Annual Report
2018
For the year ended March 31, 2018

SUBARU Business Style
Vision for 2025

From a company making things,
to a company making people smile.
SUBARU, by no means a large automaker, is implementing a business model centered on
selection and concentration of limited management resources, creating added value, andpursuing uncompromised differentiation. We have made “Enhance corporate quality”
the cornerstone of the mid-term management vision announced in July 2018.
By swiftly transforming what needs to be changed, including aspects of corporate culture,
we will work to bring smiles to the faces of ever greater numbers of customers.

Strengthening of the
management foundation

Focus business strategy toenhance strengths

We will strengthen the management foundation
by pursuing qualitative improvement in every
aspect of the company, including products,
services, culture, human resources, organizations,finance, and operations.

Rather than pursue an omnidirectional businessstrategy, we have chosen to optimally focus ourlimited management resources on categories andmarkets in which we can leverage our strengths.
In business development, our product focus ismainly on SUVs and sports models, and ourmarket focus is on the U.S. and other developed
countries in mature stages of motorization.

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Annual Report 2018

CONTENTS

Achieve an industry-leading
profit margin
While continuously making strategic investments
for future sustained growth, we will pursue amanagement approach that emphasizes a highoperating margin, focusing on differentiationand value-added strategies. On that basis, wewill aim for steady volume growth.

01

SUBARU Business Style

03

Message from the CEO

09

Message from the Chairman

11

Message from the CFO

15

Messages from the
CQO, CTO, and CIO

17

Financial and
Non-Financial Highlights

19

Business Overview

27

History29

Directors, Auditors, andExecutive Officers

31

Corporate Governance39

CSR in the SUBARU Group47

Consolidated Ten-Year
Financial Summary

49

Five-Year Unit Sales

51

Financial Review

57

Corporate Information

Disclaimer Regarding
Forward-Looking Statements
Statements herein concerning plans and strategies,
expectations or projections about the future, SUBARUʼsefforts with regard to various management issues, andother statements, except for historical facts, are forwardlooking statements. These forward-looking statements are
subject to uncertainties that could cause actual results todiffer materially from those anticipated. These
uncertainties include, but are not limited to, general
economic conditions, demand for and prices of SUBARUʼsproducts, SUBARUʼs ability to continue to develop andmarket advanced products, raw material prices, andcurrency exchange rates. SUBARU disclaims any obligation
to update any forward-looking statements, whether as aresult of new information, future events, or otherwise.

Annual Report 201802

Message from the CEO

Representative Director of the Board,
President and CEO

Tomomi Nakamura

Steadily build up intrinsic strengths andtake strong steps in preparation fora future jump to overcome social changes.
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Annual Report 2018

Aspirations upon Becoming President
Allow me to begin by introducing myself. I am Tomomi Nakamura. I assumed office as Representative
Director, President and CEO of SUBARU CORPORATION in June 2018.
Having assumed management of the Company during a period of transformation in todayʼs mobility
society, I feel a great weight of responsibility. In keeping with SUBARU ʼs unchanging management
philosophy of “Aiming to be a compelling company with a strong market presence built upon its customerfirst principle,” I intend to assess this sweeping change in the business environment and respond with asense of urgency and alacrity. Issues accompanying SUBARUʼs rapid growth have come to light since theend of 2017, but I consider it my mission as president to cultivate SUBARUʼs true capabilities, and I will makeevery effort to achieve sustained growth. I consider SUBARUʼs current difficulties an opportunity to bringgenuine change to the Company and accomplish transformation in a number of areas. I will carefully
ascertain what needs to be changed and what should not be changed and implement reforms together with
the new management team.
For four years beginning in 2014, I served as chairman and CEO of U.S. sales and marketing subsidiary
Subaru of America, Inc., where I spearheaded management and experienced firsthand the growth
momentum of the U.S. market. At the same time, I constantly watched SUBARU from the outside with asense of impending crisis, wondering what might occur to stop ongoing growth and what would benecessary to sustain it. One solution that occurred to me was pushing quality in products, services,
operations, and every other aspect of the business, and another was fundamental reform of car-making. In
formulating the mid-term management vision, we made these two solutions key priorities.

Response to Improprieties Relating to Final Vehicle Inspections
Inappropriate practices, such as the performance of final vehicle inspections by persons not certified as final
inspectors, and inappropriate conduct in fuel economy and emissions sampling in the final vehicle inspection
process and other final vehicle inspection work at the SUBARU Gunma Manufacturing Division have been
identified. I sincerely apologize for the significant trouble and inconvenience we have caused our customers,
partners, and all other stakeholders.
An investigative report by a team of external experts cited not only organizational issues relating to thecorporate climate and poor employee awareness of applicable standards but also the inadequacy of SUBARU
managementʼs stance on quality assurance, as causes of the long-term, various, and wide-ranging repeatedincidents of nonconforming and inappropriate conduct, and we take a very serious view of managementʼs
responsibility. It is the responsibility of senior management to prevent any reoccurrence of such issues andproduce results, and we will spearhead efforts to restore trust in SUBARU step by step.

A Review of Prominence 2020
Through initiatives set out in Prominence 2020, the mid-term management vision announced in 2014,
SUBARU has implemented a business strategy aimed at establishing a prominent presence in the minds ofcustomers. Growth in sales volume in the North American market became a major pillar of business growth.
We pursued a course of practicing selection and concentration to focus allocation of limited management
resources and leverage strengths. Our product focus was mainly on SUV and sports models, and our market
focus was on the U.S. and other developed countries in mature stages of motorization. At the same time, in
the U.S. market, a combination of products, sales network restructuring, and marketing measures featuring
the word “Love” became a powerful driving force that resulted in sales of 671,000 units in the fiscal year
ended (FYE) March 2018, with sales reaching a record high for the ninth consecutive year.
Although we may take a measure of satisfaction in our recent business growth, the fact is that issues
remain. In Prominence 2020, we articulated our vision for 2020, consisting of four goals: No. 1 for customer
trust; strong brand; industry-leading high profitability; and vehicle sales of 1.2 million-plus units. With
regard to the goals No.1 for customer trust and strong brand, we recognize that we have lost the trust ofcustomers and society due to recent quality-related problems and issues stemming from the corporate
culture. Although at present we have achieved our goal of an industry-leading profit margin, profitability istrending down due to changes in the sales environment and deteriorating cost structures. On the whole,
we are still halfway to achieving the management vision. From a quantity and quality perspective,
qualitative growth has not kept pace with quantitative growth, and we realize that restoration of trust andimprovement of SUBARUʼs fundamental capabilities are indispensable for achieving sustained growth.

Annual Report 201804

Message from the CEO

STEP: the New Mid-term Management Vision
In July 2018, SUBARU announced STEP, which is our new mid-term management vision to make
SUBARU a company that is trusted by, and resonates with, customers through providing “Enjoyment
and Peace of Mind.”

Speed

Trust

Engagement

Peace of mind
& enjoyment

Speedily advanceinitiatives

Restore trust

Engage andresonate withcustomers

Provide “Peace ofMind and Enjoyment”
to customers

Vision for 2025
Our vision for 2025 is “From a company making things, to a company making people smile.” We want more
and more customers to love SUBARU. To make this happen, we intend to provide products and services thatwill make customers smile by constantly thinking about customer value. Accordingly, we have establishedthree specific visions for 2025.

1. Become a brand that is “different” from others by enhancing distinctiveness.
We often hear from customers and SUBARU dealers comments such as “I like that SUBARU is different fromother automakers” and “SUBARU enables my life.” We take pride in our reputation for being different andwant to establish a unique presence in the minds of customers.

2. Engage in business activities that resonate with customers by putting them center-stage.
At SUBARU, we always put customers center-stage and sincerely engage with each individual customer.
SUBARU cars reflect not only an automakerʼs passion for cars, but also our commitment to remain acompany that engages with customers, makes cars that people want to buy, and engages in businessactivities that resonate with people.

3. Fulfill corporate social responsibilities by contributing to diversifying social needs.
Having reflected on the fact that, at a time of rapid corporate growth, we have been insufficiently mindful ofthe social responsibilities of a company of SUBARUʼs size, we will squarely face up to and fulfill our social
responsibilities, including in the area of governance.

Corporate Culture Reforms and Three Key Pillars of Initiatives
We have made corporate culture reforms the centerpiece of specific initiatives. We will strengthen efforts toenhance corporate quality with the aim of becoming a company that can respond swiftly and flexibly tochange by being more sensitive to the times and the outside world while preserving SUBARUʼs DNA.
First of all, we will strengthen compliance by undertaking a comprehensive compliance check covering
all operations and internal regulations and correcting issues and by bolstering internal complianceeducation. We will also work to further reinforce groupwide governance systems and their operation. Bychanging our management to administer these governance systems, we will then accelerate reinforcementof the corporate structure.
Next, we will create a culture that enables employees to work with greater energy. To accomplish this,individual employees must raise their own awareness and cultivate the ability to think and act autonomously,
and I want top management to take the lead in developing policies and systems to support this effort. These
corporate culture reforms cannot be accomplished overnight, and we will take our time and continuously

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Annual Report 2018

implement reform efforts. On the basis of this new culture, we will aim to realize our corporate vision. Three
key pillars of initiatives are described below.
Initiatives overview (9 Boxes + 1)0

“Change the Culture”
Corporate culture reforms

Accelerate efforts to become “a company that does the right thing in the right way.”
Continuous efforts aimed at corporate culture reforms.
“Monozukuri” (Car-making)Sales and service

New mobility domain

1Enhance corporate quality

Quality reforms

Enhance quality at customer
contact points

Alliance enhancement2

Build a strong brandMore enjoyment,
more peace of mind

From “A car you can love” to“A car, a brand, and people
you can love”

Generate new value throughconnected car technologies

3

Sustainable growth basedon a focus strategy

Launch “Make-a-Subaru”
project– Target 5% share in the U.S. –Steady growth in each region

Initiatives to create newtechnologies and businesses

1. Enhance corporate quality
We have made quality the centerpiece of this mid-term management vision. In addition to the recent final
vehicle inspection and airbag problems, other market quality issues have arisen, and we are keenly awarethat fundamentally improving quality, which is the foundation of customer trust, is an urgent priority. We
consider quality something customers expect of SUBARU, and believe that it is essential to transform
SUBARU into a company that makes quality the highest priority, from senior management right down to theworkplace level, and we will work to achieve this transformation.

2. Build a strong brand
SUBARU defines “Enjoyment and Peace of Mind” as the core value we deliver to customers through allprocesses from product development to sales and service. Reliable automobile manufacturing based onfunctionality, safety, and reliability is indelibly encoded in SUBARUʼs DNA, and we will redouble our efforts inpursuit of automobile safety performance. We are committed to the uncompromising pursuit of protecting
peopleʼs lives and aim to eliminate fatal traffic accidents* by 2030. We will not settle for ordinary automation,
but rather think in terms of ensuring safety of mobility by assisting with tasks people find difficult while
respecting tasks at which people excel. At first, we will place the highest priority on enhancing Level 2
driving assist technologies. At the same time, we will accelerate efforts to enable drivers and passengers tofeel peace of mind by adding connected car technologies and intelligent technologies.
SUBARU places importance on connections between people, and SUBARU, dealers, customers, andcommunities will join together in activities unique to SUBARU at every touch point to make SUBARU a brandthat is trusted and loved by customers.
SUBARU, like other automakers, tends to be car-centric in its thinking. Going forward, we will create new
added value by collaborating with external partners from different industries, utilizing connectivity services,and deepening communication with individual customers. We want to develop SUBARU into an inimitablebrand that is slightly different from other brands.
* Elimination of accidents resulting in the death of drivers or passengers in SUBARU vehicles and accidents resulting in the death ofpedestrians, cyclists, or other persons due to collision with SUBARU vehicles

3. Sustainable growth based on a focus strategy
To SUBARU, a small automaker with global sales share of 1%, an important management challenge is to
overcome the current period of transformation in the automotive industry and somehow maintain ourearning power. We realize that the most important thing for accomplishing this is for customers to recognize
value unique to SUBARU. We will reinforce efforts to enhance the customer value SUBARU delivers throughhigh quality, high added value, and low cost, not only in manufacturing, but in all aspects of the products
and service we provide. These days, enormous costs and investments are necessary for environmental
initiatives and regulatory response as well as for meeting customer needs for advanced safety technologies
and connected car technologies. However, at present it is no simple matter to convince customers to pay
prices that fully cover these outlays. We will review our conventional ways of doing things and, making
quality the cornerstone, steadily enhance value by coherently tying together all of our technology, product,

Annual Report 201806

Message from the CEO

and cost strategies from a medium- to long-term perspective and ensuring mutual collaboration among
the divisions.
With regard to market strategy, we will aim for steady overall growth, centered on a higher level ofgrowth in the U.S., and plan to achieve sales of more than 1.3 million units worldwide in 2025. In the U.S.
market, we will aim for market share of 5%. If, for instance, total demand in the U.S. is 17 million units, thismeans we will aim for U.S. sales of 850,000 units. Although Japan remains an extremely difficult market, wewant to reliably maintain the current level of sales of 10,000 passenger cars per month in our home market.
In Asia, we will begin knockdown production (local assembly) of an all-new Forester at a complete
knockdown (CKD) plant in Thailand in 2019 and aim to take advantage of this capacity to further increase
sales. Although trends in Russia are highly uncertain, we consider it a market with high affinity for SUBARU
products and want to grow our sales there. In Europe and China, we aim to maintain our current businessscale and will review our strategies while closely observing changes in markets and government policies. As
we execute our sales strategies, a major issue is how to deal with local environmental regulations. There iscurrently a gap between markets and environmental regulatory trends, and the future direction is uncertain.
We intend to take appropriate measures while ascertaining the balance between the market formation
process and the progress of environmental regulations.

Sales plans (FYE 2019 vs FYE 2026) (10 thousand units)

Production capacity (FYE 2021)

North
America

Japan

Japan

Other

Total

FYE 2019(plan)

15

77

18

110

FYE 2026(plan)

15

92

23

130

Standard
operations

Change

±0%

＋20%

＋27%

＋18%

At fullcapacity(10 thousand units)

Overseas

Gunma

SIA

69.6

43.6

Asia
CKD

Global
Total

115
1.4

77.9

49.7

129

Sales Strategy for the U.S.
We expect total automobile demand in the U.S. market to remain at about 17 million vehicles and aim toachieve a higher level of growth by increasing competitiveness, with a strategic focus on our products,
marketing, and sales network. We believe that there is room for sales growth in the Sun Belt (the southern U.S.)in particular. With regard to products, we introduced the Ascent, a 3-row SUV for North America, this summer
and plan to introduce an all-new Forester in the second half of the fiscal year. We will continue to engage inproduct development with the U.S. market in mind and enhance the product appeal of existing models to the
maximum extent possible. In sales network development, we plan to appoint dealers to fill open points (areas
with no dealers), mainly in the Sun Belt, and increase the number of dealers from the current 631 to about
650. In the Sun Belt, we have finally achieved market share of 2% (up 0.2 points year on year) and reached thepoint where we can expect income from service in addition to new vehicle sales. To ensure customer
satisfaction, we intend to work together with dealers to increase the number of service facilities and parking
lots, enhance facilities such as customer lounges, and upskill dealer sales and service representatives.

Product Strategy
Our product strategy is in principle to release a fully redesigned version of a key model every year. In
addition, we aim to enhance the lineup of distinctive SUV and sports models and model variations. We will
also evolve SUBARUʼs “Dynamic x Solid” design identity toward a bolder direction.
With the automotive industry having entered a period of transformation, responding to technologicalinnovations in the areas of electrification, automated driving, connected car technology, and car sharing is amatter of urgent importance. However, since the outlook for the future is uncertain and our management
resources are limited, we cannot adopt an omnidirectional business strategy. We realize that it is essential tochart a course forward while carefully ascertaining market trends. We will meet high customer expectations
with vehicles that only SUBARU can offer, such as electrified vehicles that go beyond conventional withfeatures like go-anywhere packages in addition to driving stability and safety performance.

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Annual Report 2018

Product Strategy
2018

2021

2025

New model

Global strategic SUVContinuous launch of new models

Existing model

Expansion of SUV variations

SportsEnhance sports models incl. STI models

Platform

Enhance Subaru Global Platform
Redesigned horizontally-opposed DST*

Environmental
initiatives

Global launch of EV
Plug-in Hybrid

New HEV*DST: Downsized turbo engine

Strategy for the Aerospace Business
In FYE March 2018, SUBARU completed withdrawal from the industrial products business and established a
corporate structure focused on two businesses: automotive and aerospace. In the aerospace business, as in
the automotive business, we are at the stage of enhancing the SUBARU brand. However, aerospace is abusiness with a very long timescale, and the outlook until 2025 has to some extent taken shape. We do not
anticipate dramatic change or evolution and will continue efforts to shift from independence to stable
growth. We will also press ahead with verification of technologies as a part of the development of nextgeneration products and implement a partnering strategy focusing on broad-based collaboration with othercompanies. In addition, the automotive and aerospace businesses will utilize each otherʼs strengths andwork to compensate for their weaknesses and generate new synergies.

CSR Initiatives
We have organized CSR activities identified in light of our business domains into the following six priority
areas from the perspective of what society requires from SUBARU : 1) People-oriented Car Culture, 2)
Resonance and Coexistence, 3) Peace of Mind, 4) Diversity, 5) Environment, and 6) Compliance.
Our environmental policy is to make environmental contributions throughout the entire value chain andacross the entire business in addition to improving the environmental performance of our products bymeans such as boosting fuel economy and reducing CO2 emissions.
Since SUBARU is an automaker, of course our products have outsized influence on environmental
impacts across the full range of business activities in the areas of purchasing, production, logistics, sales,
products, and management. We will work to reduce total waste in society through product attributes such asreliability, longevity, safety, and utility. Specifically, in addition to proceeding as planned with introductions ofplug-in hybrid vehicle (PHEV) and electric vehicle (EV), we will improve the fuel economy of our models
through measures such as further expansion of the electric vehicle lineup and introduction of a downsized
turbo engine and weight-reduction technologies.
To comply with local regulations in each market, we will utilize available development resources tomaximum effect, including collaboration through alliances, to develop an optimal product lineup for eachmarket that is adapted to market needs and customer preference.
*Please refer to the SUBARU corporate website for details on the STEP mid-term management vision.

WEB

STEP: the Mid-term Management Visionhttps://www.subaru.co.jp/en/ir/management/plan/

Annual Report 201808

Message from the Chairman

Director of the Board, Chairman

Yasuyuki Yoshinaga

We will resolutely implement a corporate culture
transformation to ensure the rebirth of SUBARU as“a company that does the right thing in the right way.”
Summary of My Tenure as President
I retired as President and CEO at the General Meeting of Shareholders held in June 2018.
Ever since becoming president in June 2011, I have thought that SUBARU, which has only a 1% global
share in the automotive industry, will be unable to survive in this harsh competitive environment if it doesnʼtcompete as only a small company can. As president, I believed that the only path to growing in a sustainedmanner is to create added value that customers will find appealing and pursue uncompromisingdifferentiation. Rather than offering a full model lineup and doing business in all markets, we specialized andfocused our limited management resources on categories and markets in which we can leverage ourstrengths. We worked to build a strong business structure by focusing on SUVs and sports models and doing
business mainly in the U.S. and other developed countries in mature stages of motorization. As a result,many customers in North America and other markets purchased our products, global unit sales grew,
financial performance improved substantially, and we were able to increase corporate value.
On the other hand, I feel that SUBARUʼs corporate strengths failed to keep up with the Companyʼs
dramatic growth, as indicated by the recent inappropriate incidents and an increase in quality issues.

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Annual Report 2018

Objectives of Changes in the Management Structure
Four objectives prompted the complete change of management structure, including the change of CEO:
1) Rejuvenation of the management team and boosting of organizational vitality, and strengthening of acan-do attitude; 2) Qualitative improvement of the management structure; 3) Enhancement of market
responsiveness; and 4) Enhancement of technologies and technology management.
President Nakamura has served in a succession of important posts involving groupwide management
strategy, most recently serving as chairmen and CEO of the U.S. sales and marketing subsidiary Subaru ofAmerica for four years. He has thorough knowledge of the U.S. market, SUBARUʼs most important market,
has gained the full trust of U.S. dealers, and has a stellar reputation. Since President Nakamura and I are ofone mind with regard to SUBARUʼs management strategy and business model to date, I will entrust practicalmanagement of the Company to him and devote myself to corporate culture reforms and compliance.
I made sure that my successor was elected through a deliberately open and fair process. At a session of
the Executive Nomination Meeting held in February 2018, the participants, including the outside directors,
discussed the matter and agreed to elect Tomomi Nakamura as SUBARUʼs next president. The decision wasannounced in March 2018.

To be “a Company that does the Right Thing in the Right Way”
I sincerely apologize for the significant trouble and inconvenience we have caused our customers and otherstakeholders due to the repeated improprieties in final vehicle inspections at the SUBARU Gunma
Manufacturing Division.
In April 2018, SUBARU established the “Tadashii-Kaisha” Promotion Department and Compliance Officeas organizations to reform the corporate culture, one cause of the repeated improprieties. The “TadashiiKaisha” Promotion Department will plan and thoroughly implement companywide activities to earn the trustof customers and society and make SUBARU “a company that does the right thing in the right way,” executemeasures to prevent any reoccurrence of the improprieties, and work toward solving fundamental problems.
The Compliance Office will plan and implement activities that will lead to further strengthening ofcompanywide compliance efforts and transformation of the compliance awareness of all employees.

Toward Sustained Corporate Value Enhancement
I think that sustained corporate value enhancement at SUBARU depends on increasing added value. This isa question of how to increase the appeal of the SUBARU brand over time. SUBARUʼs brand power has
increased substantially in recent years. However, additional effort is required to enhance corporate strengths
and further develop SUBARU into a trusted brand. Under the new management structure, everyone at
SUBARU will engage in steady, diligent activities to put the Company on a solid footing. I ask your continued
support for SUBARU in the coming years.

Reference information on improprieties relating to final vehicle inspections
and fuel economy and emissions measurements
Investigative reports about the repeated improprieties that SUBARU has published to date are as follows.
For details, please see the individual news releases and reports.
1) December 19, 2017
Investigation Report and Countermeasures to Prevent Recurrence of Nonconforming Final Vehicle Inspection
Works at Gunma Manufacturing Divisionhttps://www.subaru.co.jp/press/news-en/2017_12_19_5237/
2) April 27, 2018
Investigation Report on Measurement of Fuel Economy and Emissions During Final Vehicle Inspections at Gunma
Manufacturing Divisionhttps://www.subaru.co.jp/press/news-en/2018_04_27_5714/
3) September 28, 2018
Results of Investigation into Improper Conduct during Final Vehicle Inspections at Gunma Manufacturing Divisionhttps://www.subaru.co.jp/press/news-en/2018_09_28_6349/

Annual Report 201810

Message from the CFO

Director of the Board,
Executive Vice President and CFO

Toshiaki Okada

We will increase strategic investments andR&D expenses to boost competitivenessfor the future, maintain an industry-leading
profit margin, and aim for sustained growth.
A Look Back at My First Year as CFO
During the past year since I became Chief Financial Officer (CFO), at a time when the entire automotive
industry has entered a period of transformation, I have always made sure to appropriately disseminate
corporate information on matters such as SUBARUʼs current position and thinking, as well as our growth
opportunities and potential. I also consider it my role to serve as a point of contact between external andinternal stakeholders by appropriately feeding back to SUBARU information and opinions from outside theCompany and communicating the needs of external stakeholders.
For SUBARU, which is by no means a large automaker, to achieve sustained growth, it is essential to build
the business by focusing on a differentiation strategy and value-added strategy based on making original,
distinctive cars. To prepare for sustained growth, I will consider matters such as how SUBARU uses funds andcapital and how we allocate management resources.

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Annual Report 2018

Business Performance in FYE March 2018
Consolidated unit sales in FYE March 2018 increased by some 2,000 units year on year and reached a record
high of 1,067,000 units, with North America, a key market, continuing to drive global sales. Consolidated net
sales increased by 2.4% to a record high of 3,405.2 billion yen as a result of factors including currency
fluctuations and the increase in unit sales. Unit sales in North America reached a record high for the ninth
consecutive year, and global unit sales and consolidated net sales reached record highs for the sixth
consecutive year.
Consolidated operating income decreased by 7.6% to 379.4 billion yen as a result of the impact of anincrease in SG&A expenses accompanying rising interest rates in the U.S. and market conditions for raw
materials coupled with an increase in R&D expenses, despite a positive impact on profits from currency
fluctuations. Ordinary income decreased by 3.7% to 379.9 billion yen, and net income attributable to ownersof parent decreased by 22.0% to 220.4 billion yen as a result of factors including the recording of airbagrelated losses of 81.3 billion yen as an extraordinary loss.

Outlook for FYE March 2019
We forecast continued strong sales in North America and other markets and a 3.1% year-on-year increase inconsolidated unit sales to 1.104 million units in FYE March 2019. Although we forecast an increase in unit
sales, we have incorporated into our forecast a negative impact on sales from currency fluctuations and theimpact of a change in accounting policy (deduction of sales incentives from net sales totaling approximately
180.0 billion yen) and have planned for a 0.5% year-on-year increase* in consolidated net sales to 3,250.0
billion yen. We forecast a 20.9% decrease in operating income to 300.0 billion yen, a 19.7% decrease inordinary income to 305.0 billion yen, and a 0.2% decrease in net income attributable to owners of parent to220.0 billion yen, to result from the impact of an increase in SG&A expenses accompanying rising interest
rates in the U.S. and raw materials prices, despite the projected increase in unit sales.
Although we can expect improved business performance in FYE March 2019 as a result of theintroduction of the Ascent, a 3-row SUV, and an all-new Forester following a full model change, we expect
the full-scale contribution from these models to occur in the second half and beyond. The first half of theyear will also be a lean season from a product perspective, with the new-model effect of the Impreza andCrosstrek (known as the SUBARU XV outside North America) running its course and other highly profitablemodels entering the second half of their model lives. Accordingly, we forecast a difficult first half in terms ofbusiness performance and have planned for operating income of 110.0 billion yen in the first half and 190.0
billion yen in the second half, for full-year operating income of 300.0 billion yen.
*Consolidated net sales for FYE March 2018 have been recalculated using the new accounting policy for comparison purposes.

FYE March 2018: Analysis of Increase andDecrease in Operating Income Changes

FYE March 2019: Analysis of Increase andDecrease in Operating Income Changes(Consolidated)(Consolidated)(Billions of yen)(Billions of yen)

Gain oncurrency
exchange

32.7

Sales volume &mixture andothers

410.8
-44.2

379.4

-7.7
Cost
reduction

SG&A
expensesand others

-6.9

379.4

12.0

R&D expenses

1.1

-5.3
Sales
volume &mixtureand others-58.4
Loss on -19.4
currency
exchange

R&D
expenses

300.0
-14.7
Cost
reduction

SG&A expenses
and others’17/3
Operatingincome-31.4 billion yen’18/3
Operatingincome’18/3
Operatingincome-79.4 billion yen’19/3
Operating income(Planned)

Annual Report 201812

Message from the CFO

Although business conditions continue to recover gradually in North America, a key market for SUBARU,
overall demand for automobiles has peaked, leading to intensification of sales competition. We consider
incentive program management extremely important for maintaining competitiveness in such anenvironment. Although there has been no major change in the financing program we provide to customers,
we are maintaining a lower level of incentives per vehicle than the industry average by carefully andmeticulously managing interest rates, payment periods, and other financing terms and conditions for eachmodel while carefully monitoring market conditions and the competitive environment. However, the impact
of increases in the interest rate on borrowings is significant, and interest rates are currently trending up. We
plan to take advantage of new model introductions to curb expenses.

STEP: the New Mid-term Management Vision
In July 2018, SUBARU announced STEP, our new mid-term management vision. Although we have achieved
rapid quantitative growth during the past few years, we recognize that there are many qualitative issues.
Fundamentally improving quality, which is the foundation of customer trust, is an urgent priority,
and we have made quality enhancement initiatives the centerpiece of STEP. We will review all qualityrelated processes from product planning to production, set a five-year investment framework of 150.0
billion yen for improvement of total quality, and to undertake improvements including upgrading thequality level of manufacturing plants, reinforcing quality management systems, and developing
customer service infrastructure.

Financial and Capital Strategies
The Company engages in business management with return on capital, financial soundness, and shareholder
returns as the three key indicators of capital policy. Specifically, the Company has declared a policy ofproviding appropriate shareholder returns while maintaining a high degree of balance between return on
equity (ROE) and the equity ratio over the medium and long term, and there is no change in this basic policy.
On that basis, in our capital control, I intend to emphasize cash. SUBARUʼs management approach ischaracterized by the practice of selection and concentration, and we concentrate on developed countries,
mainly the U.S., offering a limited model lineup. We recognize that this approach entails aggressively taking
on more risk than competitors in terms of being subject to the impact of exchange rates and businessfluctuations in the market. For this reason, to prepare against sudden changes in the business environment,
we have set a minimum level of cash reserves equivalent to two monthsʼ sales and a minimum equity ratio of
50% and will practice appropriate financial management, including shareholder returns, taking into
consideration the business environment. We have set a target of maintaining ROE of 10% and will aim for
ROE of 15% or higher.

R&D Expenses

Capital Expenditures／
Depreciation Expenses
Capital expenditures

Depreciation expenses(Billions of yen)
150

(Billions of yen)
200

158.5

150

120

141.4

135.7

130.0

110.7
100

50

68.5
54.9

64.8

65.0

77.0

89.8

121.1 120.0

102.4
90

93.0
60

83.5
60.1

30

0

0

’14/3

13

114.2

’15/3

Annual Report 2018

’16/3

’17/3

’18/3

’19/3

(Planned)’14/3 ’15/3 ’16/3 ’17/3 ’18/3 ’19/3(Planned)

With a view to future growth, we will increase strategic investment and R&D investment for the purposeof boosting future competitiveness. We will invest in areas including improvement of our managementfoundation centered on quality and responding to transformation of the automotive industry, which is anurgent priority. For the three-year period from FYE 2019 to FYE 2021, we plan total capital expenditures of
450.0 billion yen and R&D expenses of 400.0 billion yen. On that basis, we plan to achieve an industryleading profit margin of 9.5% and will aim for an operating income ratio of 10% or higher.
Our basic policy is to ensure balanced distribution of profits to all stakeholders and to provide
continuous, stable shareholder returns, with dividend payments as the primary component of returns. The
annual dividend payment for FYE March 2018 was 144 yen per share (half-year dividend of 72 yen and yearend dividend of 72 yen), the same as for FYE March 2017. We plan to maintain a dividend of 144 yen per
share (half-year dividend of 72 yen and year-end dividend of 72 yen) again in FYE March 2019. For this threeyear period, our policy is to make a dividend payment of 144 yen the basis of shareholder returns andflexibly purchase treasury stock in accordance with cash flow.
STEP, the new mid-term management vision, embodies our desire to improve our ability to respond tochanges in the external environment, correct distortions that have accompanied rapid growth, and cultivate
fundamental corporate strengths. We realize that a change of employee awareness is a matter of urgent
importance for SUBARU to become a company that is trusted by, and resonates with, customers. In speedily
implementing various initiatives, in my role as CFO I will observe laws and regulations and dedicate myself
to creating systems that enable SUBARU to ensure quality. This is a crucial time for SUBARU to solidify its
footing in preparation for the next leap forward. We will achieve sustained growth and meet the
expectations of our shareholders and other stakeholders by accelerating initiatives to create “a company that
does the right thing in the right way” and cultivating fundamental corporate strengths as quickly as possible.
I request your further understanding and support in the coming years.

Profit Plan for FYE 2019–2021 (3 years)

Capital Policy(105 yen/USD)

Net sales

10 trillion yen

Operating income

950 billion yen

Operating margin9.5%

Equity ratio

R&D expenses

400 billion yen (+18%)

Capital expenditures

450 billion yen (+3%)

Depreciation andamortization

Two monthsʼ worthof net sales atminimum

Net cash

50% at minimum

ROE
Shareholder
returns

300 billion yen (+29%)

Minimum

10%

Target15%

Yearly dividend
per share

144 yenShare repurchases

To conduct flexibly( ): Percent change from previous 3-year period (FYE 2016–2018)

Free Cash Flow／
Ratio of Shareholders’ Equity to Total Assets
Free cash flow (Left)

Dividend per Share／
Dividend Payout Ratio

Ratio of shareholders’ equity to total assets (Right)(Billions of yen)
400

(%)
80

Dividend per share (Left)

(%)
80

358.6
300

279.1
46.5

200

51.8

Dividend payout ratio (Right)

(Yen)
160

144
52.8

53.8
215.6

40.5

60

120

40

80

50.1

138.8

40

20

40

0

0

’15/3

’16/3

’17/3

’18/3

20

25.7
20.0

’14/3

39.4

53
91.2

144
60

68
100

144

20.3

0

0

’14/3

’15/3

’16/3

’17/3

’18/3

Annual Report 201814

Messages from the CQO, CTO, and CIO
CQO (Chief Quality Officer)

Senior Vice President

Atsushi Osaki

15

Annual Report 2018

SUBARU defines “Enjoyment and Peace of Mind” as the value we deliver tocustomers. The foundation of this core value is quality, and we consider
quality to be one of our most fundamental responsibilities to our customers.
Quality can be broadly defined to include everything from product quality
to customer service quality, the quality of the day-to-day work of individual
employees, and the quality of corporate activities, and I realize that itʼs
important to steadily improve these dimensions of quality. I am determined
to play a leading role in creating a quality standard by which all Group
employees make quality the highest priority above all else.
Airbag defects and other problems that lead to recalls and service
campaigns have continued to occur, and I deeply regret that we havecaused concern and inconvenience to customers and many otherstakeholders. Although we have seen steady improvement in the results ofthird-party quality assessments for the U.S. market, our relative quality
ratings in competition with other automakers have regrettably declined, andI consider this a critical issue.
In response to these problems and issues, in new vehicle development
we aim to eliminate recalls and service campaigns by further reinforcing
milestone management at each stage of development and systematicallyworking to prevent any reoccurrence of past defects. Taking into accountcustomer usage conditions, we will make high-quality products that are easy
for customers to understand and use, and simultaneously work to minimize
vehicle downtime and increase customer satisfaction by undertaking callcenter expansion, building a system for the smooth provision of
replacement parts and repair parts, and improving efficiency in service
operations.
We acknowledge that quality reforms are the top-priority issue in the
new mid-term management vision. To achieve reforms, we will review allexisting processes for achieving quality, from product planning to
production. In conducting this review, to ensure that the business units
involved in these processes do not waver in the philosophy that quality iskey, we will strengthen the authority of the CQO and rigorously reinforce
quality management systems across all product development andmanufacturing functions.
We will also invest in facilities for quality-related technology
development, in simulators and other control-related evaluation facilities,
and in facilities with modifiable temperature and atmospheric pressure
control for environmental and durability evaluation. In manufacturing,whereas until now we have made capital expenditures mainly for the purposeof increasing capacity, from now on we will invest heavily in renewal of aging
facilities and traceability enhancement to raise the level of quality. We will
actively invest in areas that contribute to quality improvement, including
human resources investment, and aim to be No. 1 in the kind of quality thatmakes our products suitable for long-term use with peace of mind.

CTO (Chief Technology Officer)

Director of the Board
Executive Vice President

Tetsuo Onuki

Even in a time of industry transformation, when what people value in cars is
said to be changing, SUBARU intends to place the utmost importance ondelivering “Enjoyment and Peace of Mind.” I want to be able to provide
support for the enjoyment of driving, the enjoyment of freely traveling by
car whether in youth or old age, and the enjoyment of a car lifestyle̶inother words, the enrichment of peopleʼs lives̶with SUBARU cars andrelated services. As we continue to evolve the Subaru Global Platform overtime, major challenges are safety and environmental response. We willfurther enhance all-around safety technologies and aim to eliminate fatal
accidents involving SUBARU cars by adding connected car technologies. To
comply with local environmental regulations, we will introduce electricvehicles and hybrids and engage in tireless technological development. We
want to create and propose products that combine environmental
consideration with “Enjoyment and Peace of Mind.”
In April 2018, SUBARU established the Engineering Management
Division. For an automaker the size of SUBARU to maintain a presence in the
global market even at a time when automobiles are undergoingtransformation, I want to give the Engineering Management Division thecapability to increase the mobility of the resources of our engineering
departments so that we can speedily create and propose products andservices that are unique to SUBARU and different from those of otherautomakers.

CIO (Chief Information Officer)

Representative Director of the Board
Executive Vice President

Masaki Okawara

Information (and IT) connects individuals to each other and one division toanother, and I want to support improvement of management quality from an
IT perspective by activating those connections. These days, this is called
digital transformation (DX), which we define as 1) business processtransformation and 2) new business creation. To realize DX at a high level, weare examining from various perspectives matters such as the use andapplication of scattered data and the suitability of services for the specificneeds of SUBARUʼs customers. The development of our IT infrastructure
going forward must rest on a foundation of information security
enhancement and the creation of an IT-conscious culture with theparticipation of all employees. To establish a firm footing, beginning this year
we will gradually realize initiatives in which we have engaged since last year.
Although there are probably various contributing factors behind theinappropriate incidents that have occurred since last year, I consider
improvement of poor communication and insufficient mutual understanding
a matter of urgent importance. Creation of workplaces where people areconsiderate of one another is essential for this, and we will deploy IT tools
as a means of compensating for deficiencies in communication and mutual
understanding. I intend to continue to play a part in activities to deepen
connections with customers, enhance the SUBARU brand, and bring smiles
to the faces of customers.

Annual Report 201816

Financial and Non-Financial Highlights
Years ended March 31

Financial Highlights
SUBARU CORPORATION and its consolidated subsidiaries

Net Sales

Operating Income／Operating Margin
Operating income (Left)(Billions of yen)

Operating margin (Right)(Billions of yen)

4,000

(%)

600

3,405.2
3,232.3 3,326.0
3,000

30

565.6

25

500

2,877.9

423.0

400

2,408.1
2,000

300
200

410.8
17.5

326.5

20

379.4

15

14.7

13.6

11.1

12.4

1,000

5

100
0

0

’14/3

’15/3

’16/3

’17/3

’18/3

0

’14/3
100

’15/3

’16/3

’17/3

’18/3

108

121

108

111

Exchange rate (Yen to the U.S. dollar)

Capital Expenditures／Depreciation Expenses
Capital expenditures

R&D Expenses

Depreciation expenses(Billions of yen)(Billions of yen)

150

200

120

158.5

150

110.7

50

64.8

54.9

65.0

89.8

77.0

121.1

102.4
90

100

68.5

114.2

141.4

135.7

60

83.5
60.1

30

0

0

’14/3

’15/3

’16/3

’17/3

’14/3

’18/3

’15/3

’16/3

’17/3

’18/3

Non-Financial Highlights
CO2 Emissions

Waste Generation

Overseas Group companies

Domestic Group companies

SUBARU

Overseas Group companies(Tons of CO2)

(Tons)

800,000

200,000

600,000

587,686

614,940

400,000

100,000

200,000

50,0000

162,893

166,856 170,589

’15/3

’16/3

148,154

0

’14/3

’15/3

’16/3

’17/3

’18/3

’14/3
*Includes scrap metal sold17

Domestic Group companies

Annual Report 2018

SUBARU

190,924

691,590
657,886 675,960
150,000

10

’17/3

’18/3

Interest-Bearing Debt／D/E Ratio
Interest-bearing debt (Left)

ROE／ROA

D/E ratio (Right)

ROE(Billions of yen)
300

(Times)

(%)

0.6

40

ROA

36.9

269.7
0.5

250

30

211.2

200

0.35

29.3

0.4

23.6

170.0
148.3

150

0.3

20

20.7

18.8

20.2
14.6

0.21

100

30.4

0.13
50

0.2

86.2

15.3

10

0.10

13.4

0.1

0.06
0

0

’14/3

’15/3

’16/3

’17/3

0

’18/3

’14/3

’15/3

’16/3

’17/3

’18/3

*ROA = Operating income / Total assets (average at the beginning and end of the term)Free Cash Flow／
Ratio of Shareholders’ Equity to Total Assets
Free cash flow (Left)

Consolidated Unit Sales

Ratio of shareholders’ equity to total assets (Right)(Billions of yen)

(%)
80.0

400

(Thousand units)
1,200

358.6
300

279.1

51.8

52.8

53.8

60.0

900

40.0

600

20.0

300

0

0

1,065

1,067

’17/3

’18/3

958

911
825

46.5
215.6

200

40.5

138.8

100

91.2

0

’14/3

’15/3

’16/3

’17/3

’14/3

’18/3

’15/3

’16/3

*Automobile unit sales of SUBARU CORPORATION and its consolidated subsidiaries

Water Consumption

Number of Employees

Overseas Group companies
Domestic Group companies
Per unit of consolidated net sales (Right)(Thousand m3)

4,252

4,401

(Persons)

0.30

40,000

4,462

4,673

4,000

0.24

3,000

0.18

0.15

0.14
0.14

28,545

0.12

0.13
0.06

1,000

0.00

0

’14/3

30,000Consolidated

29,774

31,151

32,59933,54420,0000.18
2,000

Non-consolidated(Thousand m3/100 million yen)

5,000

4,367

SUBARU

’15/3

’16/3

’17/3

’18/3

13,034

13,883

14,234

14,70814,879

’14/3

’15/3

’16/3

’17/3

’18/3

10,0000*Excluding executive officers, advisors and dispatches

Annual Report 201818

Business Overview

Automotive
Business Unit
SUBARU continues to develop cars that promise
total driving enjoyment and safety for all passengers.

The launch of the SUBARU 360 in 1958 marked SUBARUʼs start as an automaker. Ever since, we havecontributed to the development of Japanʼs automotive industry by creating a succession of distinctive
cars equipped with creative technologies such as the horizontally opposed engine and Symmetrical
All-Wheel Drive. We continue to take on new challenges in order to provide all of our customers with
“Enjoyment and Peace of Mind.” For example, we continue to evolve the EyeSight driver assist system,
have improved safety performance and driving performance by adopting the Subaru Global Platform,
our next-generation vehicle platform, and were the first Japanese automaker to use a pedestrian
protection airbag.
Consolidated Net Sales
Contribution Ratio of theAutomotive Business Unit

Net Sales

Operating Income(Billions of yen)(Billions of yen)

4,000

600

3,234.9
3,152.0
3,039.4
2,699.0

3,000

543.6

200

0

’14/3 ’15/3 ’16/3 ’17/3 ’18/3

Overview of FYE March 2018
■ Consolidated global unit sales increased

by 0.2% year on year to 1,067,000 vehicles,
reaching a record high for the sixth
consecutive year.
■ Sales in Japan were 163,000 units.

Overseas sales were 903,000 units, andunit sales in North America reached arecord high for the ninth consecutive year.

Annual Report 2018

361.5

1,000

0

19

397.7

309.0

2,000

95.0 %

400.9

400

2,246.6’14/3 ’15/3 ’16/3 ’17/3 ’18/3

Consolidated Automobile Sales by Region (Thousand units)
Japan ..................... 163
United States ........ 671
Canada .................... 57
Russia......................... 8
Europe ..................... 40
Australia .................. 56
China ....................... 27
Others ..................... 45
Total ....................... 1,067

Product Lineup

Legacy Series

Consolidated unit sales: 279,000 units
Sales regions: Japan, North America, Russia, Europe,
Australia, China, and other

Consolidated unit sales: 291,000 units
Sales regions: Japan, North America, Russia, Europe,
Australia, China, and other

Consolidated unit sales: 51,000 units
Sales regions: Japan, North America, Russia, Europe,
Australia, and other

Impreza Series
Consolidated unit sales: 25,000 units
Sales regions: Japan, Europe, Australia, and other(SEDAN)（5 Door）

Consolidated unit sales: 9,000 units
Sales regions: Japan, North America, Europe,
Australia, China, and other(North America: CROSSTREK)Consolidated unit sales: 373,000 units
Sales regions: Japan, North America, Russia, Europe,
Australia, China, and other

Consolidated unit sales: 3,000 units
Sales region: JapanOEM Models

Consolidated unit sales: 34,000 units
Sales region: Japan(OEM supply from Daihatsu Motor Co., Ltd.)*For the period from April 1, 2017 to March 31, 2018
*Automobile sales of SUBARU CORPORATION and its consolidated subsidiaries

Annual Report 201820

Business Overview

Automotive Business Unit

The SUBARU Concept of All-Around Safety

Primary
SafetyAiming for the highest level of peace of mind
and safety for all passengers

ActiveSafetySUBARU pursues automobile safety performance from every perspective and isrefining and perfecting core technologies on the basis of four safety criteria:
primary safety, active safety, preventive safety, and passive safety.

Preventive
SafetyPassive
SafetyBasic design features for avoiding accidents

Primary
SafetySafe situation

Hazardous
situation

Increasing driving safety through basic design features such as
car shape and controls
Visibility design

Preemptive
accident
avoidance

Driving position

Interface

The ultimate in driving performance for greater safety

ActiveSafetyFacilitating hazard avoidance through performance improvementin the basic functions of a car: driving, turning, and stopping
Horizontally opposed engine

Symmetrical AWD

Accident

Advanced technology that supports safe driving

Preventive
SafetyCollision

EyeSight

Damagereduction
during an
accident

Spread ofdamageExtra precautions just in case

Passive
SafetySafety Performance
Recognized Worldwide
SUBARU has received the highest rating in the
NCAP1 conducted by the authorities in Japan,
the U.S., Australia, and other countries, as wellas in the safety performance assessment
conducted by the IIHS2 in the U.S.3
In the IIHS safety performance assessment,
the Impreza, Crosstrek, Legacy, Outback, andWRX (models equipped with EyeSight andSteering Responsive Headlights) received the2018 Top Safety Pick Plus (TSP+) rating. The
2018 TSP/TSP+ awards only apply to the North
America models.
1 NCAP：New Car Assessment Program
2 IIHS：Insurance Institute for Highway Safety
3 For ratings details, please refer to rating agency websites.

21

Annual Report 2018

Supporting safe driving by helping avoid collisions and reduce
damageMinimizing damage when an accident occurs
Engine layout
Subaru Global Platform
Pedestrian protection airbag

Japan
U.S.A.
EuropeJNCAP
5★
Euro NCAP
5★

JNCAP
ASV＋＋

Australia

IIHS
TSP+ or TSP

U.S.A.

US-NCAP
5★

ANCAP
5★
JNCAP ASV++ rated models: Levorg and WRX (models equipped with EyeSight) in 2017
JNCAP 5-star rated models: Impreza and SUBARU XV in 20162018 IIHS TSP rated models: 2018 Forester (models equipped with EyeSight and Steering
Responsive Headlights)
2018 IIHS TSP+ rated models: 2018 Impreza, Crosstrek, Legacy, Outback, and WRX(models equipped with EyeSight and Steering Responsive Headlights)
US-NCAP 5-star rated models: 2018 Impreza, Crosstrek, Legacy, Outback, and Forester
Euro NCAP 5-star rated models: Impreza and SUBARU XV in 2017
ANCAP 5-star rated model: SUBARU XV in 2017

SUBARU Core Technologies
Horizontally-Opposed Engine (Boxer engine)

Compact, low center of gravity

SUBARU Boxer

Conventional In-Line Engine

The horizontally opposed engine has pistons arranged symmetrically to the left
and right of the crankshaft. Since the opposed pistons mutually cancel out
engine vibrations, the engine can rotate smoothly, which reduces vibrations
conveyed to the vehicle interior. The engineʼs low height and compact design
contribute to low vehicle center of gravity. The stable attitude provides a highsense of security during driving.

Symmetrical All-Wheel Drive (AWD)

Superior overall weight distribution
The combination of the low center of gravity provided by the horizontally
opposed engine and superior longitudinal-transverse weight balance achievedby placing the transmission near the center of the vehicle maximizes all-wheel
drive capability and delivers superb driving performance in various conditions.
SUBARU has been committed to Symmetrical AWD as a core technology thatdrivers can depend on in every situation from day-to-day town use to highspeed highway driving.

Symmetrical All-Wheel Drive (AWD)

Subaru Global Platform

A next-generation vehicle platform designedwith the future in mind, looking ahead to 2025
SUBARU is sequentially introducing the Subaru Global Platform, starting withthe all-new Impreza launched in October 2016. The new vehicle platform
substantially increases body and chassis rigidity and further lowers vehicle
center of gravity, raising the level of active safety and passive safety anddelivering responsive handling performance and a comfortable ride with
reduced unpleasant vibration and noise.

Subaru Global Platform

EyeSight Driver Assist System

Stereo cameras for advanced object
recognition capabilities
The use of two cameras positioned to the left and right, like human eyes,
contributes to preventive safety by helping avoid accidents, reduce impact, andalleviate driver burden by enabling three-dimensional recognition of cars,pedestrians, and other objects in front of the vehicle and accurate recognition of
the distance, shape, and speed of movement of these objects. SUBARU began
development of a driver assist system using stereo cameras in 1989. Application ofresearch results and experience accumulated over many years since then has
culminated in EyeSight, a system that anyone can use with peace of mind. In 2017,
we introduced EyeSight Touring Assist, which dramatically reduces driver fatigue byautomatically assisting accelerator, brake, and steering operation at a wide rangeof speeds from 0 to approximately 120 km/h for expressway driving.
SUBARU will continue to work to realize an accident-free future.

Stereo cameras

Stereo camera recognition image

Annual Report 201822

Business Overview

A New 3-Row SUV Developed Exclusively
for the North American Market

Debut of the all-new

ASCENT

The ASCENT is a crossover SUV newly developed for family users who require a 3-row SUV not available in
the previous lineup. It forms part of the plan to achieve sustained growth in North America, SUBARU’s mostimportant market. Designed for families who want to get the most out of their active lives, the ASCENT
delivers the enjoyment of being able to go anywhere with peace of mind.

Comfortable cabin environment realized by a package design that gives all passengers a pleasant ride experience inany seat, ample interior features, and vibration noise suppression made possible by the Subaru Global Platform’s
increased body rigidity
Standard EyeSight Driver Assist Technology and pursuit of top-of-class safety performance
Powered by an all-new 2.4-liter four-cylinder Boxer direct fuel injection turbo engine, offering drivability andfuel economy equal to or better than that of six-cylinder engines
Standard SUBARU Symmetrical All-Wheel Drive and X-Mode offer the optimal blend of drivability and SUV capability
To be built in the U.S. with start of sales scheduled for early summer 201823

Annual Report 2018

The Head of Development Discusses his Vision of the ASCENT
Uncompromising Attention to Detail in a Vehicle Designed for North America

Background to the Birth of the ASCENT
SUBARUʼs vehicle lineup for North America consists mainly of compact to mid-size
SUVs. There are no vehicles that families with more than three children can continue
to drive, and some customers switch to vehicles of other automakers. Developmentof the ASCENT, a crossover SUV exclusively for North America, began in response tostrong requests from dealers in North America who argued that a 3-row SUV isabsolutely necessary for customers to continue to drive SUBARU vehicles throughout
their life.

Uncompromising Attention to the Third-row Seats and Comfort
Ordinarily, the third row of seats is cramped, the air conditioning doesnʼt reach thepassengers, visibility is poor, and itʼs difficult to converse with passengers in the secondrow. We aimed to eliminate the disadvantages of what is derisively called the “penalty
box” and instead create third-row seats that would actually make children enjoy riding
there. We had North American dealer employees ride in full-size mockups and went
through a repeated process of trial and error based on their impressions and opinions.
Our highest priority in development was to uncompromisingly create a comfortablecabin space in each row. Of course, we also included ample interior features conceived
from the perspective of families and children to ensure that every member of thefamily enjoys the ride. In addition, in planning the interior features, we set an objectiveof not giving people a reason for rejection on the grounds of unavailability of aparticular feature offered by other automakers.

Project General Manager
Product & Portfolio Planning Division*

Yasunori Kumagai

Uncompromising Attention to Driving Performance
Although 3.5-liter six-cylinder engines are the norm in this class for other automakers, we newly developed a 2.4-liter fourcylinder downsized turbocharged direct-injection boxer engine to meet recent environmental requirements and realize
top-of-class fuel efficiency. To make the ASCENT suitable for daily family use, we use an engine that runs on budgetfriendly regular gasoline. We dispelled the conventional image of a four-cylinder engine, giving the engine powerfuldriving performance in no way inferior to competitorsʼ six-cylinder engines in freeway merging and high-speed passing
situations. To the contrary, I think that the end result is a vehicle that will enable customers to personally experience thehigh-RPM boost and exhilarating driving performance distinctive to a turbocharged engine.

Uncompromising Attention to Safety
Passive safety for third-row passengers was a focus of uncompromising attention from the very beginning of development.
The ASCENT is vastly superior to vehicles of other automakers with respect to the extent of head injuries and integrity ofpassenger survival space in a rear-end collision. Committed to protecting the rearmost passengers, we designed a thickrear frame and at the early stage of development created a structure capable of absorbing impact. While the ASCENT hasof course successfully passed the assessments of third-party ratings organizations as proof of safety, third-row safety is notincluded in those assessments. Even so, we are fully committed to protecting drivers and all passengers in the real world,
beyond what tests demand. Thatʼs the SUBARU safety concept.
Since the ASCENT is for family use, we focused on quiet and smooth ride comfort, and throughout development boosted
our objectives in these areas several times. We upgraded our objectives and embraced the challenge of outstripping otherautomakers when competitors increased the performance of their vehicles during the ASCENTʼs prototype stage and at
the latter stages of development. We have collaborated time and again with employees of dealers in North America and
SIA to put the finishing touches on a car that dealers and makers would want for themselves. It was the desire of the entire
development team to create a vehicle that customers will be truly glad they purchased and that others will recognize as ahigh-quality vehicle and wise purchase.
*As of September 30, 2018

Annual Report 201824

Business Overview

Aerospace Company
Leveraging tradition and innovative technologies todevelop and produce a wide variety of aircraft.

SUBARUʼs roots trace to 1917 and Aircraft Research Laboratory, later to become
Nakajima Aircraft. The Aerospace Company, which has inherited Nakajima
Aircraftʼs manufacturing technologies and spirit, leads Japan ʼs aerospaceindustry and develops and produces a wide variety of aircraft.
In the defense program, we develop, manufacture, maintain, repair, andprovide technical support for products such as the UH-1J multipurpose
helicopter used by the Japan Ground Self-Defense Force for disaster relief andother purposes, the T-5 Maritime Self-Defense Force trainer, unmanned aerial
vehicles (more than 15 models developed over a half century), and flight
simulators. In the commercial program, we participate in many international joint
development projects for Boeing. We are responsible for the development andmanufacturing of the center wing box as well as wing-to-body fairings and theintegration of the center wing box with the main landing gear for the 777X,
Boeingʼs newest large passenger airliner, and other Boeing aircraft. In addition,
taking advantage of an alliance with Bell Helicopter Textron, we are jointly
developing the SUBARU BELL 412EPX.
By further refining our technologies through involvement in a wide variety ofaircraft programs, we will continue to take on additional challenges for growing
into an aircraft manufacturer with a global presence.

Consolidated Net Sales
Contribution Ratio of the
Aerospace Company

Boeing 777X

SUBARU BELL 412EPXThis will become the basis for the UH-X,
which is a new multipurpose helicopter for
the Japan Ground Self-Defense Force.

Net Sales

Operating Income(Billions of yen)(Billions of yen)

200

20

100

142.8

152.8

138.8 142.2

15

18.9

18.2

14.1

124.4

4.2 %

10

50

5

0

Annual Report 20189.1

0

’14/3 ’15/3 ’16/3 ’17/3 ’18/3

25

12.3

100

’14/3 ’15/3 ’16/3 ’17/3 ’18/3

Overview of Center Wing Box and
SUBARUʼs Technology

SUBARUʼs advanced technological capabilities
continue to support the development andproduction of wings that have proven their worth
in the worldʼs skies for more than forty years.
Since first participating in Boeing passenger program in 1973, we have been
involved in development and production as a key partner of Boeing for morethan forty years. We manufacture the center wing box, the critical aircraft section
where the right and left wings are attached to the forward and aft fuselage
sections. Since the center wing box contains the fuel, they must have highmechanical strength and high fluid tightness. For these reasons, great accuracy
and advanced assembly technologies are required for its manufacture, and
SUBARU is one of the few companies capable of making them. The Handa Plant,
where center wing boxes are manufactured, is a global-level production center
that produces these parts for the new Boeing 777X as well as for the 777 large
airliner, the 787 mid-size airliner, the Ministry of Defenseʼs P-1 maritime patrolaircraft, and the C-2 transport aircraft.
SUBARUʼs advanced technological capabilities are recognized worldwide.
For example, we also cooperate in A380 super jumbo airliner program with
Airbus. We engage in development on the “Drop test for Simplified Evaluationof Non-symmetrically Distributed sonic boom” Project (D-SEND) together withJapan Aerospace Exploration Agency (JAXA).

A center wing box (Handa Plant)

Message from the Company President

The Aerospace Company will contribute to theenhancement of the SUBARU brand.

President
Aerospace Company

Shoichiro Tozuka

We are a start-to-finish aircraft builder that is capable of the complete development
and manufacturing of aircraft fuselages, from materials development to quality
assurance, including flight testing. Flight safety is an important factor for aircraft. And
for many years we have fostered a culture in which quality and safety are recognized as
inextricably linked and uncompromisingly pursued. This total safety concept applied toaircraft, from materials development to quality assurance, including flight testing, is at
the core of SUBARUʼs DNA.
The Aerospace Company currently faces a major inflection point. A change ofmainstay production models is underway at Boeing, with production of the Boeing 777
decreasing, due to development of the 777X, and the production rate of the 787
increased to 14 shipsets per month in its stead. At the same time, we have entered thedesign and production phase of new business activities that will support the future
growth of the Aerospace Company, such as 777X center wing box, the SUBARU BELL
412EPX and other projects. So our engineering load and facilities investments havepeaked. Also, although continued growth in global air passenger demand is forecast,price competition for fuselages is intensifying.
We will continue to steadily and reliably play a role in enhancing the SUBARU
brand by further honing our technological strengths in areas including wing design
and manufacturing.

Annual Report 201826

History

History of the SUBARU Group
SUBARU, which can trace some of its roots to Aircraft Research Laboratory,
has continuously nurtured highly creative technologies and increased corporate value
by pursuing business alliances to respond to major changes in the times.
Here we outline the history of the SUBARU Group to date.

1917

Establishment of Aircraft Research Laboratory

1968

Establishment of Subaru of America, Inc. (SOA)

1931

Establishment of Nakajima Aircraft Co., Ltd.

1968

Dissolution of the business alliance with Isuzu Motors Ltd.

1945

Change of company name from
Nakajima Aircraft to Fuji Sangyo

1968

Signing of a business alliance agreement with
Nissan Motor Co., Ltd.

1968

Start of exports of Robin engines forsnowmobiles to Polaris (USA)1969

Start of operation of the Yajima Plant

1972

Release of the Leone 4WD Estate Van,
the world’s first mass-production 4WD passenger vehicle

1978

Conclusion of a 767 business agreement with Boeing

1983

Start of full-scale operation of the Oizumi Plant

1987

Release of the Justy model equipped with the world’s
first electro-continuously variable transmission (ECVT)1987

Establishment of Subaru-Isuzu Automotive, Inc. (SIA)
in the U.S. in a joint venture with Isuzu Motors Ltd.

1946 Production of thefirst Rabbit Scooter

1953

Establishment of Fuji Heavy Industries Ltd.
Start of aircraft production and automobile development

1960

Opening of the Gunma Main Plant

1960

Listing of shares on the Tokyo Stock Exchange

1966

Signing of a business alliance agreement with
Isuzu Motors Ltd.

SUBARU Models
through the Years

1966

SUBARU 1000
four-door sedan released
1958

1969

SUBARU 360 released
1961

1971

SUBARUSambar truck released27

R-2 released

Annual Report 2018

Leone coupe released1972

Rex released

1977

Brat released
1983

Domingo released

1984

Justy released

1985

Alcyone released
1989

Legacy series released

Origin of the SUBARU Name and Logo
“SUBARU” is Japanese for the Pleiades star cluster in theconstellation Taurus. These stars are also known as “sixstar group.” The name reflects the fact that Fuji Heavy
Industries was formed from capital contributions fromfive companies that sprang from Nakajima Aircraft.

1989

Establishment of Subaru Canada, Inc. (SCI)

1989

Completion of Subaru Research & Testing Center (SKC)

1990

Subaru of America (SOA) made a wholly owned subsidiary

1991

Participation in the Boeing 777 program

1993

Start of operation of the Handa Plant

1999

Capital and business alliance with
General Motors Corporation (GM) (USA)1999

Business alliance with Suzuki Motor Corporation

2000

Dissolution of the business alliance with
Nissan Motor Co., Ltd.

2002

Dissolution of the SIA joint venture with Isuzu and formal
signing of a contract production agreement

2003

The Legacy wins the 2003–2004
Car of the Year Japan award

2003

Subaru of Indiana Automotive, Inc. (SIA)
made a wholly owned subsidiary

2005

2005

Dissolution of the alliance with GM, agreement to enter
into a business alliance with Toyota Motor Corporation

2007

Start of production of Toyota cars (Camry) at SIA

2012

Start of knockdown production of the
SUBARU XV in Malaysia

2012

Termination of production of mini-vehicles andshift to marketing on an OEM basis

2014

Signing of an agreement to participate in a project todevelop and mass produce the Boeing 777X

2016

Termination of contract production of the
Toyota Camry at SIA
Transfer of production of Impreza vehicles forNorth America to SIA

2016

All-new Impreza Sport/GR wins the 2016–2017
Car of the Year Japan award

2017

Change of company name to SUBARU CORPORATION

2017

Termination of production and sales of
SUBARU general-purpose engines and generators

Participation in the Boeing 787 program
Delivery of main wings for next-generation transport
aircraft and next-generation fixed-wing patrol aircraft

1992

Vivio released

1992

Impreza series released
1997

Forester released

1998

Pleo released

2003

Outback released
2005

B9 Tribeca released

2008

Exiga released

2012

SUBARU BRZ released
2012

SUBARU XV released

2014

Levorg released2014

WRX released
20188

Ascent released

Annual Report 201828

Directors, Auditors, and Executive Officers(As of October 1, 2018)

Directors of the Board

Director of the Board
Chairman

Yasuyuki Yoshinaga“Tadashii-Kaisha”

Promotion Dept.,
Compliance Office, Quality

Director of the Board
Executive Vice President

Yoichi Kato
External Relations Dept.,
General Administration Dept.,
CSR & Environment Dept.,
Group Company Management Dept.,
Legal Dept., Internal Audit Dept.

Representative
Director of the Board
President
CEO (Chief Executive Officer)

Representative
Director of the Board
Executive Vice President
CIO (Chief Information Officer)

Director of the Board
Executive Vice President
CFO (Chief Financial Officer)

Tomomi Nakamura

Masaki Okawara

Aerospace Company

IT Strategy Div.,
Manufacturing

Director of the Board
Executive Vice President
CTO (Chief Technology Officer)

Outside Director

Outside Director

Yoshinori Komamura

Shigehiro Aoyama

Toshiaki Okada
Corporate Planning Dept.,
Secretarial Office,Finance & Accounting Dept.,
Human Resources Dept.,“Tadashii-Kaisha” Promotion Dept.,
Compliance Office,
SUBARU Next Story Promotion OfficeTetsuo Onuki
Engineering Management Div.,
Engineering Div. 1,
Engineering Div. 2,Intellectual Property Dept.

Auditors

Standing Corporate Auditor

Standing Corporate Auditor

Outside Corporate Auditor

Outside Corporate Auditor

Akira Mabuchi

Shuzo Haimoto

Shinichi Mita

Yasuyuki Abe

29

Annual Report 2018

Executive Officers
Title

Name

Areas of Responsibility

Executive Vice President

Katsuyuki Mizuma

Overseas Sales & Marketing Div. 1,
Overseas Sales & Marketing Div. 2

Senior Vice President

Hideaki Matsuki

Parts & Accessories Div.

Senior Vice President

Hiromi Tsutsumi

Corporate Communications Dept., Human Resources Dept.

Senior Vice President

Shoichiro Tozuka

Aerospace Company

Senior Vice President

Toshiaki Tamegai

Manufacturing Div.

Senior Vice President

Takuji Dai

Product & Portfolio Planning Div.

Senior Vice President

Fumiaki Hayata

Corporate Planning Dept.

Senior Vice President

Atsushi Osaki

CQO (Chief Quality Officer), Quality Assurance Div.

Senior Vice President

Tatsuro Kobayashi

Purchasing Div.

Vice President

Hiroki Kurihara

Customer Service Div.

Vice President

Katsuo Saito

Business Planning Dept., General Administration Dept.,
CSR & Environment Dept., Group Company Management Dept.

Vice President

Yasuhiro Hamanaka

Aerospace Company

Vice President

Eiji Ogino

SIA1

Vice President

Yasushi Nagae

Quality Assurance Div., Customer Service Div.

Vice President

Jinya Shoji

Overseas Sales & Marketing Div. 1, SCI 2, NASI 3

Vice President

Hiromi TamoEngineering Management Div., Technical Research Center

Vice President

Yoichi Sato

Japan Sales & Marketing Div.

Vice President

Takeshi Seiyama

SIA1

Vice President

Osamu Eriguchi

Engineering Div. 2

Vice President

Tomoaki Emori

Global Marketing Div.

Vice President

Tatsuya Okuno

Engineering Div. 1

Vice President

Tamotsu Inui

Cost Planning & Management Div.

1 Subaru of Indiana Automotive, Inc.
2 Subaru Canada, Inc.
3 North American Subaru, Inc.

Annual Report 201830

Corporate Governance
Basic Policy on Corporate Governance
Based on the corporate philosophy, SUBARU aspires to be a compelling company with a strong market presence. The
enhancement of corporate governance is one of the managementʼs top priorities as SUBARU works to gain thesatisfaction and trust of all its stakeholders by achieving sustainable growth and improving its corporate value in themedium to long term based on the “Customer First” principle.
SUBARU clearly separates the function of decision making and the oversight of corporate management from that of theexecution of business operations and aims to realize effective corporate management by expediting decision making.
SUBARU ensures proper decision making and the oversight of corporate management and the execution of business
operations as well as enhances compliance and its risk management system through the monitoring of its management
and operations and advice provided by outside officers.
SUBARU implements proper and timely disclosure of information in order to improve the transparency of management.

Corporate Philosophy
1. We strive to create advanced technology on an ongoing basis and provide consumers with distinctive products with thehighest level of quality and customer satisfaction.
2. We aim to continuously promote harmony between people, society, and the environment while contributing to theprosperity of society.
3. We look to the future with a global perspective and aim to foster a vibrant, progressive company.
SUBARU has instituted the Corporate Governance Guidelines with the objective of clearly defining its basic policy on
corporate governance, governance framework, and operating policy.
Corporate Governance Guidelines and Corporate Governance Reporthttps://www.subaru.co.jp/en/csr/governance.html

WEB*We plan to revise the guidelines and report by December 31, 2018 in light of the content of the June 2018 revisions to Japanʼs Corporate Governance Code.

Management Organization
The Company has chosen to be a company with a board of corporate auditors as its corporate governance structure, andthe Board of Directors decides and supervises, and the Board of Corporate Auditors audits, the execution of importantbusiness. The Board of Directors is composed of eight directors, two of whom are highly independent outside directors tofurther strengthen governance. The Board of Corporate Auditors is composed of four corporate auditors, two of whom areoutside corporate auditors to provide objective oversight of management.

System of Corporate GovernanceCollaboration

Corporate auditors: 2
Outside corporate auditors: 2

Auditing
Informationexchange withoutside officers

Accounting Auditors

Collaboration

Internal Audit
Department
Auditing

Auditing

Executive Nomination Meeting*Directors: 6

Executive Compensation Meeting*Outside directors: 2

Committees

President
ReportingExecutive Management Board Meeting
Instructions and oversight

SUBARU Automobiles Division

Executive Meeting

Aerospace Company

Executive MeetingGroup companies

Annual Report 2018

Submission
and reporting* The Executive Nomination Meeting and Executive
Compensation Meeting consist of the representative
directors of the board, director in charge of theSecretariat Office, and outside directors.

ReportingShared Corporate Operations Departments at HQ

VicePresidents

31

Board of Directors: 8

Decision making

Reporting

Collaboration

Election and dismissal

Election and dismissal

Board of Corporate Auditors: 4

Reporting

CSR Committee
Compliance Committee

Election anddismissal
Submission andreporting of importantmatters
Policy instructions
Approval of plans, etc.
Plan proposal
reports, etc.

Quality Improvement Committee
Central Safety and Health Committee
Environmental Committee
Social Contribution Committee
Corporate Governance Planning
Committee
etc.

Business operations
execution function

Election anddismissal

Decision making andoversight functions

General Meeting of Shareholders

With regard to the business operation system, the Company has established the Executive Management Board
Meeting as a preliminary consultation body to conduct deliberations on companywide management strategies and theexecution of important business before their presentation at the Board of Directorsʼ Meeting. In addition, the Company
has adopted a vice president system and established the Executive Board Meeting as the decision-making body of eachbusiness department, and converted the Aerospace division into an internal company, in order to clarify responsibilities
and accelerate the execution of business operations.
The Company currently has three special advisors, none of whom is a retired representative director of the board andpresident or CEO. The principle role of special advisors is to make themselves available on a regular basis to provide
business advice upon request. The special advisors do not participate in meetings and are not involved in management. In
principle, the term of office of special advisors is one year.
SUBARU has abolished the Senior Advisor System.

Development of Internal Control Systems
The Company has adopted by resolution of the Board of Directors a basic policy on development of a system to ensurethat execution of duties by directors complies with laws and regulations and the Articles of Incorporation in accordancewith the Companies Act and the Ordinance for Enforcement of the Companies Act as well as other systems stipulated byordinance of the Ministry of Justice as necessary to ensure the properness of operations of a stock company and acorporate group consisting of the stock company and its subsidiaries. SUBARU occasionally plans, develops, and applies
revisions to this basic policy.

Internal Audits and Auditing by Corporate Auditors
SUBARU has established the Audit Department as an internal auditing organization and conducts internal audits ofbusiness execution at SUBARU and its domestic and overseas Group companies. At the beginning of the fiscal year, theAudit Department prepares an internal audit plan for the fiscal year that takes into consideration the internal control statusof the Group as a whole and systematically implements the plan. The Department prepares and distributes to the directors,
corporate auditors, and concerned parties audit reports on the results of internal audits and reports quarterly at the
Executive Management Board Meeting.
SUBARUʼs corporate auditors attend meetings of the Board of Directors and other important meetings, inspectbusiness sites and subsidiaries, interview members of the Audit Department, and audit the execution of duties by the
directors and others in accordance with the audit policy and audit plan established by the Board of Corporate Auditors.
The Audit Department and corporate auditors work to deepen collaboration and strengthen the auditing function
through monthly internal audit report meetings held by the Audit Department and quarterly dialogues about internal
control. The Audit Department and corporate auditors endeavor to strengthen the auditing function through quarterly
information sharing with the accounting auditors.

Evaluation of Internal Control System for Financial ReportingAn evaluation of the internal control system related to financial reporting in connection with the internal control reporting
system based on Japanʼs Financial Instruments and Exchange Act is conducted using the final date of the fiscal year of theconsolidated financial statements as the reference date. The evaluation conforms to the standards for evaluation of internal
control related to financial reporting that are generally accepted to be fair and reasonable.
The Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) evaluated the status of the development of theinternal control system related to financial reporting as of March 31, 2018 and affirmed that it has been established properly
and functions effectively and issued an internal control report audited by the Accounting Auditors to that effect.

Policy on Appointing Senior Management andNominating Candidates for Director and Corporate Auditor
The Board of Directors, when nominating candidates for directors and corporate auditors and appointing vice presidents,
nominates persons with extensive experience, high levels of ability and insight, and advanced expertise commensuratewith a position as a director, corporate auditor, or vice president within the Company in order to contribute to achieving
the Companyʼs corporate philosophy and effective corporate governance, as well as sustainable growth and improvement
in corporate value in the medium and long term.
The Board of Directors appoints two or more independent outside directors from the viewpoint of giving consideration
to diversity, etc., within the Board of Directors, and improving the transparency of management and shareholder value
through independent oversight of management.
Annual Report 201832

Corporate GovernanceReasons for Appointing the Outside Officers and Status of Principal Activities
OutsideDirectors

Yoshinori
Komamura

Shigehiro
AoyamaOutsideCorporate
Auditors

Shinichi
Mita

YasuyukiAbe

Independent
Officer Status 1

Reasons for Appointing○

Mr. Yoshinori Komamura has served three years as an independent outside directorof the Company as of the conclusion of the 87th Ordinary General Meeting of
Shareholders. He has drawn on his career in management as a representative directorof Komatsu Ltd. to provide valuable advice on the management of the Company
based on his abundant experience and extensive knowledge as a business manager
and his deep insight into corporate social responsibility. Therefore, the Company has
appointed Mr. Komamura with the expectation that he will contribute to maintaining
and improving management transparency and soundness and strengthening
corporate governance by continuing to provide advice on all aspects of theCompanyʼs management from an independent standpoint as an outside director.

○

Mr. Shigehiro Aoyama has served two years as an independent outside directorof the Company as of the conclusion of the 87th Ordinary General Meeting of
Shareholders. He has drawn on his career in management as a representative
director of Suntory Holdings Limited to provide valuable advice on the
management of the Company based on his abundant experience and extensive
knowledge as a business manager and his deep insight into corporate social
responsibility. Therefore, the Company has appointed Mr. Aoyama with the
expectation that he will contribute to maintaining and improving managementtransparency and soundness and strengthening corporate governance bycontinuing to provide advice on all aspects of the Companyʼs management froman independent standpoint as an outside director.

Meeting Attendance
Board of Directors

Significant Concurrent
Positions 2

Adviser, Komatsu Ltd.
Attended 17 of 17
meetings

Member of the Board,
Institute for Strategic
Leadership (ISL)

Supreme Advisor, Suntory
Holdings Limited
Attended 17 of 17
meetings

External Director, Takamatsu
Construction Group Co., Ltd.
President, The Distribution
Economics Institute of Japan
Director, Japan Marketing
Association

Meeting Attendance
Independent
Officer Status 1

Reasons for Appointing○

Mr. Shinichi Mita has served three years as an independent outside corporate
auditor of the Company as of the conclusion of the 87th Ordinary General
Meeting of Shareholders. The Company has appointed him in the belief that he iswell qualified as an outside corporate auditor since he has management
experience and knowledge in both oversight and business execution, andparticularly extensive experience and insight into accounting and finance incorporate activities, gained as a director and executive officer of Kao Corporation.

○

Mr. Yasuyuki Abe has served two years as an independent outside corporate
auditor of the Company as of the conclusion of the 87th Ordinary General
Meeting of Shareholders. The Company has appointed him in the belief that heis well qualified as an outside corporate auditor since he has a managementcareer in both oversight and business execution and abundant experience andextensive knowledge as a business manager gained as a senior managing
executive officer and member of the board of Sumitomo Corporation.

Board ofDirectors

Board ofCorporate
Auditors

Attended
17 of 17
meetings

Attended
12 of 12
meetings

Significant Concurrent
Positions 2

Adviser, Mizuho Capital Partners
Co., Ltd.
Member of the Board,
Japan Association for
Chief Financial Officers (JACFO)
Advisor, Sumitomo Corporation

Attended
15 of 17
meetings

Attended
11 of 12
meetings

Director of the Board (External),
Chairman of the Board,
JVC KENWOOD Corporation
Advisor, ORANGE AND
PARTNERS CO., LTD.

Inappropriate practices, such as the performance of final vehicle inspections by persons not certified as final inspectors, inappropriate conduct in
the form of alteration of measurement data at the time of fuel economy and emissions sampling in the final vehicle inspection process, andinappropriate measurement procedures by which vehicle fuel economy and emissions measurements were treated as valid measurements despite
trace errors and humidity errors have been identified at the SUBARU Gunma Manufacturing Division. Although the outside directors and outside
corporate auditors were not aware of these facts before they came to light, they regularly offer opinions about the importance of compliance andinternal control based on their extensive experience and keen insights and, since the time these facts came to light, have discharged their official
responsibilities by receiving reports on and ascertaining the status of progress with investigations into the facts, responding to demands from the
Ministry of Land, Infrastructure, Transport and Tourism in a timely and appropriate manner, striving to further strengthen and inculcate compliance,and calling for appropriate measures to prevent any reoccurrence of such issues.
1 Outside directors and outside corporate auditors unlikely to have conflicts of interest with general shareholders as stipulated by the Tokyo Stock Exchange
2 As of March 31, 2018

Executive Nomination Meeting
To ensure fairness and transparency of decisions on executive appointments, the Executive Nomination Meeting
deliberates nominations of candidates for director and corporate auditor and appointments of vice presidents and submits
reports to the Board of Directors on nomination proposals unanimously approved by its members. Nominations are
decided by resolution of the Board of Directors. Explanations of matters such as the candidateʼs background, the status ofconcurrent positions, insight, and expected roles at the Company are provided for each nomination and appointment.
Approval of the Board of Corporate Auditors is obtained for nominations of candidates for corporate auditor.
The Executive Nomination Meeting consists of the representative directors, the director in charge of the Secretariat
Office, and outside directors and is chaired by the representative director of the Board and chairman (the representative
director of the Board and President if the position of representative director of the Board and chairman is vacant or an
accident has occurred).
The Executive Nomination Meeting was convened twice in FYE 2018 and submitted reports mainly on the executive
structure and appointments, the division of duties of executives, and the appointment of representatives of major subsidiaries.

33

Annual Report 2018

Policy for Determining the Amount of Compensation for Directors and the Calculation Method
Compensation, etc., of directors is determined in view of the following items.
Compensation, etc., is at a level commensurate with the roles and responsibilities of directors and is appropriate, fair,and balanced.
The compensation structure is determined by giving consideration to providing motivation for sustained improvement incorporate performance and corporate value and securing talented personnel.
By a resolution passed at the 85th Ordinary General Meeting of Shareholders, held on June 28, 2016, the maximum
total amount of annual compensation, etc., for directors is 1.2 billion yen (including 200 million yen for outside directors),
and the Executive Compensation Meeting determines compensation within that limit by delegation of the Board of
Directors. The specific composition of compensation, etc., is as described below. The total amount of compensation andlevel of each compensation type is set according to job responsibilities and status as inside or outside director utilizing
survey data from specialized outside agencies, etc. The maximum total amount of monetary compensation related to longterm incentives is 200 million yen per year.
1) Basic compensation : a fixed portion, with the specific amount determined based on job position, taking into
consideration the business environment and other factors
2) Short-term performance-linked compensation: a performance-linked portion, with the specific amount determinedbased on consolidated ordinary income for the current fiscal year, taking into consideration improvement in ROE andthe shareholdersʼ equity ratio, personnel development, and the business environment3) Long-term incentives: compensation to grant restricted stock for the purpose of providing an incentive for sustained
improvement of the Companyʼs corporate value and further value sharing with the shareholders
In view of the role of outside directors in management monitoring and oversight from an independent standpoint, theCompany does not provide short-term performance-linked compensation or long-term incentives to outside directors.
By a resolution passed at the 75th Ordinary General Meeting of Shareholders, held on June 27, 2006, the maximum
total amount of annual compensation, etc., for corporate auditors is 100 million yen. An amount determined throughdiscussion among the corporate auditors based on position, taking into consideration the business environment and otherfactors, is paid as basic compensation for corporate auditors.

Total Amount of Compensation for Directors and Corporate Auditors by Type
Total compensation (millions of yen)Classification

NumberPerformance-linked compensation

Basic compensation(paid in fixed monthly
installments)

Short-term performance-linked
compensation

Long-term
incentives

Directors (excluding outside directors)

8

298

151

37

486

Corporate auditors (excluding outside corporate auditors)

2

56

ー

̶

56

Outside executive officers

4

46

ー

̶

46

Total

14

400

151

37

588

Note: The above table includes two directors who resigned before the last day of the fiscal year under review. At the end of the fiscal year under review, there
were 8 directors (including 2 outside directors) and 4 corporate auditors (including 2 outside corporate auditors).

Executive Compensation Meeting
The Executive Compensation Meeting determines the compensation of directors and vice presidents, while taking into
consideration factors such as the compensation levels of appropriately comparable other companies, the compensation of theCompanyʼs employees, the social situation, and the performance evaluation of vice presidents. The Executive Compensation
Meeting consists of the representative directors of the board, the director in charge of the Secretariat Office, and outside
directors and is chaired by the representative director of the board and chairman (the representative director of the board andpresident if the position of representative director of the board and chairman is vacant or an accident has occurred).
The Executive Compensation Meeting was convened twice in FYE 2018, engaged in discussion of the compensation
structure, and determined matters such as performance-linked compensation for directors (excluding outside directors)
and vice presidents in accordance with performance evaluation and the amount of monetary compensation claims in
respect of restricted stock compensation for each individual recipient.

Annual Report 201834

Corporate Governance

Policy on Cross-Shareholdings
Regarding major listed stocks held by the Company as cross-shareholdings, the Board of Directors ascertains whether theholding of these shares will contribute to management of the Company in the medium to long term, after a comprehensive
consideration of factors such as medium- to long-term corporate value enhancement, importance to business strategy, andbusiness relationships with business partners and an assessment of economic rationality in view of risks and returns. As of
March 31, 2018, the number of issues of investment securities held for purposes other than pure investment and the total
amount reported on the balance sheet were 49 issues and 9,371 million yen, respectively.

Number of Issues of Investment Securities Held for Purposes Other than Pure Investment andTotal Amount Reported on the Balance Sheet
Category

Number of issues
Amount reported on the balance sheet (millions of yen)

FYE 2015

FYE 2016

FYE 2017

FYE 2018

91
39,05563
28,76462
13,33949
9,371

Board of Directorsʼ Meeting Participation Rate (Most Recent Five Years)
Category

Number of meetings held
Attendance rate

FYE 2014

FYE 2015

FYE 2016

FYE 2017

FYE 2018

17 times
82.4%

14 times
100%

15 times
96.3%

15 times
96.3%

17 times
99.0%*Attendance rates for newly elected directors and corporate officers are calculated based on the number of Board of Directorsʼ meetings held after they assumed office.

So that the directors and corporate auditors fully discharge their duties, the Company holds study meetings to continuously
provide them with information and knowledge related to business activities necessary for management oversight. In
addition, to continuously provide the outside officers with information about SUBARUʼs management philosophy,
corporate culture, and business environment, etc., the Company provides business reports from the operating divisions
and opportunities for plant tours and has prepared an environment that encourages sharing of information and exchangeof ideas among executives.

Analysis and Evaluation of the Effectiveness of the Board of Directors
In accordance with the Corporate Governance Guidelines, the Companyʼs Board of Directors analyzes and evaluates theeffectiveness of the Board, then considers and implements measures to improve any issues identified. In FYE 2018, theBoard confirmed measures to address issues identified in previous evaluations and, in response to the occurrence ofimproprieties relating to final vehicle inspections, performed analysis and evaluation after changing the implementation
procedure and questionnaire items in the interest of performing a detailed evaluation of the effectiveness of the Board of
Directorsʼ oversight function. A report on the analysis results follows.

Evaluation and Analysis Methods
Timing of implementation: March 2018
Respondents: All directors and auditors (12 in total, including outside officers)
Implementation procedure: Self-evaluation using a questionnaire prepared by a third-party organization(An anonymous questionnaire format has been adopted beginning in FYE 2018.)

1) A third-party organization conducted a self-evaluation questionnaire survey of all directors and corporate auditors using
an anonymous questionnaire.
2) The third-party organization aggregated and analyzed the questionnaire data.
3) A report received from the third-party organization was verified and discussed by the Board of Directors.
Questionnaire items: 1) Board of Directorsʼ management structure 2) Board of Directorsʼ oversight function 3) Shareholder dialogue

Evaluation Results
As was the case with the evaluation results up to FYE 2017, it was confirmed that open and frank discussion is conductedfrom a Company-wide perspective at meetings of the Board of Directors on the basis of the chairpersonʼs leadership andmutual understanding among the members.
There was a consensus on the appropriateness of the size of the Board of Directors and proportion of outside directors,
directors comprising the Executive Nomination Meeting and Executive Compensation Meeting, and on matters such as
the appropriateness of sharing of feedback from shareholders and investors was confirmed.

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Annual Report 2018

Further strengthening of the Board of Directorsʼ risk identification and management system and enhancement of
discussion of medium- to long-term business strategy were identified as areas in which future improvement andfunctional enhancement can be expected.

Future Initiatives
The Board of Directors confirmed that it will discuss medium- to long-term management strategy and take action toensure rigorous implementation of measures to prevent any reoccurrence of improprieties, focusing on further
strengthening of the risk identification and management system.
On April 1, 2018, the Company established the “Tadashii-Kaisha” Promotion Department and the Compliance Office toreinforce efforts to address issues the Company faces with respect to legal compliance and corporate culture reforms,
and the Board of Directors confirmed that it will carefully watch Group-wide activities spearheaded by these organizations
and work to restore stakeholder trust.
The Board of Directors will improve Board functions, strengthen corporate governance, and promote continuous
enhancement of corporate value by continuing to evaluate the effectiveness of the Board of Directors.

Aggregated Questionnaire Responses
Board of Directorsʼ Management Structure

Board of Directorsʼ Oversight Function andShareholder DialogueⅠ-1) Board of DirectorsʼⅡ-1) Board of Directorsʼ

composition

supervisory function

4.0

4.0

3.0

30
3.0

2.0

Ⅰ-5) Board of

Directorsʼ
contributionⅠ-4) Board of DirectorsʼⅠ-2) Board of

Directorsʼ
management

1.0Ⅰ-3) Decision-making

support structure

processⅢ) Shareholder

dialogue2
2.0Ⅱ-2) Board of

Directorsʼ risk
management
systems11.0Ⅱ-4) Executive

nomination andcompensationⅡ-3) Board of Directorsʼ

discussion

QuestionsCategory

Matters Examined

Ⅰ. Board of Directorsʼ management structure1) Board of Directorsʼ
composition

Board of Directorsʼ size

Board of Directorsʼ composition(proportion of inside and outside directors)

Board of Directorsʼ composition(diversity and specialty)

2) Board of Directorsʼ
management

Frequency, duration, and distribution of meetings

Appropriateness of agenda

Quality and quantity of documents

Timing of document distribution

Pre-meeting explanation

Content of explanations and reports

3) Decision-making process

Chairʼs leadership

Adequate discussion4) Board of Directorsʼ
support structure

Environment and systems for providing information

Provision of information to outside directors

Training of outside directors5) Board of Directorsʼ
contribution

Stance toward initiatives

Company-wide perspective

Mutual respect

Diverse values

Stakeholder perspective

Training of inside directors

Ⅱ. Board of Directorsʼ oversight function

1) Board of Directorsʼ
supervisory function2) Board of Directorsʼrisk management systems

Reporting systems

Supervision of management

Risk management systems

Subsidiary management systems

Systems for managing progress of
response measures

Thorough awareness of compliance issues

3) Board of Directorsʼ
discussion

Discussion of management strategy

Discussion of capital policy

Discussion on strengthening governance

Responses to social and environmental issues4) Executive nomination andcompensation

Composition of Executive Nomination Meeting andExecutive Compensation Meeting

Successor development

Sharing shareholder and investor views

Enhancement of shareholder andinvestor dialogue

Information-sharing on risks andrisk response

Discussion of cross holdings

Incentive-based compensation

Ⅲ．Shareholder dialogue

Shareholder dialogue

Annual Report 201836

Corporate Governance

Messages from the Outside Directors
My Role as an Outside Director
I think that the role of outside directors is to actively speak out and participate indecisions at Board of Directorsʼ meetings from an outside, independent position
unconstrained by internal company logic, implicit knowledge, or personal
relationships. I base my thinking as an outside director on maximization of theinterests and value of all SUBARU stakeholders (customers, employees, partnercompanies, dealers, shareholders and investors, and local communities). Furthermore,
the outside and inside directors are not in an oppositional relationship. Rather,although our approach differs due to differences in position, experience, andknowledge, we share the same goal of enhancing SUBARUʼs corporate value andaiming for sustained growth.
Outside Director

Yoshinori Komamura

Thoughts as an Outside Director on what is Necessary to be“a Company that does the Right Thing in the Right Way”
I think that SUBARU deserves praise for having rapidly increased sales from the onetrillion yen to the three-trillion yen level in the short period of the past few years. On
the other hand, to maintain continuity as a three-trillion yen company, SUBARU must
not only be able to sustain business performance but also to think and act in a way
appropriate to its social position. A high level of awareness of safety, the environment,compliance, and governance will increasingly be necessary in addition to maximizationof sales and profits.
I think that as SUBARU aims to achieve further quantitative and qualitative growth
into the future, it must meet and exceed higher standards of responsibility.

How Discussion and Advice Take Place atBoard of Directorsʼ Meetings
I am convinced that SUBARUʼs Board of Directors must rank near the top among
Japan companies in the number of comments by outside directors at Board meetings.
That SUBARUʼs top management has the flexibility to listen to outside opinions andthe strength to heed them is cause for great pride, and I have deep respect for the
executive team.
It is only natural that SUBARU, a company with an overseas sales ratio exceeding
85% and a foreign shareholding percentage exceeding 30%, pursues globally highstandards of value. I hope to engage in more in-depth discussion at Board meetings
going forward.

What is Required for Sustained Corporate Value Enhancement
From the viewpoint of all stakeholders, including customers, the SUBARU brandconsists of trust and confidence in SUBARU. I think that from SUBARUʼs perspective,
the brand may consist of a promise from SUBARU to its stakeholders. It is often said
that although it takes decades to win trust and confidence, they can be lost overnight.
For SUBARU to continue to win the trust and confidence of stakeholders, I think it isnecessary to draw a sharper distinction between what to preserve and what to change
in step with changes in the world and business scale expansion. Personally, I think
what should be preserved is an insatiable spirit of inquiry with respect to advanced
technology development and the earnestness to face customers sincerely, and whatshould be changed is to undertake a transformation of awareness as a company thathas grown from one trillion yen to three trillion yen.
In my role as an outside director, I want to contribute to the best of my ability to
SUBARUʼs evolution to the next operational level together with the inside directors,
executive officers, and employees.

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Annual Report 2018

My Role as an Outside Director
The outside directors are expected to engage in management oversight, provide
multifaceted advice on improving business performance, and express their views on
scandal prevention and risk avoidance. We must also make judgments from theperspective of customers, shareholders, and other external stakeholders and performthe role of reforming a corporate culture that has become entrenched in internal
logic. The recent repeated improprieties indicate the necessity of transforming a
corporate culture that was incapable of restraining internal logic that had been
repeated over many years. In my role as an outside director, I will strive to ensure thatsuch incidents never happen again.

Outside Director

Shigehiro Aoyama

Thoughts as an Outside Director on what is Necessary to be“a Company that does the Right Thing in the Right Way”
I consider high quality to be the key factor influencing the value of SUBARU ʼscorporate brand. However, there is risk of confidence in quality leading to overconfidence. Times change, and to continue to create the quality that is SUBARUʼscore competence, the Company must constantly refine and perfect that quality andalso add transformation of manufacturing processes. Of particular importance, acompliance perspective is essential in business management today. Work-styleinnovation isnʼt only a matter of working hours and work-life balance. It also involves
inculcating ways of working imbued with the spirit of compliance required in this day
and age. That is a necessary condition for SUBARU to be “a company that does theright thing in the right way.”

How Discussion and Advice Take Place atBoard of Directorsʼ Meetings
Frank discussion takes place. The outside directors are provided many opportunities
to speak, and the meeting management of the chairman of the Board of Directors is
excellent. The outside directors actively express their opinions to promote agovernance system aligned with current global standards.
However, I think further effort is required to ensure that our opinions fully meshwith those of the directors in charge of business execution. That is to say, since there
is a tendency for discussion at SUBARU to disproportionately emphasize individual
optimization, I would like discussion to extend to total optimization of business.

What is Required for Sustained Corporate Value Enhancement
For corporations today, there can be no growth without consideration of sustained
value enhancement. Although enhancement of financial value is essential, companies
must also consider non-financial value from an environmental, social and governance(ESG) perspective. SUBARU must implement environmental measures including a
response to emissions regulations, must respond to social needs such as automobile
safety and security, and, in the area of governance, must develop an organizational
structure to implement these initiatives. This will contribute to enhancing the value ofthe SUBARU brand. A sense of urgency and alacrity is necessary for accomplishing
this, and I hope to see a higher level of innovation from a management structure
capable of pursuing sustained growth for SUBARU.

Annual Report 201838

CSR in the SUBARU GroupCSR

The SUBARU Group contributes to society throughour businesses and engages in CSR activities tohelp create a sustainable society.
Corporate Philosophy
1. We strive to create advanced technology on an ongoing basis and provide consumers with distinctive products with thehighest level of quality and customer satisfaction.
2. We aim to continuously promote harmony between people, society, and the environment while contributing to theprosperity of society.
3. We look to the future with a global perspective and aim to foster a vibrant, progressive company.

Corporate Code of Conduct
SUBARU CORPORATION sets down the Corporate Code of Conduct to comply with laws and regulations and to fulfill its
social responsibilities based on its corporate philosophy. We will continue to strive to become a company loved by all andcontribute to making society more affluent by respecting individuals and the Corporate Code of Conduct and acting on
the same sense of values.
1. We develop and provide creative products and services while paying sufficient attention to the environment and safety.
2. We respect the rights and characteristics of individuals.
3. We promote harmony with society and contribute to the prosperity of society.
4. We meet social norms and act honestly and fairly.
5. We maintain global perspective and aim to be in harmony with international society.

Management Philosophy
Aiming to be a compelling company with a strong market presence built upon its customer-first principle.

CSR Policy (Revised in June 2009)
1. We respect the laws and regulations, human rights, international standards of behavior and the rights and morals of
stakeholders under the Corporate Code of Conduct of SUBARU CORPORATION.
2. We become involved as a corporate citizen in addressing social issues facing society today.

CSR Promotion System
SUBARU has set up the CSR Committee as a forum for discussing CSR initiatives. The Committee confirms the status of the
PDCA cycle of each specialized committee and department.
The CSR Committee, which is chaired by SUBARUʼs director of the board and chairman and includes all executives as
members, will consider and discuss the social aspects of SUBARUʼs businesses and work to strengthen CSR initiatives.

Board of Directors
Executive Management Board Meeting
CSR Committee
Secretariat Office:
CSR & Environment Department

Specialized committees

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Annual Report 2018

Departments

Affiliated companies

Our Approach to CSR
Challenges for society abound in Japan and overseas, such as global warming, human rights issues, and an aging anddeclining population, and there are rising expectations that corporations will help resolve them. The SUBARU Groupʼsbusiness domain also requires initiatives on diverse themes such as reducing environmental impact, preventing traffic
accidents, and alleviating traffic congestion.
Therefore, naturally we develop, manufacture, and sell products with outstanding safety and environmental
performance and quality, but as a corporate citizen we also work on CSR activities to meet the needs of society andaddress social challenges in good faith. The automotive industry has entered a once-in-a-century transition period, and thesocial environment is constantly changing. SUBARU considers it necessary to promote and ensure the penetration of CSR
initiatives on a group-wide, global scale to contribute to society through our businesses and meet stakeholder expectations
and demands. To that end, we have reviewed the Eight CSR Action Items and newly defined Six Priority Areas for CSR.
By applying the thought process behind the Six Priority Areas for CSR to how we conduct business, we will fulfill oursocial responsibilities as a corporation and continue to provide “Enjoyment and Peace of Mind” to our customers and otherstakeholders. In so doing, the SUBARU Group will become a corporate group trusted by society and contribute to thecreation of a more affluent, sustainable society as a truly global company.

Six Priority Areas for CSR
In conjunction with STEP, the new mid-term management vision, the SUBARU Group has reviewed the previous Eight CSR
Action Items and newly selected Six Priority Areas for CSR: people-oriented car culture, resonance and coexistence, peaceof mind, diversity, environment, and compliance.
In selecting the priority areas, we first identified forty-one societal requirements and expectations as CSR priority items
and conducted a questionnaire survey of experts and investors in North America and Japan. Finally, we considered CSR
from two perspectives: areas for contributing to society by taking advantage of business strengths, and areas for meetingthe expectations of society. As a result, we selected people-oriented car culture, resonance and coexistence, peace ofmind, and diversity as areas for contributing to society by taking advantage of business strengths. Although peace of mind
and diversity overlap, we selected peace of mind because it is an area in which the requirements of society and the
SUBARU Groupʼs business strengths coincide and selected diversity because we broadly define it as including not only thediversity required by society but also diversity in the products we provide to our customers.
Since information disclosure and dialogue with stakeholders and reflection of stakeholder feedback in management are
essential for recovering trust, we will implement what we call “6M+1E” initiatives: the six priority areas (“6M,” with “M”
standing for materiality) plus information disclosure and dialogue with stakeholders and reflection of feedback inmanagement (“1E,” with “E” standing for engagement).

Annual Report 201840

CSR in the SUBARU Group

Application of the Six Priority Areas for CSR in Management
SUBARUThe SUBARU Group

Board of Directors
Executive
Management
Board Meeting

Application in
management

Priorities specific to
SUBARU

6 Priority Areas for CSR
People-oriented
Car Culture
Resonance andCoexistence
Peace of Mind

Information
disclosure anddialogues

Stakeholders

Societyʼs
expectations

Diversity

Environment

Compliance

Our Six Priority Areas for CSR and Basic Approach
People-oriented Car Culture

SUBARU believes that cars are more than a mere means of transportation. SUBARU places importanceon how people feel “Enjoyment and Peace of Mind,” delivers high-added-value products and services tocustomers as a partner that enriches peopleʼs hearts and lives, and fosters a sustainable mobility culture.

Resonance and Coexistence

SUBARU will become a company that is trusted by, resonates with, and coexists with people byexpanding personal communication and sincerely listening to the views and opinions of each customer
and society as a whole.

Peace of Mind

SUBARU will become a company that allows all stakeholders to feel ultimate peace of mind.

Diversity

The SUBARU Group promotes diversity, which we define as providing products that reflect respect fordiverse market value and respecting and reflecting the diverse values of everyone who works in the
SUBARU Group.
“The earth, the sky and nature” form our fields of business. In order to bequeath these to future

Environment

Compliancegenerations, SUBARU will consider its effect on the environment across the entire spectrum of corporate
activities.
SUBARU will become a company where business operations conform to laws, regulations, and social
norms and where a mindset of respecting and prioritizing compliance permeates everything andeveryone in the SUBARU Group.

SDGs Initiatives
The SUBARU Group recognizes the importance of responding to the Sustainable Development Goals (SDGs), which are
aimed at achieving a more sustainable future by 2030. To respond to climate change, we aim to reduce the SUBARUGroupʼs direct CO2 emissions (Scope 1 and 2) to 30% below FYE 2017 levels (on a total emissions volume basis) by FYE
2031. To reduce traffic accident fatalities and injuries, we have set a target of eliminating fatal accidents involving SUBARU
vehicles* by 2030. Through these initiatives, we are contributing to the creation of a sustainable society.
*Elimination of accidents resulting in the death of drivers or passengers in SUBARU vehicles and accidents resulting in the death of pedestrians, cyclists, or otherpersons due to collision with SUBARU vehicles

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Annual Report 2018

Environment

SUBARU Environmental Policies
SUBARU Sustainability Principles“The earth, the sky and nature” are SUBARUʼs fields of business.
With the automotive and aerospace businesses as the pillars of SUBARUʼs operations, our fields of business are the earth,
the sky and nature. Preservation of the ecosystem of our planet, the earth, the sky and nature, is of utmost importance toensure the future sustainability of both society and our organization. We align our business strategy to enhance these
global goals in all of our operations.
1. We develop and deliver products to meet societal needs and contribute to the environment through advanced technologies.
By striving to create advanced technologies that put the environment and safety first, we will develop and deliver products thatcan contribute to protecting the earthʼs environment.
2. We focus on efforts aimed at coexistence with nature.
Together with efforts to reduce carbon-dioxide emissions in all of our operations, we will promote active engagement with natureby stressing forest conservation.
3. We take on challenges as one through an all-SUBARU approach.
Utilizing our unique organizational character that allows us to oversee the entire supply chain, all of us together will take on thechallenges of environmental protection of our planet through an all-SUBARU approach.

Environmental Principles
SUBARUʼs fields of business are the earth, the sky and nature. SUBARU understands that the health and preservation of
biodiversity and controlling climate change are critical to ensuring a sustainable future for our planet earth, nature,communities and businesses.
Products: We develop our products and conduct R&D in light of the lifecycle environmental impacts of our products.
Purchasing: Our purchasing activities reflect consideration for biodiversity and other aspects of environmental protection.
Production: We strive to minimize our environmental impact through improving energy efficiency and waste management.
Logistics: We strive to minimize our environmental impact through enhancing energy efficiency and promoting pollution prevention.
Sales: We endeavor to recycle resources efficiently and reduce waste.
Management: We will strive to improve our sustainability program through contributions that meet societal needs and by
publicizing our activities as Team SUBARU.

[Established: April 1998, Revised: April 2017]

Aiming for Significant Reduction in CO2 Emissions
SUBARU has set a new target of reducing the SUBARU Groupʼs direct CO2 emissions (Scope 1 and 2) to 30% below FYE
2017 levels (on a total emissions volume basis) by FYE 2031. We have also begun formulating an Environmental Action
Plan. The opening initiative under the plan is partial adoption (approximately 11,500 MWh/year) at the Aerospace
Companyʼs Utsunomiya Plant of the “Tochigi Furusato Denki Program,” Japanʼs first program for locally produced andconsumed CO2-free electricity, with the aim of achieving emissions reduction of approximately 5,400 t-CO2. Furthermore,
we plan to expand introduction of renewable energy facilities.

Environmental Action Plan Roadmap
Phase Ⅲ: Challenge(FYE)

Consideration and implementation of all available means of reducing
CO2 from a group-wide perspective, taking into consideration external
factors such as technological innovation, markets, and regulations

2019
2021

PhaseⅠ: Preparation• Formulation of the next Environmental Action Plan
• Implementation of voluntary CO2 reductions ahead of schedule
while continuing the current plan (The Sixth Voluntary Plan)

Target30% reduction
in direct CO2 emissions(Scope 1 and 2)

2026

Phase Ⅱ: Approach
In anticipation of a CO2 increase accompanying an increase in production
activities, active introduction of renewable energy and CO2-free powersources in addition to advancing energy conservationfrom theFYE 2017 level

2031

Annual Report 201842

CSR in the SUBARU Group

Message from the General Manager of the Human Resources Department

Senior Vice President
General Manager,
Human Resources Department

Hiromi Tsutsumi

Making the most of human resources
Profile of the Ideal SUBARU Employee
I consider the role of the general manager of the Human Resources Department to be to design policies
and programs for making the most of human resources and to make continuous improvements to thesepolicies and programs while confirming their status of operation, industry trends, and other matters. The
following is a profile of the ideal SUBARU employee.
Always a challenger and an explorer
One who tenaciously strives to achieve objectives
One who thinks through to address challenges
One who thinks of others
When the Company name was changed to SUBARU CORPORATION in April 2017, after careful consideration
we selected these expressions to indicate what we consider important and what we will continue to consider
important in SUBARU employees. We believe that cultivation of human resources that emphasizes these four
items will become the foundation for gaining the trust of customers and enhancing SUBARUʼs corporate value.

Human Resources Development
The basis of human resources development at SUBARU is on-the-job training, and we are developing an
education and training system with a curriculum adapted to employee rank and field of specialization. Priority
areas targeted for further reinforcement are 1) thoroughly train employees while they are young, 2) cultivate
specialists who will open the way to the future, and 3) nurture many strong leaders. These are essential areas
targeted for reinforcement to ensure that SUBARU continues to provide added value to customers during aperiod of transformation for the automotive industry. For example, we are planning and implementing
education programs adapted to the individual characteristics of employees and management training
enhancements. Also, the introduction of multifaceted assessment of managers, employee surveys, and stresschecks in recent years has enabled us to identify HR management issues in the workplace, and we arereinforcing linkage of the results obtained from these measures to solutions on the basis of data analysis.

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Annual Report 2018

Advancing Diversity Activities
SUBARU has made implementing “Change the Culture” corporate culture reforms a key priority in the STEP
mid-term management vision. We have designated increasing diversity as a priority area of CSR activities forachieving these reforms and aim to make SUBARU a company capable of contributing to diverse values,
both inside and outside the Company.
For the products and services that SUBARU provides to be accepted by people with wide-ranging
values, with “Enjoyment and Peace of Mind” as the cornerstone of the value proposition, SUBARU must
realize diversity in the organizations and human resources that create value. In that sense, diversity is thefoundation of organizational vitalization. Our employees have diverse personalities, and to enable all
employees to demonstrate their individual capabilities to the utmost, SUBARU values differences in gender,
nationality, culture, and lifestyles and strives to create workplace environments in which everyone finds it
easy to work. Our vision of diversity is “a profusion of flowers all abloom.”
The Diversity Promotion Office, established in January 2015, engages in activities under four priority
themes: 1) promoting active roles for female employees, 2) employing people with disabilities, 3) planningand promoting employment of non-Japanese nationals, and 4) promoting employment of the elderly. We
are currently placing particular emphasis on efforts to promote active roles for female employees.
Although the automotive industry is a male-centered world and most of the technicians and line workers
at automakers are men, more than a few buyers and drivers are women. To be accepted by greater numbersof customers, SUBARU needs products and services that incorporate a womanʼs perspective. However, as atother automakers, men make up an overwhelmingly large proportion of SUBARUʼs workforce, and we must
increase opportunities for women to play active roles.
Two challenges in promoting active roles for female employees are retention and effective utilization of
employees. To retain female employees, we have programs such as a flexible working hours system for the
purpose of helping employees balance work and parenting. In efforts to effectively utilize female employees,with the objective of increasing the number of female managers, we have introduced an initiative to increase
the number of managers skilled at cultivating female subordinates and instituted a mentor system for female
manager candidates. Through such initiatives, we aim to create an environment in which women can workwith vitality and motivation and produce results.

Promoting Work-Life Balance
Balancing work time and free time and leading a fulfilling private life has the added benefit of creating avirtuous cycle at work. As a concrete initiative to support work-life balance, SUBARU is creating anenvironment that will help employees control their own working hours and curb long working hours bybolstering the no-overtime day system and increasing the flexibility of the flex-time system.

TOPICS

Initiatives to Promote Active Roles for Women
SUBARU has formulated an employer action plan aimed at promoting active roles for women inaccordance with the Act on Promotion of Womenʼs Participation and Advancement in the Workplace.
In our action plan, which is based on the SUBARU policy of promotion through merit, based on
demonstrated ability, we set a goal of increasing the number of female managers in 2020 by at least
five times the number in 2014 (from four to twenty), and we are working to achieve this goal. We will
expand the pool of female candidates for executive officer, department general manager, andsection manager as we approach 2020 and move beyond it.

Annual Report 201844

CSR in the SUBARU Group

Compliance

Basic Approach and Policy
In view of the causes and background of the occurrence of improprieties relating to final vehicle inspection work at
SUBARU discovered in FYE 2018, SUBARU considers the practice of compliance the most important management
priority for SUBARUʼs rebirth as “a company that does the right thing in the right way.” We are keenly aware that rigorousgroup-wide compliance forms the foundation for the Groupʼs management, and we will instill in each employee not only
compliance with all laws, ordinances, and internal regulations required in business activities, but also rigorous pursuit ofopen and fair business activities that conform to the ethical principles, common practices, and norms of society at large.
From there, we will strive to recover the trust of SUBARUʼs customers and other concerned parties and stakeholders.

Corporate Code of Conduct and Conduct Guidelines
SUBARU has established the Corporate Code of Conduct (see page 39) and Conduct Guidelines as compliancestandards for the practice of compliance-oriented corporate activities. In FYE 2018, we revised the content of theConduct Guidelines to further promote Group compliance. We explain the Code and Guidelines in detail in the
Compliance Manual, which is carried by all employees of SUBARU and Group companies in Japan and overseas, andstrive to ensure compliance in their day-to-day actions.

<What is the Corporate Code of Conduct?>
The Corporate Code of Conduct stipulates the basic policies that all officers and employees should follow in relation tocustomers, business partners, shareholders, local communities, and other stakeholders in accordance with SUBARUʼscorporate philosophy (see page 39).

<What is the Conduct Guidelines?>
The Conduct Guidelines stipulate specific standards of conduct to ensure that all officers and employees put into
practice the basic policies indicated in the Corporate Code of Conduct (see page 39) in the course of their daily businessactivities.

Compliance Regulations
SUBARU instituted the Compliance Regulations in 2001 with the approval of the Board of Directors as basic regulations
that stipulate the system, organization, and methods of operation related to compliance. In FYE 2018, following
discussion by the Compliance Committee and with the approval of the Board of Directors, we revised the regulations byascertaining and reviewing the status of operation of the regulations since their institution, confirming discrepancies
between the regulations and the actual situation, and reflecting the results in the revisions.

Compliance System, Organization, and Operation
SUBARU established the Compliance Committee as a group-wide committee to promote compliance. The Committee
deliberates, discusses, decides, and exchanges information on important compliance matters. Each department
institutes its own compliance action plan (compliance program) to promote compliance and engages in continuous andsystematic autonomous activities. Following the discovery of improprieties relating to final vehicle inspection work at
SUBARU, in FYE 2019 Director of the Board and Chairman Yasuyuki Yoshinaga (Representative Director of the Board andPresident until June 22) became chairman of the Compliance Committee, which is fundamentally reviewing andimplementing compliance-related initiatives.

<Establishment of the Compliance Office>
Following the improprieties relating to final vehicle inspection work at SUBARU, in FYE 2019 we established theCompliance Office as an independent organization to strengthen group-wide compliance-oriented initiatives with the aimof preventing any repetition of similar mistakes. The Compliance Office, as the Compliance Committeeʼs secretarial office,mainly engages in the following work as a hands-on organization for compliance promotion in the SUBARU Group.
Planning, devising, and implementing compliance promotion activities for the entire SUBARU Group
Conducting compliance training, education, and internal awareness activities and operating the SUBARU Groupʼsinternal reporting system (Compliance Hotline), which is foundational to an open and transparent workplace

45

Annual Report 2018

Compliance Hotline System
In addition to seeking solutions through their superiors, regular and temporary employees who work at SUBARU andGroup companies have the option of using the Compliance Hotline to seek consultation about any compliance-related
problems they have discovered within the Group.
The Hotline Desk has been set up within the Company, and employees assigned to the Hotline Desk in accordancewith internal rules directly accept reports by post, telephone, and e-mail, engage in fact-finding investigations, andrespond to reports. The names and departments of persons making reports are kept strictly confidential and are notdisclosed without their consent, and due consideration is given to ensuring that they suffer no disadvantage due to theconsultation. Since April 2008, we have added an external specialist organization as a point of contact and worked tomake the system easier to use by extending its hours and reinforcing the mechanisms that ensure the confidentiality of
the names and departments of persons seeking consultation. The Compliance Hotline received 163 consultation
requests in FYE 2018, and the general manager of the Legal Department played a central role in expeditiously solving
problems following fact-finding investigations (following a change of the organization responsible for the system in FYE
2019, this responsibility now falls to the general manager of the Compliance Office). Matters reported to the Compliance
Hotline are reported to management or the Compliance Committee as necessary, and measures are taken to prevent
any reoccurrence of problems.
To publicize the Compliance Hotline System, we have distributed cards that provide information on how the hotline
system works and contact details to employees of SUBARU and Group companies and put up posters in workplaces. We
have included an explanation of the service provided by the external specialist in the posters and posted it on the
Company intranet.

Compliance Activity Achievements<Compliance Training>
In the belief that the entire SUBARU Group must work in harmony to achieve rigorous compliance, we provide
compliance training and practical legal training to the employees of all Group companies. This training is organized by
the Legal Department, Compliance Office (established in April 2018), and the human resource and education sections.
Each department and Group company incorporates its own education program into its action program (complianceprogram) and complements this training by holding study meetings on important work-related laws and ordinances aswell as holding compliance awareness training conducted by SUBARU Legal Department employees and others. In FYE
2018, some 4,500 persons participated in training organized or supported by the Legal Department.
We prepare and provide various support tools to promote the day-to-day practice of compliance, including tools
specifically intended for Group companies and SUBARU distributors in Japan. In addition, we distribute urgent
information on a timely basis in ourCompliance Information and work to
System of Compliance
raise compliance awareness group-wide.
In FYE 2019, we are providing Normative
Consciousness Enhancement Educationfor SUBARU and Group company
managers and sharing information on
the causes and background of theoccurrence of improprieties relating to
final vehicle inspection work at SUBARU
a n d p ro m o t i n g m e a s u re s i n e a c hdepartment to prevent the occurrence ofsimilar improprieties. Also, we areredeveloping work regulations groupwide and plan to expand the scope of
persons who receive compliance training
and continuously provide complianceeducation. We will also distribute an
essential edition of the Compliance
Manual to all employees.

Annual Report 201846

Consolidated Ten-Year Financial Summary
SUBARU Corporation and its consolidated subsidiaries
Years ended March 31

ʼ09/3

ʼ10/3

ʼ11/3

ʼ12/3

Millions of yen¥1,445,790
1,164,564
281,226¥1,428,690
1,152,763
275,927¥1,580,563
1,241,427
339,136¥1,517,105
1,222,419
294,686

Millions of yen

287,029

248,577

255,001

250,727

Millions of yen（5,803）

Millions of yen（21,517）

27,350（443）

84,13563,214

43,95952,879Millions of yen（69,933）（16,450）

50,32638,453

Millions of yen

74,036
95,15342,83165,78589,077
37,17556,062
67,37842,90758,611
67,035
48,115

394,719
393,946
1,165,431

381,893
380,587
1,231,367

413,963
412,661
1,188,324

451,607450,302
1,352,532

33.8

30.9

34.7

33.3

Operating results (for the year)
Net sales
Cost of sales
Gross profit
Selling, general andadministrative expenses
Operating income (loss)
Income (loss) before income taxes
Net income (loss) attributable toowners of parent
Depreciation/amortization
Capital expenditures2
R&D expenses

Millions of yen
Millions of yen

Millions of yen
Millions of yen

Financial position (at year-end)
Net assets
Shareholdersʼ equity
Total assets
Ratio of shareholdersʼ equity tototal assets

Millions of yen
Millions of yen
Millions of yen%

Cash flows
Net cash provided by (used in)operating activities
Net cash provided by (used in)investing activities
Free cash flow
Net cash provided by (used in)financing activities

Millions of yen（26,892）

176,734

138,208

54,865

Millions of yen（72,385）（62,656）（51,109）（26,602）

Millions of yen（99,277）

114,078

87,09928,263

Millions of yen

80,449（18,560）（39,408）

2,586

Yen

（91.97）（21.11）

Yen

505.594.5

488.58064.56
528.889

49.27
576.979

Persons

102
782,865
40,83912,137

93782,865
39,223
12,483

86782,865
34,24012,42979782,865
33,13912,359Persons

27,65927,58627,29627,123

555
566
474
92

563
557
453
104

657
624
459
165

640
635
465
171

Per share
Net income (loss) (EPS)
Net assets (BPS)
Dividends

Yen

Other information
Non-consolidated exchange rate
Number of shares issued
Number of shareholders3
Number of employees (parent only)
Number of employees(consolidated)

Yen to the U.S. dollar
Thousands of shares
Persons

Number of units
Consolidated automobile unit sales4
SUBARU vehicle unit production
Domestic
U.S.A. (SIA)5

Thousand units
Thousand units
Thousand units
Thousand units

1. U.S. dollar figures have been translated from yen, for convenience only, at the rate of ¥106.27 to US$1.00, the approximate rate of exchange at March 31, 2018.
2. Increase in property, plant and equipment and intangible assets
3. Number of shares per trading unit: 100 shares
4. Automobile unit sales of SUBARU CORPORATION and its consolidated subsidiaries
5. U.S. production base Subaru of Indiana Automotive, Inc.

47

Annual Report 2018

1
（Thousands of U.S. dollars）

ʼ13/3

ʼ14/3

ʼ15/3

ʼ16/3

ʼ17/3

ʼ18/3

ʼ18/3

¥1,912,968
1,501,809
411,159¥2,408,129
1,728,271
679,858¥2,877,913
2,017,490
860,423¥3,232,258
2,187,136
1,045,122¥3,325,992
2,386,266
939,726¥3,405,221
2,442,706
962,515$32,043,107
22,985,847
9,057,260

290,748353,369

437,378479,533

528,916

583,068

5,486,666

120,41193,082

326,489
328,865

423,045392,206

565,589
619,003410,810394,695

379,447
297,340

3,570,594
2,797,967

119,588

206,616

261,873436,654282,354

220,354

2,073,530

61,544
94,98649,141

61,486
98,53760,092

71,821
135,346
83,53572,938168,338
102,373

85,653
196,616
114,215

102,102
193,789
121,084

960,779
1,823,553
1,139,400

596,813595,365
1,577,454

770,071765,5441,888,363

1,030,719
1,022,417
2,199,714

1,349,411
1,343,732
2,592,410

1,464,888
1,458,664
2,762,321

1,561,023
1,552,844
2,884,313

14,689,216
14,612,252
27,141,366

37.7

40.5

46.5

51.8

52.8

53.8

̶

166,715

313,024

311,543614,256

345,442366,298

3,446,862（71,370）（33,903）（172,780）（255,676）（254,252）（150,711）（1,418,190）

95,345279,121

138,763358,580

91,190215,587

2,028,672（60,766）（63,011）（110,546）（126,190）（189,044）（170,937）（1,608,516）

153.23762.8715

264.76980.9853

335.57
1,310.15
68

559.54
1,721.90
144

365.77
1,902.56
144

287.402,025.31
144

2.70
19.06
1.36

82
782,865
28,89012,717

100
782,865
51,386
13,034

108782,865
70,942
13,883

121
782,865
79,594
14,234

108769,175
76,471
14,708111769,175
132,570
14,879̶

27,50928,54529,774

31,151

32,59933,544

̶

724
692
511
181

825
772
609
164

911
887
681
207

958
929
693
236

1,065
1,033
698
335

1,067
1,036
687
349

̶

（U.S. dollars）

Annual Report 2018

̶
̶
̶

̶
̶
̶

48

Five-Year Unit Sales
Years ended March 31

Consolidated Automobile Sales（Number of units）

ʼ14/3

ʼ 15/3

ʼ16/3

ʼ 17/3

ʼ18/3

Domestic units
LegacyImpreza
ForesterLevorgWRX
ExigaSUBARU BRZOEMOthers
Passenger cars
Minicars
Domestic total

18,961
61,071
36,572
0
0
3,853
3,380
1,857
453
126,147
55,454
181,601

13,84539,462
21,10340,559
7,514
1,937
1,890
1,127
439
127,876
34,876
162,752

11,35839,79422,04423,555
6,956
4,498
1,995
884
502
111,586
33,702
145,288

11,06551,592
24,23923,775
6,552
4,284
2,253
2,066
567
126,393
32,542
158,935

9,328
66,74818,13921,342
8,252
3,498
1,879
2,889
480
132,555
30,889163,444

Overseas units by region
U.S.
CanadaRussiaEuropeAustralia
China
OthersOverseas total

441,799
36,013
15,31431,756
39,51544,80734,293
643,497

527,630
42,43911,55935,73038,88953,82137,875
747,943582,674
47,5795,723
41,77844,611
44,38845,824
812,577

667,61353,061
5,338
40,915
49,10644,00045,574
905,607

670,931
56,8207,729
40,22855,674
26,872
45,231
903,485

Overseas units by model
LegacyImpreza
ForesterLevorg
WRX
Tribeca
SUBARU BRZOEMOthersOverseas total

182,712
210,828
231,173
002,561
15,822
256145
643,497

235,791
196,403269,649
037,982
64
7,914
135
5
747,943

286,979
217,272
250,072
7,713
43,120347,387
00812,577

333,339
238,858
272,768
6,823
47,18576,627
0
0905,607281,846
306,673
260,853
3,913
42,73917,460
00903,485

Grand total

825,098

910,695

957,865

1,064,542

1,066,929*Automobile sales of SUBARU CORPORATION and its consolidated subsidiaries

Consolidated Automobile Sales by Region
Japan
EuropeUnited States
Australia

CanadaChina

RussiaOthersLegacyWRXOEM(Thousand units)

Forester
Exiga
Minicars

LevorgSUBARU BRZ

1,200

1,065
1,000

825

911

1,067
1,000

958

800

600

600

400

400

200

200

0

825

911

1,065

1,067

’17/3

’18/3

958

0

’14/3

’15/3

’16/3

’17/3

’18/3

*Automobile sales of SUBARU CORPORATION and its consolidated subsidiaries

49

Impreza
Tribeca
Others(Thousand units)

1,200

800

Consolidated Automobile Sales by Model

Annual Report 2018

’14/3

’15/3

’16/3

*Automobile sales of SUBARU CORPORATION and its consolidated subsidiaries

Non-Consolidated Automobile Sales（Number of units）

ʼ14/3

ʼ 15/3

ʼ16/3

ʼ 17/3

ʼ18/3

Domestic units
LegacyImpreza
ForesterLevorgWRX
ExigaSUBARU BRZ
OEM
Passenger cars
Minicars
Domestic total

19,27262,51937,124
0
0
3,869
3,334
1,944
128,062
57,779185,841

14,73440,277
21,56941,832
7,991
2,016
1,941
1,224
131,584
35,563
167,147

11,665
41,137
22,631
24,014
7,181
4,797
2,070
904
114,399
35,642150,041

11,52953,13624,231
24,626
6,724
4,356
2,394
2,575
129,571
34,124
163,695

9,753
68,93719,00022,525
8,284
3,833
1,999
2,862
137,193
31,717
168,910

Export units
LegacyImpreza
ForesterLevorgWRX
ExigaSUBARU BRZ
OEMExport total

22,817206,022
247,362
0
7,644
145
15,11886
499,194

34,344
199,770
265,072
037,865
58,418
135545,60950,353
218,866
249,2027,880
43,1770
7,005
0576,483

39,719191,873
278,963
6,805
46,73006,653
0570,743

32,122
214,631254,397
3,813
44,05307,451
0556,467

Complete knockdown (CKD) overseas
Total

165,554

222,513242,424

353,770

348,144

Grand total

850,589935,269

968,948

1,088,208

1,073,521

ʼ13

ʼ 14

ʼ15

ʼ 16

160,340
130,567
123,591
0
1,598
8,587
424,683

191,060
128,952
159,953
25,492
732
7,504
513,693

212,741
155,712
175,192
33,734
0
5,296
582,675

248,204
150,915
178,593
33,27904,141615,132

U.S. retail sales (Calendar year: January to December)
LegacyImpreza
Forester
WRX
Tribeca
SUBARU BRZ
U.S. total

Non-Consolidated Domestic Automobile Sales by Model
LegacyExiga

Impreza
SUBARU BRZForesterOEM

LevorgMinicars

WRX(Thousand units)（Number of units）

ʼ17
238,723
196,181
177,563
31,358
04,131647,956

Non-Consolidated Automobile Export Units by Model
LegacyWRX

Impreza
Exiga

Forester
SUBARU BRZ

LevorgOEM(Thousand units)

200

600

186

546
167

164

169

500

576

571

556

’16/3

’17/3

’18/3

499

150

150

400
100

300
200

50
100
0

0

’14/3

’15/3

’16/3

’17/3

’18/3

’14/3

’15/3

Annual Report 201850

Financial Review
Business Segments and Scope of Consolidation
The SUBARU Group (“the Group”) consists of three business segments: the core Automotive Business Unit, which accounts
for approximately 95% of consolidated net sales; the Aerospace Company; and Other Businesses, consisting of businesses
that do not belong to either of the other two segments. In the fiscal year ended March 31, 2018 (April 1, 2017 to March 31,
2018; the “fiscal year under review”), SUBARU CORPORATION (“the Company”), 75 subsidiaries, and 8 equity-method
affiliated companies were included in the scope of consolidation.

Overview of Business Performance
As the employment and income environment improved supported by various policies, the Japanese economy continued
on a gradual recovery path in the fiscal year under review., Although the economic development in China and other Asianemerging markets, the impact from political uncertainties, and trends in the financial and capital markets were of note, theglobal economy, especially the United States, steadily recovered. Given this backdrop, the exchange rate was mostly
stable, with the yen against the U.S. dollar getting slightly stronger in the fourth quarter.
The North American market, our key market, continued to drive global sales, and we had steady results over the fiscal
year under review, including the achievement of record-high automobile unit sales. Consolidated net sales increased by
79.2 billion yen (2.4%) from the previous fiscal year to a record 3,405.2 billion yen, owing to net sales pushed up by thefavorable foreign exchange rates and higher automobile unit sales. Consolidated operating income decreased by 31.4
billion yen (7.6%) year on year to 379.4 billion yen, due to the increase in selling expenses associated with rising interest
rates in the U.S., the effect of raw materials market, and higher R&D expenses, despite the positive effect from the foreignexchange rates. Net income attributable to owners of parent decreased by 62.0 billion yen (22.0%) year on year to 220.4
billion yen partly owing to airbag related extraordinary loss of 81.3 billion yen.

Net Sales

Operating Income／Net Income Attributable to Owners of Parent
Operating income(Billions of yen)

Net income attributable to owners of parent(Billions of yen)

4,000

600

3,405.2
3,232.3 3,326.0
3,000

565.6

500

2,877.9

2,000

300
200

436.7

423.0

400

2,408.1

410.8

379.4

326.5
282.4

261.9

220.4

206.6

1,000
100
0

0

’14/3

’15/3

’16/3

’17/3

’18/3

’14/3

’15/3

’16/3

’17/3

’18/3

Analysis of Increase and Decrease in Operating Income Changes (Consolidated)(Billions of yen)

Sales volume
Cost& mixture reduction
and others

137.7

32.2

Gain oncurrency
exchange

565.6-169.1
SG&A
expenses and -143.8
othersLoss oncurrency
exchange’16/3
Operating income

51-154.8 billion yen

Annual Report 2018

410.8

32.7

379.4

-11.8

-44.2

R&D
expenses

-7.7

-6.9

SG&A
expensesand others

-5.3

Cost
reduction

R&D
expensesSales
volume &mixture andothers’17/3
Operating income-31.4 billion yen’18/3
Operating income

Segment Information
Automotive Business Unit
Net sales from the Automotive Business Unit were 3,234.9 billion yen, up by 82.9 billion yen (2.6%), and segment
income was 361.5 billion yen, down by 36.2 billion yen (9.1%), compared with the previous fiscal year. Consolidated
global unit sales reached a record high for the sixth consecutive year, increasing by 2,000 vehicles (0.2%) year on year to
1,067,000 units.

<Domestic Market>
Total automobile demand in Japan, in the fiscal year under review, increased 2.3% year on year to 5,197,000 units due tofactors including continued steady sales of passenger cars and increased minicar sales compared with the previous fiscal year.
The Groupʼs unit sales in Japan increased by 5,000 units (2.8%) year on year to 163,000 units. Although minicar unit
sales reached no further than 31,000 units, down by 2,000 units (5.1%) from the previous fiscal year, passenger car sales
remained strong, led mainly by the all-new SUBARU XV, resulting in a sales increase of 6,000 units (4.9%) to 133,000 units.

<Overseas Market>
The total automobile demand in the United States, which is our key market, was 17,308,000 units, a 1.0% decrease year on
year, shifting further from passenger vehicles to light trucks, including SUVs.
The Groupʼs overseas unit sales marked a slight decrease of 2,000 units (0.2%) to 903,000 units. While the unit sales in
the U.S. stayed strong, reaching a record-high for the ninth consecutive fiscal year, the unit sales in China decreased owing
to fierce competition. By region, sales volume increased by 7,000 units (1.0%) year on year to 728,000 units in North
America, increased by 2,000 units (3.7%) to 48,000 units in Europe and Russia, increased by 7,000 units (13.4%) to 56,000
units in Australia, decreased by 17,000 units (38.9%) to 27,000 units in China, and decreased by less than 1,000 units (0.8%)
to 45,000 units in other regions.

Aerospace Company
Net sales from the Aerospace Company were 142.2 billion yen, up by 3.4 billion yen (2.5%), and segment income was 12.3
billion yen, up by 3.2 billion yen (34.7%), compared with the previous fiscal year. Sales of products for the Japan Ministry of
Defense saw an increase from the previous fiscal year, mainly due to current development under a contract for the new
UH-X multi-purpose helicopter. Sales of products for the commercial sector also grew year on year with the increase inproduction of the Boeing 787, covering the decline in production of the Boeing 777.

Other Businesses
Net sales from Other Businesses were 28.2 billion yen, down by 7.1 billion yen (20.1%), and segment income was 5.1 billion
yen, up by 1.6 billion yen (44.2%), compared with the previous fiscal year.

Net Sales by Segment(Billions of yen)

ʼ14/3

ʼ 15/3

ʼ 16/3

ʼ 17/3

Automotive

2,246.6

2,699.0

3,039.4

Aerospace

124.4

142.8

152.8

138.8

142.2

Industrial
products

29.8

29.0

̶

̶

̶

Other

7.3

7.1

40.0

35.3

28.2

Total

2,408.1

2,877.9

3,232.3

Operating Income by Segment

ʼ18/3

3,152.0 3,234.9

3,326.0 3,405.2(Billions of yen)

ʼ 14/3

ʼ 15/3

ʼ 16/3

ʼ 17/3

ʼ18/3

Automotive

309.0

400.9

543.6

397.7

361.5

Aerospace

14.1

18.9

18.2

9.1

12.3

Industrial
products

0.6

0.8

̶

̶

̶

Other

2.1

1.9

3.0

3.5

5.1

Corporate andelimination

0.6

0.6

0.8

0.5

0.7

326.5

423.0

565.6

410.8

379.4

Total

* Following the decision in November 2016 to terminate the Industrial Products business, the said business has been included in the Other Businesses segment
since FYE March 2017. Figures for FYE March 2016 in the tables above have been restated to comply with the new segment classification.

R&D Expenses
In the fiscal year under review, R&D expenses increased by 6.9 billion yen (6.0%) compared with the previous fiscal year to121.1 billion yen. Of that amount, 117.6 billion yen was related to the Automotive Business Unit. In FYE March 2019, theGroup plans to reduce R&D spending by 1.1 billion yen (1.0%) year on year to 120.0 billion yen.

Annual Report 201852

Financial Review

Capital Expenditures and Depreciation
In the fiscal year under review, the Group made capital expenditures of 141.4 billion yen, a decrease of 17.1 billion yen(10.8%) compared with the previous fiscal year. Among the total capital expenditures, 133.4 billion yen has been spent inrelation to the Automotive Business Unit. The Company made investments of 63.0 billion yen in the automotive business,
primarily for augmenting production capacity accompanying the increase in unit sales and for developing and expanding
production facilities for new products, R&D facilities, and sales networks. Subaru of Indiana Automotive, Inc. (SIA), ourproduction base in the U.S., made investments of 39.5 billion yen, mainly for new products and production facilities toboost production capacity. Subaru of America, Inc. (SOA), a sales subsidiary in the U.S., also spent 9.0 billion yen mainly forthe relocation of its head office. Depreciation expenses in the fiscal year under review increased by 12.8 billion yen (16.6%)
year on year to 89.8 billion yen. Capital expenditures in FYE March 2019 are projected to decrease by 11.4 billion yen (8.1%)
year on year to 130.0 billion yen, and depreciation expenses to increase by 3.2 billion yen (3.6%) to 93.0 billion yen.

R&D Expenses

Capital Expenditures／Depreciation Expenses
Capital expenditures(Billions of yen)

Depreciation expenses(Billions of yen)

150

200

120

121.1

114.2
102.4

90

158.5

150

141.4

135.7

83.5

110.7
100

60.1

60

50

30

0

68.5
54.9

65.0

64.8

89.8

77.0

0

’14/3

’15/3

’16/3

’17/3

’18/3

’14/3

’15/3

’16/3

’17/3

’18/3

Liquidity and Source of Funds
Financial Position
Total assets as of March 31, 2018 were 2,884.3 billion yen, an increase of 122.0 billion yen compared with the previous fiscal
year-end. Property, plant and equipment, funds in hand (the sum of cash and deposits and short-term investment
securities), and deferred tax assets increased by 45.8 billion yen, 28.6 billion yen, and 26.5 billion yen, respectively. Total
liabilities amounted to 1,323.3 billion yen, up by 25.9 billion yen from the previous fiscal year-end. While the total of shortterm loans payable and both current and noncurrent long-term loans payable decreased by 62.1 billion yen, provision forloss related to airbags and accrued expenses increased by 64.7 billion yen and 34.6 billion yen, respectively. The fiscal

Total Assets／Net Assets／
Ratio of Shareholders’ Equity to Total Assets

Interest-Bearing Debt／D/E Ratio

Net assets (Left)
Total assets (Left)
Ratio of shareholders’ equity to total assets (Right)

Interest-bearing debt (Left)(Billions of yen)

(%)

3,000

2,592.4

2,762.3

90

2,884.3(Billions of yen)(Times)
0.6

300

269.7
0.5

250

2,199.7
2,000

1,888.4
40.5

46.5

51.8
1,349.4

52.8

60

1,464.9150

1,561.0
30

211.2

200

53.8

1,030.7

1,000

D/E ratio (Right)

148.3

0

53

’15/3

Annual Report 2018

’16/3

’17/3

’18/3

86.2
0.13

50

’14/3

0.3

0.21

100

770.1

0

0.4

170.0

0.35

0.10

0.1

0.06

0

’14/3

’15/3

’16/3

’17/3

0.2

’18/3

0

year-end balance of interest-bearing debt decreased by 62.1 billion yen from the previous fiscal year-end to 86.2 billion
yen. The debt/equity ratio (interest-bearing debt over shareholdersʼ equity) was 0.06, remaining at a safe level. Net assets
stood at 1,561.0 billion yen, an increase of 96.1 billion yen compared with the previous fiscal year-end, mainly due to anincrease in retained earnings of 110.3 billion yen. The shareholdersʼ equity ratio resulted in 53.8%.

Cash Flows
In the fiscal year under review, net cash provided by operating activities was 366.3 billion yen. Major cash in-flow items wereincome before income taxes of 297.3 billion yen, and provision for loss related to airbags of 64.7 billion yen. Net cash used
in investing activities was 150.7 billion yen. Major cash out-flow items included purchase of non-current assets (net ofproceeds from sales) of 146.5 billion yen. As a result, free cash flow for the fiscal year under review was 215.6 billion yen.
Net cash used in financing activities totaled 170.9 billion yen. Major cash out-flow items were cash dividends paid of 110.3
billion yen, repayments of long-term loans payable (net of proceeds) of 40.9 billion yen, and net decrease in short-termloans payable of 18.4 billion yen. As a result of the above cash flows, including the effect of translation adjustments, cash
and cash equivalents at the end of the fiscal year under review amounted to 765.6 billion yen.

Cash Flows from Operating Activities andInvesting Activities
Cash flows from operating activities

Free Cash Flow

Cash flows from investing activities(Billions of yen)(Billions of yen)

800

400

358.6

614.3

600

300
400

313.0

345.4

311.5

279.1

366.3
215.6

200

200

138.8

0
-200

100

-33.9
-172.8

-400

’14/3

’15/3

91.2

-150.7-255.7-254.3

’16/3

’17/3

0

’18/3

’14/3

’15/3

’16/3

’17/3

’18/3

Basic Policy on Profit Distribution and Dividends
The Company regards shareholder interests as an important management priority and applies a performance-linked
approach to shareholder returns by considering the business performance of each fiscal year, investment plans, and thebusiness environment, while maintaining a basic policy of paying continuous dividends. The Company determines dividend
payments for each fiscal year based on a consolidated dividend payout ratio range of 30-50%, taking a variety ofconditions into consideration. In light of these considerations, the Company paid an annual dividend of 144 yen per sharefor the fiscal year under review, the same as the previous fiscal year. Internal reserves are allocated to investments for future
growth, such as strengthening production and sales systems as well as research and development activities for the purposeof offering appealing products, while bolstering the financial position.
In July 2018, the Company announced its future capital policy in the new mid-term management vision “STEP,” thedetails of which are explained on pages 13-14. For FYE March 2019, the Company plans to pay a dividend of 144 yen per
share (interim and year-end dividends of 72 yen each), the same as for the fiscal year under review.

Business Performance in FYE March 2019
The Company forecasts the consolidated automobile sales volume in FYE March 2019 will continue to increase, mainly in
the North America market, to 1,100,000 units. Consolidated net sales are forecasted to mark 3,250.0 billion yen, due to thenegative effect of foreign exchange rate fluctuations and changes in accounting policies. In terms of income, despite theexpected increase in automobile unit sales, the Company forecasts consolidated operating income of 300.0 billion yen,consolidated ordinary income of 305.0 billion yen, and net income attributable to owners of parent of 220.0 billion yen, due
to the increase in selling expenses from higher interest rates in the U.S., and higher raw material costs. The exchange rate
assumptions used for the full-year forecast of consolidated business performance are 105 yen/1 U.S. dollar (actual rate of
111 yen in FYE 2018) and 130 yen/1 euro (actual rate of 130 yen in FYE 2018).

Annual Report 201854

Financial Review

Business Risks
Operational and other risks that could significantly influence the decisions of investors and impact the Companyʼs financial
status are set out below.
Based on information available to the Group as of the end of the consolidated fiscal year under review, the enumerated
risks include forward-looking statements, but do not encompass every possible risk posed to the Group. As such, there areother risk factors which could influence investors and their decisions.

(1) Economic Trends
Economic trends in countries and regions that comprise important markets for the Group could potentially impact theGroupʼs business performance. In Japan and North America, key markets for the Group, economic recession, decreasing
demand or increasing price competition could undermine the sales and profitability of the Groupʼs products and services.

(2) Currency Exchange Rate Fluctuations
The Groupʼs ratio of overseas net sales stood at 80.4%. The Groupʼs consolidated financial statements, which are presented
in Japanese yen, are affected by translation of overseas net sales, operating income and assets from local currencies,
particularly U.S. dollars, into yen. Accordingly, in the event that discrepancies arise between projected exchange rates infull-year forecasts and actual rates at the time of account settlement, the Groupʼs business performance and financial
position may be adversely affected when the yen appreciates or positively affected when the yen depreciates.
The Company uses forward exchange rate contracts and other circumstance-appropriate risk hedges to minimize theGroupʼs sensitivity to such currency exchange risks. However, the effect of severe fluctuations in currency exchange rates atthe end of the fiscal year could result in a loss on valuation of derivatives and have a major impact on non-operating
expenses.

(3) Dependence on Certain Businesses
The Group is mainly comprised of the Automobiles and Aerospace business segments. However, the Automobiles
business segment accounts for the overwhelming majority of the Groupʼs business operations. Accordingly, in the eventthat automobile-related demand, market conditions, price competition with other automakers, or other factors exceed
projected levels, the entire Groupʼs overall business performance and financial position could be significantly affected.

(4) Changes in Market Appraisal
The Group develops, manufactures and releases new products based on appropriate timing and pricing in line withproduct planning that reflects market demand and customer needs. Such actions are the most important factors inmaintaining stable increases in Group business performance. In the event that market appraisals of new model vehicles
and other new products do not meet sales plan expectations or that the obsolescence rate of current products exceeds
forecasts, the Groupʼs business performance and financial position could be significantly affected.

(5) Dependence on Specific Suppliers, Raw Materials, and Components
The Group procures raw materials, components and other items from numerous suppliers. However, there are cases inwhich the Group relies on certain items and/or a limited number of suppliers. Due to tightening supply and demand orother factors, the inability to procure supplies in a manner that ensures stable costs, delivery dates and quality could
seriously impact the Groupʼs business performance and financial position.

(6) Protection of intellectual property
The Group is strongly committed to protecting its intellectual property in areas, such as technologies and expertise, that
ensure product differentiation. However, in cases where a third party makes unauthorized use of the Groupʼs intellectual
property to manufacture similar products and in cases where a dispute relating to intellectual property arises and a decision
disadvantageous to the Company is made, the Groupʼs business results and financial condition may be significantly
affected.

(7) Product Defects
The Group places the highest priority on the safety of the products it develops, manufactures and sells. However,completely avoiding defects and recalls, etc. regarding all products and services is impossible. The substantial cost,damage to our brand image, etc. associated with a major recall could significantly affect the Groupʼs business performanceand financial position.

55

Annual Report 2018

(8) Retirement Benefits and Retirement Benefit Obligations
The Groupʼs employee retirement benefit costs and obligations are calculated based on the following assumptions:retirement benefit obligation discount rates and the expected long-term rate of return on pension assets, both of which
are established based on mathematical calculations. However, in the event that actual performance differs from theassumptions, the Groupʼs business performance and financial position could be affected over the long term.

(9) Environmental and Other Legal Regulations
The Group is subject to various domestic and overseas legal regulations in relation to automobile fuel efficiency, exhaustemissions, energy conservation, noise, recycling, the level of pollutants emitted from manufacturing facilities, and thesafety of automobiles and other products. The Groupʼs business performance and financial position could be affected bycost increases due to future tightening of such regulations.

(10) Impact of Natural Disasters, War, Terror, Strikes and Other Events
The occurrence of natural disasters such as major earthquakes, typhoons, etc., and diseases, wars, terrorist attacks or otherevents, could impede the Groupʼs business activities as well as delay or suspend raw material/component purchases,
production, product sales/transport, and the provision of services. The Groupʼs business performance and financial position
could be affected in the event that such delays or suspensions are prolonged.

(11) International Business Activities
Though the Group focuses on the U.S., it does business in countries around the world. Business activities in overseas
markets entail the following types of risk. If any of these risks materializes, the Groupʼs business performance and financial
position could be adversely affected.
• Unfavorable political or economic factors• Difficulties arising from changes in laws or regulations• Revisions to taxes, duties, or other taxation systems• Difficulties in hiring and retaining personnel(12) Impact of Information Security
The Group uses various kinds of information technology, networks, and systems in product development, production,
sales, and other business activities. Although safety measures have been implemented with respect to information
technology, networks, and systems, interruption of important work or services, data corruption or loss, leaks of confidential
information, or other problems could occur due to cyberattacks, hacking, computer virus attacks, or the like. This could
damage the brand image or adversely affect the Groupʼs business performance and financial position.

(13) Compliance and Reputation
The Group considers rigorous compliance one of the most important management priorities and strives to avoid or
minimize compliance risks through compliance with all laws, ordinances, and internal regulations required in corporate
activities and the execution of fair and equitable corporate activities in conformity with social norms. Nevertheless, theoccurrence of a material legal violation could have a significant impact on the Group and adversely affect the Groupʼsbusiness performance and financial position due to loss of customer confidence and trust, or damage to the Groupʼsreputation in society.

Annual Report 201856

Corporate Information
Domestic Facilities
Name

Location

Land Area(Thousand m2)

Building Area
(Thousand m2)

Number of
Employees(Person)Main Products

Head Office (Ebisu)

Tokyo

4

14

599

̶

SUBARU Training Facility(SUBARU Academy)

Tokyo

10

13

38

̶

164

142

̶

76

1,664

̶

332

4,416

LEVORG, IMPREZA,
SUBARU XV, WRX andSUBARU BRZHead Office
Other

Parts Distribution Center, Pre
Delivery Inspection Center,parking lot, Vicinity of Oizumi
Plant etc.

Tokyo Office

Automotive
Business

Aerospace
Company

Gunma
Plant

Gunma

Tokyo

158
585

Gunma Main Plant

Gunma

Gunma Yajima Plant

Gunma

550

259

3,041

LEGACY, OUTBACK,IMPREZA, SUBARU XV and
FORESTER

Gunma Oizumi Plant

Gunma

304

229

2,637

Automobile engines andtransmissions［12］

Gunma Ota North Plant

Gunma

44

25

0

̶

SUBARU
R&E Center (Sano)

Tochigi

1,081

25

171

̶

SUBARU
R&E Center (Bifuka)

Hokkaido

3,614

2

0

̶

Utsunomiya Plant

Tochigi

573

232

1,849

Aircraft

Handa Plant

Aichi

59

27

277

Aircraft

Handa West Plant

Aichi

42

14

45

Aircraft

7,596

1,412

14,879767

0

Subtotal (1)The site of airport

Gunma

Utsunomiya airstrip

Tochigi

111

0

̶

219

100

Welfare facility
Other

572
［15］

Lease to affiliates

Aichi

45

7

Isesaki business office

Gunma

184

66

Eco Utsunomiya factory

Tochigi

61

Saitama Plant

Saitama

143

92

Subtotal (2)

1,475

266

Total (1)+(2)

9,071

1,678

1. [ ]: area of tenancy
2. Welfare facility includes 37 sites of dormitories and company houses.
3. Number of employees excludes executive officers, advisors and dispatches.

57

Annual Report 2018

Main Subsidiaries (Domestic)(As of May 1, 2018)(Number of Employees: as of March 31, 2018)

Established

Location

CapitalRepresenta(Millions of
tive
yen)

EquityInterest(%)

Number of
Employees(Persons)

FYE 2018
Net sales(Millions of yen)

Fuji Machinery Co., Ltd.

1950. 7. 18

Gunma

Yasuhiro
Arai

480

100.0

448

36,671

Manufacture and sales of automobile parts,
industrial product parts and agriculturaltransmissions

Ichitan Co., Ltd.

1951. 2. 2

Gunma

Satoshi
Maeda

480

100.0

226

18,993

Manufacture and sales of forging parts ofautomobile and industrial machinery

KIRYU INDUSTRY Co., Ltd.

1960.12. 23

Gunma

Yukio
Nakano

400

97.7

274

11,763

Manufacture of specially-equipped SUBARU
automobiles, engines, sheet metal repair partsand remanufacture of transmissions

Subaru Tecnica International
Inc.

1988. 4. 2

Tokyo

YoshioHirakawa

250

100.0

97

4,594

Management of motor sports activities, sales ofmotor sports parts and merchandise, technicaldevelopment, R&D support, and automobile
maintenance

Subaru Used cars Sales &Marketing Co., Ltd.

1988. 4. 2 Kanagawa

Masahiro
Maeda

100

100.0

20

3,723

Tack-related operation of used cars,head office of SUAA Kanto, sales of supplies

Subaru Auto Accessories Ltd.

1987. 3. 9

SaitamaToshioMasuda

70

100.0

66

14,519

Sales, research & development, licensing oftechnology and import-export business of
automobile accessories, parts and service
materials

Subaru Logistics Co., Ltd.

1986. 3. 27

Gunma

Tamaki
Kamogawa

96

100.0

339

21,991

Shipping, land freight, warehousing,maintenance and insurance for automobiles andtheir components

H. B. C. Co., Ltd.

1983. 8. 29 Kanagawa

Kei
Ono

490

68.0

9

712

Subaru Finance Co., Ltd.

1988. 7. 1

Tokyo

Mitsuru
Takahashi

2,000

100.0

221

19,799

Leasing and rental of SUBARU automobiles,
credit, financing and sales of auto insurance

SUBARU TECHNO
CORPORATION

1985. 3. 2

Tokyo

Tatsuhiko
Mukawa

70

100.0

854

7,943

Design, plan, research, experiment, examinationand compile technical material of automobile,
aircraft, general-purpose engine andenvironmental tool

Subaru Intelligent Service Ltd.

2005. 3. 1

Tokyo

Kunihiko
Tashiro

40

75.0

56

2,056

Development of technical service documents
including service manuals and owners manuals

Yusoki Kogyo K. K.

1950. 7. 15

Aichi

Eiji
Tanikawa

100

100.0

130

2,070

Manufacture and sales of aircraft parts

Fuji Aircraft MaintenanceCo., Ltd.

1988.10. 31

Tokyo

Takayuki
Kobayashi

30

100.0

181

1,440

Inspection, service and maintenance of
aircraft and onboard equipment

Fuji Aerospace Corporation.

1991. 6. 14

Tochigi

Eishi
Umehara

30

100.0

132

1,388

Processing and assembly of aircraft parts

Fuji Aerospace Technology
Co., Ltd.

1994. 4. 1

Tochigi

Hiroshi
Wakai

20

100.0

93

2,741

Contract design, drafting, translation,
calculation, analytical testing and softwaredevelopment for aircraft

Fuji Heavy Industries House
Co., Ltd.

1999. 9. 1

Gunma

Kazuo
Terauchi

200

87.2

37

2,320

Rental/lease/sales of temporary houses,
transport and set up of temporary houses,
deal of used houses

Industrial Products Co., Ltd.

2017.10. 1

SaitamaKazutoShimada

20

100.0

219

1,955

Customer support for small general-purpose
engines and associated parts, including quality
assurance and spare part sales

Subaru Kohsan Co., Ltd.

1977. 2. 2

Tokyo

Yasuo
Kosakai

675

100.0

64

6,276

Deal/rental of real estate, administrative
operation of rental hall and conference room,administrative operation/rental of parking
ground, travel agency

SUBARU IT CREATIONSCORPORATION

1993. 4. 1

SaitamaNozomu
Oyama

100

100.0

261

13,535Development, maintenance and operation of
information systems and related consulting
services; sales and leasing of informationequipment

Subaru Living Service
Co., Ltd.

1988. 4. 2

Tokyo

Masami
Iida

20

100.0

351

16,118

Sales of office supplies and daily commodities,
real estate services, and personal import services

Name

Operations

Storing and shipping of automobiles forinternational sales

Shareholdings of SUBARU Corporation

Annual Report 201858

Corporate Information(As of April 1, 2018)(Number of Employees: as of March 31, 2018)

Main Subsidiaries (Overseas)
RegionRepresentative

EquityInterest (%)

Number of
Employees(Persons)

Thomas J.
Doll

100

1,304

Sales of SUBARU vehicles andsupplies

5500 State Road 38 East, Lafayette,
IN 47905, U.S.A.

Eiji
Ogino

100

5,613

Manufacture of SUBARU vehicles,
purchasing of parts, sales for Subaru
of America, Inc.

C/O Subaru of America, Inc.
Subaru Plaza, 2235 Route70 West Cherry Hill, NJ 08002, U.S.A.

Shinichiro
Sumi

100

76

Technical research on SUBARU
vehicles in North American market,
government relations

Tetsuo
Onuki

100

81

Compiling of technical information
about automobile market of North
America, research and developmentof SUBARU vehicles

Name

Established

Address

Subaru of America, Inc.

1990.9One Subaru Drive, Camden,
NJ 08013, U.S.A.

Subaru of Indiana
Automotive, Inc.

1987.3

North American Subaru,
Inc.

1985.9Operations

3995 Research Park Drive, Ann Arbor,
MI 48108, U.S.A.

North
America6431 Global Drive Cypress,
CA 90630, U.S.A.
Subaru Research &Development, Inc.

1986.614382 Chambers Road, Tustin,
CA 92780, U.S.A.
46718 Fremont Blvd, Fremont,
CA 94538, U.S.A.
C/O Subaru of Indiana Automotive,
Inc.
5500 State Road 38 East, Lafayette,
IN 47905, U.S.A.

EuropeAsia

59

Subaru Canada, Inc.

1989.1560 Suffolk Court Mississauga,
Ontario, L5R 4J7, Canada

Yasushi
Enami

100

148

Sales of SUBARU vehicles andsupplies

Subaru Europe N.V./S.A.

2002.3

Leuvensesteenweg 555 B/8,
1930 Zaventem, Belgium

Masamichi
Kudo

100

45

Sales of SUBARU vehicles andsupplies

Subaru Italia S.p.A.

1985.7

Via Montefeltro, 6/A,
20156 Milano, Italy

Takashi
Yamada100

53

Sales of SUBARU vehicles andsupplies

N.V. Subaru Benelux

1974.3

Leuvensesteenweg 555 B/1,
1930 Zaventem, Belgium

Shunsuke
Sawada100

42

Sales of SUBARU vehicles andsupplies

Subaru Vehicle
Distribution B.V.

2001.5Merseyweg 40, 3197 KG Botlek,
Netherlands

Shunsuke
Sawada50

1

Contract of discharging andtransporting inland for dealers in
Middle Europe, PDI operation

Subaru of China Ltd.

2006.3Beijing Landmark Towers Office
Building 2-1501, 8 North Dongsanhuan
Road, Chaoyang District, Beijing
100004, China

Yasushi
Nagae

60

199

Sales of SUBARU vehicles
and supplies

Subaru Technology
Beijing. Co., Ltd.

2013.6

Beijing Landmark Towers Office
Building 1-802, 8 North Dongsanhuan
Road, Chaoyang District, Beijing
100004, China

HisatoImamura100

31

Authentication, research anddevelopment of SUBARU vehicles in
Chinese market

SUBARU ASIA PTE. LTD.

1995.224 Raffles Place, #26-06B Clifford
Centre, Singapore 048621

TakumaNoguchi100

2Launch support of SUBARU vehicle
production in Asia

Annual Report 2018

Sales Agents (Domestic)
Area

Group

(As of July 1, 2018)
Head○

Hokkaido
Tohoku area (9)Tohoku region○

Hoku Shinetsu
regionKanto Koshinetsu
Hokuriku area (12)Agent

Subsidiary

Tokai region

Chubu
Kinki area (11)○Kinki region○

Chugoku/
Shikoku region

Chugoku Shikoku
Kyushu area (12)○Kyushu region

Total

6

New Car Base

Hokkaido

Hiroshi Uehara

1

Obihiro Subaru Inc

Hokkaido

Takashi Ishihara

1

Hokkaido

Tomoo Takenaka

20

Hokkaido Subaru Inc.

○

Miyagi Subaru Inc○

Miyagi

Makoto Hada

11

Aomori Subaru Inc.

○

Aomori

Kenichi Kobayashi

6

Iwate Subaru Inc

○

Iwate

Yasuo Watanabe

9

Akita Subaru Inc.

○

Akita

Takaharu Mitsui

6

Yamagata Subaru Inc○

Yamagata

Toshiki Sugihara

5

Fukushima Subaru Inc.

○

Fukushima

Ryoichi Uchida

11

Niigata Subaru Inc○

Niigata

Tatsuya Yamano

11

Subaru Shinshu Inc.

○

NaganoKinya Abe10

Hokuriku Subaru Inc.

○

Ishikawa

Shiro Ohta

12

Nanshin Subaru Inc

NaganoHirotada Shibata

1

Fuji Subaru Inc

Gunma

Wataru Miyata

17

Tochigi Subaru Inc

Tochigi

Kazumasa Kodaira

12

Ibaraki Subaru Inc

IbarakiNaoki Otsuki

10

Saitama

Hiroshi Yoshizawa

16

Kanagawa Subaru Inc○

Kanagawa

Katsuhisa Iiyama

26

Chiba Subaru Inc

○

Chiba

Tsuguto Nakamura

20

Tokyo Subaru Inc

○

Tokyo

Kazuo Hosoya

32

Yamanashi Subaru Inc.

○

Yamanashi

Hirohiko Kumada

3

Shizuoka Subaru Inc.
○

President

Kushiro Subaru Inc.

Saitama Subaru Inc

Tokyo/Yamanashi

Location

Shizuoka

Shinichi Ishida

12

Nagoya Subaru Inc.

○

Aichi

Takumi Ogasawara

22

Gifu Subaru Inc

○

Gifu

Koichi Numa

9

Mie Subaru Inc.

○

Mie

Masato Yachida

7

Subaru Higashi Aichi Inc.

Aichi

Yasuo Nishikawa

3

Fukui Minami Subaru Inc.

Fukui

Satoshi Okada

1

Nara Subaru Inc.

Nara

Yuzuru Takagi

5Osaka Subaru Inc

○

Osaka

Motoya Yamamoto

26

Kyoto Subaru Inc.

○

Kyoto

Tetsuo Inoue

8

Shiga Subaru Inc.

○

Shiga

Tomio Sogou

7

Hyogo Subaru Inc.

○

Hyogo

Syuji Sunaga

18

Hiroshima Subaru Inc.

○

Hiroshima

Ken Fukuda

9

Sanin Subaru Inc.

○

TottoriNobuhiro Mori

7

Okayama Subaru Inc○

Okayama

Sadayuki Hata

7

Yamaguchi Subaru Inc.

○

Yamaguchi

Wataru Ishihara

8

Higashi Shikoku Subaru Inc○

KagawaHiromi Fujita

8

Shikoku Subaru Inc.

○

Ehime

Tsukasa Morita

7

Fukuoka Subaru Inc○

Fukuoka

Kazuto Sakamoto

16

Nishi Kyushu Subaru Inc○

Nagasaki

Makoto Kimura

7

Kumamoto Subaru Inc○

Kumamoto

Tetsuya Matsumoto

8

Oita Subaru Inc.

○

Oita

Eiji Akamine

5

Minami Kyushu Subaru Inc○

Kagoshima

Hiroshi Kurotani

10Okinawa Subaru Inc○

Okinawa

Masaaki Kakazu

3

33

̶

̶

453

44

Annual Report 201860

Corporate Information

Distributors (Overseas)
RegionMarketCompany

Location

Number of
Dealers

SUBARU
Ownership

North
America

U.S.

Subaru of America, Inc.

Camden, NJ, U.S.A.

630

100%

CanadaSubaru Canada, Inc.

Mississauga, Ontario, Canada

93

100%

Total

3 countries

̶

̶

179

29%

Germany
EuropeSwitzerland
Sweden

Total

Total

Oceania
Total

Friedberg, Germany

SUBARU SCHWEIZ AG

Safenwil, Switzerland

157

0%

Subaru Nordic AB

Arlöv, Sweden

133

0%

̶

̶

13

0%

Japanauto-Israel Auto Corporation Ltd.

Petah Tikva, Israel

RussiaSUBARU MOTOR (RUSSIA) LLC

Moscow, Russia

47

33%

Egypt

ABOU GHALY MOTORSCairo, Arab Republic of Egypt

31

0%

̶

̶

19 countries

Australia

Subaru (Aust) Pty Ltd.

Sydney, Australia

116

8%

New Zealand

Subaru of New Zealand

Auckland, New Zealand

16

0%

̶

̶

8 countries

Chile
Latin
America

SUBARU DEUTSCHLAND GMBH

30 countries

Israel
CIS・Middle
East・Africa

Subaru Chile S.A.

Vitacura Santiago, Chile

24

0%

Peru

Inchcape del Perù S.A.

Lima, Peru

100%

Mexico

SGM Automotoriz de México S.A. de C.V.

Mexico, D.F., Mexico

13

0%

̶

̶

Total

24 countries

TaiwanSubaru of Taiwan Co.,Ltd.

Taoyuan City, Taiwan

23

35%

Asia

Philippines

Motor Image Philipinas, Inc.

Pasig City, Metro Manila, Philippines

170%Singapore

Motor Image Enterprises Pte Ltd

Singapore

2

0%

̶

̶

208

60%

̶

̶

Total

9 countries

Total

1 country

China

61

(As of July 1 2018)(Dealer numbers: as of December 31, 2017)

Annual Report 2018

Subaru of China Ltd.

Beijing, China

Global Network
Main Overseas Business Sites

4
2
5 6
1 3

9 11
10

1

7 8

12

1 Subaru Europe N.V./S.A.

7

Subaru of America, Inc.

2

Subaru Italia S.p.A.

8North American Subaru, Inc.

3

N.V. Subaru Benelux

9

Subaru Research & Development, Inc.

4

Subaru Vehicle Distribution B.V.

10 Subaru of Indiana Automotive, Inc.

5

Subaru of China Ltd.

6

Subaru Technology Beijing. Co.Ltd.

Production Models:

Legacy, Outback, Impreza, Ascent
11 Subaru Canada, Inc.
12 SUBARU ASIA PTE. LTD.

Main Domestic Business Sites
Automotive Business Unit
Gunma Plant
Plant

Production Models

Main Plant

Levorg, Impreza, SUBARU XV,WRX, SUBARU BRZ

Aerospace Company

Yajima Plant

Legacy, Outback, Impreza,
SUBARU XV, Forester

Utsunomiya Plant

Oizumi Plant

Automobile engines andtransmissions

Aerospace Company
Handa Plant
Handa West Plant

1

Head Office

Tokyo Office

Annual Report 201862

Corporate Information

Corporate Data (As of March 31, 2018)
Company Name

SUBARU CORPORATION

Established

July 15, 1953

The manufacture, sale, and repair ofpassenger cars and their components

Paid-In Capital¥153,795 million

Aerospace:

Fiscal Year-End

March 31

Accounting Auditors

KPMG AZSA LLC

Main Businesses

Automotive:

The manufacture, sale, and repair of
airplanes, aerospace-related machineryand their components
Number of Affiliates

75 consolidated subsidiaries and8 equity-method affiliated companies

Number of Employees

14,879 (consolidated: 33,544)(excluding executive officers, advisors and dispatches)

Website Addresses

Corporate website:

https://www.subaru.co.jp/en/
Investor information website:

https://www.subaru.co.jp/en/ir/

Stock Information (As of March 31, 2018)
Common Stock Authorized

1,500,000,000 shares

Breakdown of Shareholders

Common Stock Issued

769,175,873 shares

Securities companies

Number of Shareholders

138,794

Number of Shares per
Trading Unit

100 shares

Stock Exchange Listing

Tokyo Stock Exchange

11.9%

Securities Code

7270

Transfer Agent

Mizuho Trust & Banking Co., Ltd.
2-1, Yaesu 1-chome, Chuo-ku,
Tokyo 103-8670, Japan
Telephone: 0120-288-324 (toll-free)Japanese
corporations
and others

32,136,000 shares

4.2%

Treasury stock

Individuals and others

0.3%

2,055,000 shares

91,637,000 shares

Financial institutions
248,835,000 shares

32.4%

157,018,000 shares

Foreign institutions
and others

20.4%

237,492,000 shares

30.9%

Major Shareholders
Number of Shares Held(in thousands)

Percentage of Total
Shares Held

Toyota Motor Corporation

129,000

16.82%The Master Trust Bank of Japan, Ltd. (Trust account)

49,904

6.51%

Name

Japan Trustee Services Bank, Ltd. (Trust account)

44,4105.79%

BNYM TREATY DTT 15

14,055

1.83%

Japan Trustee Services Bank, Ltd. (Trust account 5)

11,863

1.55%

STATE STREET BANK WEST CLIENT-TREATY 505234

11,048

1.44%

Japan Trustee Services Bank, Ltd. (Trust account 4)

10,433

1.36%

Mizuho Bank, Ltd.

10,078

1.31%

MIZUHO SECURITIES ASIA LIMITED-CLIENT A/C

10,0021.30%

Sompo Japan Nipponkoa Insurance Inc.

9,726

1.27%

*The Percentage of Total Shares Held are calculated based on the number of shares excluding treasury stock.

Contact for Inquiries:
Investor Relations,
Corporate Communications Dept., SUBARU CORPORATION
Address: Ebisu Subaru Bldg., 1-20-8, Ebisu, Shibuya-ku, Tokyo 150-8554
Telephone: +81-3-6447-8000 (switchboard)

63

Annual Report 2018

Ebisu Subaru Bldg., 1-20-8, Ebisu, Shibuya-ku,
Tokyo 150-8554
Phone & Fax: +81-3-6447-8000
http://www.subaru.co.jp/en/ir/

Consolidated Balance Sheets

106.27

SUBARU CORPORATION AND CONSOLIDATED SUBSIDIARIESAs of March 31, 2018 and 2017

ASSETS
Current assets:
Cash and deposits (Note 4 and 5)
Notes and accounts receivable-trade (Note 5)
Lease investment assets (Note 5 and 17)
Short-term investment securities (Notes 4, 5 and 6)
Merchandise and finished goods
Work in process
Raw materials and supplies
Deferred tax assets (Note 12)
Short-term loans receivable (Note 5)
Other current assets
Allowance for doubtful accounts
Total current assets

2018

2017

Thousands of
U.S. dollars(Note 1)
2018

¥765,397
155,247
17,120242,573
202,435
52,30742,448
124,766
185,364
107,893(340)
1,895,210¥658,822
158,454
18,538
320,579
205,991
51,754
43,586109,600
176,433
102,045(551)
1,845,251$7,202,381
1,460,873
161,099
2,282,610
1,904,912
492,209399,435
1,174,047
1,744,274
1,015,272(3,198)
17,833,914

Property, plant and equipment (Notes 7 and 9)
Accumulated depreciation
Accumulated impairment loss
Total property, plant and equipment

1,698,491(968,876)(26,507)703,108

1,622,363(937,015)(28,083)
657,265

15,982,789(9,117,117)(249,431)
6,616,241

28,293106,964
9,817
82
32,244
111,957(3,362)

24,905104,278
4,006
931
20,922
108,074(3,311)

266,237
1,006,531
92,378772
303,416
1,053,513(31,636)

Millions of yen

Investments and other assets:
Intangible assets
Investment securities (Note 5 and 6)
Investments in non-consolidated subsidiaries and affiliated companies
Net defined benefit assets(Note 11)
Deferred tax assets (Note 12)
Other assets
Allowance for doubtful accounts
Total investments and other assets
Total assets

285,995

259,805

2,691,211¥2,884,313¥2,762,321$27,141,366

2018

2017

Thousands of
U.S. dollars(Note 1)
2018

¥320,137
64,86322,082
42,982
255,914
24,131
34,74345,372
3,098
64,711
172,973
1,051,006¥349,737
92,09843,20544,443
221,328
23,67859,25913,858
3,317
162,815
1,013,738$3,012,487
610,360
207,791
404,460
2,408,149
227,073
326,931426,950
29,152608,930
1,627,676
9,889,959

21,13819,33735,801
20,305
175,703272,284

60,612
18,61529,802
174,666
283,695

198,908
181,961
336,887
191,070
1,653,365
2,562,191

Millions of yen
LIABILITIES AND NET ASSETS
Current liabilities:
Notes and accounts payable-trade (Note 5)
Electronically recorded obligations-operating (Note 5)
Short-term loans payable (Note 5 and 7)
Current portion of long-term debts (Note 5 and 7)
Accrued expenses (Note 5)
Provision for bonuses
Provision for product warranties
Accrued income taxes (Note 5 and 12)
Provision for loss on business liquidation
Provision for loss related to airbags
Other current liabilities (Note 5 and 7)
Total current liabilities
Long-term liabilities:
Long-term debts (Note 5 and 7)
Net defined benefit liability(Note 11)
Provision for product warranties
Deferred tax liabilities (Note 12)
Other long-term liabilities (Note 7)
Total long-term liabilities
Contingent liabilities (Note 19)
Net assets: (Note 13)
Shareholders' equity:
Capital stock
Authorized—
1,500,000,000 shares
Issued —769,175,873 shares
Capital surplus
Retained earnings
Less－treasury stock, at cost,
2018—
2,455,039 shares
2017—
2,490,224 shares
Total shareholders’ equity
Accumulated other comprehensive income:
Valuation difference on available-for-sale securities
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Remeasurements of other postretirement benefits of foreign consolidated subsidiaries
Total accumulated other comprehensive income
Non-controlling interests
Total net assets
Total liabilities and net assets
The accompanying notes are an integral part of these balance sheets.

純資←
153,795
160,197
1,283,539(7,054)

153,795
160,178
1,173,277(7,173)

1,447,210
1,507,453
12,078,094(66,379)

1,590,477

1,480,077

14,966,378

7,038(36,193)(10,136)
1,658(37,633)
8,179
1,561,023

8,099(16,631)(10,996)(1,885)(21,413)6,224
1,464,888

66,227(340,576)(95,379)
15,602(354,126)
76,964
14,689,216¥2,884,313¥2,762,321$27,141,366

Consolidated Statements of Income

106.27

SUBARU CORPORATION AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2018 and 20172018
¥3,405,221
2,442,706
962,515583,068
379,4472017¥3,325,992
2,386,266
939,726
528,916
410,810

Thousands of
U.S. dollars(Note 1)
2018
$32,043,107
22,985,847
9,057,260
5,486,666
3,570,594

8,186(1,379)778(7,395)
2,266(4,837)4,618(1,025)(31)(81,261)(2,027)(82,107)297,340

4,616(1,846)292(4,800)(4,248)(3,270)10,144(956)(7,659)(1,188)(5,122)(2,078)(16,115)394,695

77,030(12,976)
7,321(69,587)
21,323(45,516)
43,455(9,645)(292)(764,665)(19,075)(772,627)
2,797,967

113,155(37,554)
75,601
221,739

123,591(12,448)
111,143
283,552

1,064,788(353,384)
711,404
2,086,563

Millions of yen

Net sales (Note 2)
Cost of sales (Note 14)
Gross profit
Selling, general and administrative expenses (Note 2 and 15)
Operating income
Other income (expenses):
Interest and dividend income
Interest expenses
Equity in earnings of affiliates
Foreign exchange gains (losses)
Gain (loss) on valuation of derivatives
Gain (loss) on sales and retirement of noncurrent assets
Gain (loss) on sales of investment securities (Note 6)
Depreciation
Cost of Settlement
Impairment loss (Note 9)
Loss on related to airbags(Note 16)
Loss on business liquidation(Note 16)
Other, net
Income before income taxes
Income taxes (Note 12):Current
Deferred
Net income
Net income attributable to non-controlling Interests
Net income attributable to owners of the parent

1,385

1,198

13,033¥220,354¥282,354$2,073,530

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

Yen

U.S. dollars(Note 1)¥365.77
1,902.56¥144.00

$2.70
19.06
$1.36

2018
¥221,739

Millions of yen
2017¥283,552

Thousands of
U.S. dollars(Note 1)2018
$2,086,563(1,061)(18,985)
860
3,543
(54)
(15,697)(3,245)(2,968)
1,812
984
(783)
(4,200)(9,985)(178,649)
8,093
33,340(508)(147,709)

206,042¥279,352$1,938,854

204,449¥1,593

278,689¥663

1,923,864$14,990¥287.40
2,025.31¥144.00*For the year ended March 31, 2018 and 2017 diluted information is not presented because potentially dilutive securities do not exist.

Consolidated Statements of Comprehensive Income(loss)
SUBARU CORPORATION AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2018 and 2017

Net Income
Other comprehensive income(loss) (Note 3)
Valuation difference on available-for-sale securities
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Remeasurements of other postretirement benefits of foreign consolidated subsidiaries
Share of other comprehensive income (loss) of associates accounted for using equity method
Total other comprehensive income(loss)
Comprehensive income(loss)
Comprehensive income (loss) attributable to:
Owners of the parent
Non-controlling interests

Consolidated Statements of Changes in Net Assets

106.27

SUBARU CORPORATION AND CONSOLIDATED SUBSIDIARIESAs of March 31, 2018 and 2017

Shareholders' equity
Capital stock
Balance at the beginning of current period
Balance at the end of current period
Capital surplus
Balance at the beginning of current period
Changes of items during the period
Disposal of treasury stock
Retirement of treasury shares
Transfer to capital surplus from retained earnings
Other
Total changes of items during the period
Balance at the end of current period
Retained earnings
Balance at the beginning of current period
Changes of items during the period
Dividends from surplus
Net income attributable to owners of the parent
Disposal of treasury stock
Adjustments due to change in fiscal year end of consolidated subsidiaries
Change of scope of consolidation
Change of scope of equity method
Transfer to capital surplus from retained earnings
Other
Total changes of items during the period
Balance at the end of current period
Treasury stock
Balance at the beginning of current period
Changes of items during the period
Purchase of treasury stock
Disposal of treasury stock
Retirement of treasury shares
Total changes of items during the period
Balance at the end of current period
Total shareholders' equity
Balance at the beginning of current period
Changes of items during the period
Dividends from surplus
Net income attributable to owners of the parent
Purchase of treasury stock
Disposal of treasury stock
Adjustments due to change in fiscal year end of consolidated subsidiaries
Change of scope of consolidation
Change of scope of equity method
Other
Total changes of items during the period
Balance at the end of current period

Millions of yen

Thousands of
U.S. dollars(Note 1)

2018

2017

2018

¥153,795
153,795¥153,795
153,795$1,447,210
1,447,210

160,178

160,071

1,507,274

19
19
160,197

1(46,973)
46,972
107
107
160,178

179
179
1,507,453

1,173,277

1,049,016

11,040,529(110,463)
220,354
828
(355)
922
(1,024)110,262
1,283,539(111,446)
282,354(1)
325(46,972)1
124,261
1,173,277(1,039,456)
2,073,530
7,791(3,341)
8,676(9,635)
1,037,565
12,078,094(7,173)(1,402)(67,498)

(11)
130
119
(7,054)(52,744)046,973(5,771)(7,173)

(104)
1,223
1,119
(66,379)

1,480,077

1,361,480

13,927,515(110,463)
220,354
(11)
149
828
(355)
922
(1,024)110,400¥1,590,477(111,446)
282,354(52,744)0
325
108
118,597¥1,480,077(1,039,456)
2,073,530
(104)
1,402
7,791
(3,341)
8,676(9,635)
1,038,863$14,966,378

Accumulated other comprehensive income
Valuation difference on available-for-sale securities
Balance at the beginning of current period
Changes of items during the period
Net changes of items other than shareholders' equity
Total changes of items during the period
Balance at the end of current period
Foreign currency translation adjustments
Balance at the beginning of current period
Changes of items during the period
Net changes of items other than shareholders' equity
Total changes of items during the period
Balance at the end of current period
Remeasurements of defined benefit plans
Balance at the beginning of current period
Changes of items during the period
Net changes of items other than shareholders' equity
Total changes of items during the period
Balance at the end of current period
Remeasurements of other postretirement benefitsof foreign consolidated subsidiaries
Balance at the beginning of current period
Changes of items during the period
Net changes of items other than shareholders' equity
Total changes of items during the period
Balance at the end of current period
Total accumulated other comprehensive income
Balance at the beginning of current period
Changes of items during the period
Net changes of items other than shareholders' equity
Total changes of items during the period
Balance at the end of current period
Non-controlling interests
Balance at the beginning of current period
Changes of items during the period
Net changes of items other than shareholders' equity
Total changes of items during the period
Balance at the end of current period
Total net assets
Balance at the beginning of current period
Changes of items during the period
Dividends from surplus
Net income attributable to owners of the parent
Purchase of treasury stock
Disposal of treasury stock
Adjustments due to change in fiscal year end of consolidated subsidiaries
Change of scope of consolidation
Change of scope of equity method
Other
Net changes of items other than shareholders' equity
Total changes of items during the period
Balance at the end of current period
The accompanying notes are an integral part of these statements.

Millions of yen

Thousands of
U.S. dollars(Note 1)

2018

2017

2018

¥8,099¥11,344$76,212(1,061)(1,061)
7,038(3,245)(3,245)
8,099(9,985)(9,985)66,227(16,631)(13,415)(156,498)(19,562)(19,562)(36,193)(3,216)(3,216)(16,631)(184,078)(184,078)(340,576)(10,996)(12,808)(103,472)

860
860(10,136)

1,812
1,812
(10,996)

8,093
8,093
(95,379)(1,885)(2,869)(17,738)

3,543
3,543
1,658

984
984
(1,885)33,34033,34015,602(21,413)(17,748)(201,496)(16,220)(16,220)(37,633)(3,665)(3,665)(21,413)(152,630)(152,630)(354,126)

6,224

5,679

58,568

1,955
1,955
8,179

545
545
6,224

18,396
18,39676,964

1,464,888

1,349,411

13,784,587(110,463)
220,354
(11)
149
828
(355)
922
(1,024)(14,265)
96,135¥1,561,023(111,446)
282,354(52,744)0325
108(3,120)115,477¥1,464,888(1,039,456)
2,073,530
(104)
1,402
7,791
(3,341)
8,676(9,635)(134,234)
904,629$14,689,216

Consolidated Statements of Cash Flows

106.27

SUBARU CORPORATION AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2018 and 2017

Millions of yen

Thousands of
U.S. dollars(Note 1)

2018

2017

2018

¥297,340
102,102(149)
64,711(8,186)
1,379
4,837(4,096)(7,799)40(15,922)(54,159)
40,158¥394,695
85,653(189)(4,616)
1,846
3,270(9,322)(3,898)(19,684)(32,444)
24,45888,159$2,797,967
960,779(1,402)608,930(77,030)
12,97645,516(38,543)(73,389)376(149,826)(509,636)
377,887

Interest and dividends income received
Interest expenses paid
Income taxes paid
Net cash provided by (used in) operating activities

20,336440,592
8,397(1,446)(81,245)366,298

22,320550,248
5,236(1,852)(208,190)
345,442

191,363
4,145,968
79,016(13,607)(764,515)
3,446,862

Net cash provided by (used in) investing activities
Net decrease (increase) in time deposits
Purchase of short-term investment securities
Proceeds from sales of short-term investment securities
Purchase of non-current assets
Proceeds from sales of non-current assets
Purchase of investment securities
Proceeds from sales of investment securities
Payments of loans receivableCollection of loans receivable
Other, net
Net cash provided by (used in) investing activities(7,219)(143,418)
168,525(149,897)
3,413(52,645)
34,272(123,552)
120,383(573)(150,711)(25,809)(135,061)
98,133(163,774)
1,327(48,705)
46,585(137,006)
117,687(7,629)(254,252)(67,931)(1,349,562)
1,585,819(1,410,530)
32,116(495,389)
322,499(1,162,624)
1,132,803(5,391)(1,418,190)

Net cash provided by (used in) financing activities
Net increase (decrease) in short-term loans payable
Proceeds from long-term loans payable
Repayments of long-term loans payable
Redemption of bonds
Purchase of treasury shares
Cash dividends paid
Other, net
Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents(18,393)3,500(44,443)(11)(110,326)(1,264)(170,937)(10,831)
33,8199,939
12,930(34,605)(10,000)(52,744)(111,435)(3,129)(189,044)(2,991)(100,845)(173,078)
32,935(418,208)(104)(1,038,167)(11,894)(1,608,516)(101,919)
318,237

728,616

829,461

6,856,272

(534)

-

(5,025)

3,690¥765,591¥728,616

34,722$7,204,206

Net cash provided by (used in) operating activities
Income before income taxes
Depreciation and amortization
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in provision for loss related to airbags
Interest and dividends income
Interest expenses
Loss (gain) on sales and retirement of noncurrent assets
Loss (gain) on sales and valuation of investment securities
Decrease (increase) in operating loans receivable
Decrease (increase) in notes and accounts receivable-trade
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable-trade
Increase (decrease) in accrued expenses
Other, net
Sub-total

Cash and cash equivalents at beginning of the period(Note 4)
Increase (decrease) in cash and cash equivalents resulting
from change of scope of consolidation
Increase (decrease) in cash and cash equivalents resulting
from change in fiscal period of consolidated subsidiaries
Cash and cash equivalents at end of the period(Note 4)
The accompanying notes are an integral part of these statements.

Notes to Consolidated Financial Statements
SUBARU CORPORATION AND CONSOLIDATED SUBSIDIARIES
1. Basis of Presentation of the Financial Statements
The accompanying consolidated financial statements of SUBARU CORPORATION (the "Company") havebeen prepared in accordance with the provisions set forth in the Financial Instruments and Exchange Law
and its related accounting regulations, and in conformity with accounting principles generally accepted inJapan ("Japanese GAAP"), which are different in certain respects as to application and disclosure
requirements of International Financial Reporting Standards.
The accompanying consolidated financial statements have been restructured and translated into English
from the consolidated financial statements of the Company prepared in accordance with Japanese GAAP
and filed with the appropriate Local Finance Bureau of the Ministry of Finance, as required by the Financial
Instruments and Exchange Law. Certain supplementary information included in the statutory
Japanese-language consolidated financial statements, but not considered necessary for fair presentation, is
not presented in the accompanying consolidated financial statements.
The translations of the Japanese yen amounts into U.S. dollars in the accompanying consolidated financial
statements are included solely for the convenience of readers outside Japan, using the prevailing exchange
rate at March 31, 2018, which was ¥106.27 to U.S. $1. The convenience translation should not be construed
as a representation that the Japanese yen amounts have been, could have been, or could in the future beconverted into U.S. dollars at this or any other rate of exchange.
We are planning to voluntarily adopt International Financial Reporting Standards (IFRS) to the Group's
consolidated financial statements from the fiscal year ending March 31, 2020, instead of the Japanese
Generally Accepted Accounting Principles currently adopted.
2. Summary of Significant Accounting Policies[1] The Scope of Consolidation and Application of the Equity Method
The accompanying consolidated financial statements include the accounts of the Company and its majority
owned subsidiaries. All significant intercompany transactions and balances have been eliminated inconsolidation. The fiscal year-end of consolidated subsidiaries is the same as that of the parent company,
except for 4 consolidated foreign subsidiaries in fiscal year ended March 31, 2017, the fiscal year-end of thosesubsidiaries was December 31. The operating results of those subsidiaries that had different fiscal
year-end were consolidated by using the financial statements as of each subsidiary’s respective fiscal
year-end, the necessary adjustments being made in consolidation if there were any significant
transactions between January 1 and March 31.
To synchronize the reporting period, Subaru of China Ltd. changed its reporting period for consolidation
purposes by conducting a provisional book-closing from the consolidated fiscal year ended March 31, 2018.
This change allows the consolidated financial statements as of and for the 12 months period ended March 31,2018 to include the financial information of Subaru of China Ltd. in the same period. Net operating results ofSubaru of China Ltd. from January 1, 2017 to March 31, 2017 have been reflected as a change in retained
earnings in the consolidated financial statement.
The consolidated financial statements include the accounts of 75 and 77 subsidiaries in the fiscal years
ended March 31, 2018 and 2017, respectively.
In addition, 8 and 2 affiliated companies were accounted for by the equity method in the fiscal years ended
March 31, 2018 and 2017, respectively.
Investments in insignificant non-consolidated subsidiaries and affiliated companies not accounted for by theequity method are carried at cost.

1[2] Short-Term Investment Securities and Investment Securities
Under the Japanese accounting standards for financial instruments, available-for-sale securities for which fairvalues are available are stated at their fair value as of the balance sheet dates with unrealized holding gains
and losses included as a separate component of net assets until realized, while securities for which fair values
are not readily available are stated at cost, as determined by the moving-average method, after taking into
consideration devaluation, if any, for permanent impairment. Held-to-maturity debt securities are stated using
the amortized cost method.
[3] Inventories
Inventories for regular sales are stated at cost, determined mainly by the moving-average cost method. (Bookvalue on the balance sheet is measured based on the lower of cost or market value.)[4] Property, Plant and Equipment (Excluding Leased Assets)
Property, plant and equipment are stated at cost. Significant renewals and additions are capitalized; ordinary
maintenance, ordinary repairs, minor renewals and minor improvements are charged to the consolidated
statements of income as incurred.
Depreciation of the property, plant and equipment of the Company and its consolidated domestic
subsidiaries is principally calculated by the declining-balance method, except for those buildings (excluding
facilities attached to buildings) acquired on or after April 1,1998, and facilities attached to buildings andstructures acquired on or after April 1, 2016 for which the straight-line method is applied.
Depreciation of the property, plant and equipment of consolidated foreign subsidiaries is calculated by thestraight-line method over the estimated useful lives of the assets.
Estimated useful lives for depreciable assets are as follows:
Buildings and structures: 7–50 years
Machinery, equipment and vehicles: 2–20 years[5] Intangible Assets (Excluding Leased Assets)
Computer software used internally by the Company and its consolidated subsidiaries is amortized by thestraight-line method over the relevant economic useful lives of 3 or 5 years.
[6] Leased Assets
For leased assets under finance lease transactions in which the ownership is transferred to the lessee:
The leased assets are depreciated by the same method as used for other property, plant and equipment.
For leased assets under finance lease transactions in which the ownership is not transferred to the lessee:
The leased assets are depreciated by the straight-line method over the leased period and the residual
value is zero.
[7] Allowance for Doubtful Accounts
Allowance for doubtful accounts is provided based on the amount calculated from the historical ratio of bad
debt for ordinary receivables, and estimated amounts of uncollectible accounts for specific overdue
receivables.
[8] Provision for Bonuses
Employees' bonuses are recognized as expenses for the period in which those are incurred.
[9] Provision for Product Warranties
The Company and its consolidated subsidiaries provide for accrued warranty claims on products sold basedon their past experiences of warranty services and estimated future warranty costs.
2[10] Provision for Loss on business liquidation
The provision for losses on business liquidation is provided due to important business liquidation.
[11] Provision for loss related to airbags
The provision for losses on quality-assurance expenses is provided for the market measures relating toairbags in the future.
[12] Accounting method for Retirement Benefits
Net defined benefit liability (assets) for employees is provided based on the estimated amounts of projectedpension and severance obligation and the fair value of plan assets at the end of the fiscal year. In determining
retirement benefit obligations, the straight-line basis is used for attributing expected benefit to periods.
Unrecognized prior service cost is being amortized on the straight-line method over a period (13-18 years)
that is shorter than the average remaining service period of the eligible employees. Unrecognized net
actuarial gain or loss is amortized from the following fiscal year on the straight-line method over a period(primarily 16 years) that is shorter than the average remaining service period of the eligible employees.
Directors and statutory auditors of the Company and its consolidated domestic subsidiaries are entitled toreceive a lump-sum payment at the time of severance or retirement, subject to shareholder approval. The
liabilities for such benefits, which are determined, based on the Company’s and its consolidated subsidiaries’internal rules are included in "Other long-term liabilities" in the accompanying consolidated balance sheets.
[13] Translation of Foreign Currency-Denominated Accounts
Under the Japanese accounting standards for foreign currency translation, monetary assets and liabilities
denominated in foreign currencies are translated into Japanese yen at the exchange rates prevailing at eachbalance sheet date with the resulting gain or loss included currently in the statement of income.
The assets and liabilities of foreign subsidiaries and affiliated companies are translated into Japanese yenat the exchange rates in effect at the balance sheet dates of the foreign subsidiaries and affiliated companies,
except for common stock and capital surplus, which are translated at historical rates. Revenue and expense
accounts are translated at the average exchange rates during the respective years. The resulting foreign
currency translation adjustments are included in "Foreign currency translation adjustments" and"Non-controlling interests" in the net assets section of the accompanying consolidated balance sheets.
[14] Revenue Recognition
The percentage-of-completion method is applied to revenue from construction contracts of Aerospace
division productions where certain elements are determinable with certainty at the end of fiscal year. (Thepercentage of completion is estimated using the proportion-of-cost method). The completed-contract method
is applied to other works.
[15] Accounting for Lease Transactions
Sales and corresponding cost of sales under finance lease transactions conducted by certain domestic
consolidated subsidiaries are recognized on the effective date of each lease contract.
[16] Derivative Financial Instruments
The Japanese accounting standards for financial instruments require that the Company and its consolidated
domestic subsidiaries state derivative financial instruments at their fair value and recognize changes in the fairvalue as a gain or loss.
[17] Goodwill
Goodwill is principally amortized by the straight-line method over 5 years.
3[18] Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with original maturities of three months or lessthat are readily convertible to known amounts of cash and have negligible risk of changes in value due to theirshort maturities.
[19] Income Taxes
The provision for income taxes is computed based on the pretax income for financial reporting purposes.
Deferred tax assets and liabilities are recognized for expected future tax consequences of temporary
differences between the financial statement carrying amounts and the tax bases of assets and liabilities. A
valuation allowance is recorded to reduce deferred tax assets when it is more likely than not that a tax benefit
will not be realized.
[20] Research and Development Expenses
Research and development costs are expensed as incurred and amounted to 121,084 million yen(US$ 1,139,400 thousand) and 114,215 million yen for the fiscal years ended March 31, 2018 and 2017,
respectively.
[21] Net Income per Share
Basic net income per share (EPS) is computed based on the average number of shares of common stock
outstanding during each year. Diluted EPS assumes the potential dilution that occurs if all the convertible
securities are converted or other contracts to issue common stock are exercised to the extent that they are
not anti-dilutive.
[22] Changes in Accounting Estimates(Provision for product warranties)
In the current consolidated fiscal year, there was a change in accounting estimate due to the fact that theexpenses for after-sales services in the future can be estimated more precisely.
The effect of this change on profit and loss for current consolidated fiscal year is immaterial.
[23] Changes in Presentation(Consolidated Statements of Cash Flows)
Consolidated Statements of Cash Flows for the fiscal year ended March 31, 2018 include the following
reclassifications.
“Increase (decrease) in provision for loss on business liquidation”, which was presented as a separate itemin “Net cash provided by (used in) operating activities”, is included in “Other, net” in “Net cash provided by(used in) operating activities” in the current fiscal year due to its decreased financial materiality.
In addition, “Dividends paid to non-controlling interests”, which was presented as a separate item in “Net
cash provided by (used in) financing activities”, is included in “Other, net” in “Net cash provided by (used in)financing activities” in the current fiscal year due to its decreased financial materiality.
To reflect these changes, 3,317 million yen of “Increase (decrease) in provision for loss on businessliquidation” has been reclassified into “Other, net” in “Net cash provided by (used in) operating activities”, in
addition, (1,944) million yen of “Dividends paid to non-controlling interests” has been reclassified into “Other,
net” in “Net cash provided by (used in) financing activities”.
As a result, “Other, net” in “Net cash provided by (used in) operating activities” is 22,320 million yen. In
addition, “Other, net” in “Net cash provided by (used in) financing activities” is (3,129) million yen.

4

3. Other comprehensive income
Amounts reclassified to net income (loss) for the fiscal years ended March 31, 2018 and 2017, which wererecognized in other comprehensive income in the current or previous periods and tax effects for eachcomponent of other comprehensive income were as follows:
Millions of yen
Thousands of
U.S. dollars
2018
2017
2018
Valuation difference on available-for-salesecurities
Increase(decrease) during the year
¥1,815¥5,003$17,080
Reclassification adjustments(4,243)(9,572)(39,927)
Before tax effect(2,428)(4,569)(22,847)
Tax effect
1,367
1,324
12,862
Balance at the end of the period(1,061)(3,245)(9,985)
Foreign currency translation adjustments
Increase(decrease) during the year
(18,985)(2,968)(178,649)
Reclassification adjustments
Before tax effect(18,985)(2,968)(178,649)
Tax effectBalance at the end of the period(18,985)(2,968)(178,649)
Remeasurements of defined benefit plans
Increase(decrease) during the year
(933)
(109)
(8,779)Reclassification adjustments
2,135
2,553
20,090
Before tax effect
1,202
2,444
11,311
Tax effect
(342)
(632)
(3,218)
Balance at the end of the period
860
1,812
8,093
Remeasurements of other postretirement
benefits of foreign consolidated
subsidiaries
Increase(decrease) during the year
4,932
1,595
46,410Reclassification adjustments
Before tax effect
4,932
1,595
46,410Tax effect(1,389)(611)(13,070)
Balance at the end of the period
3,543
984
33,340Share of other comprehensive incomeof affiliated companies accounted for using
equity method
Increase(decrease) during the year
(54)
(639)
(508)
Reclassification adjustments(144)
Before tax effect
(54)
(783)
(508)
Tax effectBalance at the end of the period
(54)
(783)
(508)
Total other comprehensive(¥15,697)(¥4,200)($147,709)
income(loss)

54. Additional Cash Flow Information
Cash and cash equivalents as of March 31, 2018 and 2017, consisted of the following:
Millions of yen

Cash and deposits
Short-term investment securities
Sub-total
Less maturity over three months
Short-term investment securities excluding
cash equivalents
Cash and cash equivalents

2018¥765,397
242,573
1,007,970(158,576)(83,803)2017¥658,822
320,579
979,401(151,924)(98,861)

Thousands of
U.S. dollars
2018$7,202,381
2,282,610
9,484,991(1,492,199)(788,586)¥765,591¥728,616$7,204,206

5. Financial Instruments(1) Summary of Financial Instruments Status[1] Action Policy with Regard to Financial Instruments
With regard to planned capital expenditure to support SUBARU CORPORATION, its consolidated
subsidiaries and affiliated companies (the "SUBARU Group") in their main operations of automobile
manufacturing and sales, the SUBARU Group finances mainly from bank loans. Temporary surpluses areinvested in highly secure financial assets. Bank loans and liquidation of accounts receivable are utilized toprovide short-term working capital. It is the SUBARU Group's policy to use derivatives as a way to avoid therisks stated below and not to conduct speculative transactions.
[2] Details of Financial Instruments and Respective Risks
Notes and accounts receivable-trade and Lease investment assets are subject to customer credit risks. In
addition, operating receivables denominated in foreign currencies due to globalized business of the SUBARUGroup are subject to the risk of changes in foreign exchange rates. As a general rule, however, forward
foreign exchange contracts are utilized to hedge the foreign exchange rate risk, considering the net amount ofoperating receivables denominated in foreign currencies that exceed foreign currency denominated operating
liabilities. Short-term investment securities mainly consist of investments in short-term financial instruments,
and investment securities mainly consist of investments in stocks of the companies with business or capitalalliances, and are subject to risk of market price fluctuation.
Payables included in Notes and accounts payable-trade and electronically recorded obligations-operating
are due within one year. A certain portion of such liabilities involve foreign currency denominated transactions
associated with the import of raw materials and is subject to exchange rate fluctuation risk, although it isconsistently less than accounts receivable balance denominated in the same foreign currency. Funds
financed by bank loans and corporate bonds are primarily used for capital expenditure, whose repayment orredemption dates will come within 6 years after March 31, 2018 at the latest.
Derivative transactions include foreign exchange forward contracts to hedge against exchange rate
fluctuations associated with trade accounts receivables and liabilities denominated in foreign currencies.
[3] Risk Management System with Regard to Financial Instruments(a) Credit Risk management (Risks Associated with Business Partner’s Breach of Contract)
The Company and its consolidated subsidiaries have credit control function and regularly monitor thefinancial status of key customers with regard to accounts receivables and lease investment assets. In
addition to keeping track of payment due dates and balances of each customer, such credit control
function identifies and mitigates the potential risk of uncollectibility due to deterioration in financial status
or other factors of customers.
6

(b) Market Risk Management (Risks Associated with Fluctuations in Foreign Exchange and Interest Rates)
With regard to operating assets and liabilities denominated in foreign currencies, as a general rule, theCompany uses foreign exchange forward contracts to hedge against risks of exchange rate fluctuation
on a monthly basis by each currency. Depending on the status of exchange rates, foreign exchange
forward contracts with no longer than six months term are used to hedge against the risk of exchange
rate fluctuation to the extent that net position of accounts receivable and accounts payable dominated inforeign currency is exposed.
The Company also regularly monitors the market values of investments included in Short-term
investment securities and Investment securities as well as the financial conditions of issuers (business
partner companies), and continuously reviews its investment portfolio taking into consideration its
relationships with respective business partner companies.
Basic policies with regard to derivative transactions are approved by the Executive Management
Board. Finance & Accounting Department engages in derivative transactions in line with the applicable
the Company’s rule. The results of these transactions are reported to the Finance Officer every time thetransactions are conducted.
(c) Liquidity Risk Management (Risk of Becoming Unable to Make Payments by the Due Date)
The Company secures liquidity at a level sufficient to satisfy its current needs with commitment lines
contracted with major financial institutions in combination with keeping cash and cash equivalentsbalance at a certain level.
[4] Supplemental Explanation of Items with Regard to Fair Value of Financial Instruments
Fair value of financial instruments includes quoted prices of financial instruments in the market and, in theevent market prices are not available, prices that are calculated based on the underlying assumptions under
the appropriate valuation model. Because the factors incorporated into the valuation model are subject tochange, calculated fair value may differ. The values of derivative transactions contracts stated in "(2) Items
with Regard to Fair Value of Financial Instruments" do not by themselves indicate the market risk associatedwith the respective derivative transactions.

7

(2) Items with Regard to Fair Value of Financial Instruments
The consolidated balance sheet amounts, the fair value and difference as of March 31, 2018 and 2017 wereas follows:
The items whose fair values were extremely difficult to measure were not included in the table below (refer
to Note [2]).
As of March 31, 2018
Millions of yen
Consolidatedbalance sheet
amounts¥765,397
155,247(60)
155,187
17,120(3)
17,117
185,364(274)
185,090

Cash and deposits
Notes and accounts receivable-trade
Allowance for doubtful accounts (*1)
Lease investment assets
Allowance for doubtful accounts (*1)
Short-term loans receivable
Allowance for doubtful accounts (*1)
Short-term investment securities, Investment securities
and Other securities
Total Assets
Notes and accounts payable-trade
Electronically recorded obligations-operating
Short-term loans payable
Current portion of long-term loans payable
Accrued income taxes
Accrued expenses
Long-term loans payable
Total Liabilities
Derivative transactions (*2)
hedge accounting is not applied
hedge accounting is applied

8

Fair Value

Difference¥765,397¥-

155,187-

18,766

1,649

192,3937,303

129,886
1,252,677
320,137
64,86322,082
42,98245,372
255,914
21,138772,488

129,886
1,261,629
320,137
64,86322,08243,04245,372
255,914
21,208772,618

8,952
60
70
130

5,177
¥-

5,177
¥-

¥-

As of March 31, 2018
Thousands of U.S. dollars
Consolidatedbalance sheet
amounts$7,202,381
1,460,873(564)
1,460,309
161,099(28)
161,071
1,744,274(2,578)
1,741,696

Cash and deposits
Notes and accounts receivable-trade
Allowance for doubtful accounts (*1)
Lease investment assets
Allowance for doubtful accounts (*1)
Short-term loans receivable
Allowance for doubtful accounts (*1)

Fair Value

Difference$7,202,381$-

1,460,309-

176,588

15,517

1,810,417

68,721

Short-term investment securities, Investment securities
and Other securities
1,222,226
1,222,226
Total Assets
11,787,683
11,871,921
84,238Notes and accounts payable-trade
3,012,487
3,012,487
Electronically recorded obligations-operating
610,360
610,360
Short-term loans payable
207,791
207,791
Current portion of long-term loans payable
404,460
405,025
565
Accrued income taxes
426,950
426,950
Accrued expenses
2,408,149
2,408,149
Long-term loans payable
198,908
199,567
659
Total Liabilities
7,269,105
7,270,329
1,224
Derivative transactions (*2)
hedge accounting is not applied
48,716
48,716
hedge accounting is applied$$$*1. Allowance for doubtful accounts corresponding to Notes and accounts receivable-trade, Lease
investment assets and Short-term loans receivable is deducted.
*2. Indicated are the net amounts of assets and liabilities results from derivative transactions, with thetotal net liabilities indicated in ( ).

9As of March 31, 2017
Millions of yen
Consolidatedbalance sheet
amounts¥658,822
158,454(88)
158,366
18,538(21)
18,517
176,433(250)
176,183

Cash and deposits
Notes and accounts receivable-trade
Allowance for doubtful accounts (*1)
Lease investment assets
Allowance for doubtful accounts (*1)
Short-term loans receivable
Allowance for doubtful accounts (*1)

Fair Value

Difference¥658,822¥-

158,366-

20,065

1,548

181,938

5,755

Short-term investment securities, Investment securities
and Other securities
122,272
122,272
Total Assets
1,134,160
1,141,463
7,303
Notes and accounts payable-trade349,737
349,737
Electronically recorded obligations-operating
92,09892,098
Short-term loans payable
43,205
43,205Current portion of long-term loans payable
44,44344,442(1)
Accrued income taxes
13,85813,858
Accrued expenses
221,328
221,328
Long-term loans payable
60,612
60,913301
Total Liabilities
825,281825,581300
Derivative transactions (*2)
hedge accounting is not applied
2,911
2,911
hedge accounting is applied¥¥¥*1. Allowance for doubtful accounts corresponding to Notes and accounts receivable-trade, Lease
investment assets and Short-term loans receivable is deducted.
*2. Indicated are the net amounts of assets and liabilities results from derivative transactions, with thetotal net liabilities indicated in ( ).
[1] The calculation methods of financial instrument fair value together with securities
AssetsCash and deposits and Notes and accounts receivable-trade
Because these are settled in the short-term, the fair value is mostly the same as the book value andas such the book value is deemed as fair value.
Lease investment assets and Short-term loans receivable
Fair value is the present value calculated by discounting relevant cash flows by each category of theassets and timing of cash flow, where discount rates were adopted taking into consideration the
period until maturity and credit risks. In addition, the estimated residual value is included in thebalance of Lease investment assets.

10

Short-term investment securities and investment securities
Fair value is determined by the stock exchange price, while bonds are determined by the stock
exchange price or by quotations received from financial institutions. Please refer to the note entitled"6.Short-term investment securities and investment securities" regarding to respective objectives forholding securities.
Liabilities
Notes and accounts payable-trade, Electronically recorded obligations-operating, Short-term loans
payable, Accrued income taxes and Accrued expenses
Because these are settled in the short-term, the fair value is mostly the same as the book value andas such the book value is deemed as fair value.
Current portion of long-term loans payable and Long-term loans payable
Fair value is measured based on the present value that is calculated as discounted cash flow of thetotal amount of principal and interest, where the interest would be set, if the Company concluded abrand new loan agreement with the same condition at the date of measurement.
[2] Financial instruments which fair value is extremely difficult to measure
Consolidated balance sheet amount as of March 31, 2018 and 2017:
Millions of yen
2017¥1,232Thousands of
U.S. dollars
2018$61,174

2018
Stocks of non-consolidated subsidiary and affiliated¥6,501companies
Other securities (available-for-sale securities)
Certificate of deposit
55,000135,000
517,550
Commercial paper
17,49942,499164,665
Money management fund
116,270
104,218
1,094,100
Unlisted stocks (excluding over-the-counter
874
866
8,224
stocks)Medium Term Note
20,00020,000188,200
Trust beneficiary right
10,00094,100Other
3328
Investments and other assets
Investments in equity of affiliated companies andothers¥1,090¥1,661$10,257
These have no available market prices and are expected to entail excessive costs in the estimation of
future cash flows. Consequently, estimating their fair value is recognized as extremely difficult and they
are not included in "Short-term investment securities” and “Investment securities".

11[3] Scheduled redemption of monetary assets and securities with maturity
As of March 31, 2018:
Millions of yen
Within 1
Year¥765,397
144,170
6,626
71,620

1 to 5Years¥11,077
10,471
112,068

5 to 10
Years
¥23
1,676

Over 10years¥-

17,013
6,632
102,658

18,33726,315
1,732

7,018
4,160
923

4,793
5,271
6,526

Within 1
Year$7,202,381
1,356,639
62,351
673,944

1 to 5
Years$104,234
98,532
1,054,559

160,092
62,407$966,011

172,551
247,624$16,298

66,03939,146$8,685

Within 1
Year¥658,822
145,641
6,136
73,2291 to 5
Years¥12,813
12,393101,058

Millions of yen
5 to 10
Over 10
Years
years
¥¥9
2,146
-

10,574
8,270¥197,517

17,95925,433¥1,175

5,080
4,939
¥917

Cash and deposits
Notes and accounts receivable-trade
Lease investment assets
Short-term loans receivable
Short-term investment securities, Investment
securities and Other securities
Government and municipal bonds
Corporate bonds
Other
As of March 31, 2018:

Cash and deposits
Notes and accounts receivable-trade
Lease investment assets
Short-term loans receivable
Short-term investment securities, Investment
securities and Other securities
Government and municipal bonds
Corporate bonds
Other

Thousands of U.S. dollars
5 to 10
Over 10
Years
years
$$216
15,771-45,10249,600$61,410

As of March 31, 2017:

Cash and deposits
Notes and accounts receivable-trade
Lease investment assets
Short-term loans receivable
Short-term investment securities, Investment
securities and Other securities
Government and municipal bonds
Corporate bonds
Other

12

3,594
4,265
¥5,595

[4] Amount of repayment for long-term debt and other interest-bearing debt
As of March 31, 2018:

Short-term loans payable
Long-term loans payable

Within 1
Year¥22,082¥42,982

1 to 5
Years¥¥20,675

Millions of yen
5 to 10
Over 10Years
years¥¥¥463¥-

1 to 5
Years$$194,552

Thousands of U.S. dollars
5 to 10
Over 10Years
Years$$$4,356$-

1 to 5
Years¥¥58,774

Millions of yen
5 to 10
Over 10Years
years¥¥¥1,838¥-

As of March 31, 2018:

Short-term loans payable
Long-term loans payable

Within 1
Year$207,791$404,460

As of March 31, 2017:

Short-term loans payable
Long-term loans payable

Within 1
Year¥43,205¥44,443

6. Short-Term Investment Securities and Investment Securities
Information on the value of short-term investment securities and investment securities as of March 31, 2018and 2017 was as follows:(1) Other securities (available-for-sale securities):
As of March 31, 2018:
Acquisition cost

Millions of yen
Difference¥30,619¥19,748¥10,871

4,356
3,068
1,027
39,070

4,326
3,032
1,016
28,12230
36
11
10,948

389

471

(82)

42,80539,3098,313
90,816¥129,886

43,34540,023
8,488
92,327¥120,449

(540)
(714)
(175)
(1,511)¥9,437

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

13

As of March 31, 2018:
Book value
Book value exceeding acquisition cost:
Equity securities
Debt securities
Government and municipal bonds
Corporate bonds
Other
Sub-total
Book value not exceeding acquisition cost:
Equity securities
Debt securities
Government and municipal bonds
Corporate bonds
Other
Sub-total
Total

Thousands of U.S. dollars
Acquisition cost
Difference$288,125$185,829$102,296

40,99028,8709,664
367,649

40,70828,531
9,561
264,629

282
339
103
103,020

3,660

4,432

(772)

402,795
369,897
78,225854,577$1,222,226

407,876
376,616
79,872868,796$1,133,425(5,081)(6,719)(1,647)(14,219)$88,801

Acquisition cost

Millions of yen
Difference¥33,393¥21,153¥12,240

17,36921,851
3,370
75,983

17,25921,694
3,329
63,435110
157
41
12,548

1,062

3,566

(2,504)

19,837
21,056
4,334
46,289¥122,272

20,077
21,301
4,403
49,347¥112,782

(240)
(245)
(69)
(3,058)¥9,490

As of March 31, 2017:
Book value
Book value exceeding acquisition cost:
Equity securities
Debt securities
Government and municipal bonds
Corporate bonds
Other
Sub-total
Book value not exceeding acquisition cost:
Equity securities
Debt securities
Government and municipal bonds
Corporate bonds
Other
Sub-total
Total

14

(2) Other securities (available-for-sale securities) sold during the fiscal years ended March 31, 2018 and2017:
The fiscal year ended March 31, 2018:
Millions of yen
Sales amount
Total gains
Total losses
Equity securities¥7,022¥4,399¥149
Debt securities
Government and municipal bonds
32,982
97
254
Corporate bonds
19,794
119
84
Other
142,9993
35
Total¥202,797¥4,618¥522
The fiscal year ended March 31, 2018:

Equity securities
Debt securities
Government and municipal bonds
Corporate bonds
Other
Total

Sales amount$66,077$310,360$186,261$1,345,620$1,908,318

Thousands of U.S. dollars
Total gains
Total losses$41,395$1,402$913$1,120$28$43,456$2,390$790$329$4,911

Sales amount¥23,650

Total gains¥9,968Millions of yen
Total losses¥419

28,576
9,586
82,906¥144,718128
45
3¥10,144

219
45
46
¥729

The fiscal year ended March 31, 2017:

Equity securities
Debt securities
Government and municipal bonds
Corporate bonds
Other
Total

15

7. Short-Term Loans Payable and Long-Term Debts
Short-term loans payable as of March 31, 2018 and 2017, consisted of the following:Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Bank loans with average interest rate of 2.03% and 1.40%
per annum as of March 31, 2018 and 2017, respectively¥22,082¥43,205$207,791

Millions of yen
2018
2017

Thousands of
U.S. dollars
2018Long-term debts as of March 31, 2018 and 2017 consisted of the following:

Loans principally from banks and insurance companies
due through 2024 with average interest rate of 0.48% and0.51% per annum as of March 31, 2018 and 2017,
respectively
SubtotalLess-Portion due within one year
Total

¥64,120¥105,055$603,368

64,120(42,982)¥21,138

105,055(44,443)¥60,612603,368(404,460)$198,908

Annual maturities of long-term loans payable as of March 31, 2018 were as follows:
Millions of yen¥42,982
7,872
7,300
4,121
1,382
463
¥64,120

2019
2020
2021
2022
2023
2024 and thereafter
Total

Thousands of
U.S. dollars$404,460
74,07568,69338,77913,005
4,356$603,368

Lease obligations as of March 31, 2018 and 2017 consisted of the following:

Lease obligations due within one year as of March 31, 2018
Lease obligations due after one year as of March 31, 2018
Total

16

Millions of yen
2018
2017
¥1,157¥1,1891,810
1,765¥2,967¥2,954

Thousandsof
U.S.dollars
2018$10,887
17,032$27,919

Annual maturities of lease obligations as of March 31, 2018 were as follows:
Millions of yen¥1,157
1,484
152
113
46
15
¥2,967

2019
2020
2021
2022
2023
2024 and thereafter
Total

Thousands of
U.S. dollars
10,887
13,964
1,430
1,063
433
142
$27,919

The following assets as of March 31, 2018 and 2017 were pledged as collateral for certain loans:Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Property, plant and equipment¥28,752¥32,520$270,556
Total¥28,752¥32,520$270,556
To raise working capital efficiently, the SUBARU Group has entered into the commitment-line contracts. The
maximum amount that can be made available under these contracts is 237,441 million yen (US$2,234,318
thousand) as of March 31, 2018. At the end of the fiscal year, there were no borrowings under thecommitment line.
8. Derivative transactions
In the normal course of business, the Company and its consolidated subsidiaries employ derivative financial
instruments, including foreign exchange forward contracts, foreign currency options and interest rate swaps,
to manage their exposures to fluctuations in foreign currency exchange rates and interest rates. The
Company and its consolidated subsidiaries do not use derivatives for speculative or trading purposes.
The fair value information of derivative financial instruments as of March 31, 2018 and 2017 was as follows:
Derivative transactions to which hedge accounting is not applied(1) Foreign currency contracts:
As of March 31, 2018
Millions of yen
Thousands of U.S. dollars
Notional
Valuation
Notional
Valuation
AmountFair value gain (loss)
AmountFair value gain (loss)
Foreign exchange
forward contracts:
SellU.S. dollar¥254,467¥4,163¥4,163 $2,394,533$39,174$39,174
Euro
5,997
132
132
56,432
1,242
1,242
Canadian dollar
25,349882
882
238,534
8,300
8,300
Total
¥285,813¥5,177¥5,177 $2,689,499$48,716$48,71617

As of March 31, 2017
Notional
AmountMillions of yen
Valuation
Fair value
gain (loss)

Foreign exchange forward contracts:
SellU.S. dollar¥262,186¥2,585¥2,585
Euro
3,421
11
11
Canadian dollar
21,521
315
315
Total
¥287,128¥2,911¥2,911
Note: The method to determine the fair value is based on quotations obtained from financial institutions.
Derivative transactions to which hedge accounting is applied(1) Interest rate contracts:
Accounting treatment: Exception processing of interest rate swap
Hedge item: Long-term loans payable
As of March 31, 2017
Millions of yen
Notional
AmountOver
1 yearFair value

Interest rate swap contracts:
Receive floating rate pay fixed rate
¥1,000¥(*)
Note *Fair value of interest rate swap that meets certain hedging criteria is included in the fair value of
long-term debt as a hedged item.
9. Property, Plant and Equipment
Property, plant and equipment as of March 31, 2018 and 2017 are summarized as follows:

2018¥441,879
609,736
22,648371,661
1,445,924
196,659
55,908(968,876)(26,507)¥703,108

Buildings and structures
Machinery, equipment and vehicles
Vehicles and equipment on operating leases
Other
Subtotal
Land
Construction in progress
Accumulated depreciation
Accumulated impairment loss
Total

18

Millions of yen
2017¥407,758
603,416
15,391
354,599
1,381,164
195,783
45,416(937,015)(28,083)¥657,265

Thousands of
U.S. dollars
2018$4,158,078
5,737,612
213,118
3,497,327
13,606,135
1,850,560
526,094(9,117,117)(249,431)$6,616,241

10. Unexecuted Balance of Overdraft Facilities and Lending Commitments
The unexecuted balance of overdraft facilities and lending commitments at a consolidated subsidiary (Subaru
Finance Co., Ltd.) as of March 31, 2018 and 2017 was as follows:
Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Total overdraft facilities and lending commitments¥4,800¥4,800$45,168
Less amounts currently executed
1,637
1,263
15,404Unexecuted balance¥3,163¥3,537$29,764
A portion of the overdraft facilities and lending commitments above is subject to credit considerations as
documented in the customer contracts. Therefore, the total balance above is not always available.
11. Pension and Severance Plans
The Company and its consolidated domestic subsidiaries have lump-sum retirement payment plans,
contributory defined benefit employees’ welfare pension funds, defined benefit pension plan, and certain
domestic subsidiaries have defined contribution pension plans. In addition, in certain occasions, additional
retirement payments are made to employees for their retirement. Consolidated foreign subsidiaries primarily
have defined contribution plans.
As of March 31, 2018, 54 companies including the Company and its consolidated domestic subsidiaries
have lump-sum retirement payment plans. Within the SUBARU Group, there are also 25 defined contributionplans, and 6 defined benefits pension plans. In addition, there are 2 single-employer employees’ welfare
pension funds subject to the provisions of Article 33 of "Accounting Standard for Retirement Benefits."
Certain insignificant consolidated subsidiaries calculated their pension liability using the simplified method.
Under the simplified method, an accrued pension and net defined benefit liability is provided at the amountthat would have been payable had all the employees voluntarily retired at the end of the fiscal year, less anamount to be covered from the plan assets, while the Company and significant subsidiaries provide an
accrued pension and net defined benefit liability based on the estimated amount of pension and severance
obligation (projected benefit obligations), less the fair value of plan assets at the end of the fiscal year under
the actuarial method.
Defined benefit pension plans (including the multi-employer pension plan of contributory defined benefit
employees’ welfare pension funds settled as defined benefit pension plan.)
Movement in retirement benefit obligation, except plans applied simplified method

Balance at the beginning of the perioda. Service costb. Interest costc. Actuarial loss (gain)d. Benefits paide. Amortization of prior service cost
f. Other
Balance at the end of the period

2018¥115,699
6,563
796
1,446
(4,620)(47)¥119,837

19

Millions of yen
2017¥116,331
6,752
679(3,149)(4,373)(15)(526)¥115,699

Thousands of
U.S. dollars
2018$1,088,727
61,7587,490
13,607(43,474)(443)$1,127,665

Movements in plan assets, except plans applied simplified method

Balance at the beginning of the perioda. Expected return on plan assetsb. Actuarial loss (gain)c. Contributions paid by the employer
d. Payment for retirement benefits
e. Other
Balance at the end of the period

2018¥104,828
1,917
513
3,441
(2,929)¥107,770

Millions of yen
2017¥105,917
1,953(3,258)3,290(2,886)(188)¥104,828

Thousands of
U.S. dollars
2018$986,431
18,0394,827
32,380(27,562)$1,014,115

Movement in net defined benefit liability in the plans applying the simplified method

2018¥6,813
820
(417)
(28)
¥7,188

Balance at the beginning of the period
a. Retirement benefit costb. Benefits paidc. Contributions paid by the employer
Balance at the end of the period

Millions of yen
2017¥6,398
841
(383)
(43)
¥6,813Thousands of
U.S. dollars
2018$64,110
7,716(3,924)(263)$67,639

Reconciliation from retirement benefit obligations and plan assets to net defined benefit liability (asset),
include plans applied simplified method

a. Funded retirement benefit obligations
b. Plan assets
Sub totalc. Unfunded retirement benefit
obligations
a+b+c. Total Net liability (asset) for
retirement benefits
d. Net defined benefit liability
e. Net defined benefit asset
d+e. Total Net liability (asset) for
retirement benefits

2018
109,766(108,110)
1,656
17,599Millions of yen
2017¥105,901(105,157)
744
16,940Thousands of
U.S. dollars
2018$1,032,897(1,017,314)
15,583
165,606

19,255

17,684

181,189

19,337(82)¥19,255

18,615(931)¥17,684

181,961(772)$181,189

20

Retirement benefit costs

a. Service costb. Interest costc. Expected return on plan assets
d. Net actuarial loss amortizatione. Past service costs amortization
f. Additional retirement payments
g. Retirement benefit cost of the plan
applying the simplified method
h. Other
Total retirement benefit costs for the fiscal
year ended

2018¥6,563796(1,917)
2,142
(6)
342
820

Millions of yen
2017¥6,752679(1,953)
2,560
(6)
225
841

Thousands of
U.S. dollars
2018$61,758
7,490(18,039)
20,156
(56)
3,218
7,716

¥8,740(149)¥8,949$82,243

Millions of yen
2017
(¥21)
2,465
¥2,444

Thousands of
U.S. dollars
2018
($56)
11,367$11,3112018¥274

Millions of yen
2017
¥267

Thousands of
U.S. dollars
2018$2,57814,29015,498134,469¥14,564¥15,765$137,047

Adjustments for retirement benefit (before tax effect)

2018
(¥6)
1,208
¥1,202

a. Past service costsb. Actuarial gains and losses
Total

Accumulated adjustments for retirement benefit (before tax effect)a. Past service costs that are yet to berecognizedb. Actuarial gains and losses that are yet
to be recognized
Total
Plan assets
Plan assets comprise:

2018
44%
16%
29%
11%
100%

Percentage
2017
47%
16%
28%
9%
100%

a. Bonds
b. Equity securitiesc. Cash and depositd. Other
Total
Long-term expected rate of return
Current and target asset allocations, historical and expected returns on various categories of plan assets havebeen considered in determining the long-term expected rate of return.

21

Actuarial assumptions
The principal actuarial assumptions
a. Attribution of expected benefit obligationb. Discount ratec. Long-term expected rate of returnd. Amortization of actuarial gain/loss

e. Amortization of past service cost2018
Benefit formula method
Primarily 0.6%
Primarily 2.1%
Primarily 16 years (amortizedby the straight-line method
starting from the following
fiscal year, over a period
shorter than the averageremaining service periods ofthe eligible employees)
13 to 18 years

2017
Benefit formula method
Primarily 0.7%
Primarily 2.1%
Primarily 16 years (amortizedby the straight-line method
starting from the following
fiscal year, over a period
shorter than the averageremaining service periods ofthe eligible employees)
13 to 18 years

Defined contribution pension plan
The amount required to contribute to defined contribution plans was 5,161 million yen (US$48,565 thousand)and 4,698 million yen for the fiscal years ended March 31, 2018 and 2017, respectively, which included themulti-employer pension plan of contributory defined benefit employees’ welfare pension funds settled as
defined contribution plans.
Certain information concerning the multi-employer pension plan, which requires contributions that are
expensed as they become due as pension and severance costs, was as follows:(1) Overall funded status of the multi-employer pension plan (mainly as of March 31, 2018 and 2017)
Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Plan assets¥9,130¥10,660$85,913
Projected benefit obligation
11,18011,320105,204
Funded status(¥2,050)(¥660)($19,291)(2) Contributions by the Company and its consolidated domestic subsidiaries as a percentage of total
contributions to the multi-employer pension plan for the fiscal years ended March 31, 2018 and 2017 were 4%
and 4% respectively.
Other than the above, “Accrued expenses” and “Other long-term liabilities” include 24,606 million yen(US$231,542 thousand) and 27,795 million yen of postretirement benefit plan obligations of certain U.S.
subsidiaries as of March 31, 2018 and 2017, respectively.

2212. Income Taxes
The Company and its consolidated subsidiaries were subject to a number of taxes based on income, which in
the aggregate resulted in a normal statutory income tax rate of approximately 30.7% for the fiscal years ended
March 31, 2018 and 2017.
A reconciliation of the statutory income tax rate in Japan to the Company’s effective income tax rate for the
fiscal years ended March 31, 2018 and 2017 were as follows:
2018
2017
Statutory income tax rate in Japan
30.7%
30.7%
Increase (reduction) in taxes resulting from:Difference of applicable tax rate in subsidiaries
Adjustment of deferred tax assets by change of the tax rate
Entertainment expenses not qualifying for deduction
Correction for income tax in previous years
Changes in valuation allowance and tax benefits realized from loss carry forwards
Deduction of research and development expense
Other
Effective income tax rate

0.5%
0.1%
0.1%
0.6%
(0.4)%(6.3)%
0.1%
25.4%

2.4%
0.1%
0.0%
(4.7)%(0.3)%
28.2%

Significant components of the deferred tax assets and liabilities as of March 31, 2018 and 2017 were as
follows:
Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Deferred tax assets:
Accrued expenses¥77,088¥53,348$725,398
Unrealized profit on inventories
20,13022,748
189,423
Provision for product warranties
19,653
19,875
184,935
Net defined benefit liability
14,76315,082
138,920
Depreciation and amortization expenses
8,585
11,30780,785
Provision for bonuses
7,605
7,493
71,563Long-term accounts payable-other
6,216
10,85858,493
Accrued enterprise tax
2,843
677
26,753Inventories
2,578
2,247
24,259Other
20,68920,623
194,681
Total deferred tax assets
180,150
164,258
1,695,210
Valuation allowance(7,405)(8,778)(69,681)
Total deferred tax assets, net of valuation allowance
172,745
155,480
1,625,529
Deferred tax liabilities:
Deferred revenue of foreign consolidated subsidiaries(16,441)(26,494)(154,710)
Depreciation and amortization expenses(14,230)(22,466)(133,904)
Valuation difference on available-for-sale securities(2,408)(2,354)(22,659)
Reserve for reduction entry(1,690)(1,770)(15,903)
Net defined benefit asset
(527)
(932)
(4,959)
Other
(744)
(744)
(7,001)
Total deferred tax liabilities(36,040)(54,760)(339,136)
Net deferred tax assets¥136,705¥100,720$1,286,393
23

The net deferred tax assets are included in the following line items in the accompanying consolidated balance
sheets.
Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Current assets—Deferred tax assets¥124,766¥109,600$1,174,047
Investments and other assets—Deferred tax assets
32,24420,922
303,416Long-term liabilities—Deferred tax liabilities(20,305)(29,802)(191,070)
Total net deferred tax assets¥136,705¥100,720$1,286,393
Revision of deferred tax assets and liabilities due to change in income tax rate
In the United States, the Tax Cuts and Jobs Act was enacted on December 22, 2017, and the federal
income tax rate was reduced from 35% to 21% for fiscal years beginning on or after January 1, 2018. The
effect of the change in the tax rate is immaterial.
13. Net Assets
Under Japanese laws and regulations, the entire amount paid for new shares is required to be designated ascommon stock. However, a company may, by a resolution of its Board of Directors, designate an amount notexceeding one half of the price of the new shares as additional paid-in capital, which is included in capitalsurplus.
Under the Japanese Companies Act (“the Act”), in cases where a dividend distribution of surplus is made,the smaller of an amount equal to 10% of the dividend or the excess, if any, of 25% of common stock over the
total of additional paid-in capital and legal earnings reserve must be set aside as additional paid-in capital or
legal earnings reserve. Legal earnings reserve is included in retained earnings in the accompanying
consolidated balance sheets.
Under the Act, both legal earnings reserve and additional paid-in capital used to eliminate or reduce a
deficit generally require a resolution of the shareholders’ meeting.
Additional paid-in capital and legal earnings reserve may not be distributed as dividends. Under the Act, alladditional paid-in capital and all legal earnings reserve may be transferred to other capital surplus andretained earnings, respectively, which are potentially available for dividends.
The maximum amount that the Company can distribute as dividends is calculated based on the
non-consolidated financial statements of the Company in accordance with the Act.
At the annual shareholders’ meeting held on June 22, 2018, the shareholders approved cash dividends
amounting to 55,233 million yen (US$519,742 thousand). Such appropriations have not been accrued in the
consolidated financial statements as of March 31, 2018. Such appropriations are recognized in the period inwhich they are approved by the shareholders.
14. Presentation of inventories and provision for loss on construction contracts"Provision for loss on construction contracts" included in "Cost of sales" for the fiscal years ended March 31,2018 and 2017 is provision of 95 million yen (US$ 894 thousand) and reversal of 579 million yen, respectively.

2415. Selling, General and Administrative Expenses
Selling, general and administrative expenses for the fiscal years ended March 31, 2018 and 2017 consistedof the following:Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Freightage and packing expenses¥28,438¥27,813$267,601
Advertising expenses
82,80180,780779,157
Sales incentives
173,785
137,209
1,635,316
Salaries and bonuses
58,00255,123545,798
Research and development expenses
120,330
113,490
1,132,305
Other
119,712
114,501
1,126,489
Total¥583,068¥528,916$5,486,666
16. Extraordinary loss
(The fiscal year ended March 31, 2017)
Loss on business liquidation
The loss was recognized due to the decision to liquidate the Industrial Products business on November 2,
2016.The loss consists of 2,524 million yen of loss on fixed assets, 2,127 million yen on inventory valuation,and 471 million yen on others. The loss on fixed assets above includes impairment losses on the following
assets.
Impairment loss
Use
Location
Category(millions of yen)
Kitamoto City Saitama
Production
Machinery, equipment
Prefecture and other
1,201
facilities
and vehicles
locations
Production facilities that impairment losses are recognized on are grouped together with assets owned
mainly by the Industrial Products business for impairment recognition and measurement purposes.
Due to the decision to discontinue properties were recognized as follows the Industrial Products business, it
is expected that future cash flows would fall below book values of related facilities, the book values of thoseassets were written down to the recoverable amounts accordingly.
As a result, 1,201 million yen of impairment losses were recognized and presented in Loss on businessliquidation in the quarterly consolidated statements of income.
The recoverable amounts are measured at value in use, calculated based on future cash flows discounted
principally at 10.30%.
Impairment loss
In addition to the impairment loss on production facilities referred to above, impairment losses on rental
properties were recognized as follows:
Impairment loss
Use
Location
Category(millions of yen)
Rental properties

Konan City Shiga
Prefecture

Land

1,175

Other

10

Grouping unit for recognition and measurement of impairment loss is defined by each property for lease.
Due to the declining profitability and significant decline in market value, it is expected that future cash flows
would fall below book values of those properties, the book values of those properties were written down to
the recoverable amounts accordingly.
As a result, 1,185 million yen of impairment losses were recognized. The recoverable amounts are25

measured at net realizable value, calculated based on real estate appraisal value.
(The fiscal year ended March 31, 2018)
Loss on related to airbags
The loss was recognized due to the market measures concerning Takata airbag inflator not containing
desiccant (hereinafter referred to as "the airbag"). It is quality-assurance expenses which further market
measures relating to the airbags to be taken in the current fiscal year and beyond.
17. Finance Leases
As allowed under the Japanese accounting standards, the Company and its consolidated subsidiaries inJapan account for finance leases.
Information as Lessor(1) The details of lease investment assets as of March 31, 2018 and 2017 were as follows:
Millions of yen
2018
2017
¥20,534¥22,210395
386(3,809)(4,058)¥17,120¥18,538

Lease revenue receivable
Estimated residual value
Interest income portion
Lease investment assets

Thousands of
U.S. dollars
2018$193,225
3,717(35,843)$161,099(2) Lease revenue related to lease investment assets
Amounts of collections on lease receivable after the fiscal years ended March 31, 2018 and 2017 were as
follows:
Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Within 1 year
¥7,882¥7,355$74,170
1 to 2 years
5,456
6,022
51,341
2 to 3 years
3,494
4,590
32,8793 to 4 years
2,322
2,638
21,8504 to 5 years
1,347
1,594
12,675
Over 5 years
¥33
¥11
$310
18. Operating Lease
Information as Lessee
The future minimum lease/rent payments, excluding the portion of interest thereon, as of March 31, 2018 and2017, were as follows:
Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Operating leases:
Due within one year
¥3,372¥3,490$31,730
Due after one year
14,048
17,101132,192
Total¥17,420¥20,591$163,922

26

Information as Lessor
The future minimum lease/rent payments receivable, excluding the portion of interest thereon, as of March 31,2018 and 2017 were as follows:
Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Operating leases:
Due within one year
¥125
¥137
$1,176
Due after one year
71
72
668
Total
¥196
¥209
$1,844
19. Contingent Liabilities
Contingent liabilities as of March 31, 2018 and 2017 were as follows:
Thousands ofMillions of yen U.S. dollars
2018
2017
2018
As guarantor of third-party indebtedness from financial
institutions¥29,795¥28,555$280,371(The fiscal year ended March 31, 2017)
Expenses with regard to the modified agreement contents between the U.S. subsidiary of Takata Co., Ltd.
and NHTSA (The National Highway Traffic and Safety Administration of the United States) dated May 4, 2016,
Notification “Extended schedule of the recalls of airbag inflators manufactured by Takata Co., Ltd.” releasedby MLIT (The Ministry of Land, Infrastructure, Transport and Tourism of Japan) dated May 27, 2016, andrecalls in the other regions including China and Australia required by the U.S. and Japanese authorities are
accrued to the extent that the amount can be reasonably estimated in the consolidated financial statements
for the fiscal year ended March 31, 2017.
There is a possibility that additional expense may be accrued required due to events in the future.
(The fiscal year ended March 31, 2018)
Expenses with regard to the modified agreement contents between the U.S. subsidiary of Takata Co., Ltd.
and NHTSA (The National Highway Traffic and Safety Administration of the United States) dated May 4, 2016,
Notification “Extended schedule of the recalls of airbag inflators manufactured by Takata Co., Ltd.” releasedby MLIT (The Ministry of Land, Infrastructure, Transport and Tourism of Japan) dated May 27, 2016, andrecalls in the other regions including China and Australia required by the U.S. and Japanese authorities are
accrued to the extent that the amount can be reasonably estimated in the consolidated financial statements
for the fiscal year ended March 31, 2018.
There is a possibility that additional expense may be accrued required due to events in the future.
20. The Amount of Discount of Export Bill
The amount of discount of export bill as of March 31, 2018 and 2017 were as follows:
Thousands ofMillions of yen U.S. dollars
2018
2017
2018
¥1,891¥1,210$17,794

The amount of discount of export bill27

21. Transfer of Financial Assets to Special Purpose Company
The balance of financial assets transferred to special purpose company as of March 31, 2018 and 2017 wereas follows:
Thousands ofMillions of yen U.S. dollars
2018
2017
2018
Balance of financial assets transferred to special purpose
company(loan receivable of Automobiles and accounts
receivable-trade of Aerospace)¥4,251¥4,488$40,002
22. Segment Information(1)Outline of business segment
The business segments the Company reports are the business units for which the Company is able to obtainrespective financial information separately in order for the Board of Directors to conduct periodic investigation
to determine distribution of management resources and evaluate their business result.
The Company recognizes Automobile as its main business, and introduces an internal company system
and recognizes Aerospace, and Other divisions. This framework makes clearer the responsibility of eachdivision and accelerates business execution. The Company manages the subsidiaries on the basis of thisclassification. Therefore, the business segments consist of Automobile, Aerospace, and Other which do notbelong to Automobile nor Aerospace. Automobile segment manufactures and sells vehicles and related
products. Aerospace segment manufactures aircrafts, parts of space-related devices.
(2)Calculation method of sales, profit or loss, assets, liabilities and other items by reportable segments
Accounting method for reportable segments is almost the same as "2. Summary of Significant
Accounting Policies".
Segment incomes are calculated based on operating income.
Net sales - Inter-segment are calculated based on current market prices.
(3)Information on sales, income, assets and other items by reportable segments for the fiscal years ended
March 31, 2018 and 2017 were summarized as follows
Thousands ofMillions of yen
U.S. dollars
Net Sales:
2018
2017
2018
Automobiles
Outside customers¥3,234,866¥3,151,961$30,440,068
Inter-segment
2,918
4,720
27,458Sub-total
3,237,784
3,156,681
30,467,526
Aerospace
Outside customers
142,163
138,759
1,337,753
Inter-segment
5
47
Sub-total
142,168
138,759
1,337,800
Other (*1)
Outside customers
28,19235,272
265,287
Inter-segment
23,852
23,785
224,447
Sub-total
52,04459,057489,734
Total
3,431,996
3,354,497
32,295,060
Adjustment (*2)
(26,775)(28,505)(251,953)
Consolidated total¥3,405,221¥3,325,992$32,043,107
28

Segment income:Automobiles
Aerospace
Other (*1)
Total
Adjustment (*2)
Consolidated total (*3)

2018Millions of yen
2017

Thousands of
U.S. dollars
2018¥361,454
12,2595,066
378,779
668¥379,447¥397,657
9,102
3,512
410,271539¥410,810$3,401,280
115,357
47,6713,564,308
6,286$3,570,594
Thousands of
U.S. dollars
2018

Segment assets:

2018

Millions of yen
2017

Automobiles
Aerospace
Other (*1)
Total
Adjustment (*2)
Consolidated total¥2,598,192
234,619
77,5832,910,394(26,081)¥2,884,313¥2,477,309
223,148
87,484
2,787,941(25,620)¥2,762,321$24,448,970
2,207,763
730,055
27,386,788(245,422)$27,141,366
Thousands of
U.S. dollars
2018

Other Items:
Depreciation and amortization:
Automobiles
Aerospace
Other (*1)
Total
Adjustment (*2)

2018Millions of yen
2017¥95,193
5,298
1,611
102,102-¥80,058
3,663
1,932
85,653-$895,766
49,85415,159960,779-

Consolidated total

102,10285,653960,779

3,461
54
3,515
3,515

1,467
1,467
1,467

32,568508
33,07633,076

185,056
8,316
417
193,789¥193,789

180,469
14,6991,448
196,616¥196,616

1,741,376
78,254
3,923
1,823,553$1,823,553

Investment to equity-method affiliates:
Automobiles
Aerospace
Other (*1)
Total
Adjustment (*2)
Consolidated total
Increase of property, plant and equipment andintangible assets:
Automobiles
Aerospace
Other (*1)
Total
Adjustment (*2)
Consolidated total
29

Note: *1. Other means the category which is not included into any business segment reported. It consists ofIndustrial product, real estate lease, etc.
*2. Adjustment of segment income refers to elimination of intersegment transaction.
*3. Segment income is adjusted on operating income on the consolidated statements of income.
Related Information(1)Products and services information
Products and services information is omitted since the same information is in the segment information(2)Information about geographic areas[1]Sales for the fiscal years ended March 31, 2018 and 2017 was summarized as follows:

Sales: (*1)
Japan
North America[United States] (*2)
EuropeAsia
OtherConsolidated total

2018

Millions of yen
2017

Thousands of
U.S. dollars
2018¥668,566
2,305,797[2,152,276]
119,113140,577
171,168¥3,405,221¥650,343
2,192,260[2,056,176]
112,602211,325
159,462¥3,325,992$6,291,202
21,697,535[20,252,903]
1,120,853
1,322,829
1,610,688$32,043,107

Note: *1 Sales is categorized by country or area which is based on customer location.
*2 Sales of the United States is included in North America area.
[2]Property, plant and equipment as of March 31, 2018 and 2017 was summarized as follows:

2018

Millions of yen
2017

Thousands of
U.S. dollars
2018

Property, plant and equipment: (*1)
Japan
¥527,698¥489,383
4,965,635
North America
174,290
166,665
1,640,068[United States] (*2)[173,557][165,877][1,633,170]
Europe
519
425
4,884
Other
601
792
5,654
Consolidated total¥703,108¥657,265
6,616,241
Note: *1 Property, plant and equipment is categorized by country or area according to geographic adjacentlevel.
*2 Property, plant and equipment of the United States is included in North America area.
[3]Major customers Information
Information about major customers is omitted because there were no outside sales to single customer withequal to or more than 10% of Net sales on the consolidated statements of income for the fiscal years ended
March 31, 2018 and 201730

Information on Impairment Loss in Fixed Assets by Reportable segments
Impairment loss in fixed assets by reportable segments for the fiscal years ended March 31, 2018 and 2017
was summarized as follows:
Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Impairment loss in fixed assets:
Automobiles
¥31
¥3
$292
Aerospace
Other
2,386
Total
31
2,389
292
Adjustment
Total
¥31
¥2,389$292“Other” represents the business segments which are not included in any reportable business segments. It
includes Industrial products and Real estate lease, and other.
Information on Amortization of Goodwill and Unamortized Balance by Reportable segments
Information on amortization of goodwill and unamortized balance by reportable segments as of March 31,2018 and 2017 was summarized as follows:
GoodwillThousands ofMillions of yen
U.S. dollars
2018
2017
2018
Amount written off of current period:
Automobiles
¥211
¥206
$1,986
Aerospace
Other
Total
211
206
1,986
Corporate and elimination
Total
211
206
1,986
Balance at the end of current period:
Automobiles
Aerospace
Other
Total
Corporate and elimination
Total

1,566
1,566
¥1,5661,867
1,867¥1,867

14,736
14,736$14,736

Information on Negative Goodwill by Reportable segments
No items to be reported.
23. Fair Value of Investment and Rental Property
The Company and certain consolidated subsidiaries own rental office buildings and rental commercial
facilities with the objective of generating rental income in Saitama prefecture and other locations. Certain
domestic rental office buildings in Japan are classified as properties that include portions used as investment
and rental property, because part of them are used by the Company and certain consolidated subsidiaries.
The consolidated balance sheet amounts, principal changes during the fiscal years ended March 31, 2018and 2017, and fair value as of March 31, 2018 and 2017 were as follows:31

The fiscal year ended March 31, 2018
Millions of yen

Investment and rental property
Properties that include portions used as
investment and rental property

Consolidated balance sheet amounts
Fair value as
beginning
Increase(dec ending
the end of thebalancerease) during balancefiscal year
the year¥27,036¥242¥27,278¥40,136¥13,712(¥253)¥13,459¥22,804

The fiscal year ended March 31, 2018

Investment and rental property
Properties that include portions used as
investment and rental property

Thousands of U.S. dollars
Consolidated balance sheet amounts
Fair value as
beginning
Increase(dec ending
the end of thebalancerease) during balancefiscal year
the year$254,409$2,277$256,686$377,679$129,030($2,381)$126,649$214,585

The fiscal year ended March 31, 2017
Millions of yen
Consolidated balance sheet amounts
Fair value as
beginning
Increase(dec ending
the end of thebalancerease) during balancefiscal year
the year¥29,243(¥2,207)¥27,036¥40,819

Investment and rental property
Properties that include portions used as
investment and rental property¥14,495(¥783)¥13,712¥21,490
Note 1. The amounts of consolidated balance sheet exclude accumulated depreciation and accumulated
impairment loss from acquisition costs.
2. Among changes in the amount of investment and rental property and properties that include portions
used as investment and rental property during the fiscal year ended March 31, 2018, principal increases
were 1,539 million yen (US$14,482 thousand) of properties acquisitions and 720 million yen (US$6,775
thousand) of other, and principal decreases were 1,001 million yen (US$9,419 thousand) of depreciation,
1,469 million yen (US$13,823 thousand) of loss on sales and retirement.
Among changes in the amount of investment and rental property and properties that include portions
used as investment and rental property during the fiscal year ended March 31, 2017, principal increases
were 1,337 million yen of properties acquisitions, and principal decreases were 1,071 million yen of
depreciation, 1,203 million yen of impairment losses, 568 million yen of loss on sales and retirement, 928
million yen of end of contracts, and 543 million yen of other decreases.
3. Fair values of main properties are calculated based on the appraised value of the external real-estateappraiser. Some of them are adjusted by the Company using relevant indicators etc. Fair values of theremaining properties are estimated by the Company mainly using the assessed land values that areused to calculate property taxes.
32Profit and loss in the fiscal years ended March 31, 2018 and 2017 from investment and rental property andproperties that include portions used as investment and rental property were as follows:
The fiscal year ended March 31, 2018

Investment and rental property
Properties that include portions used as
investment and rental property

Millions of yen
RentalRentalDifference
Other profit
incomeexpensesand loss¥3,825¥2,043¥1,782¥15¥780¥1,198(¥418)¥-

The fiscal year ended March 31, 2018

Investment and rental property
Properties that include portions used as
investment and rental property

Thousands of U.S. dollars
RentalRentalDifference
Other profit
incomeexpensesand loss$35,993$19,225$16,768$141$7,340$11,273($3,933)$-

The fiscal year ended March 31, 2017

Investment and rental property
Properties that include portions used as
investment and rental property

Millions of yen
RentalRentalDifference
Other profit
incomeexpensesand loss¥3,909¥2,059¥1,850(¥1,133)¥775¥1,224(¥449)¥-

Note:1. Rental income (from the properties that include portions used as investment and rental property) does
not include the portion that the Company or certain subsidiaries use as the provision of services andbusiness administration purposes. Rental expenses, however, include all portions of the expenses(costs related to depreciation, repairs, insurance and taxes).
2. Other profit and loss include in gain on sale and impairment loss.
25. Subsequent Events
No items to be reported.
26. Other
No items to be reported.

33