,828Subtotal
Industrial products —Outside customers
Inter-segment

1,342,341

1,332,849

1,323,672

11,367,102

49,69920

52,436116

46,814307

420,857
169

Subtotal
Aerospace —Outside customers
Inter-segment

49,71952,552

47,121

421,026

94,012
16

81,78735

59,43440

796,105135

Subtotal
Other —
Outside customers
Inter-segment

94,02881,82259,474

796,240

11,815
2,575

12,984
2,518

20,6402,994

100,051
21,805

Subtotal

14,39015,502

23,634

121,856

Total
Corporate and elimination

1,500,478(5,661)

1,482,725(6,357)

1,453,901(7,410)12,706,224(47,938)

Consolidated total¥1,494,817¥1,476,368¥1,446,491$12,658,286

Millions of yen

Thousands of
U.S. dollars

Operating income or loss:
Operating income (loss):
Automobiles
Industrial products
Aerospace
Other

2007

2006

2005

2007

¥37,831
1,508
5,674
2,257

¥51,559
2,038
2,795
1,231

¥40,942
849
195
(590)

$320,357
12,77048,048
19,113

Total
Corporate and elimination

47,270636

57,623716

41,396621

400,2885,386

Consolidated total¥47,906¥58,339¥42,017$405,674

Millions of yen

Thousands of
U.S. dollars

Assets:Total assets:
Automobiles
Industrial products
Aerospace
Other

2007

2006

2005

2007

¥1,058,957
55,450165,177
64,915¥1,110,445
56,621
147,557
68,435¥1,136,372
57,611
127,548
74,449$ 8,967,373
469,557
1,398,738
549,708

Total
Corporate and elimination

1,344,499(28,458)

1,383,058(34,658)

1,395,980(38,521)

11,385,376(240,986)

Consolidated total¥1,316,041¥1,348,400¥1,357,459$11,144,390

   . Annual Report 

Other significant items:
Depreciation and amortization expenses:
Automobiles
Industrial products
Aerospace
Other

Impairment loss on property, plant and equipment:
Automobiles
Industrial products
Aerospace
Other

Thousands of
U.S. dollars

2007

2006

2005

2007

¥ 73,899
1,618
4,236
1,701

¥ 74,431
1,795
1,941
1,906

¥ 64,630
1,999
1,912
2,469

$ 625,786
13,70135,871
14,40481,454—80,073—71,010—689,762—¥ 81,454¥ 80,073¥ 71,010$ 689,762

¥

530
—
—
20

¥ 3,968
—
—
96

—
—
—
—

550
—

4,064
—

—
—

Total
Corporate and elimination
Consolidated total

Millions of yen

Total
Corporate and elimination

$

4,488
—
—
169
4,657
—

Consolidated total¥

550¥ 4,064

—

$

4,657

Capital expenditures for segment assets:
Automobiles
Industrial products
Aerospace
Other¥120,079
1,620
4,120
669

¥109,955
1,195
7,605
534

¥135,972
1,013
2,614
8,160

$1,016,843
13,71834,8895,665

Total
Corporate and elimination

126,488(159)

119,289—

147,759—

1,071,115(1,346)

Consolidated total¥126,329¥119,289¥147,759$1,069,769

Notes: 1. Definition of business segments
Business segments are defined based on their product line and market.
2. Main products by each business segment
Business segments’ main products:
Automobiles
Legacy, Impreza, Forester, B9 Tribeca, Stella, R1, R2, Pleo, Sambar
Industrial products
Robin engines, power generators, pumps
Aerospace
Aircraft, parts of space-related devices
Other
Garbage collection vehicles, specialized vehicles, real estate lease
3. All operating costs and expenses are allocated to each business segment.
4. All figures in corporate and elimination represent elimination.
5. Changes in accounting policies(Fiscal 2005)
Method of hedge accounting
As stated in “Summary of Significant Accounting Policies,” the Company discontinued applying the hedge accounting for its foreign currency
contract in the fiscal year 2005. As a result of this change, net sales and operating income increased by ¥133 million in the Automobile
segment and ¥8 million in the Industrial products segment in the fiscal year 2005 as compared with the amounts resulting from application of
the previous hedge accounting policy.
(Fiscal 2006)
Impairment loss on property, plant and equipment
The Company and domestic consolidated subsidiaries adopted the accounting standards for impairment of fixed assets in the fiscal year 2006.
As a result of this change, the assets of the Automobile segment decreased by ¥3,167 million and the assets of the Other segment decreasedby ¥96 million in the fiscal year 2006.
(Fiscal 2007)
Directors’ bonuses
The adoption of the accounting standard for directors’ bonuses had no material effect on segment results.

   . Annual Report Information by geographic area
A summary of net sales, operating income or loss and assets by geographic area for the fiscal years 2007, 2006 and2005 was as follows:

Net sales:
Japan —
Outside customers
Inter-segment

Millions of yen

Thousands of
U.S. dollars

2007

2006

2005

2007

¥ 881,102
244,896¥ 888,117
257,456¥ 886,793
241,860$ 7,461,275
2,073,808

Subtotal
North America —Outside customers
Inter-segment

1,125,998

1,145,573

1,128,653

9,535,083

576,053
14,222572,4122,298

544,753
2,027

4,878,084
120,434

Subtotal
Other —
Outside customers
Inter-segment590,275

574,710546,780

4,998,518

37,662283

15,839313

14,945391

318,926
2,397

Subtotal

37,945

16,152

15,336321,323

Total
Corporate and elimination

1,754,218(259,401)

1,736,435(260,067)

1,690,769(244,278)

14,854,924(2,196,638)

Consolidated total¥1,494,817¥1,476,368¥1,446,491$12,658,286

Millions of yen

Thousands of
U.S. dollars

Operating income or loss:
Operating income:Japan
North America
Other

2007

2006

2005

2007

¥40,6225,171
831¥56,989
1,970
309¥40,517(6,678)367$343,992
43,7897,037

Total
Corporate and elimination

46,624
1,282

59,268(929)

34,206
7,811

394,818
10,856

Consolidated total¥47,906¥58,339¥42,017$405,674

Millions of yen

Thousands of
U.S. dollars

Assets:Assets:Japan
North America
Other

2007

2006

2005

2007

¥ 985,335
347,770
8,063¥1,006,951
368,541
2,716¥1,080,303
307,858
2,439$ 8,343,933
2,944,957
68,278Total
Corporate and elimination

1,341,168(25,127)

1,378,208(29,808)

1,390,600(33,141)

11,357,168(212,778)

Consolidated total¥1,316,041¥1,348,400¥1,357,459$11,144,390

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. Changes in accounting policies(Fiscal 2005)
Method of hedge accounting
As stated in “Summary of Significant Accounting Policies,” the Company discontinued applying the hedge accounting for its foreign currency
contracts in the fiscal year 2005. As a result of this change, net sales and operating income increased by ¥141 million in the Japan segment in
the fiscal year 2005 as compared with the amounts resulting from application of the previous hedge accounting policy.
(Fiscal 2006)
Impairment loss on property, plant and equipment
The Company and domestic consolidated subsidiaries adopted the accounting standards for impairment of fixed assets in the fiscal year 2006.
As a result of this change, the assets of the Japan segment decreased by ¥3,263 million.
(Fiscal 2007)
Directors’ bonuses
The adoption of the accounting standard for directors’ bonuses had no material effect on segment results.

   . Annual Report Overseas sales
Overseas sales for the years ended March 31, 2007, 2006 and 2005, are summarized as follows:

2007

Millions of yen

Thousands of
U.S. dollars

2005

2007

2006

Overseas sales:
North America
EuropeOther¥ 622,149
152,458
143,994

41.6%
10.2%
9.7%

¥ 616,437
128,777
127,016

41.8%
8.7%
8.6%

¥ 593,249
117,826
108,357

41.0%
8.2%
7.5%

$ 5,268,431
1,291,032
1,219,358

Total¥ 918,601

61.5%¥ 872,230

59.1%¥ 819,432

56.7%$ 7,778,821¥1,446,491 100.0%$12,658,286

Consolidated net sales¥1,494,817 100.0%¥1,476,368 100.0%

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 the United Kingdom
Other:
Australia
3. Overseas sales are sales outside of Japan by the Company and consolidated subsidiaries.
4. Changes in accounting policies(Fiscal 2005)
Method of hedge accounting
As stated in “Summary of Significant Accounting Policies,” the Company discontinued applying the hedge accounting for its foreign currency
contracts in the fiscal year 2005. As a result of this change, net sales increased by ¥56 million in North America and ¥85 million in Europe ascompared with the amounts resulting from application of the previous hedge accounting policy.
(Fiscal 2006)
None(Fiscal 2007)
None

27. Subsequent Event
The sale of all the shares of Fuji Robin Industries Ltd.
In response to a take-over bid for the shares of Fuji Robin Industries Ltd. (a consolidated subsidiary) by Makita
Corporation, the Company has tendered all the shares (7,525 thousand shares) of Fuji Robin owned by the Company.
Makita Corporation by making Fuji Robin Industries Ltd. a subsidiary intends to pursue synergetic effects fromthe mutually complementary businesses of the two companies. Based on its judgment that this acquisition will enhance
the corporate value of the two companies from the long-term viewpoint, and it will also serve to improve the efficiency of the Company’s asset utilization, the Company tendered and sold the shares on May 15, 2007.
As a result, a gain on sale of subsidiary’s shares of ¥1,380 million (US$11,686 thousand) (sale proceeds: ¥1,957
million (US$16,572 thousand)) will be recognized in the fiscal year 2008.

   . Annual Report 

INDEPENDENT AUDITORS’ REPORTTo the Shareholders and Board of Directors of
Fuji Heavy Industries Ltd.:We have audited the accompanying consolidated balance sheets of Fuji Heavy Industries Ltd. and consolidated
subsidiaries as of March 31, 2007 and 2006, and the related consolidated statements of income, changes in net
assets and cash flows for each of the three years in the period ended March 31, 2007, expressed in Japaneseyen. 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 we plan 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 theamounts 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 Fuji Heavy Industries Ltd. and subsidiaries as of March 31, 2007 and2006, and the consolidated results of their operations and their cash flows for each of the three years in the
period ended March 31, 2007, 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 adopted the new accounting
standard for impairment of fixed assets in fiscal year 2006.
(2) As discussed in Note 2 to the consolidated financial statements, the Company stopped applying the hedge
accounting for foreign exchange contracts in fiscal year 2005.
(3) As discussed in Note 27 to the consolidated financial statements, the Company tendered a take-over bid forthe shares of Fuji Robin Industries Ltd. by Makita Corporation, and the Company sold the shares on May
15, 2007.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended
March 31, 2007 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 26, 2007   . Annual Report 

CONSOLIDATED SUBSIDIARIES AND AFFILIATES(As of March 31, 2007)

JAPAN

OVERSEAS

Fuji Robin Industries Ltd. (58.1%)
Manufacture, service, and sales of agricultural/forestry
equipment, engines, fire pumps, and related parts
http://www5.mediagalaxy.co.jp/fujirobin/(See the note 27 of Financial Statements)

Subaru of America, Inc. (100.0%) and 10 subsidiaries
Subaru Plaza, 2235 Route 70 West, Cherry Hill, NJ08002,
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 Machinery Co., Ltd. (100.0%)
Manufacture and sales of automobile parts and industrial
product parts
http://www.fuji-machinery.co.jp/
Ichitan Co., Ltd. (51.0%)
Manufacture and sales of forged automobile/industrial
product parts
http://www.ichitan.co.jp
Kiryu Industrial Co., Ltd. (97.5%)
Manufacture of Subaru specially equipped automobiles anddistribution 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
Subaru UI Co., Ltd. (100.0%)
Refurbishment, distribution, and sales of used Subaru
automobiles
http://www.subaru-ui.jp/
Subaru Finance Co., Ltd. (100.0%)
Leasing and rental of Subaru automobiles and equipment andcredit, financing, accounting service, and sales of insurance
http://www.subaru-finance.co.jp/
Yusoki Kogyo K.K. (100.0%)
Manufacture and sales of parts for aerospace
http://www.yusoki.co.jp/
TOKYO SUBARU INC. (100.0%)
and 33 other dealerships
Distribution, sales and services of Subaru automobiles
http://www.tokyo-subaru.co.jp/

Fuji Heavy Industries U.S.A., Inc. (100.0%)
and one subsidiaryc/o Subaru of America, Inc.
Subaru Plaza, 2235 Route 70 West, Cherry Hill, NJ08002,
U.S.A.
Phone: +1-856-488-8743
Fax: +1-856-488-8517
Engineering research of Subaru automobiles in North
America market
Subaru Research & Development, Inc.
3995 Research Park Drive, Ann Arbor, MI 48108, U.S.A.
Phone: +1-734-623-0075
Fax: +1-734-623-0076
Research and development of automobiles
Subaru of Indiana Automotive, Inc. (100.0%)
and one subsidiary
5500 State Road 38 East, Lafayette, IN47905, U.S.A.
Phone: +1-765-449-1111
FAX: +1-765-449-6952
Manufacture of Subaru automobiles and contracted manufacture of Toyota automobiles
http://www.subaru-sia.com/
Subaru Canada, Inc. (100.0%) and one subsidiary
560 Suffolk Court Mississauga, Ontario L5R 4J7, Canada
Phone: +1-905-568-4959
Fax: +1-905-568-8087
Distribution and sales of Subaru automobiles and parts
http://www.subaru.ca/
Subaru Europe N.V./S.A. (100.0%)
Leuvensesteenweg 555 B/8, 1930 Zaventem, Belgium
Phone: +32-2-714-0400
Fax: +32-2-725-7792
Distribution, sales and marketing of automobiles, parts andaccessories
Subaru of China, Inc. (100.0%)
Beijing Landmark Tower Office Building 2-1506, 8 North
Dongsanhuan Road, Chaoyang District, Beijing 100004, China
Phone: +86-10-6590-0725
Fax: +86-10-6590-0729
Robin Manufacturing U.S.A., Inc. (60.0%)1201 Industrial Road, Hudson, WI54016, 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 

INVESTOR INFORMATION(As of March 31, 2007)

Head Office
Subaru Building, 7-2, Nishi-Shinjuku 1-chome,
Shinjuku-ku, Tokyo 160-8316, Japan
Phone: +81-3-3347-2111
Fax: +81-3-3347-2338
Investor Relations Office
Subaru Building, 7-2, Nishi-shinjuku 1-chome,
Shinjuku-ku, Tokyo 160-8316, Japan
Phone: +81-3-3347-2655
Fax: +81-3-3347-2295
Established
July 15, 1953

Major Shareholders
1. Toyota Motor Corporation
2. Fuji Heavy Industries Ltd.
3. The Master Trust Bank of Japan, Ltd. (Trust Account)
4. Japan Trustee Services Bank, Ltd. (Trust Account)
5. Northern Trust Company (AVFC) Sub-account
American Clients
6. Depositary Nominees Inc.
7. Nippon Life Insurance Company
8. Suzuki Motor Corporation
9. Mizuho Corporate Bank, Ltd.
10. Mizuho Bank, Ltd.
Stock Exchange Listing
Tokyo Stock Exchange

Paid-in Capital¥153,795 million

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

Number of Shareholders
54,046
Number of Common Stock Issued
782,865,873

Web Site Address
http://www.fhi.co.jp/english/ir/

Domestic Manufacturing Division
Gunma Manufacturing Division (Automobiles Division)
Utsunomiya Manufacturing Division (Aerospace Division
and Eco Technologies Division)
Saitama Manufacturing Division (Industrial Products
Division)     (Tokyo Stock Exchange)
(Yen)
800

600

400

200

0

FY
High
Low



2003
¥712
362

2004
¥668
414

2005
¥627
462

   . Annual Report 

2006
¥704
437

2007
¥747
577

Subaru Tribeca
The revamped Tribeca is equipped with a newly designed 3.6liter boxer engine. Although larger and more powerful than theprevious 3-liter engine, the new engine delivers both improved
performance and fuel efficiency in real world driving situations.
Design modifications in its cooling system have enabled the useof regular unleaded fuel, a change from premium only—helping
to lower consumer operating costs.

   . Annual Report 

FUJI HEAVY INDUSTRIES LTD.
Subaru Building, 7-2, Nishi-Shinjuku 1 chome,
Shinjuku-ku, Tokyo 160-8316, Japan

http://www.f hi.co.jp/english/ir/

Printed on recycled paper in Japan