A Road Map
forSuccess

FUJI HEAVY INDUSTRIES LTD.
Annual Report 1998
Fiscal year ended March 31, 1998

Consolidated Financial Highlights
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31

Thousands of
U.S. dollars

Millions of yen
1998

1997

1996

1998

For the Year:Net sales
Operating income
Net income¥1,303,989
80,43730,708¥1,223,015
57,57339,596¥1,077,315
24,893
19,414$9,878,705
609,372
232,636

Year-End:
Shareholders’ equity
Total assets¥ 168,833
904,571¥ 149,748
759,030¥ 107,448
700,859$1,279,038
6,852,811

Per Share of Common Stock (Yen and U.S. Dollars):
Net income

¥

¥

¥

$

51.33

Return on equity (ROE)

19.3%

67.63
30.8%

33.17

0.39

19.9%

Note: U.S. dollar figures have been translated from yen, for convenience only, at the rate of ¥132 to US$1, the approximate rate of exchange
at March 31, 1998.

Net Sales

Net Income per Share
Billions of yen

1,500

Return on Equity
yen

80

%

40

60

30

40

20

20

10

1,000

500

0

96

97

98

0

96

97

98

0

96

97

98

■ Automobiles ■ Industrial products■ Aerospace■ Others

On the CoverContents

Fuji Heavy Industries Ltd. (FHI) has aunique market positioning strategy.
This year’s annual report explains
the course that the company has
charted. FHI has confidence that its
strategy, which is underpinned bysuperior products, has put thecompany on the road to success.

Message From the Management
A Road Map for Success
Review of Operations
Board of Directors
Consolidated Five-Year Financial Summary
Financial Review
Financial Section
Corporate Data
Subaru 360

1
5
12
16
17
18
22
42
43

Message From the Management

Fuji Heavy Industries Ltd. (FHI) marked two important milestones in 1998:
the company’s 45th anniversary and the 40th anniversary of the Subaru 360(please refer to page 43). Fiscal 1998, the year ended March 31, 1998,
saw FHI tightly focus on core competencies. Higher profits were the fruitsof this labor. The year also saw dramatic realignments in the global automobile industry, led by the huge merger of Germany’s Daimler-Benz andthe U.S.’s Chrysler. FHI meanwhile sought to set its Subaru automobiles
apart in other ways. A strategy targeted at products that take advantage
of proprietary technology such as All-Wheel Drive (AWD) and horizontally
opposed engines was one way. Having pioneered the mass-produced AWD
market, we are now turning our sights to creating a new sector of the stillgrowing Sports Utility Vehicle (SUV) category. Nevertheless, there are no
guarantees of success in the future. This is why we regard ourselves as aperennial challenger in the automobile marketplace.

Fuji Heavy Industries Ltd. Annual Report 1998

1

Message From the Management

Isamu Kawai (seated)
ChairmanTakeshi Tanaka
President“Active Driving, Active Safety.” This slogan has been our guiding philosophy as we staked a claim to a solid
position in Japan’s station wagon marketplace. Our unique AWD system underlies this success. Fusing the dual
benefits of a passenger car and SUV, a hybrid concept that we call the “Best of Both,” AWD takes the 4WD
concept where the latter can’t go. On all roads, under all conditions and in any weather, AWD makes driving a safeand pleasurable experience. Other successes have also followed. Last year, the newly launched Forester was one
such example. Following in the footsteps of the Legacy and Impreza, it received raves from drivers. We are
extremely fortunate to have three cars of such formidable quality. By concentrating on sectors where we canleverage our resources and basic strengths, such as leading-edge technology and product development expertise,
we will continue to play an important role in the markets we serve. The fiscal year in review was a meaningful one
in many respects, some of which are discussed in more detail below.

➣ LEGACY, IMPREZA, AND FORESTERLEAD THE WAY
Spearheading our automobile operations is the mainstay
Legacy. Over the last 3 years this vehicle has maintained
an average of 66% of our total domestic and overseas
automobile sales. With the Legacy, Impreza, and Forester
contributing 50%, 24%, and 26%, respectively, of theAutomobiles Division’s sales, we have struck an excellent
balance in our lineup.

2echelon among Japanese automakers. A 91.8% improvement in shareholders’ equity since fiscal 1995 has been
another result. Over the same period, net liabilities—
short-term borrowings, commercial paper, convertible andcorporate bonds, and long-term borrowings minus cash
and cash equivalents and marketable securities—decreased
3.7% to ¥205,116 million. Consequently, the net liabilities
ratio has fallen from 242.0% to 121.5%.

➣ BUILDING A SOUNDER BALANCE SHEET➣ ESTABLISHING OVERSEAS OPERATINGBASES

A keen focus on fields where we can leverage our corecompetencies has helped improve our profitability. ROE in
fiscal 1998, for example, was 19.3%, placing us in the top

We generated 70.5% of our operating income in Japan,
which includes most exports through trading companies toEurope, and 29.3% in North America. In the latter area,

Fuji Heavy Industries Ltd. Annual Report 1998

Subaru-Isuzu Automotive Inc. (SIA), the sole producer ofthe popular Legacy series, notably Legacy Outback, for the
North American market, and Subaru of America, Inc. (SOA),
our U.S. sales and marketing arm, saw their results soar in
the financial year ended December 31, 1997. The introduction of the Forester to North America in July 1997
boosted sales alongside the Legacy and Impreza series. In
the current fiscal year, these companies promise to make a
substantial contribution to group earnings.

Fiscal 1998 sales in the Aerospace Division accounted for
5.6% of total net sales and about 46% of sales generated by
the non-automotive divisions. Operating income of thisdivision has also risen, and is now 3.5 times higher than in
fiscal 1995. This is the reward for our efforts to lower costs
over the last several years and actions to expand operationsin the commercial sector. Our relationship with Boeing asa main contractor has been especially significant and is
expected to lead to more growth in coming years.

The Industrial Products Division recorded a 7.0% decreasein sales to ¥45.5 billion (US$344 million) and a declineof 0.2% in operating income to ¥2.1 billion (US$16
million). Sluggish domestic demand for industrial
engines in line with an ailing economy and a soft market
for engines destined for overseas markets, particularly
for leisure equipment in the United States, were themain factors.
■ In the Aerospace Division, solid demand from Japan’s
Defense Agency for helicopters and unmanned target
drones combined with sharply higher production andsales of civilian passenger aircraft components for the
Boeing 777 to fuel sales. The result was a 15.5%
increase in sales to ¥73.6 billion (US$558 million).
Operating income skyrocketed 244.3% to ¥7.1 billion(US$54 million).
■ The Others Division returned sales of ¥40.0 billion(US$303 million) and an operating loss of ¥1.7 billion(US$13 million). While railway cars posted results
largely on a par with last fiscal year, soft demand for buses
and houses dragged overall divisional results down.

Business Results➣ MAIN CORPORATE THEMESWe posted all-time-high net sales of ¥1,304.0 billion(US$9,879 million), up 6.6% from a year earlier. Operating income benefited from these gains and cost initiatives
to the tune of ¥80.4 billion (US$609 million), 39.7%
higher. The bottom line, however, was affected by sharply
higher taxes; net income dropped 22.4% to ¥30.7 billion(US$233 million) as a consequence. Results by operating
division were as follows:

Over the course of the last few years we have generated
record-high sales and operating income. These numbers are
deeply satisfying, but this is no time to rest on our laurels.
We still have a ways to go to achieve our goals. We hope
our shareholders will share this journey with us.

➣ AEROSPACE DIVISION ON A GROWTH
CURVE

■

The Automobiles Division generated sales of ¥1,146.2
billion (US$8,683 million), up 7.4%. Operating income
surged 30.3% to ¥72.9 billion (US$552 million). A weakened yen, robust overseas markets in North America andEurope, and a good showing by the Forester in its firstyear were behind this performance. While sales volumes
were down sharply at all members of the domestic automobile industry as consumer spending slumped, ourdecline in sales volumes of registered Subaru vehicles,
excluding minicars, was smaller than the industry average.

■

TURNING D OMESTIC SALES A ROUND WITH THE
N EW L EGACYWith the domestic economy continuing to slide, contraction of the automobile market is inevitable. In fiscal 1998,
total industry sales of registered vehicles, excluding minicars, fell 14.6% below last year’s level. While we were notexempt from this drop in demand, our decline in unit sales,
excluding minicars, was held to 8.3% as we sold roughly
134,000 vehicles. Behind this performance were strong
SUV and station wagon growth. The decline in fiscal 1998
unit sales was partially the result of customers waiting on
the sidelines for the launch of our new-look Legacy, themainstay in the Automobiles Division. In June 1998, theFuji Heavy Industries Ltd. Annual Report 19983

first full model change for this vehicle since October 1993, aperiod of 4 years and 8 months, was completed. As we write
this letter about two months after the new Legacy hit theroads, sales of 10,417 units had already been recorded inJuly. Given this solid start, we are expecting the new model
to support an increase in domestic sales in fiscal 1999.
E N H A N C I N G C U S T O M E R S A T I S F A C T I O N (CS)The recall of most Subaru models from August throughNovember 1997 caused our customers much inconvenience.
We assumed full responsibility and took appropriate measures, thereby minimizing loss of customer support. In
fiscal 1998, we recorded an extraordinary loss of ¥3.46
billion related to the recall to close the chapter on thisissue in monetary terms. Our experience, however, hastaught us a valuable lesson. If we are to continue to prevailamid a soft market and in the face of fierce competition,
we must deliver even greater satisfaction to customers in
respect of our products, sales and services. At the sametime, higher CS means more repeat buyers of our vehicles
and more revenues from inspections, service, accessories
and insurance. This will lead to increased profits for dealers.
That is why we are accelerating our drive to bolster thequality of after-sales service and other assistance for ownersof our vehicles.
I MPROVED P ROFITS FOR SALES COMPANIES
Equity in earnings of affiliates contributed ¥9.8 billion to
the fiscal 1997 consolidated net income. In the term underreview, however, there was almost no contribution. We
have 102 non-consolidated subsidiaries and affiliatedcompanies. Last fiscal year, consolidated companies numbered 29, while in the year under review the number is 53,
roughly 90% of which are sales companies. The dramatic
slump in the auto market dragged down sales. Anotherfactor behind lower sales was that consumers held offpurchasing in anticipation of the introduction of modelchanges for the Legacy and Vivio, a minicar. Despite theseresults, we are expecting improved profits from these sales
companies in fiscal 1999. Several reasons are behind our
optimism: First, model changes have been introduced forthe two models that performed relatively poorly in fiscal

4

Fuji Heavy Industries Ltd. Annual Report 1998

1998 and increased sales are expected to produce tangible
profit gains. Second, dealers have carried out dramaticreforms to improve their financial health based on a new
medium-term business action plan dubbed “TQS21.”
These reforms are raising customer satisfaction. At thesame time, fixed costs are being trimmed, inventories andreceivables are being reduced to lower the break-evenpoint, revenues from maintenance, parts and used car sales
are being fortified, and the efficiency of administrative
functions is being improved.
A N E W S T R A T E G Y F O R MI N I C A R S
The number of minicar registrations in Japan fell by 11.4%
in fiscal 1998. Unfortunately, we took a bigger, 28.4% hit.
The absence in our lineup of a spacious vehicle, referred toas a “tall car,” is one reason. These models have performed
well over the last several years. Steps are being taken to
recover lost ground. In October 1998, there will be a change
in the regulations governing minicars. We aim to use thischange to recapture market share. Specifically, plans callfor the launch of Subaru’s first minicar-class wagon. We arealso aiming to be the No. 1 brand in the mini-wagon class,which presently accounts for roughly 60% of passengertype minicar demand in Japan. Our ultimate aim is toregain a 10% share of Japan’s minicar market.
On behalf of FHI’s employees and management, we
would like to thank shareholders and investors for theirsupport and understanding. We ask for them to remain
with us as we pursue our goals.
August 1998

Isamu Kawai
ChairmanTakeshi Tanaka
President

A Road Map for

Success

E Striking the Right Balance
E Competing on Our Terms
E Taking to the Skies

Fuji Heavy Industries Ltd. Annual Report 1998

5

Striking the Right Balance

Spearheading our automobile operations is the mainstay Legacy. Over the last 3 years this vehicle has maintained
an average of 66% of our total domestic and overseas automobile sales. With the Legacy, Impreza, and Forester
contributing 50%, 24%, and 26%, respectively, of the Automobiles Division’s sales, we have struck an excellent
balance in our lineup.
Following in the footsteps of the mainstay Legacy, FHI
launched the Impreza in 1992 and later, in 1997, theForester made its debut. With these three popular vehicles,
FHI made significant progress in fiscal 1998 in achieving awell-balanced domestic product mix. The company succeeded in shedding a sales structure dominated by one car
and assuming one where the Legacy, Impreza and Forester
now account for about 40%, 30% and 30%, respectively,of domestic sales, excluding minicars. Overseas, a different, but equally successful, positioning strategy has been
employed. The Legacy, Impreza, and Forester generate 55%,
21%, and 24%, respectively, of overseas sales. Concentration on markets in which the company possesses technological superiority has enabled FHI to establish positions at
the forefront of carefully targeted vehicle categories. Look-

safety and quality. Furthermore, Subaru’s policy capitalizes
on the distinctive features on each model. A philosophy
known as “Active Driving, Active Safety” is a key element
here. Sales activities also underpin this policy. Subaru
always offers vehicles that accurately reflect the desires of
the targeted drivers. Overseas, Subaru has had muchsuccess with its highly distinctive positioning strategy.
The company offers vehicles that combine the best ofordinary passenger cars and SUVs as well as the benefitsof the Subaru AWD system.
FHI has a formidable product lineup: the Legacy, with
its full model change; the Impreza, which is available aseither a compact, stylish wagon or as the high-performance
sedan that has captured three successive World Rally
Championships (WRC); and the Forester, a SUV withing ahead, FHI will strengthen this lucid product positioning strategy and its sales strategy, which underpins the
positioning strategy. By doing so, FHI believes it canfurther develop the potential of these three vehicles.

superb versatility and reliability.

Product Positioning Strategy

In June this year, FHI introduced a full model change ofthe flagship Legacy wagon series to Japanese consumers.
The new-look Legacy shifts up a gear from the previous
Legacy, the driving force in the domestic station wagon
market over the last 10 years. Changes are more than justcosmetic. The new model takes full advantage of Subaru’s
horizontally opposed engine, 4WD system and practicaldesign that made its predecessor so popular. The result is avehicle that is closely attuned to the demands of today’s
drivers, offering outstanding safety and environmental
compatibility. Optimizing driving pleasure was given priority during the test drives as the new model was developed.
This devotion took engineers well beyond the task ofmerely refining current specifications.
Behind the development concept of the new model is apolicy of creating unique products that do not compete
directly with offerings from the world’s major auto makers.
Subaru always stresses excellent performance, reliability,
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Fuji Heavy Industries Ltd. Annual Report 1998

Fortifying Domestic Sales

As automobile sales in Japan dip below last year’s level andthe economy slips a gear or two, auto makers are attempting to jump-start demand. Measures include new models
and aggressive sales campaigns. These attempts to differentiate oneself amid fierce competition are expected to escalate in intensity. To break from the pack, FHI must do morethan offer distinctive products that anticipate the needs ofcustomers. Sales and services, as well as customer satisfaction must be enhanced to reinforce Subaru brand loyalty.
Furthermore, fortifying the financial condition of Subaru
dealers is imperative to keep intact the Subaru dealer
network. In this regard, FHI is conducting a review andpromoting a revenue structure that lowers the break-evenpoint to make dealers less susceptible to market swings.
Subaru dealers, in contrast to competitors, operate throughan efficient one-channel sales system. Leveraging thisspecial feature and its inherent strengths, FHI aims tomove swiftly to give dealers a sounder operating base. In
this climate, the company is striving to make sales activities
more effective, reduce accounts receivable and inventories,
and improve productivity across all divisions.

Legacy, number one in Japan in thestation wagon class, has undergone
its first full model change in about
five years. Refinements have been
made to the traditional horizontally
opposed engine and Subaru 4WD
System. High-rigidity ring-shaped
reinforcement frames and excellent
stability when carrying loads—amust for any wagon—make thisvehicle world class. One monthafter appearing in showrooms,
sales of the new Legacy had topped
10,000 vehicles.

Running, turning and stopping. Subaru stretches these fundamental
capabilities of an automobile to their limit with its 4WD System. The jewel in
Subaru’s proprietary technological riches, the horizontally opposed engine
produces superb balance. A low center of gravity and the engine’s lightweight are other distinctive features.
Leave the city. Hit the highway,
roads and beaten tracks. In rain,snow or any other weather and on
all roads under any conditions theForester is pure driving pleasure.

Tapping the same technology that captured
three consecutive WRC crowns for Subaru,
the Impreza aims to offer the pinnacle ofon-the-road performance.
Fuji Heavy Industries Ltd. Annual Report 1998

7

Competing on Our Terms

Subaru-Isuzu Automotive Inc. (SIA), the sole producer of the popular Legacy series, notably Legacy
Outback , for the North American market, and Subaru of America, Inc. (SOA), our U.S. sales and marketing arm, saw their results soar in the financial year ended December 31, 1997. The introduction of theForester to North America in July 1997 boosted sales alongside the Legacy and Impreza series.
Data on sales by geographic region in fiscal 1998 revealthat Japan, North America, and other regions accounted
for 59.7%, 39.5% and 0.8% of sales, respectively. The
figures were 70.5%, 29.3% and 0.2%, respectively, interms of profitability. Inclusion of almost all cars destinedfor Europe, which are exported through Japanese trading
companies, accounts for Japan’s high percentages in bothcategories. In Asia, the recent currency crisis, which aroused
concerns about future demand in that region, had little
impact on FHI. This is because the company placesemphasis on Japan, North America and Europe, regionsthat are best suited to the attributes of Subaru vehicles.
The U.S. is FHI’s largest overseas market by a considerable margin. Thirty years have elapsed since the company
established SOA and penetrated that market in 1968 withquickly gained a following and is generating solid support.
The second strategy focuses on Subaru’s unique All-Wheel
Drive (AWD) layout. By concentrating on these basic
strategies FHI has successfully avoided head-to-headcompetition with the big auto makers. In fact, Subaru has
been hailed as the pioneer of the hybrid SUV. In the AWD
field, Subaru has at last staked its claim as the preeminent
brand. Making this accomplishment possible was years ofgrass-roots marketing. Dealers offered comparison test
drives, educational and promotional events, special services
and other support to optimize the effectiveness of AWD
marketing campaigns. Backed by solid market support andsteady expansion, Subaru is gradually establishing a U.S.
base that is less susceptible to conditions in its operating
environment, including exchange rate movements. Europe

the Subaru 360. This year marked another milestone—the
10th anniversary of SIA’s foundation. Over this time, FHI’s
product strategy has evolved considerably, underpinned bya wealth of technological expertise. Both companies havesuccessfully established a presence in the U.S.—and firm
earnings. Looking ahead, FHI is confident of further success in the U.S. This is a market where the automobile iswidely regarded as a means of self-expression. People often
seek cars that reflect their own individuality. This bodes
well for FHI, which offers vehicles based on technologythat is uniquely Subaru in every way. This is why FHI isfirmly committed to remaining a trendsetter, never falling
into the position of a follower. Setting new standards is the
only way to sustain sufficient profitability.

is also important. Sales there are on a gradual growth
curve thanks to the success of a strategy that emphasizes
high performance. Three-peating in the World Rally
Championships—Subaru was the first Japanese automaker to accomplish this feat with the Impreza—gives thecompany the perfect platform to promote Subaru’s
strengths and enhance its brand image.

Marketing in Overseas Markets

To gain its foothold in the North American market, FHI has
since 1993 been promoting two strategies focused on
Subaru’s distinctiveness. First is the “Best of Both” concept,
which promotes a Sports Utility Wagon fusing the advantages of a passenger car and SUV. The launch of Legacy
Outback in 1995 is a prime example. Later, in 1997 theeven more rugged SUV Forester, which is also lightweightand compact, made its market debut. This hybrid concept
8

Fuji Heavy Industries Ltd. Annual Report 1998

Healthy U.S. Subsidiaries

The upshot of successful marketing in the North American
marketplace is solid business results for both of FHI’s major
U.S. subsidiaries. Subaru-Isuzu Automotive Inc. (SIA), a
51% subsidiary set up with Isuzu Motors Limited in 1987,
and Subaru of America, Inc. (SOA), which was founded in1968 as Subaru’s U.S. sales arm and later became a wholly
owned subsidiary in 1990, reported combined net incomeof US$138 million in fiscal 1998. While poor businessresults in the past have left them with accumulated
losses—this is part of the reason consolidated shareholders’equity is below that of the parent company—the roadahead is promising. The ratio of parent company equity toconsolidated shareholders’ equity in fiscal 1997 stood at
100:65. In fiscal 1998, the ratio improved to 100:70. And
the outlook for fiscal 1999 is for further improvement.

SOA sold about 133,000
vehicles in fiscal 1998. With thelineup now boasting three powerful vehicles, hopes are high foreven more impressive results.

The Legacy showed what it’s made ofas it challenged the official world
speed record of the FIA, Fédération
Internationale de l’a Automobile, and
ACCUS, the Automobile Competition
Committee for the United States. On aclosed road near Pueblo, Colorado on
April 23, 1998, the Legacy clocked
270.532 Km/h–a new world record forwagons–eclipsing the old mark, also
held by the Legacy, of 249.981 Km/h.

In 1997, the Forester made its debut on U.S. and European roads. It made an immediate impact.
The answer to customers’ needs, the Forester is seeing its sales climb.

SIA continues to roll out
Subaru vehicles at the rate ofabout 102,000 a year.
Production is in full swing tomeet rising demand in the U.S.

Taking to the Skies

Fiscal 1998 sales in the Aerospace Division accounted for 5.6% of total net sales and about 46% ofsales generated by the non-automotive divisions. Operating income of this division has also risen, and is
now 3.5 times higher than in fiscal 1995. This is the reward for our efforts to lower costs over thelast several years and actions to expand operations in the commercial sector. Our relationship with
Boeing as a main contractor has been especially significant and is expected to lead to more growthin coming years.
In fiscal 1996, the Aerospace Division garnered sales of¥55.2 billion. This was followed by sales of ¥63.8 billion
in fiscal 1997. In the year under review, sales increased
further to ¥73.6 billion. That means over the last three
years sales have soared by 33.3%. Commercial-sector
growth, flying high on the back of production for the
Boeing 777, has been particularly impressive. Looking
ahead, the defense sector will remain the core business in
the Aerospace Division. While seeking new business here,
FHI intends to concentrate on consignment production for
Boeing passenger aircraft in the commercial sector. Another goal is expanding international joint development ofbusiness jets and helicopters.
Expanding Business in the Commercial Sector

In the defense sector, the core business in the Aerospace
Division, multi-purpose helicopters, trainer aircraft andunmanned target drones continue to make major contributions to earnings. However, shrinking defense budgets do
not bode well for growth in this sector. Fully aware of thissituation, FHI set out several years ago to expand commercial sector operations at the same time as capturing orders
for future defense-related projects. Reducing costs in both
sectors has been a concurrent theme. As a result, operating
income has climbed to a level 3.5 times higher than in
fiscal 1995. And the operating income margin has improved from 2.8% three years ago to 9.7% in fiscal 1998.
Several projects are expected to generate future earnings.
First, there is the F-2 support jet fighter contract in the
defense sector. FHI is one of the subcontractors on thisproject. Next, in the commercial sector, there are the contracts for passenger aircraft components for Boeing and production of the main wing for Hawker Horizon jets. Castingsights further ahead, FHI is intent on aggressively participating in national projects and expanding its international
joint development business of helicopters and business aircraft. FHI is also seeking to carve out new business by taking
10 Fuji Heavy Industries Ltd. Annual Report 1998

advantage of technological expertise in unmanned aircraft,composite materials, simulators and other strategic fields.
International Joint Development Business Makes
Steady Progress

FHI is responsible for the development and manufacture of
the wings for U.S.-based Raytheon Aircraft Company’s
Hawker Horizon business jet. With development progressing smoothly, assembly of the first wing started in April
1998 and is scheduled for shipment in December this year.
FHI is also participating in the production of the full rangeof Boeing’s airliners. The high level of quality workmanship displayed by FHI earned the company the “Supplierof the Year” award from Boeing in November 1996. With
this accolade, FHI became the first Japanese passenger aircraft manufacturer to be recognized in this way by Boeing.
FHI is currently producing key sections of the B777 airliner that connect the wings to the fuselage. These sections
are regarded as one of the most technically exacting areas.
FHI’s involvement in this project extends back to when it
was on the drawing boards. Currently, production is in fullswing with seven center wings being produced monthly. By
June 1998, FHI had already delivered a total of 170 centerwings for the B777. In fiscal 1999, FHI expects to deliver
more than 65 center wings. In September 1996, shipments
began of elevators for the new Boeing 737. From a level of
80 elevators in fiscal 1998, production is presently being
scaled up to enable shipment of 213 elevators in fiscal
1999. In other work for Boeing, development of a new flap
for the B757-300 was completed in 1997. The first shipment of this aircraft was made in February 1998. Five flaps
a month are currently being produced for this aircraft,including models for the B757-200. In regard to the B767,
an integrated product team (IPT) that includes FHI hasembarked on the development of the fairing and main
landing gear (MLG) door for the latest derivative model,
the B767-400ER.

Participation in the developmentof the Hawker Horizon is expected
to lead to projects in passenger
aircraft, helicopters and business
jets that will make the commercial
sector a main pillar of earnings
next century.

FHI is participating in the
production of the full range of
Boeing’s airliners. One FHI plant iscurrently producing seven centerwings a month for the B777 airliner.

The unmanned RPH2 helicopterthat wowed crowds at the Paris Air
Show in 1997, is ideal for fields asdiverse as crop spraying, freighttransportation, and measurement,
observation, examination andphotographing of areas that would
pose dangers to manned aircraft.

Jointly developed by FHI and Bell
Helicopter Textron of the U.S., theFuji Bell 205B utility helicopter
is expected to find applications ina broad range of areas, including
rescue, firefighting, businessand news reporting.

Review of Operations

Automobiles
Business Results
In Japan, sales volumes were down sharply at all members of theautomobile industry as consumer spending slumped. Subaru’s
decline in sales volumes of registered vehicles, excluding minicars,
was smaller than the industry average, however. Nevertheless,domestic sales and earnings were down. Overseas, results improved
considerably on the back of a weakened yen, a robust European
market, and the strong response generated by the Forester in its firstyear in the United States. As a result of these factors, division salesrose 7.4% to ¥1,146.2 billion (US$8,683 million), while operating
income climbed 30.3% to ¥72.9 billion (US$552 million).

Special Highlight of the YearI M P R E Z A T H R E E -P E A T S A T T H E W O R L D R A L L Y
C H A M P I O N S H I P (WRC)
Impreza has become the first Japanese car to win three consecutive
Manufacturers’ Championships in the WRC. The Subaru world
rally team won 8 out of the 14 rallies, including the last, to cap
off another amazing season in 1997. On December 12, 1997, inMonaco, in front of approximately 600 invited guests from aroundthe world, FHI Chairman Isamu Kawai accepted the championship at an FIA awards ceremony.
The WRC is a grueling event that pits the world’s top motor
vehicle manufacturers against each other. All participants leverage
the latest technological advances to build machines capable ofperforming in extreme conditions. This event ranks right up therewith F1 racing as a renowned motor sports event. Winning against
these odds and markedly different road and weather conditions ineach round requires consistent performance. Contestants mustnegotiate the twisting streets of Monte Carlo and the snow and iceof the Swedish Rally. Events also cover many other locales: difficult gravel roads in Portugal; clouds of dust on the Safari Rally;
high-speed driving in Spain’s Cataluna region; treacherous mountain roads on the Tour de Corsica; and the punishing roads of the
Acropolis Rally. The WRC is no place for pretenders. Put anotherAs the first Japanese automobile maker to capture three consecutive Manufacturers’Championships at the WRC—1995, 1996 and 1997—Subaru has clearly demonstrated
that its cars have what it takes to become the best in the world.

way, an all-round capability is demanded at this pinnacle of motor
sport: the engine, drive train, chassis, body and other elements
must perform as one to produce agility and strength. In an age of
speed catalyzed by technological innovation, Subaru has shown to
the world with its three consecutive titles that it possesses unrivaled
proprietary technology. Working from this position of strength,
Subaru expects to produce many more developments that willfurther define its technological superiority.

The WRC is a demanding event lasting one year. Vehicles must conquer all mannerof driving conditions.

Highlights of the Year
C HECKERED FLAG A GAIN FOR SUBARU
Subaru continues to go from strength to strength. In a market
survey conducted in England in 1997 by U.S.-based J.D. Power,a well-known pollster of drivers worldwide, Subaru came in firstamong 33 makers in terms of customer satisfaction. Moreover,Forester walked off with the gold medal for best cost performancein Consumers Digest’s SUV category. All in all, Subaru had a banner
year, lauded by the world’s car drivers and specialists alike.

On December 12, 1997, FHI Chairman Isamu Kawai accepted the WRC Manufacturers’Championship trophy at an FIA awards ceremony held in Monaco.
12 Fuji Heavy Industries Ltd. Annual Report 1998

VEHICLES T HAT MEET SOCIETY’S NEEDS
Mirroring society’s demands, FHI began marketing the Trans
Care series of specially equipped vehicles in April 1997. Thesevehicles boast an array of equipment to allow less able-bodied
passengers to get around. Features include a step mechanismwith handrail, a passenger seat that can rotate 90 degrees, and aIndustrial Products

bed that allows exit and entry
in a horizontal position.
In the November/
December 1997
Y U N Q U E T O BE PR O D U C E D
issue of Consumers
IN CHINA
Digest, the Forester
In September 1997, FHI
was voted ‘Best
formed a joint venture to
Buy’ in the SUV
class of the Annual
manufacture parts for miniBuying Guide.
cars with China’s Guizhou
Aviation Industry Corp. Until
now, the company has done
business with this joint-venture partner under a technology assistance contract. The new relationship sets the stage for annual production of 10,000 Yunque vehicles equipped with 550cc engines.

IM P R E Z A T O B E S E E N MO R E O N T A I W A N E S E R O A D S
Impreza assembly and sales operations started at a plant in Taiwan
in January 1998. Up to this point, the company had been producing
vehicles in a joint venture with Taiwan Vespa Co., Ltd., a local company. With the new facility, FHI plans to raise sales of the Impreza.
Outlook
Spearheaded by a full model change for the Legacy in June 1998,
FHI is eyeing sales of 30,000 vehicles per month domestically.
As part of this drive, the company will introduce new vehicles in
response to a change in regulations governing minicars that willtake effect in October 1998 and take steps to enhance customer
satisfaction. In overseas markets, FHI will fortify operations,particularly in North America. Plans also call for the launch of
several new models to mirror market needs. Fiscal 1999 results
are expected to get a boost from growth in demand for the new
Legacy at home and abroad. Profits are also expected to remainstrong. As the model change for minicars will occur in October,a full contribution to profits from these vehicles is not expecteduntil next fiscal year. Sales and earnings estimates for fiscal 1999
are based on domestic production and exports of 450,000 and
145,000 units, respectively.

Business Results
In the year under review, domestic demand for engines for civilengineering and construction and electrical machinery fell, theresult of an anemic Japanese economy. Overseas, snowmobile
engines destined for the United States also lost ground, whilesales of general-purpose engines and machinery were sluggish in
the wake of the Asian economic crisis. Sales, therefore, declined
7.0% on a year-on-year basis to ¥45.5 billion (US$344 million).
Operating income followed the downward trend, coming in at¥2.1 billion (US$16 million), 0.2% less than a year earlier.
Highlights of the Year
N EW SERIES GOES ON SALE
Trusted for their durability, quality, cost performance, after sales
service and other qualities, FHI’s general-purpose engines rank
second and fourth in Japan and the world in terms of market
share, respectively. In the small engine category for construction
equipment, FHI has the number-one share. To expand its lineupof these general-purpose engines, FHI started selling two powerful new engines in fiscal 1998.
1. EH65: Air-cooled, 4-cycle, 2-cylinder V-type, 653cc OHV
gasoline engine
Production started in October 1997 at Robin Manufacturing
U.S.A., Inc. to meet rising demand in the U.S., the world’s
largest market for engines. The EH65 is performing well,having already been selected as a “Good Design Product” by
Japan’s Ministry of International Trade and Industry.
2. EH41: Air-cooled, 4-cycle, inclined single-cyclinder, 404cc
OHV gasoline engine
High hopes are held for the EH41, FHI’s first inclinedcyclinder engine. Production started in January 1998 on thiscompact engine which boasts superior balance.
T E C H N O L O G I C A L A S S I S T A N C E C O N T R A C T W I T H I N D I A ’ S ERIIn Bangalore, in October 1997, FHI inked a technologicalassistance contract for two types of engines, mainly for power
generation equipment, with India’s Electrex Robin Industries Ltd.
Local production commenced in the middle of 1998. FHI islooking to establish a significant presence in the huge andpotentially lucrative Indian marketplace as part of the company’s
globalization strategy.
The Industrial Products Division’s
general-purpose engines enjoy
an excellent reputation for their
durability, quality and performance, as well as their competitive
cost and after-sales service.

FHI has developed vehicles that provide easier access for physically challenged
people. This is yet another example of FHI’s efforts to respond to the needs of anaging society.
Fuji Heavy Industries Ltd. Annual Report 1998 13

Review of Operations

FHI’s Robin engines areused in a broad range of
products such as buggies
made by the U.S.-based
Polaris Industries.

TA R G E T DR O N E S F O R JA P A N DE F E N S E A G E N C Y
As of March 31, 1998, FHI had delivered an aggregate of 243
target drones to the Japan Defense Agency. Deliveries commenced
in 1989. In fiscal 1998, the company delivered a record numberof these target drones, including special-version target drones.
Plans call for a total of 57 state-of-the-art special-version target
drones to be delivered in fiscal 1999.

G R E E N LI G H T F O R N E W R E M O T E OB S E R V A T I O N S Y S T E M

Outlook
General-purpose engines, a strategic mainstay in the Industrial
Products Division, are set to get a boost. Improved product performance and development of new products, conjoined with stronger
tie-ups with overseas distributors and Original Equipment Manufacturing (OEM) agreements with domestic and foreign companies,
are expected to spark increased sales. Also slated for attention in
FHI’s Medium-Term Management Plan is a stronger focus on globalization in areas ranging from quality and cost competitiveness todevelopment, production, procurement and sales. Continuing softness in the domestic market and backwash from the Asian currency
crisis leave little room for optimism for growth in production andsales in fiscal 1999. Nevertheless, FHI is working to spur growththrough several strategic projects: increased production of ATV
engines for Polaris Industries Inc.; golf cart engines for E•Z•GO, an
area where demand is rebounding; and the start of engine shipments to the U.S. under new OEM agreements. Increasing volume
in the European market through a sales company established inGermany in June 1998 is another area of focus.

Aerospace
Business Results
Sharply higher production and sales of passenger aircraft components for Boeing and robust growth in products for Japan’s
Defense Agency fueled a 15.5% jump in sales to ¥73.6 billion(US$558 million). Operating income surged 244.3% to ¥7.1
billion (US$54 million).

Development of a new remote observation system prototype built
by Japan’s Defense Agency, and in which FHI took part, was completed in June 1997. The project is now poised to enter its next
phase, actual production.
LONG L INES AT THE T OKYO MOTOR SHOW FOR SUBARUS IMULATOR
FHI’s Aerospace Division created a Subaru Driving Simulator for
display at the 32nd Tokyo Motor Show in October 1997. The
simulator was extremely popular. Visitors rushed to get in line assoon as the event opened. Admission tickets were handed out,
with some visitors queuing for over two hours to get a look at thishigh-tech product.

M U L T I -P U R P O S E , U N M A N N E D A I R C R A F T
In December 1997, FHI delivered a test model of a multi-purpose,
unmanned aircraft to the Japan Defense Agency. FHI has been
carrying out research and development on this aircraft as theprime contractor.
Outlook
FHI has many projects poised to make a contribution to earnings.
In the defense area, there is the F-2 support jet fighter, for which
FHI is a subcontractor. In commercial contracting, passenger aircraft components for Boeing and production of the main wing
FHI, awarded the accoladeof “Supplier of the Year”
by Boeing, is producing
center wing sections at full
pitch at its Handa Plant.

Highlights of the YearPRODUCTION FOR B OEING SOARSIn July 1993, FHI began supplying center wing sections, a criticalpart that connects the wings and fuselage, for the Boeing 777 airliner. In May 1995, the company chalked up a milestone with its
100th such delivery. And FHI is well on its ways to another milestone, having shipped 146 sets of center wing sections as of March
1998. Production is accelerating to keep pace with demand.
B U Z Z I N G T H E S K I E S O V E R PA R I S
At the 42nd Paris Air Show held at Le Bourget Airport in June 1997,
FHI thrilled the crowds with a display of its RPH2 large-scale,remote-piloted helicopter. The response from prospective buyers
exceeded expectations. Aircraft makers and people related to the farming industry showed keen interest in the potential of this aircraft.
14 Fuji Heavy Industries Ltd. Annual Report 1998

The Subaru Driving
Simulator, which borrows
from technology used inflight simulators producedby the Aerospace Division,
was a big hit at the Tokyo
Motor Show.

FHI’s “Fuji Mighty”
refuse collection vehicle
is Japan’s top-selling
vehicle in its class.

for Hawker Horizon jets are key projects. Furthermore, eyeing
increased sales in the future, FHI is aggressively seeking to participate in national projects in Japan and expand the international
joint development of business jets and helicopters. Moreover, thecompany is leveraging technological expertise in unmanned aircraft, composite materials, simulators and other strategic fields tocarve out new businesses.

OthersBusiness Results
During the year under review, railway cars generated sales on a parwith last fiscal year. This, however, was insufficient to offset sluggishness in sales of buses and prefabricated unit houses. The upshot
was sales of ¥40.0 billion (US$303 million) and an operating loss of¥1.7 billion (US$13 million). Beginning with fiscal 1998, results
include both transportation equipment and other businesses due tothe consolidation of subsidiaries engaged in real estate and leasing.
Highlights of the YearB U S E S P U T O N F O R T H E N A G A N O P A R A -O L Y M P I C S
The Tokyo Metropolitan Government lent 15 non-step buses totransport disabled athletes to the Nagano Para-Olympics in
February 1998. Seven of these buses were a model that was jointly
developed by FHI and Nissan Diesel Motor Co., Ltd. in 1997. The
15 buses are part of a fleet of 16 “non-step” models that enteredregular service in Tokyo in February 1998.

P R O G R E S S C O N T I N U E S I N R U B B I S H DI S P O S A L
In June 1997, a tie-up with a consortium of four companies led tothe development of a plant to process ash from trash incinerators.
Ash, produced by the incineration of rubbish, is fused to render it
harmless and reduce volume. The new plant contributes to lower
fuel costs and capital expenditures. Eyeing joint development ofash processing service to serve regional governments, FHI isaiming to capture contracts totaling ¥7 billion in three years.
From the development of “non-step”
buses to diesel railcars, FHI has abroad range of
products boasting
technologicalinnovations.

A F I R S T F O R WA S T E D I S P O S A L I N O F F I C E B U I L D I N G S
FHI made history in Japan by supplying JR East’s 28-story head
office building with a proprietary FUSWTON high-rise building
waste separation and conveyance system in September 1997. It is
the first time that this sophisticated system for high-rise buildings
has been employed in an ordinary office building.
F U J I MI G H T Y C O U L D BE T H E AN S W E R T O H O N G K O N G
G A R B A G E RE F O R M
In February 1998, FHI shipped a “Fuji Mighty” refuse collection
vehicle to Hong Kong. This is the first step toward capturing its
first large order in Hong Kong for these vehicles in 13 years.
Hong Kong’s 1997 return to China has once again created opportunities for FHI to become a major supplier to the environmental
authority. FHI has a distinguished 36-year track record in thisarea with its flagship Fuji Mighty, the industry pacesetter.
OutlookIn bus operations, which are suffering from soft demand in an ailingdomestic market, FHI is working to improve financial health andestablish a sound operational base for the next century. In thisdrive, the company plans to produce prototypes of mini-sizedroute buses and, in the next fiscal period, next-generation sightseeing buses, among other actions. Railway operations are suffering the effects of unprecedented market sluggishness. In the
midst of this unfavorable environment, efforts are being made toenhance profitability. Heightened interest in environmental issues
spells opportunities for products such as Fuji Mighty, FUSWTON
and garbage separation plants. FHI will also pursue the development of other unique products, including waste incinerationand fusion systems.

FUSWTON, FHI’s waste
collection system forhigh-rise buildings, is
expected to be inincreasing demand asawareness of environmental problems grows.
Fuji Heavy Industries Ltd. Annual Report 1998 15

Board of Directors

ChairmanIsamu Kawai

President
Takeshi Tanaka

Executive Vice President
Kazuo Matsuzaki

Executive Vice President
Takayoshi Yoshihashi

Senior Managing Director
Eiichi Hongo

Senior Managing Director
Yasuyoshi Watanabe

Senior Managing Director
Teruo Hanada

Managing Directors
Mamoru Morinaga
Fukuji Inada
Katsuhiko Takagi
Hisashi Takada
Hiromichi Muto
Kazuhiro Miyake
Satoshi Idei

Directors
Hitoshi Maeda
Masayoshi Nagano
Koichi Arasawa
Takeshi Tanaka
Koichiro Shinmen
Masayasu Ohizumi
Akira Yamaguchi

Takeo Tsumuji
Mitsuo Takahashi
Hideo Wada
Hideshige Gomi
Takao Tsuchiya
Hiroyuki Nakatsubo
Kunitaka Nakahara
Kiyoshi Inoh

16 Fuji Heavy Industries Ltd. Annual Report 1998

Corporate Auditors
Yasuyuki Kogure
Toshio Hirai
Kakuhei Wada
Koji Hayashi(As of June 26, 1998)

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

Millions of yen

For the Year:Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes,
minority interests and equity in losses of affiliates . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At Year-End:
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ratio of shareholders’ equity to total assets (%) . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per Share (Yen):
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1998

1997

1996

1995

1994

¥1,303,989
1,027,782
276,207
195,770
80,437¥1,223,015
994,032
228,983
171,41057,573¥1,077,315
909,255
168,060
143,167
24,893¥1,103,288
950,730
152,558
130,903
21,655¥1,015,764
886,939
128,775
150,205(21,430)

56,71630,70837,846
39,596

24,66919,414

5,641
1,233

(20,467)(25,515)¥ 168,833
904,57118.7
171,225¥ 149,748
759,03019.7
130,363¥ 107,448
700,859
15.3
95,808¥88,041
725,74112.1
170,029¥ 122,447
801,19615.3
203,120

¥

¥

¥

¥

2.11
150.41¥51.33
282.09Other Information:
Price range of common stock (Yen):First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(High) (Low)¥649 ¥550
595 492
545 305
545 352

Number of shareholders* . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of employees* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

72,107
14,68567.63
251.0533.17
183.56(43.59)209.19(High) (Low) (High) (Low) (High) (Low) (High) (Low)¥582 ¥454¥370 ¥293¥513 ¥392¥422 ¥350
566 483405 313494 408388 322550 455
408 345469 403348 236618 432495 405
450 339420 275
80,587
14,763

83,07715,08285,26815,24390,14815,018*As of March 31

Fuji Heavy Industries Ltd. Annual Report 1998 17

Financial Review

I. Results of Operations
Summary of Financial Results
Millions of yen except per share
1998

Net Sales & Operating Income

Billions of yen

1,500

100

80
1,000
60

40
500
20

0

96

97

98

■ Net sales■ Operating income

Subaru’s Passenger Cars and
Minicars Unit Sales
Thousands of units

500

0

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expenses) . . . . . . . . . . . . . . . . . . . . .
Income before income taxes, minority interestsand equity in gains (losses) of affiliates . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per share:
Net income (basic) . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (diluted) . . . . . . . . . . . . . . . . . . . . . . . .

1997

1996

¥1,303,989 ¥1,223,015 ¥1,077,315
276,207
228,983
168,060
80,43757,57324,893(23,721)(19,727)(224)
56,716
21,29130,708

¥

51.33
47.18

37,846
5,764
39,596

¥

67.63
66.28

24,669979
19,414

¥

33.17
33.04

In fiscal 1998, the year ended March 31, 1998, net sales increased 6.6%, while the cost of sales
increased only 3.4%. As a result, the gross profit ratio improved 2.5 percentage points from
18.7% to 21.2%. Despite a 14.2% rise in selling, general and administrative expenses, operating
income came in 39.7% up on last fiscal year and the operating income margin rose from 4.7%
to 6.2%, 1.5 percentage points better than in fiscal 1997. Sales growth in the Automobiles
Division was a major factor behind the improvement in operating income. Net sales in thatdivision rose from ¥1,067,199 million to ¥1,146,215 million, accounting for 97.6% of thegrowth in total net sales. Likewise, the increase in operating income in the Automobiles Divisionfrom ¥55,919 million one year earlier to ¥72,884 million contributed 74.2% of the growth in
the company’s operating income. Income before income taxes, minority interests and equity ingains (losses) of affiliates jumped 49.9%. The improved operating income more than compensated for higher other expenses, swelled by losses on the devaluation of securities. Income taxes
that were 3.7 times higher than a year earlier, however, affected the bottom line: net income
dropped 22.4% below last year’s record level to ¥30,708 million. As a result, net income pershare declined from ¥67.63 to ¥51.33.
Operating Statistics(Number of Vehicles)

400

1998

300

200

100

0

96

97

98

■ Passenger cars
■ Minicars
Note: Aggregate of Domestic andExports unit sales.

1997

1996

Domestic Units:
Legacy . . . . 55,001
Impreza . . . 37,049
Forester . . . 40,032
Others . . . .
2,184
Subtotal . . . 134,266
Minicars . . . 144,366
Total . . . . . 278,632

90,98041,9187,494
4,512
144,904
201,640
346,544

88,791
44,864–
6,011
139,666
211,385
351,051

Exports Units:
Legacy . . . . 27,857
Impreza . . . 52,251
Forester . . . 58,005
Others . . . .
819
Subtotal . . . 138,932
Minicars . . .
3,337
Total . . . . . 142,269

23,816
52,66032
2,085
78,593
4,719
83,312

18,87535,256–
4,428
58,5593,293
61,852

18 Fuji Heavy Industries Ltd. Annual Report 1998

1998

1997

1996

U.S. Unit Sales:
Legacy . . . . 92,913
Impreza . . . 24,242
Forester . . . 15,988
Others . . . .
640
Total . . . . . 133,783

94,95024,687–
1,111
120,748

74,191
24,415–
1,801
100,407

U.S. Production Units
Legacy . . . . 102,180

98,74780,660* Domestic and Exports units are aggregate figures forfiscal 1998.
* U.S. Unit Sales and U.S. Production Units are theaggregate figures for the calendar year from January
1997 through December 1997.

Subaru’s Domestic Unit Sales
and Exports
Thousands of units

400

Domestic Units: FHI’s total domestic automobile unit sales for fiscal 1998 decreased by 19.6%
from 346,544 units to 278,632 units. Two factors had a major impact: economic sluggishness
and a recoil of demand following a burst of activity prior to a consumption tax rate hike thattook effect on April 1, 1997. Also, the fact that a model change for the Legacy would be introduced in June 1998, after the end of the fiscal year under review, caused customers to delaypurchasing until the launch. Not having a “tall car,” a category that has performed well overrecent years, in FHI’s minicar lineup was another factor. The drop in demand for passenger
cars and minicars, therefore, had a significant impact on total domestic automobile sales.

300

200

100

0

FHI’s total automobile unit sales in fiscal 1998 fell 19.6% in Japan, the company’s largest market,
due to a continuation of sluggish economic conditions. In exports, success of a proprietaryproduct positioning strategy, launch of the Forester and capturing the Manufacturers’ Championship in the World Rally Championship (WRC) for the third consecutive year all helped to fuel a
70.8% jump in unit sales. Particularly noteworthy was the 10.8% increase in unit sales in the
U.S., and a 3.5% increase in production of the Legacy at a production base in that country.

96

97

98

■ Domestic sales■ Exports
Note: Excludes all trucks and buses

Subaru’s U.S. Unit Sales
and Production

Exports Units: Total exports of finished vehicles for fiscal 1998, a figure made up of sales ofpassenger cars and minicars, soared 70.8% from 83,312 units to 142,269 units. By destination—
results include parts for finished vehicles produced locally—North America, Europe and otherareas accounted for 63.5%, 19.4% and 17.1%, respectively. Exports destined for North America
increased from 134,010 units to 160,651 units thanks to the success of a product positioning
strategy that anticipates customers’ needs. Exports bound for Europe rose from 29,748 units to49,140 units. The heightened popularity of the Subaru brand due to success at the WRC for thethird consecutive year was a major factor here. Furthermore, in exports to other areas, units
exported increased from 26,980 to 43,167 units. By model, the Legacy continued to post astrong showing, while the Impreza was largely on a par with last year. The popularity of theForester was a highlight of the year.
U.S. Unit Sales: U.S. unit sales consist of the Legacy, Impreza, and Forester, which was added to
the lineup in fiscal 1998. Unit sales for the fiscal year under review amounted to 133,783 units, up
10.8% from 120,748 units a year earlier. By vehicle model, Legacy sales were down marginallyfrom 94,950 to 92,913 units. The Impreza also saw a marginal drop in unit sales from 24,687 to
24,242 units. The Forester, which went on sale in fiscal 1998, posted sales of 15,538 units.

Thousands of units

150

U.S. Production Units: Subaru-Isuzu Automotive Inc. (SIA), FHI’s manufacturing base in the
U.S., is jointly owned with Isuzu Motors Limited. The Legacy accounts for roughly 55% of
total production at this base. SIA is presently investing to bolster production facilities in consideration of two factors: robust U.S. sales, and growth in demand that the remodeled Legacy is
expected to produce in fiscal 1999.

100

50

0

96

97

98

■ U.S. unit sales■ U.S. production units
Note: Excludes all trucks and buses

Fuji Heavy Industries Ltd. Annual Report 1998 19

Financial Review

Selling, General and Administrative Expenses
Millions of yen

Automobiles Sales

Billions of yen

1,200

800

1997

1996

¥ 17,193
32,333
51,197
12,08916,772
1,606
38,231
26,349¥195,770¥ 16,207
26,303
48,762
3,047
15,195
1,545
33,96926,382¥171,410¥ 16,045
22,10942,146
2,751
13,963
1,291
23,121
21,741¥143,167

Selling, general and administrative expenses increased 14.2% from ¥171,410 million in fiscal
1997 to ¥195,770 million in the year under review. Of the ¥24,360 million increase, 79% was
accounted for by growth in advertisement, sales promotion, and research and development
expenses related mainly to the development of new vehicles in the Automobiles Division.

400

0Transportation and packing . . . . . . . . . . . . . . . . . . .
Advertisement . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries and bonuses . . . . . . . . . . . . . . . . . . . . . . . .
Accrued bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development. . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1998

96

97

98

Segment Information
Years ended March 31,

Industrial Products Sales

Billions of yen

60

40

1998

Millions of yen
1997

1996

Total sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automobiles . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial products . . . . . . . . . . . . . . . . . . . . . . .
Aerospace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others (Transportation equipment) . . . . . . . . . . .
(Eliminations) . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥1,303,989 ¥1,223,015 ¥1,077,315
1,146,215
1,067,199
924,830
45,473
48,91750,47473,64563,762
55,19540,034
44,40648,035(1,378)(1,269)(1,219)Costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Automobiles . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial products . . . . . . . . . . . . . . . . . . . . . . .
Aerospace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others (Transportation equipment) . . . . . . . . . . .
(Eliminations) . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥1,223,552 ¥1,165,442 ¥1,052,422
1,073,331
1,011,280
904,51343,331
46,77047,58966,51561,691
52,91941,777
46,983
48,626(1,402)(1,282)(1,225)

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . .
Automobiles . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial products . . . . . . . . . . . . . . . . . . . . . . .
Aerospace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others (Transportation equipment) . . . . . . . . . . .
(Eliminations) . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥80,437 ¥72,8842,142
7,130(1,743)24

57,573 ¥55,9192,147
2,071(2,577)
13

24,893
20,317
2,885
2,276
(591)
6

20

0

96

97

98

Operating income climbed 39.7% in fiscal 1998 to ¥80,437 million. Most of this increase wasattributable to gains made in the Automobiles and Aerospace Divisions. The Automobiles
Division posted an operating income ratio of 6.4%, compared with 5.2% a year earlier, mainly
because of solid export growth and cost reductions. In the Aerospace Division, operating income
was 3.4 times greater than a year earlier, while the operating income ratio improved sharply to
9.7% in contrast to 3.2% in fiscal 1997. These improvements are mainly the result of an increasein sales of products with high profitability.
In Others, although railway cars generated results largely on a par with the previous year,
bus and housing operations suffered the effects of a sluggish market. The result was net sales of¥40,034 million and an operating loss of ¥1,743 million. The division is working to turn theseresults around through the development of new products.

20 Fuji Heavy Industries Ltd. Annual Report 1998

Other Income (Expenses)
Millions of yen

Aerospace Sales

Billions of yen

80

60

Interest and dividend income . . . . . . . . . . . . . . . . . . .
Interest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange gains (losses) . . . . . . . . . . . . . . . . . . . . . . .
Losses on devaluation of securities . . . . . . . . . . . . . . .
Gains (losses) on disposal of property, plantand equipment–net . . . . . . . . . . . . . . . . . . . . . . . . .
Other–net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1998

1997

1996

¥ 3,478(11,665)876(9,631)¥ 2,937(12,329)
1,277(6,710)¥ 3,118(14,182)(1,722)(3,016)(2,759)(4,020)¥(23,721)(300)(4,602)¥(19,727)

15,068510¥ (224)40

Other expenses in fiscal 1998 rose from ¥19,727 million to ¥23,721 million, up 20.2%. The
major reasons for the increase in expenses were the losses on devaluation of securities, and the
net losses on disposal of property, plant and equipment as gains on the disposal of same werelower than in fiscal 1997. Exchange gains decreased due to a smaller variation in exchange rates
compared to the previous fiscal year.

20

0

96

97

98

Others Sales

Billions of yen

50

40

30

20

10

0

96

97

98

II. Capitalization, Financing and Liquidity
The total of cash and time deposits and marketable securities increased from ¥113.4 billion as ofMarch 31, 1997 to ¥151.5 billion at the end of March 1998. This was the result of more bankloans and the issue of corporate bonds in financing activities during the year under review.
In fiscal 1998, FHI’s capital expenditures were ¥56.4 billion, mainly for the development of
new products and to streamline and automate operations. With these investments, FHI continued
to invest in equipment and facilities at a high level; fiscal 1997 capital expenditures amounted
to ¥43.3 billion. Until fiscal 1996, these expenditures were carried out within the bounds ofdepreciation, but over the last two fiscal years, capital expenditures have exceeded depreciation.
Short-term investments in non-consolidated subsidiaries and affiliates rose from ¥20.3 billion
to ¥36.9 billion due to an increase in funding to support loans extended by SOA, which is
enjoying strong sales growth, and the transfer of investments in and advances to non-consolidated
subsidiaries and affiliates to the current portion. In addition to these two factors, some affiliatedcompanies were newly consolidated; these companies brought with them a total of ¥30.6
billion in liabilities.
Working capital improved by ¥4.2 billion from a negative figure of ¥16.4 billion in fiscal
1997 to minus ¥12.2 billion in fiscal 1998. This reflects the procurement of more funds from
capital markets to counter the restriction of lending by Japanese financial institutions. A significant portion of these funds was held as cash and time deposits and marketable securities at thebalance sheet date.
Short-term fund procurement activities have centered on bank loans. Owing to the tightliquidity situation at Japanese financial institutions during the year under review, the company
supplemented its financial policy based on bank loans at the end of the fiscal year with the procurement of funds by commercial paper (CP) to ensure adequate liquidity. In respect of longterm procurement activities, the company had long-term debt of ¥191.8 billion, including thecurrent portion, at March 31, 1998. During the fiscal year under review, ¥30.0 billion was procured by the parent company from financial markets: ¥20.0 billion was procured in July 1997
by straight bonds; and in January 1998, ¥10.0 billion was procured in the same manner. Theinterest rates on these straight bonds were 2.25% and 2.10%, respectively. These funds wereused for capital expenditures.

Fuji Heavy Industries Ltd. Annual Report 1998 21

Consolidated Balance Sheets
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIESAs of March 31, 1998 and 1997

Thousands of
U.S. dollars(Note 3)

Millions of yen

ASSETS

1998

1997¥ 92,679
58,86336,927¥ 72,064
41,326
20,25024,743
81,271(878)
156,935
48,09838,924
89,133(900)
125,608
24,975

187,447
615,689(6,652)
1,188,902
364,379

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

498,638

411,380

3,777,561

Property, plant and equipment (Note 4): . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

747,062(456,960)

674,508(439,914)

5,659,560(3,461,818)

Net property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

290,102

234,594

2,197,742

Investments and other assets:
Securities investments (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in and advances to non-consolidated subsidiaries and affiliates . . . . . .

23,12927,8068,187
44,109175,220
210,652

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

43,28838,440327,939

94,22390,736

713,811

Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21,60822,320163,697

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥ 904,571¥ 759,030$ 6,852,811

Current assets:
Cash and time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments in non-consolidated subsidiaries and affiliates . . . . . . . . . .
Notes and accounts receivable:
Non-consolidated subsidiaries and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The accompanying notes are an integral part of these statements.

22 Fuji Heavy Industries Ltd. Annual Report 1998

1998

$

702,114445,932
279,750

Thousands of
U.S. dollars(Note 3)

Millions of yen

LIABILITIES AND SHAREHOLDERS’ EQUITY

1998

1997

1998

¥164,859
20,574¥127,092
8,768$1,248,932
155,864

17,537
180,22290,80018,373
18,475

16,372
177,278
73,4507,108
17,689132,856
1,365,318
687,879
139,189
139,962

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

510,840

427,757

3,870,000

Long-term liabilities:
Long-term debt (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued severance indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

171,225
18,28519,190130,363
18,34921,4491,297,159
138,523
145,379

208,700

170,161

1,581,061

Minority interest in consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16,19811,364

122,712

Shareholders’ equity:
Common stock, ¥50 par value per share:
Authorized— 1,500,000,000 shares;
Issued 1997— 596,483,764 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1998— 598,507,144 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

–84,13890,588
5,936(11,827)(2)

83,618–90,0705,295(29,232)(3)–
637,409686,273
44,970(89,599)(15)

168,833

149,748

1,279,038¥904,571¥759,030$6,852,811

Current liabilities:
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes and accounts payable:
Non-consolidated subsidiaries and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Contingent liabilities (Note 5)
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fuji Heavy Industries Ltd. Annual Report 1998 23

Consolidated Statements of Income and Retained Earnings
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 1998 and 1997

Thousands of
U.S. dollars(Note 3)

Millions of yen
1998

1997

1998

Net sales (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥1,303,989
1,027,782¥1,223,015
994,032$9,878,705
7,786,227

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses (Note 7) . . . . . . . . . . . . . . . . . . . . . . .

276,207
195,770

228,983
171,410

2,092,478
1,483,106

Operating income (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

80,43757,573609,372

Other income (expenses):
Interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Losses on devaluation of securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Losses on disposal of property, plant and equipment—net . . . . . . . . . . . . . . . . . . .

3,478(11,665)876(9,631)(2,759)2,937(12,329)
1,277(6,710)(300)

26,348(88,371)
6,636(72,962)(20,902)

Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4,020)(4,602)(30,454)(23,721)(19,727)(179,705)

Income before income taxes, minority interests and equity ingains (losses) of affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

56,716

37,846429,667

Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21,291

5,764

161,296

Income before minority interests and equity in gains (losses) of affiliates . . . . . .
Minority interests in consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . .

35,425(4,610)32,082(2,262)

268,371(34,924)

Equity in gains (losses) of affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(107)

9,776

(811)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30,70839,596

232,636

Retained earnings (accumulated deficit):
Balance at beginning of year:
As previously reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts applicable to subsidiaries newly consolidated . . . . . . . . . . . . . . . . . . .
Bonuses to directors and statutory auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(29,232)(6,197)(194)(6,270)(65,442)(26)(129)(2,927)(221,454)(46,947)(1,470)(47,500)

Transfer to legal reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(642)

(304)

(4,864)

Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥ (11,827)¥ (29,232)$ (89,599)
U.S. dollars(Note 3)Yen

Per share of common stock:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The accompanying notes are an integral part of these statements.

24 Fuji Heavy Industries Ltd. Annual Report 1998

¥51.33¥67.63$0.39

Notes to Consolidated Financial Statements
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIESMarch 31, 1998

1. BASIS OF PRESENTING THE FINANCIAL STATEMENTS:
The accompanying consolidated financial statements have been
prepared on the basis of accounting principles generally accepted inJapan, and compiled from the consolidated financial statements
filed with the Minister of Finance as required by the Securities andExchange Law of Japan with the reclassification of certain items.
The accompanying consolidated financial statements do not include the statements of shareholders’ equity and of cash flows asthese financial statements are not required under the Securities and
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:(a) Principles of consolidation and accounting for investments in
non-consolidated subsidiaries and affiliates:
The consolidated financial statements include the accounts of theCompany and its significant subsidiaries. Significant intercompany
balances, transactions and unrealized profits have been eliminatedin consolidation.
Investments in non-consolidated subsidiaries and significant
affiliates (owned 20% to 50%) are accounted for on the equity
method. Consolidated net income includes the Company’s equity inthe current net income of such companies after elimination of unrealized intercompany profits.
Investments in insignificant non-consolidated subsidiaries andaffiliates not accounted for on the equity method are carried at cost.
The difference between the cost and underlying net equity ofconsolidated subsidiaries at the time the investments are made isallocated to the appropriate balance-sheet accounts if the cause isdeterminable; otherwise, such difference is amortized over a periodof five years.

Exchange Law of Japan. However, the consolidated shareholders’equity and cash flows are, in all material respects, comparable tothose in the non-consolidated financial statements.
The accounting information described in the notes to nonconsolidated financial statements elsewhere in this annual report isto be read in conjunction with the notes to consolidated financial
statements as they are equally applicable or similar to the consolidated financial statements.

(b) Current and non-current accounts denominated in foreign currencies of the Company and its domestic subsidiaries are principallytranslated into yen at historical exchange rates.
The balance-sheet accounts of the consolidated foreign subsidiaries are translated at the exchange rates in effect at the balancesheet date, except for common stock which is translated athistorical rates.
Revenues and expenses are also translated at the year-end rates.
Resulting translation adjustments are reflected in the consolidatedbalance sheets as “Translation Adjustments.”(c) Deferred income taxes pertaining to temporary differences arerecognized only insofar as they relate to the elimination of unrealized intercompany profit and the adjustment of allowance for
doubtful accounts for consolidation purposes.

3. U.S. DOLLAR AMOUNTS:
The United States dollar amounts included in the accompanying
consolidated financial statements and related notes represent thearithmetic results of translating Japanese yen into U.S. dollars on
the basis of ¥132 to U.S.$1, the approximate exchange rate at
March 31, 1998. The U.S. dollar amounts are included solely forthe convenience of the reader, and it should not be construed thatthe assets and liabilities, expressed in U.S. dollar equivalents, canactually be realized in or be settled by U.S. dollars at the exchange
rates used in the accompanying translation.

4. PLEDGED ASSETS:
The following assets as of March 31, are pledged as collateral for certain loans and other liabilities:
Thousands of
U.S. dollars

Millions of yen

Property, plant and equipment
Securities investments

1998

1997

1998

¥87,322
4,432¥91,754¥53,480
6,185¥59,665$661,530
33,576$695,106

Fuji Heavy Industries Ltd. Annual Report 1998 25

5. CONTINGENT LIABILITIES:At March 31, 1998, contingent liabilities are as follows:
Thousands of
U.S. dollars

Millions of yen

Trade notes discounted with banks
As guarantor of indebtedness of non-consolidated subsidiaries, affiliates and others¥

653
99,677¥100,330$ 4,947
755,129$760,076

6. AMOUNTS PER SHARE OF COMMON STOCK:
Primary net income per share is computed based on the weighted average number of shares of common stock outstanding during each year.
Fully diluted net income per share is based on the assumption that all convertible bonds were converted into common stock.
Yen

U.S. dollars

For the year ended March 31,

1998

1997

1996

1998

Net income
Primary
Fully diluted¥51.3347.18¥67.6366.28¥33.17
33.04

$0.39
0.36

The following amounts of net assets per share are computed on the outstanding number of shares of common stock at each balance sheet date.
Yen
For the year ended March 31,

Net assets

U.S. dollars

1998

1997

1996

1998

¥282.09¥251.05¥183.56$2.14

7. SEGMENT INFORMATION:
Information by industry segment:
The Company and its consolidated subsidiaries operate principally in four industry segments: automobiles, industrial products, aerospaceand other businesses (including transportation equipment business).
A summary of net sales, costs and expenses, operating income, assets, depreciation and capital expenditures by industry segment for theyears ended March 31, 1998 and 1997 is shown below.
Millions of yen
1998
Industry segment

Outsidecustomers

Intersegment

Total
sales

Costs andexpenses

OperatingincomeAssetsAutomobiles
Industrial products
Aerospace
Others¥1,145,353
45,20273,52839,906¥

Total
Elimination
Consolidation

862
271
117
128

¥1,146,215
45,47373,64540,034¥1,073,331
43,331
66,515
41,777¥72,884
2,142
7,130(1,743)¥704,191
39,384
106,624
56,171¥26,994
2,160
2,413
1,007

¥51,485
976
2,894
1,064

1,303,989–

1,378(1,378)1,305,367(1,378)1,224,954(1,402)80,41324

906,370(1,799)32,574–56,419–¥1,303,989¥¥1,303,989¥1,223,552¥80,437¥904,571¥32,574¥56,419

26 Fuji Heavy Industries Ltd. Annual Report 1998

0

CapitalDepreciation expenditures

Millions of yen
1997
Industry segment

Outsidecustomers

Intersegment

Total
sales

Costs andexpenses

OperatingincomeAssetsCapitalDepreciation expenditures

Automobiles¥1,066,334
Industrial products
48,694
Aerospace
63,638Transportation equipment
44,349

¥

865
223
124
57

¥1,067,199
48,917
63,76244,406¥1,011,280
46,77061,691
46,983¥55,919
2,147
2,071(2,577)¥580,051
41,476
100,852
37,665¥23,067
2,318
2,592
772

¥38,667
1,719
2,126
762

Total
Elimination

1,223,015–

1,269(1,269)1,224,284(1,269)1,166,724(1,282)

57,56013760,044(1,014)28,749–43,274–

Consolidation¥1,223,015¥¥1,223,015¥1,165,442¥57,573¥759,030¥28,749¥43,2740Thousands of U.S. dollars
1998
Industry segment

Outsidecustomers

Intersegment

Total
sales

Costs andexpenses

OperatingincomeAssetsDepreciation

Capitalexpenditures

Automobiles
Industrial products
Aerospace
Others$8,676,917
342,439
557,030
302,319$ 6,530
2,053
886
970

$8,683,447
344,492
557,917
303,288$8,131,295
328,265
503,902316,492$552,152
16,22754,015(13,204)$5,334,780
298,364
807,758
425,538$204,500
16,364
18,2807,629$390,038
7,394
21,924
8,061

Total
Elimination

9,878,706–

10,439(10,439)

9,889,144(10,439)

9,279,954(10,621)609,190182

6,866,440(13,629)

246,773–

427,417–

Consolidation$9,878,705$$9,878,705$9,269,333$609,372$6,852,811$246,773$427,417

0Information by geographic area:
A summary of net sales, costs and expenses, operating income and assets by geographic areas for the years ended March 31, 1998 and 1997is shown below.
Millions of yen
1998
Geographic area

Outsidecustomers

Intersegment

Total
sales

Costs andexpenses

OperatingincomeAssetsDomestic (Inside Japan)
North America
Others¥ 708,851
583,332
11,806¥ 173,858
1,172
67¥ 882,709
584,504
11,873¥ 823,904
560,045
11,707¥58,805
24,459166¥656,485
269,825
2,344

Total
Elimination

1,303,989–

175,097(175,097)

1,479,086(175,097)

1,395,656(172,104)

83,430(2,993)928,654(24,083)

Consolidation¥1,303,989¥¥1,303,989¥1,223,552¥80,437¥904,571

0Fuji Heavy Industries Ltd. Annual Report 1998 27

Millions of yen
1997
Geographic area

Outsidecustomers

Intersegment

Total
sales

Costs andexpenses

OperatingincomeAssetsDomestic (Inside Japan)
Outside Japan¥ 747,934
475,081¥ 106,218907¥ 854,152
475,988¥ 808,638
461,636¥45,514
14,352¥554,709
217,935

Total
Elimination

1,223,015–

107,125(107,125)

1,330,140(107,125)

1,270,274(104,832)

59,866(2,293)772,644(13,614)

Consolidation¥1,223,015¥¥1,223,015¥1,165,442¥57,573¥759,030

0

Thousands of U.S. dollars
1998
Geographic area

Outsidecustomers

Intersegment

Total
sales

Costs andexpenses

OperatingincomeAssetsDomestic (Inside Japan)
North America
Other$5,370,083
4,419,182
89,440$1,317,106
8,879
507

$ 6,687,189
4,428,061
89,947$ 6,241,697
4,242,765
88,689$445,492
185,296
1,258$4,973,371
2,044,129
17,758

Total
Elimination

9,878,705–

1,326,492(1,326,492)

11,205,197(1,326,492)

10,573,151(1,303,818)

632,046(22,674)

7,035,258(182,447)

Consolidaton$9,878,705$$ 9,878,705$ 9,269,333$609,372$6,852,8110Overseas sales:
Overseas sales for the year ended March 31, 1998 are summarized as follows:
Millions of yen
Overseas sales

Sales amountNorth
America

European

Other

Total

Consolidated¥620,993¥93,699¥65,546¥780,238¥1,303,989

Total

Consolidated

Thousands of U.S. dollars
Overseas sales

Sales amount
Percentage against consolidated sales

North
America

European$4,704,492$709,841

47.6%

7.2%

Other

$496,561 $5,910,894
5.0%

59.8%

$9,878,705–

Overseas sales for the year ended March 31, 1997 were ¥597,877 million. The percentage of such sales against consolidated net sales wasapproximately 48.9%.

28 Fuji Heavy Industries Ltd. Annual Report 1998

Report of Independent Certified Public Accountants

To the Board of Directors of FUJI HEAVY INDUSTRIES LTD.
We have audited the accompanying consolidated balance sheets of FUJI HEAVY INDUSTRIES
LTD. and its consolidated subsidiaries as of March 31, 1998 and 1997, and the related consolidated statements of income and retained earnings for the years then ended, expressed in Japanese yen. These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these 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 consolidated financial statements are free of material misstatement. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements audited by us present fairly, in allmaterial respects, the financial position of FUJI HEAVY INDUSTRIES LTD. and its consolidated subsidiaries as of March, 31, 1998 and 1997, and the results of their operations for theyears then ended, in conformity with accounting principles generally accepted in Japan.
The United States dollar amounts in the consolidated financial statements have been translated for convenience only on the basis described in Note 3.

Tokyo, Japan
June 26, 1998

MEIJI AUDIT CORPORATION

Fuji Heavy Industries Ltd. Annual Report 1998 29

Non-Consolidated Balance Sheets
FUJI HEAVY INDUSTRIES LTD.
As of March 31, 1998 and 1997

Thousands of
U.S. dollars(Note 3)

Millions of yen

ASSETS

1998

1997¥ 42,080
6,032
58,71235,505¥ 37,919
8,631
40,975
19,94444,99367,518(976)
86,427
15,72244,807
81,935(946)
77,454
3,905

340,856
511,500(7,394)
654,750
119,106

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

356,013314,624

2,697,068

Property, plant and equipment:
Land (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

66,884
133,372
395,148

64,503131,020
386,951

506,697
1,010,394
2,993,545

Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10,816

4,435

81,939Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

606,220(393,956)

586,909(391,741)

4,592,575(2,984,515)

212,264

195,168

1,608,060

13,041
120,971
15,175

10,306
107,930
13,90998,796
916,447
114,962

149,187

132,145

1,130,205¥ 717,464¥ 641,937$ 5,435,333

Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments in subsidiaries and affiliates . . . . . . . . . . . . . . . . . . . . . . . . .
Notes and accounts receivable (Note 5):
Subsidiaries and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less allowance for doubtful receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Investments and other assets:
Securities investments (Note 6 and 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in and advances to subsidiaries and affiliates (Note 6) . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The accompanying notes are an integral part of these statements.

30 Fuji Heavy Industries Ltd. Annual Report 1998

1998

$

318,788
45,697444,788268,977

Thousands of
U.S. dollars(Note 3)

Millions of yen

LIABILITIES AND SHAREHOLDERS’ EQUITY

1998

1997

1998

¥ 81,300
4,780¥ 60,503
5,637$ 615,909
36,212

19,164
146,029
6,225
32,576
17,696
14,77819,514
146,818
3,050
30,793
6,764
12,735

145,182
1,106,280
47,159246,788
134,061
111,954

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

322,548285,8142,443,545

Long-term liabilities:
Long-term debt (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued severance indemnities (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

130,555
17,241
6,183

103,404
17,286
6,363

989,053
130,61346,841

153,979

127,053

1,166,507–
84,13890,588
5,936
60,27583,618–90,0705,295
50,087–
637,409686,273
44,970456,629

240,937

229,070

1,825,281¥717,464¥641,937$5,435,333

Current liabilities:
Short-term borrowings (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes and accounts payable (Note 5):
Subsidiaries and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes for acquisitions of property, plant and equipment . . . . . . . . . . . . . . . . . . . .
Accrued expenses (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable (Note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Shareholders’ equity (Note 11):
Common stock, ¥50 par value per share:
Authorized—1,500,000,000 shares;
Issued 1997— 596,483,764 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1998— 598,507,144 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings (Note 18) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Contingent liabilities (Note 16)
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fuji Heavy Industries Ltd. Annual Report 1998 31

Non-Consolidated Statements of Income
FUJI HEAVY INDUSTRIES LTD.
Years ended March 31, 1998, 1997 and 1996

Thousands of
U.S. dollars(Note 3)

Millions of yen
1998

1997

1996

1998

Net sales (Note 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales (Note 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥856,367
654,091¥824,735
646,475¥746,787
613,197$6,487,629
4,955,235

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses (Note 13) . . . . . . . . . . . . . . . .

202,276
143,791

178,260
133,623

133,590
114,320

1,532,394
1,089,326

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

58,48544,637

19,270443,068

Other income (expenses):
Interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,311(5,171)411

2,075(6,140)724

2,639(9,179)(1,774)40,235(39,174)
3,113

Other, net (Note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(20,009)(11,246)2,720(151,583)(19,458)(14,587)(5,594)(147,409)

Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes (Note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

39,027
21,78830,0507,199

13,676113

295,659
165,061

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥ 17,239¥ 22,851¥ 13,563$ 130,598

U.S. dollars(Note 3)Yen

Per share of common stock:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The accompanying notes are an integral part of these statements.

32 Fuji Heavy Industries Ltd. Annual Report 1998

¥28.81¥39.03¥23.17$0.22

Non-Consolidated Statements of Shareholders’ Equity
FUJI HEAVY INDUSTRIES LTD.
Years ended March 31, 1998, 1997 and 1996

Thousands
Number ofsharesissuedBalance, March 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1996 net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Millions of yen
Commonstock

Additional
paid-in
capitalLegalreserve

Retainedearnings

585,346¥80,716¥87,183¥4,991¥17,014
13,563

Balance, March 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of bonuses to directors and statutory auditors . . . . .
Transfer from retained earnings . . . . . . . . . . . . . . . . . . . . . . . .
Shares issued upon conversion of convertible bonds . . . . . . . .
Shares issued upon exercise of warrants . . . . . . . . . . . . . . . . . .
1997 net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

585,346

80,71687,183

4,991

30,577(2,927)
(110)
(304)

Balance, March 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of bonuses to directors and statutory auditors . . . . .
Transfer from retained earnings . . . . . . . . . . . . . . . . . . . . . . . .
Shares issued upon conversion of convertible bonds . . . . . . . .

596,484

83,61890,070

2,023

520

518

304
4,612
6,526

1,186
1,716

1,181
1,706
22,851
5,295

641

1998 net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, March 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

50,087(6,270)(140)(641)
17,239598,507¥84,138¥90,588¥5,936¥60,275

Thousands of U.S. dollars (Note 3)

Balance, March 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of bonuses to directors and statutory auditors . . . . . . . . . . . . . . . .
Transfer from retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares issued upon conversion of convertible bonds . . . . . . . . . . . . . . . . . . .
1998 net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$633,470$682,348

3,939

3,924

Balance, March 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$637,409$40,1144,856$379,447(47,500)(1,061)(4,856)
130,598$686,273$44,970$456,629

The accompanying notes are an integral part of these statements.

Fuji Heavy Industries Ltd. Annual Report 1998 33

Non-Consolidated Statements of Cash Flows
FUJI HEAVY INDUSTRIES LTD.
Years ended March 31, 1998, 1997 and 1996

Thousands of
U.S. dollars(Note 3)

Millions of yen
1998

1997

1996

1998

¥ 17,239¥ 22,851¥ 13,563$ 130,598

24,1452,435(2,480)2,884

22,804
2,575(2,286)
270

23,232
2,297(2,247)(15,039)

182,917
18,447(18,788)
21,848

9,574
3

6,621
(134)

13,097(259)

72,53023

14,261(20,790)(1,139)10,932(315)(2,297)3,426
14,720
6,717
4,980

924
591
(10,641)2(1,380)108,038(157,500)(8,628)82,818(2,386)

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

56,74980,247

24,140429,917

Cash flows from investing activities:
Purchase of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales and disposal of property, plant and equipment . . . . . . .
Decrease (increase) in investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in time deposits and marketable securities . . . . . . . . . . .
Decrease (increase) in short-term investments . . . . . . . . . . . . . . . . . . . . . . . .

(34,730)1(18,852)(3,349)(21,636)(15,561)(23,941)
3,113
528(2,296)(20,262)7,333(22,754)
17,290(1,241)(2,929)14,486(4,062)(263,106)7(142,818)(25,371)(163,909)(117,886)

Net cash provided by (used for) investing activities . . . . . . . . . . . . . . . . . . . .

(94,127)(35,525)790(713,083)

Cash flows from financing activities:
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subscription of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . .
Payment of cash dividends and bonuses to directors and statutory auditors . .

34,000(6,668)–20,797(6,410)30,000(55,817)
3,422(25,000)(3,037)

11,250(55,475)
011,0000257,576(50,515)–
157,553(48,561)

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(180)

2,782

(1,030)(1,364)

Net cash provided by (used for) financing activities . . . . . . . . . . . . . . . . . . . .

41,539(47,650)(34,255)

314,689

Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,161
37,919(2,928)40,847(9,325)50,172

31,522287,265

Cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥ 42,080¥ 37,919¥ 40,847$ 318,788

Supplemental information on cash flows:
Cash paid during the period for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥ 5,016¥ 6,399¥ 9,097$ 38,000

Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided byoperating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for accrued severance indemnities . . . . . . . . . . . . . . . . . . . . .
Payments of accrued severance indemnities . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on sales and disposal of property, plant and equipment . . .
Write-down of marketable securities and investments in
subsidiaries and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-cash income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Notes and accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes and accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . .

The accompanying notes are an integral part of these statements.
34 Fuji Heavy Industries Ltd. Annual Report 1998

Notes to Non-Consolidated Financial Statements
FUJI HEAVY INDUSTRIES LTD.
March 31, 1998

1. BASIS OF PRESENTING THE FINANCIAL STATEMENTS:
Fuji Heavy Industries Ltd. (the “Company”) maintains its records
and prepares its financial statements in accordance with accounting
principles generally accepted in Japan. The accompanying nonconsolidated financial statements are prepared based on the nonconsolidated financial statements filed with the Minister of Financeas required by the Securities and Exchange Law of Japan.
The presentation of statements of shareholders’ equity and of
cash flows is not requested in Japan. These statements are, however,presented for the convenience of the reader. Furthermore, certain
items presented in the original financial statements have been
reclassified and summarized for readers outside Japan. In addition,
the notes to the financial statements include information which is
not required under accounting principles generally accepted inJapan, but is presented as additional information.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Non-consolidation of subsidiary accounts:
The accompanying financial statements do not include the accountsof the Company’s majority-owned subsidiaries.
Translation of foreign currency accounts:
Monetary assets and liabilities denominated in foreign currency aretranslated into yen at historical exchange rates.
Revenues and expenses denominated in foreign currency aretranslated at the exchange rates prevailing when such transactions
were made.
Marketable securities and securities investments:
Securities which are listed on stock exchanges, except for investments in subsidiaries, are stated at the lower of cost of market, cost
being determined by the moving average method. Securities which
are not listed on stock exchanges are stated at cost, as determinedby the moving average method, after devaluation for any permanent
impairment.
Inventories:
Finished products are stated mainly at cost determined by the moving average method while raw materials, work in process and supplies are stated at cost principally determined by the first-in,
first-out method.
Investments in and advances to subsidiaries and affiliates:
Investments in and advances to subsidiaries and affiliates are statedat cost after devaluation for any permanent impairment.
Property, plant and equipment:
Property, plant and equipment is stated at cost. Depreciation is computed on the declining-balance method at rates based on the estimated useful lives of the assets. Maintenance and repairs, including
minor renewals and betterment, are charged to income as incurred.
Research and development expenses and bond issue expenses:
Research and development expenses and bond issue expenses arecharged to income as incurred

Allowance for doubtful receivables:
The Company has provided an allowance for doubtful receivables tocover possible losses on collection at the maximum amount allowable under Japanese tax regulations and based on management’s
estimates.
Finance leases:
Finance leases which do not transfer ownership of the leased property to the lessee are accounted for as rental transactions.
Income taxes:
Income taxes are provided based on amounts reflected in the tax
returns for the period. Deferred income taxes relating to temporary
differences are not recognized, as interperiod income tax allocation
is not generally practiced in Japan.
Accrued severance indemnities and pension plan:
Employees who terminate employment are entitled, under mostcircumstances, to lump-sum payments determined by current basic
rate of pay, length of service, position in the Company, and conditions under which the termination occurs. The minimum payment
is an amount based on voluntary retirement. In addition to theminimum payment, employees receive additional benefits for retirement at the age limit or for other defined reasons.
Also, the Company has a funded pension plan which will generally provide for an annuity payable subsequent to retirement. This
plan covers to the extent of 80% of retirement and severance benefits for employees who terminate employment at age fifty or over.
The Company’s contributions to the plan include amortization ofprior service costs over thirty-seven years.
Japanese tax laws limit the allowable deductions for accrued severance indemnities at 40% of voluntary liabilities. The Company
records 40% of the voluntary liabilities in accordance with the law.
The Company has not provided accrued severance benefits for
directors because, according to the Commercial Code of Japan, any
termination benefits for directors are at the discretion of the shareholders and are not determinable in advance of a resolution by theshareholders covering such payment.

3. U.S. DOLLAR AMOUNTS:
The United States Dollar amounts included in the accompanying
non-consolidated financial statements and related notes represent
the arithmetic results of translating Japanese yen into U.S. dollars
on the basis of ¥132 to U.S.$1, the approximate exchange rate at
March 31, 1998. The U.S. dollar amounts are included solely for theconvenience of the reader, and it should not be construed that theassets and liabilities, expressed in U.S. dollar equivalents, can actually be realized in or be settled by U.S. dollars at the exchange rates
used in the accompanying translation.

Fuji Heavy Industries Ltd. Annual Report 1998 35

4. INVENTORIES:
Inventories comprise the following:Thousands of
U.S. dollars

Millions of yen
March 31,

Finished products
Work in process
Raw materials
Supplies

1998

1997

1998

¥23,072
56,578
5,580
1,197¥21,815
49,641
4,788
1,210$174,788
428,62142,273
9,068¥86,427¥77,454$654,750

5. TRANSACTION OF CURRENT RECEIVABLES AND PAYABLES DENOMINATED IN FOREIGN CURRENCIES:
Current monetary receivables and payables denominated in foreign currencies are translated at historical exchange rates in accordance with
Statement No. 55 of the Audit Committee of the Japanese Institute of Certified Public Accountants.
Unrealized foreign exchange gains (losses) resulting from a translation of receivables and payables at current exchange rates prevailing at
the balance sheet date are as follows:
Thousands of
U.S. dollars

Millions of yen
March 31,

Receivables:
At historical rate
At current rate
Exchange gains
Payables:At historical rate
At current rate
Exchange losses

1998

1997

1998

¥13,161
13,849¥11,629
12,486$ 99,705
104,917

¥

¥

$

688

857

5,212

¥ 1,947
2,077¥ 3,728
3,949$ 14,750
15,735¥¥ (221)

$

(130)

(985)

6. MARKETABLE SECURITIES AND SECURITIES INVESTMENTS:
Unrealized valuation gains between aggregate cost and market value of marketable and securities investments (including investments inaffiliates) at March 31, 1998 and 1997 are shown below:
Thousands of
U.S. dollars

Millions of yen
March 31,Aggregate cost:
Current
Non-current

Market value:
Current
Non-current

Valuation gains

1998

1997

1998

¥20,026
9,654¥26,446
11,392$151,712
73,136¥29,680¥37,838$224,848¥21,202
19,481¥30,447
22,180$160,621
147,583¥40,683¥52,627$308,204¥11,003¥14,789$ 83,355

Securities not traded in stock exchanges or other regulated markets are not included in the above aggregate cost and market value.

36 Fuji Heavy Industries Ltd. Annual Report 1998

7. ACCRUED EXPENSES:
Accrued expenses are summarized as shown below:
Thousands of
U.S. dollars

Millions of yen
March 31,

Accrued interest expenses
Accrued bonuses to employees
Accrued warranty claims
Others

1998

1997

232
10,941
4,981
16,422¥ 1,156
10,314
6,435
12,888$¥32,576¥30,793$246,788

¥

1998

1,758
82,88637,735
124,409

8. OTHER CURRENT LIABILITIES:Other current liabilities represent:
Thousands of
U.S. dollars

Millions of yen
March 31,

1998

1997

1998

Advance payments received
Payables for acquisitions of property, plant and equipment
Consumption tax payable
Others¥ 858
12,058–
1,862¥ 1,579
7,917
609
2,630

$

¥14,778¥12,735$111,954

6,500
91,348–
14,106

9. SHORT-TERM BORROWINGS AND LONG-TERM DEBT:
Short-term borrowings at March 31, 1998 consist of unsecured bank loans and commercial papers which are due principally in 365 days andbear interest at an average rate of approximately 1.2% per annum.
A summary of long-term debt is as follows:

Millions of yen
March 31,

Thousands of
U.S. dollars

1998

1997

1998

Loans, principally from banks and insurance companies, due through2004 with interest ranging from 1.9% per annum to 8.5% per annum
3.0% convertible bonds in U.S. dollars, due March 31, 2000
1.8% convertible bonds in Japanese yen, due March 31, 2003
8.75% bonds in U.S. dollars, due November 17, 1999
0.9% convertible bonds in Japanese yen, due September 30, 2003
2.25% bonds in Japanese yen, due July 31, 2002
2.10% bonds in Japanese yen, due January 31, 2001

¥ 34,155
13
2,097
42,474
26,59620,00010,000¥ 36,823
13
2,097
42,474
27,634––$ 258,750
98
15,886
321,773
201,485
151,51575,758Portion due within one year

135,335
4,780

109,041
5,637

1,025,265
36,212¥130,555¥103,404$ 989,053

Fuji Heavy Industries Ltd. Annual Report 1998 37

The aggregate annual maturates of long-term debt as of March 31, 1998 are summarized as follows:Year ending March 31

Millions of yen

1999
2000
2001
2002
2003
2004 and thereafterThousands of
U.S. dollars¥ 4,780
56,18922,942
1,655
22,70027,069$36,212425,674
173,803
12,538
171,970
205,068¥135,335$1,025,265

Millions of yen

Thousands of
U.S. dollars¥54,871
4,402$415,689
33,348¥59,273$449,038

Assets of the Company pledged as collateral for certain loans at March 31, 1998 are summarized as follows:

Property, plant and equipment
Securities investments

Convertible bonds are convertible, unless previously redeemed, into shares of common stock of the Company at conversion prices as follows:

3.0% convertible bonds in U.S. dollars, due March 31, 2000
1.8% convertible bonds in Japanese yen, due March 31, 2003
0.9% convertible bonds in Japanese yen, due September 30, 2003
If all the outstanding convertible bonds were converted at March
31, 1998, approximately 55,175 thousand additional shares of common stock would be issued.
As is customary in Japan, substantially all bank borrowings are
subject to general agreements which provide, among other things,

Conversion priceper share

Convertible atany time up to
and including¥662.70 ($5.02)¥633.30 ($4.80)¥513.00 ($3.89)

March 20, 2000
March 28, 2003
September 29, 2003

that the banks may, under certain circumstances, request additional
security for these loans and may treat any security furnished to thebanks, as well as cash deposited with them, as security for allpresent and future indebtedness. The banks have never requested
that the Company submit such additional security.

10. SEVERANCE INDEMNITIES AND PENSION PLAN:
Charges to income for severance indemnities and pension plan for employees are as follows:
Thousands of
U.S. dollars

Millions of yen

Funded pension plan
Accrued severance indemnities

11. SHAREHOLDERS’ EQUITY:The Commercial Code of Japan provides that an amount equivalent
to at least 10% of cash outlays including cash dividends and bonuses
to directors and statutory auditors be appropriated as a legal reserve
until such reserve equals 25% of stated capital (common stock).
The Code also provides that neither additional paid-in capital nor
the legal reserve is available for dividends, but both may be used to
38 Fuji Heavy Industries Ltd. Annual Report 1998

1998

1997

1996

1998

¥4,7882,435¥4,673
2,575¥3,7882,297$36,273
18,447¥7,223¥7,248¥6,085$54,720

reduce a deficit by resolution of the shareholders or may be capitalized in the form of a free distribution of shares by resolution of theBoard of Directors.
The Japanese Commercial Code also provides that the entire
amount of paid-in capital on new share issues including shares issued upon conversion of bonds shall, generally, be included in theThe amount available for dividends under the Commercial Codeof Japan is based upon retained earnings as recorded by the Company. At March 31, 1998, the amount available for dividends is¥54,795 million (U.S.$415,114 thousand).

common stock account. However, an amount equal to or less than
50% of the issue price of the shares may be transferred to the additional paid-in capital account on the condition that at least the parvalue per share is included in the common stock account.

12. SALES TO AND PURCHASES FROM SUBSIDIARIES AND AFFILIATES:
Sales to and purchases from subsidiaries and affiliates during the three years ended March 31, 1998 are as follows:

Sales to:Subaru of America, Inc.
Other subsidiaries and affiliates
Total
Purchases from subsidiaries and affiliates

1998

Millions of yen
1997

1996

Thousands of
U.S. dollars
1998¥ 89,492
404,322¥493,814¥ 42,365¥ 42,982
434,649¥477,631¥ 93,339¥ 23,455
396,626¥420,081¥ 88,387$ 677,970
3,063,045$3,741,015$ 320,947

1998

Millions of yen
1997

1996

Thousands of
U.S. dollars
1998¥ 13,320
18,091
31,904
11,862
322
8,561
1,487
591
38,099505
84
18,965¥143,791¥ 13,102
17,07635,105
3,243
360
8,554
1,430
627
33,910801
1,587
17,828¥133,623¥ 13,134
14,08434,331
2,727
365
8,571
1,167
675
23,090698
230
15,248¥114,320$ 100,909
137,053
241,697
89,8642,439
64,856
11,265
4,477
288,629
3,826
637
143,674$1,089,326

13. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling, general and administrative expenses consist of the following:Transportation and packing expenses
Advertising expenses
Sales incentives
Sales promotion
Remuneration to directors
Salaries and bonuses
Accrued bonuses
Depreciation
Research and development expenses
Provision for accrued severance indemnities
Provision for allowance for doubtful accounts (net)OthersTotal

14. OTHER INCOME (EXPENSES):
A breakdown of other income (expenses) — other, net is as follows:
Thousands of
U.S. dollars

Millions of yen
1998

Gain on sale of marketable securities
Gain on sale of property, plant and equipment
Rental income
Loss from disposal of property, plant and equipment
Write-down of marketable securities and investments
in subsidiaries and affiliates
Others
Total

¥

1
248
1,729
(2,920)(9,574)(9,493)¥(20,009)

1997

¥

4
3,116
2,201
(3,386)(6,621)(6,560)¥(11,246)

1996

¥

4
16,421
1,964(1,382)(13,097)(1,190)¥ 2,720

1998

$

8
1,879
13,098(22,121)(72,530)(71,917)$(151,583)

Fuji Heavy Industries Ltd. Annual Report 1998 39

15. INCOME TAXES:
The Company is subject to several taxes based on income which, inthe aggregate, resulted in normal statutory tax rates of approximately
52% for 1998, 1997 and 1996.
The effective tax rates reflected in the statements of income differ
from the normal tax rates primarily because of the effect of

temporary differences in the recognition of certain income andexpenses for tax and financial reporting purposes, the effect of permanent non-deductible expenses, and tax exemptions for dividend
income received from Japanese companies.

16. CONTINGENT LIABILITIES:Contingent liabilities as of March 31, 1998 are as follows:As guarantor of indebtedness of subsidiaries, affiliates and others
Trade notes discounted with banks

The Company has cancelable long-term lease agreement, principallyfor computer equipment, office space, and employee housing, that

Millions of yen

Thousands of
U.S. dollars¥171,340
653$1,298,030
4,947¥171,993$1,302,977

resulted in annual rental payments totaling approximately ¥6,912
million (U.S.$52,364 thousand) for the year ended March 31, 1998.

17. AMOUNTS PER SHARE OF COMMON STOCK:
Primary net income per share is computed based on the weighted average number of shares of common stock outstanding during each year.
Fully diluted net income per share is based on the assumption that all convertible bonds were converted into common stock. Cash dividends per share represent those applicable to the respective years.
Yen

U.S. dollars

For the year ended March 31,

1998

1997

1996

1998

Net income:Primary
Fully diluted
Cash dividends applicable to the year

¥28.8126.57
7.00¥39.0338.21
7.00¥23.17
23.10
5.00

$0.22
0.20
0.05

The following amounts of net assets per share are computed on the outstanding number of shares of common stock at each balance
sheet date.
Yen
As at March 31,

Net assets

U.S. dollars

1998

1997

1996

1998

¥402.56¥384.03¥347.60$3.05

18. RETAINED EARNINGS:
The following appropriations of retained earnings at March 31, 1998 were approved at the general meeting of shareholders held on June
26, 1998.

Millions of yen

Thousands of
U.S. dollars

Balance at March 31, 1998
Appropriations for—Cash dividends
Bonuses to directors and statutory auditors
Transfer to Legal reserve¥60,275$456,629

2,095
140
224

15,871
1,061
1,697

Retained earnings carried forward¥57,816$438,000

40 Fuji Heavy Industries Ltd. Annual Report 1998

Report of Independent Certified Public Accountants

To the Board of Directors of FUJI HEAVY INDUSTRIES LTD.
We have audited the accompanying non-consolidated balance sheets of FUJI HEAVY
INDUSTRIES LTD. as of March 31, 1998 and 1997, and the related non-consolidated statements of income, shareholders’ equity and cash flows for each of the three years in the period
ended March 31, 1998, expressed in Japanese yen. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesefinancial 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 non-consolidated financial statements are free of material misstatement. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the non-consolidated financial statements. An audit also includes assessing theaccounting 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 non-consolidated financial statements audited by us present fairly, in allmaterial respects, the financial position of FUJI HEAVY INDUSTRIES LTD. as of March, 31,
1998 and 1997, and the results of its operations and its cash flows for each of the three years
in the period ended March, 31, 1998, in conformity with accounting principles generally
accepted in Japan.
The United States dollar amounts in the non-consolidated financial statements have beentranslated for convenience only on the basis described in Note 3.

Tokyo, Japan
June 26, 1998

MEIJI AUDIT CORPORATION

Fuji Heavy Industries Ltd. Annual Report 1998 41

Corporate Data

FUJI HEAVY INDUSTRIES LTD.
ESTABLISHED
July 15, 1953
(Founded as the Aircraft ResearchLaboratory in 1917)
COMMON STOCK
Authorized: 1,500,000,000 shares
Issued: 598,507,144 shares
Number of shareholders: 72,107
Transfer agent:
The Chuo Trust & Banking Co., Ltd.
7-1, Kyobashi 1-chome
Chuo-ku, Tokyo 104-8345, Japan(As of March 31, 1998)
HEAD OFFICE
Subaru Building
7-2, Nishishinjuku 1-chome
Shinjuku-ku, Tokyo 160-8316, Japan
Phone: (03) 3347-2111
Facsimile: (03) 3347-2338 (GII, GIII)
Cable Address: TOKYO FUJI HEAVY
Telex: 232-2268 FUJI JHome page: http://www1.subaru-fhi.co.jp/fhi.htm
Publicity Office(03) 3347-2023
Subaru Overseas Division(03) 3347-2396
Aerospace Division(03) 3347-2513
Transportation & Ecology Systems Division(03) 3347-2492
Bus Manufacturing & House
Prefabricating Division(03) 3347-2278
Industrial Products Division(03) 3347-2414
PRINCIPAL OVERSEAS OFFICES
Fuji Heavy Industries Ltd.
Liaison Offices in Europe (Automobiles)
Konrad-Adenauer Strasse 34
55218 Ingelheim am Rhein, Germany
Phone: 06132-763-70
Facsimile: 06132-763-31
Subaru Test & Development Center in Europe
Konrad-Adenauer Strasse 34
6507 Ingelheim am Rhein, Germany
Phone: 06132-763-70
Facsimile: 06132-763-31
Fuji Heavy Industries Ltd.
China Office (Automobiles)
12 Nancaiyuan St. Xuanwu District
Beijing 100054, China
Phone: 010-6354-4402
Facsimile: 010-6354-4401
PRINCIPAL SUBSIDIARIES AND AFFILIATES• Subaru of America, Inc.
Subaru Plaza, 2235 Route 70 West
Cherry Hill, NJ 08002, U.S.A.
Phone: (609)-488-8500
Facsimile: (609)-665-3346• Fuji Heavy Industries U.S.A. Inc.
Cherry Hill Office (Automobiles)
c/o Subaru of America, Inc.
Subaru Plaza, 2235 Route 70 West
Cherry Hill, NJ 08002, U.S.A.
Phone: (609)-488-8532
Facsimile: (609)-488-9279
Seattle Office (Aerospace)
20700, 44th Avenue
W Lynwood, WA 98036, U.S.A.
Phone: (206)-266-0328
Facsimile: (206)-266-0518
Washington Office (Patent)
c/o Beberidge, DeGrandi 3 Weilacher
Federal Bar Bldg. West1819 H Street, N.W.
Washington, D.C. 20006, U.S.A.
Phone: (202)-659-2811
Facsimile: (202)-659-1462• Subaru-Isuzu Automotive Inc.
5500 State Road 38 East
Lafayette, IN 47903, U.S.A.
Phone: (765)-449-1111
Facsimile: (765)-449-6952• Subaru Research & Design, Inc.
3995 Research Park Drive
Ann Arbor, MI 48108, U.S.A.
Phone: (734)-623-0075
Facsimile: (734)-623-0076
Lafayette Officec/o Subaru-Isuzu Automotive, Inc.
5500 State Road 38 East
Lafayette, IN 47903, U.S.A.
Phone: (765)-449-8839
Facsimile: (765)-449-8932♦ Ta Ching Motors Co., Ltd.
337 Ta Hsi Road
Ching Hsi Lii, Ping Tung, Taiwan
Phone: 8-753-8001
Facsimile: 8-753-8021• Subaru Canada Inc.
5990 Falbourne Street
Mississauga, Ontario
L5R 3S7 Canada
Phone: (905)-568-4959
Facsimile: (905)-568-8087• Subaru Parts Europe N.V./S.A.
Hermesstraat 6C
1930 Nossegem-Zaventem, Belgium
Phone: 02-720-9914
Facsimile: 02-725-7792
Robin America, Inc.
940 Lively Blvd.
Wood Dale, IL 60191, U.S.A.
Phone: (708)-350-8200
Facsimile: (708)-350-8212
Fuji Heavy Industries (Singapore) Pte. Ltd.
(Industrial Products)
23 Tuas Avenue
2 Singapore 2263
Phone: 65-863-8020
Facsimile: 65-861-8439• Robin Manufacturing U.S.A., Inc.
1201 Industrial Road
Hudson, WI 54016, U.S.A.
Phone: (715)-381-5902
Facsimile: (715)-381-5901

Robin Europe GmbH
Industrial Engines and Equipment
Hanns-Martin-Schleyer-Str. 33
D-47877 Willich-Münchheide II
F.R. Germany
Phone: 49 (02154) 42 87 36
Facsimile: 49 (02154) 42 87 52
Subaru (Thailand) Co., Ltd.
2232 New Petchburi Rd.
Bangkapi Huaykhwang
Bangkok 10320, Thailand
Phone: 66-2-718-2200~9
Facsimile: 66-2-314-2154• Fuji Robin Industries Ltd.
• Daiichi Forging Co., Ltd.
• FICS Corporation• F.O.D Co., Ltd.
• Subaru Building Co., Ltd.
♦ Kiryu Industry Co., Ltd.
♦ Yusoki Kogyo K.K.
♦ Subaru Kosan Co., Ltd.
♦ Subaru Finance Co., Ltd.
♦ Subaru Used Car Sales Co., Ltd.
♦ Fuji Machinery Co., Ltd.
♦ Chuo Subaru Motors Co., Ltd.
♦ Tokyo Subaru Motors Co., Ltd.
♦ Nagoya Subaru Motors Co., Ltd.
♦ Shin-Osaka Subaru Motors Co., Ltd.
• Fully consolidated subsidiary♦ Subsidiary or affiliate consolidated by the equity method

FACILITIES (Domestic)
Automobiles Division
Gunma Manufacturing Division
Main Plant
Ohta, Gunma
Yajima Plant
Ohta, Gunma
Ohta North Plant
Ohta, Gunma
Oizumi Plant
Oura-gun, Gunma
Tokyo Office (Mitaka Plant)
Mitaka, Tokyo
Aerospace Division
Transportation & Ecology Systems Division
Utsunomiya Manufacturing Division
Utsunomiya, Tochigi/Handa, Aichi
Bus Manufacturing & House Prefabricating
Division
Isesaki Manufacturing Division
Isesaki, Gunma
Industrial Products Division
Saitama Manufacturing Division
Kitamoto, Saitama
Additional copies of this annual report and otherinformation may be obtained by contacting:
Finance Department, Fuji Heavy Industries Ltd.
Phone: (03) 3347-2130
Facsimile: (03) 3347-2126
Other English-language publications:
Fuji Heavy Industries, Ltd.
Corporate Brochure
Subaru News(As of July 1, 1998)

42 Fuji Heavy Industries Ltd. Annual Report 1998

Subaru 360

The Subaru 360, which celebrated its 40th anniversary in March 1998, was Japan’s first minicar.
Distinctive, rational in design and innovative in so many ways, this compact vehicle was far aheadof its time. Belying its size, the Subaru 360 could accommodate four adult passengers thanks to arear-mounted engine. Other features included a monococque body that borrowed from aircraft design
and a roof made from lightweight synthetic resin—another first for this vehicle. And while the car’s
360cc engine was by no means a powerhouse, it was more than up to the demands put on it. Moreover,to enhance passenger comfort, an independent 4-wheel suspension system was employed. With all thistechnology, no one was surprised when the Subaru 360 was an immediate success. Affectionately
dubbed the “Ladybug,” the Subaru 360 has a proud place in the annals of Japanese motoring history.
Embodying the uniqueness that is Subaru’s trademark, the Subaru 360 stands as the cornerstone fortoday’s Subaru automobiles.

Fuji Heavy Industries Ltd. Annual Report 1998 43

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