FUJI HEAVY INDUSTRIES LTD. Annual Report 2003

Annual Report 2003
For the year ended March 31, 2003

Value Driven by High Performance

Annual Report 2003

.

1

003
2003

Fuji Heavy Industries Adopts Subaru’s Six-Star Emblem as New Corporate
Symbol— New logo aims to increase Subaru brand awareness and reshape corporate values —Fuji Heavy Industries, Ltd. (FHI), a global manufacturer of transportation and aerospace-related products andthe maker of Subaru automobiles, announced its decision to adopt the 6-star (“mutsuraboshi”) Subaru automobile emblem design as its new corporate symbol. Effective July 15, 2003, which is the 50th anniversary of
the company’s founding, FHI introduced its new corporate symbol as well as a new logo design that employs
the current SUBARU logo typeface. The company has begun using both the new symbol and logo to further
fortify its brand image and awareness on a global basis.
Through the use of the 6-star corporate symbol and logo, FHI plans to project a more cohesive, solidified
brand image among various industrial divisions in the FHI group, and to further raise brand awarenessglobally. In addition, FHI aims to improve its corporate values by capitalizing on the synergy between
its automotive and non-automotive businesses. By widespread sharing of a unified corporate logo,synergy will be further enhanced among its automotive, aerospace, industrial, and eco technologies divisions, which share such Subaru traits as high quality, trustworthiness,social responsibility, and environmental friendliness.

. . .and Inspiration
Disclaimer Regarding Forward-Looking Statements
Statements herein concerning plans and strategies, expectations or projections about the future, FHI’s
efforts with regard to various management issues, and other statements, except for historical facts, areforward-looking statements. These forward-looking statements are subject to uncertainties that could
cause actual results to differ materially from those anticipated. These uncertainties include, but are notlimited to, general economic conditions, demand for and prices of FHI’s products, FHI’s ability to continue to develop and market advanced products, and currency exchange rates.
FHI disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

CONTENTS
To the Stakeholders of Fuji Heavy Industries Ltd.................2
How Are We Accelerating Transformation Via FDR-1?
Subaru Automotive Business Unit.......................................8
Aerospace Company .........................................................14
Industrial Products Company............................................14
Eco Technologies Company..............................................15
Management.......................................................................16
Environment........................................................................18
Financial Section ................................................................19
Consolidated Subsidiaries and Affiliates ............................57
Investor Information............................................................58

3

1

The key elements we considered in developing the new Legacy models were toachieve safety in all driving conditions and to provide attractive design andpackaging, while at the same time responding to the demands of the current
social environment. We developed the new Legacy from a new, comprehensive
perspective, based on the fundamental functions of “driving, turning, andstopping.” We want people to stop, look, and think—“Japan now has theLegacy.”A Global Player with a Premium Brand

Annual Report 2003

1

50-Year Anniversary of Fuji Heavy Industries Ltd.
Founded on a Tradition of Technological Prowess, Fuji Heavy Industries Ltd. Seeks Fresh Challenges in the New Century

Company-wide events
1960 FHI’s common stock listed on the Tokyo Stock Exchange

1999 Agreement on business alliance with Suzuki Motor
Corporation signed

1965 Operating division adopted by product classification

2000 Business alliance with Nissan Motor Co., Ltd. cancelled1966 Head Office moves to Subaru Building

2001 Gunma plant achieves “Zero Emission” goals

1968 Business agreement with Nissan Motor Co., Ltd. signed

2002 Utsunomia and Saitama plants achieve “Zero Emission” goals• New management plan FDR-1 drafted• Internal company system introduced• NEC Lamillion Energy established, a joint investment between
FHI and NEC Corporation1953 Fuji Heavy Industries Ltd. established1987 Second Subaru Building completed in Omiya City
1992 Agreement signed on technology transfer to China’s Guizhou
Aviation Industry Corporation to initiate local minicar production
1994 Corporate philosophy and quality policy established1996 Environmental Plan for the Year 2000 drafted
1997 Integrated Environmental Operations Promotion Office established1998 FHI inaugurates environmental policy
1999 Subaru sales offices integrated in five areas in Japan• Agreement on business alliance with General Motors
Corporation signed• FHI and Isuzu Motors signed agreement on dissolution of SIA
JV and production consignment
2003 Fuji AT established, JV with JATCO to develop and produce
CVTs• Six-star trademark is set as a corporate symbol

SubaruFHI takes
advanced
continuou

Aerosp
FHI’s year
continuing

Industr
FHI develo
Robin bra

Eco TeFHI makes
disposal a

Other
After-serv
manufactu

Subaru Automotive Business Uni

1954 P-1 prototype for a passenger car completed, named “Subaru”
in 1955

1981 FF Rex Sedan introduced
1982 New model Sambar Try series launched

1992 Firsbu1958 Subaru 360 minicar introduced

1983 Oizumi Plant commences operations

1993 Ne• The Subaru trademark is adopted
1960 Gunma Main Plant opened• Domingo introduced

1994 OE• Co

1961 Sambar Truck introduced

1984 Development of the world’s first electro-continuously variabletransmission (ECVT) announced

1965 Subaru 1000, Japan’s first mass-produced front-wheel-drivecar, introduced

1985 Subaru Alcyone, a specialty car, introduced• Su

1969 Yajima Plant commences operations

1986 Ta Ching Motors Co., Ltd., a joint venture in Taiwan, established• Viv

1987 World’s first ECVT introduced in Justy

• Su
Wo

• Subaru FF-1 1100 series introduced• Subaru R-2 launched1971 Subaru Leone coupe introduced
1972 Subaru Rex launched• Subaru Leone AWD Station Wagon introduced• Subaru Justy introduced• Subaru-Isuzu Automotive Inc. (SIA), a joint venture with Isuzu
Motors Ltd., established in the United States
1988 Alliance agreed with Sweden’s Volvo for domestic sales of
Volvo vehicles

1973 Resin parts classification markings started, ahead of otherJapanese companies

1989 Legacy set new 100,000-kilometer world speed record in
Arizona, U.S.A (Average speed: 223.345 km/h)

1975 Leone SEEC-T series, which controls the level of exhaustemissions without a catalytic converter, introduced• Subaru Legacy, a new global strategic car, introduced• Ta Ching Motors commences operations

1977 New Subaru Leone introduced—first car in conformity withJapan’s 1978 exhaust emission regulations

1990 Full-model change of Sambar series, improvement of Rex series

1979 New Leone launched1991 Subaru SVX introduced

1981 FF Rex Combi introduced

1992 Subaru Vivio launched• SIA production begun

1995 FH
ma

1996 Ba
roll

• Sa
ab

• Bu
ent

• Su
cer

• Su
WR

1997 SuLtd.

edn” goals

etweenon of SIA
duce

Subaru Automotive Business Unit
FHI takes pride in offering the highly distinctive and appealing Subaru brand. These automobiles offer superb driving pleasure and safety based on
advanced technologies, including our Horizontally-Opposed Engine (“Boxer”), the symmetrical All Wheel Drive (AWD) system and the intelligent
continuously variable transmission (I-CVT).
Aerospace Company
FHI’s years of know-how and experience in manufacturing large passenger planes, helicopters and unmanned craft form a solid foundation for ourcontinuing R&D in space shuttle technology and other areas. FHI is aiming to become a distinct aircraft manufacturer with a global presence.
Industrial Products Company
FHI develops and manufactures high-performance engines that constitute the heart of industrial and leisure products. Through our global sales network,
Robin brand engines have gained a worldwide reputation for their reliability in a variety of products that people depend on for work and pleasure.
Eco Technologies Company
FHI makes sanitation trucks and separation as a part of its commitment to protecting the environment. Other environmental business includes waste
disposal and recycling system as well as cleaning robots and wind turbine generation system.
Other
After-service and renewal of bus bodies and rail cars were the focus of efforts in transportation; as housing, the concentration is on the sale andmanufacture of prefabricated units and nursing care rooms. These businesses have terminated new production in 2003.

ess Unit

1992 First successful recycling in the automobile industry of painted
bumpers into exterior/interior parts/Subaru Impreza introduced
1993 New Legacy series introduced
1994 OEM supply of “ADvan” from Nissan Motor Co., Ltd., starts
riable• Coating-film removal technology using a roller developed
1995 FHI and SIA receive ISO 9002 certification for quality
management and quality assurance• Subaru Sambar EV introduced in Japan

1998 New Century Legacy series launched• Subaru Pleo introduced in accordance with changes in minicar
standards• Legacy Station Wagon selected 1998-1999 RJC New Car of
the Year; Pleo takes first place in the minicar category• Legacy B4 introduced
1999 Sambar series full-model change

ablished• Vivio Bistro, a classic-type minicar, launched• Gunma Manufacturing Division receives ISO 14001 environmental management systems certification

suzu• Subaru captured the Manufacturer’s and Driver’s titles in theWorld Rally Championship (WRC)• Cumulative production of Subaru AWD vehicles hits 5 million
units

es of

1996 Based on new coating-film removal technology employing theroller method, bumper-to-bumper recycling introducedn• Sambar Transcare, a vehicle with an electric lifter for the disabled, launched• Bumper recovery from domestic market through independent system begun

ex series

2000 Impreza series full-model change• Pleo Nicot introduced
2001 Subaru vehicles sold at GM Autoworld in the Philippines andIndonesia• Sambar nursing care car launched• Traviq launched• Subaru Development & Engineering Division receives ISO 9002
certification for quality management and assurance

2002 Subaru Europe established• Subaru captured third consecutive Manufacturer’s Title inWRC2003 B11S concept car makes world premier at Geneva motor show

1997 Subaru Forester introduced• Forester full-model change• All New Legacy launchedTo the Stakeholders of Fuji Heavy Industries Ltd.

Moving Toward Our Goals

Kyoji Takenaka
President and CEO

2 FUJI HEAVY INDUSTRIES LTD.

Fiscal 2003, ended March 31, 2003, was the first year of our Fuji Dynamic Revolution-1(FDR-1) medium-term business plan, which runs through fiscal 2007. In fiscal 2003, Fuji
Heavy Industries Ltd.’s consolidated net sales rose to ¥1,372.3 billion, a moderate increaseof 0.7% from the previous fiscal year, making it the second straight year that sales havestood at the highest levels in FHI’s history. Even as operating income decreased 23.7%
compared with the previous fiscal year, to ¥67.5 billion, the ratio of operating income to net
sales was 4.9%, exceeding our target of 4.5% for the first year of FDR-1. Net income
posted a gain of 10.6% from the previous fiscal year, rising to ¥33.4 billion.

What Differentiates Us?
Operating income declined mainly because of our proactive
investments in development programs aimed at positioning theCompany as “a global player with a premium brand.” Accordingly,
we are convinced FHI overall is proceeding on track toward its
objectives under FDR-1. Initiatives to consolidate our corporate
positioning during fiscal 2003 included promotion of management system reforms, measures to enhance staff motivation
and awareness, and activities to strengthen manufacturing,sales, and service capabilities in our automobile business aswell as withdrawal from the bus and rail car manufacturingbusiness. Moreover, the long-awaited introduction of our
new Legacy models in May 2003 added momentum to ourtransformation, showing we are moving toward our goals at fullspeed. In fiscal 2004, as FHI celebrates the 50th anniversary of
its establishment, we will clearly demonstrate the direction weare heading under FDR-1 both in Japan and overseas.

production to sales, R&D, and service, as a corporate groupoffering a brand recognized by customers worldwide for theirunique value and reliability. In other words, precisely because ourshare of the global automobile market is 1%, our strategy must
be to create, develop and present a distinctive brand value tothe world.
To date, FHI’s product strategy has been to refine the distinctive
aspects of its core technology portfolio. However, we are awarethat this strategy alone will be insufficient to capture the full spiritof the increasingly diverse and sophisticated values and desiresof our customers. While remaining committed to improvements
in technology and quality, we know we must also work to achieve
progressively higher goals in all aspects of our business operations, or we will be unable to provide the value that customers
want. The underlying philosophy of FDR-1 is the creation ofa consistent brand image from Japan to the world stage.

Establishing a Global Presence as a Japanese Brand
Since taking office as President of FHI, I always reflect about how
to best position the Subaru brand. My principal concern is clearly
defining the international course of development for FHI, which
accounts for 1% of the world automobile market, as realignmentsin the automobile industry accelerate around the world.
Under FDR-1, we set the goal of becoming “a global player
with a premium brand.” With this as our medium- to long-term
vision, we decided to establish a strong position in our coreautomobile business through all phases of our operations, from

Premium Value Unique to Subaru
As deflationary trends unfold internationally, there are signs that
manufacturers are overly concerned with near-term developments and lack a precise understanding of what customers arereally thinking. For example, in the United States, the market is
influenced more by sales incentives and other conditions than by
the attractiveness of the products themselves. At the same time,
consumers still have a deep-seated desire for the “real thing”
regardless of the price, so we see a bipolarization of the market—
one group of consumers is willing to pay for top quality while theAnnual Report 2003

3

To the Stakeholders of Fuji Heavy Industries Ltd.

other chooses products based on more practical criteria. For
that reason, each corporation must decide whether its strategy
will be to compete on the basis of price or on the basis of value.
The choice for Subaru is clear. Its only answer is to focus itscore competencies on the requirements of well-defined market
segments and offer more and more outstanding products.
The introduction of the new Legacy models is the starting
point for the new FHI, and they will serve as the global centerpiece of our product portfolio. Advancing toward this turning
point, we have implemented the following initiatives to consolidate our corporate position.
The central focus of our product development activities is thereform of our design capabilities. While continuing to enhance
our core technologies, including the horizontally-opposed(“boxer”) engine, the key to building brand equity will be to lay
claim to world-class design. It is expected that such a comprehensive transformation in automobile design will require fromthree to five years. The approach encompasses more thanjust “improvements” and must come from a commitment tofundamentally re-think Subaru’s design culture from its very

foundations. One aspect of this initiative will include reassessing
our design vision from a new perspective through a global
infusion of new blood.
In production activities, we must go beyond reducing thecost of parts and components and work to boost costcompetitiveness by examining the processes giving rise to thecomposition of costs. Beginning with upstream design anddevelopment, we will then examine the downstream processesof sales and service, before continuing on to joint back-officedivisions. To undertake this in-depth analysis of costs, we instituted our Cost Structure Revolution-1 (CSR-1) program in the fallof 2002. As a result of these CSR-1 activities, we were able toreport an increase in operating income of ¥5.5 billion and a gainin net income of ¥9.4 billion.
In May 2003, to increase the competitiveness of our minicars,
we made further progress toward rationalization by combining
our passenger vehicle and commercial vehicle production lines.
In our sales activities, we began to refurbish our dealer showrooms in 2001 and had completed approximately half of themby the end of fiscal 2003. Along with these programs, we have

How We Are Changing
Performance Overview (Billions of yen)
Plan of FDR-1

Forecast for

FY2003

FY2004

FY2007

Actual Resultsof FY2003

FY2004

FY2007

Automotive Sales Volume(thousand units)
575
Net Sales
1,390.0
Operating Income
62.0
Net Income
24.0
Depreciation
49.0
Capital Investment
79.0
R&D Expenses
65.0Interest Bearing Debt
400.0
Exchange Rate (¥/$)
125615
1,420.0
51.0
23.0
52.0
99.0
65.0
430.0
115

760
1,840.0
110.0
57.0
68.0
59.0
69.0
380.0
115

Automotive Sales Volume(thousand units)
555
Net Sales
1,372.3
Operating Income
67.5
Net Income
33.4
Depreciation
48.8
Capital Investment
64.6
R&D Expenses
60.1
Interest Bearing Debt
389.1
Exchange Rate (¥/$)
123575
1,450.0
68.7
35.0
54.0
97.0
63.0
400.0
118

760
1,840.0
110.0
57.0
68.0
59.0
69.0
380.0
115

We will not change our final target.

implemented education programs for sales personnel and areworking to enhance the quality of service. We also introduced
the Partner 21 system to provide integrated assistance to oursales dealers such as new car sales, after services.
In addition to these measures to consolidate our corporate
foundation, we have introduced our new Legacy flagship models
and are aiming to build brand equity through the synergies
among these various initiatives.
How FDR-1 Is Transforming Our Corporate Culture
As we move along with the implementation of FDR-1, twoimportant themes are reforming our corporate culture and the

4 FUJI HEAVY INDUSTRIES LTD.

including amortization of consolidation adjustment of ¥6.7 billion

motivation and awareness of each staff member. As seems to
be common in organizations that reach a certain scale, individual
units of the FHI organization thus far have tended to pursue what
seems optimal for them, and we have sometimes not paidenough attention to what is optimal for the Company as a whole.
To overcome this, we have formed the Subaru Strategy
Development Division to take the initiative in implementing structural management reforms on a cross-divisional basis. This newunit has begun to make priority allocations of corporate resources
based on the principles of selection and concentration.
As a result, we have begun to transform our corporate culture
in areas where individual organizational units tended to set theirown directions by deciding on a single comprehensive direction
for the Company as a whole. We believe this attitude is having
a major positive effect on the motivation and awareness ofeveryone at FHI. For example, the Aerospace Company was ineffect overshadowed by FHI’s automotive business and had infact lost some momentum. But thanks to the start-up of FDR-1,
we returned to the roots of FHI’s aerospace business to target
synergies between automobile and aerospace activities, and,after hammering out a long-term vision, we were frankly astonished by the improvement in the motivation of members of the
Aerospace Company.
We further believe our design reform will have a major impact
on the awareness and motivation of everyone at FHI. Design
is something that can be immediately seen and appreciated,and our new designs will enable all our staff to connect clearlywith the directions we are heading in terms of quality andmanufacturing. A key issue for the next four years of FDR-1 will
be how to cultivate these initiatives into solid accomplishments.

New Legacy

Global Enterprise with Key Positions in Japan andthe United States
As I have mentioned, FHI must develop a consistent brandpresentation all around the world. A substantial portion of ourearnings comes from the U.S. market, subjecting our flow of
earnings to fluctuations in currency exchange rates. In fiscal

Product Strategies
High
speed
cruising

Realize strategic product portfolio and brand-building scenarioReform organization and design mindset

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

Brand value

Development of flagship car for North America
Accel eration

Development of new concept minicars

Start
Warm-up
IGN-ON

2000

2001

Introduction of premium Legacy

Revolution in design Developing new design language
2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Developing strategies on a global scale*N-PF: Next-generation new platform

N-PS: Next-generation hybrid power source

2003, we established our high-performance strategy in the
United States, and our unit sales in both Canada and Australia
have hit record levels for five years running. As this and otherdevelopments suggest, we have made solid progress towardbuilding brand equity for the future in overseas markets overall.
On the other hand, the event that had the impact of obliging
us to rethink our strategy was the dissolution of our joint ventureagreement with Isuzu Motors Ltd. In formulating FDR-1, we had
anticipated that Isuzu might withdraw from production in the UnitedStates but we had not anticipated that our joint venture SubaruIsuzu Automotive Inc. would become our wholly owned subsidiary
by January 2003. Additional costs to be incurred as a result of
the pullout by Isuzu will be covered through 2014 by compensation payments from Isuzu. Accordingly, the circumstances
assumed under FDR-1 are not expected to change significantly.
However, now that both the manufacturing and sales companies

have become wholly owned subsidiaries, we must develop newplans as quickly as possible for our U.S. operations to reach thegoal of selling 300,000 units annually in North America. At thesame time we make our U.S. operations be able to stand on theirown, we must restructure these activities as a business oriented
to the North American domestic market so they are no longer soheavily influenced by changes in foreign exchange rates.
The product strategies to attain this objective will differ
between Japan and the United States. Developing a productportfolio that will have global offerings common to each market
as well as products suited to individual markets will be a major
key to success. Our global product offerings will include the new
Legacy model, which are scheduled to be launched for U.S.
market in 2004. Then, in 2005, we plan to introduce a cross-overmodel focusing on the North American market. Along with theseofferings, we will bolster our sales capabilities in North America
Annual Report 2003

5

To the Stakeholders of Fuji Heavy Industries Ltd.

to enable us to reach our initial target of 160,000 in vehicle
production in this region by fiscal 2007.
Strengthening Our Alliance with GM
One objective of the ongoing development of our alliance with
General Motors Corporation (GM), which is expected to add
a further contribution under our FDR-1 plan, is to increase
Subaru’s presence within the GM Group. Currently, we aremaking progress through exchange of technology, personnel,
and information, and we have achieved reductions in costthrough joint procurement. In addition, as we have worked toestablish our high-performance strategy in the United States,
GM has contributed greatly in terms of advice regarding environmental issues. We believe the alliance with GM has resulted inimportant benefits for both partners.
Since the beginning of 2003, in addition to supplying Forester
to GM in India, we have worked with Saab on the joint development of its new Saab 9-2 for the North American market, whichmakes use of the Subaru symmetrical all-wheel-drive (AWD)system. We also have reached agreement to sell Saab vehicles
through Subaru dealers in Japan.

Aiming for Proactive Growth in All Internal Companies
As part of its structural management reforms, in June 2002, FHI
introduced an internal company system for its non-automotive
operations and phased out its bus and rail car manufacturing
activities. In the Eco Technologies Company, in addition to supplying small wind turbine generator systems, we have begun
R&D for applying our aerospace technology to developing
large-scale, wind turbine generator systems.
In the Aerospace Company, a number of projects are coming
on stream, including the next generation aircraft developmentof the PX/CX for the Japan Defense Agency. Under FDR-1, theAerospace Company’s initiatives aimed at becoming “an aircraftcompany with an international presence” within 10 years are
beginning to pick up speed.
Our Industrial Products Company is working to become profitable in fiscal 2004 by strengthening its marketing capabilities aswell as reviewing and restructuring its product portfolio.
Our intention is to move forward in implementing our strategy
of selection and concentration and promote proactive growthand development in our internal companies.

and Accelerating Progress...
Looking to Future Growth
At FHI’s annual general meeting of shareholders held on June25, 2003, Takeshi Tanaka retired as chairman and CEO tobecome Senior Corporate Adviser. I, Kyoji Takenaka, assumed
the office of CEO and will continue as President. Moreover, toensure the efficient functioning of the executive officer system,
we have delegated authority wherever possible to executive
officers and shortened the term of directors from two years
to one year. Both of these measures are intended to speed up
managerial decision-making. Under this new system, in fiscal
2004, we intend to move forward with the implementation of
FDR-1, building on the new Legacy lineup. Looking further
ahead, we aim for reaching our targets for 2010 of 10% ROA,
a 10% ratio of operating income to net sales, and annual R&D
expenditures of ¥100 billion.
In May 2003, with the timely introduction of the new Legacy
models, we felt the important meaning that our accumulated
vehicle production rose to 2.6 million units. In brief, the goal for
the Legacy brand is to create a new sense of excitement. Our
mission is to continue to build brand equity based on the appealof Subaru automobiles, while stepping up our initiatives to boost
return on investment and reduce cost so as to continue toenhance corporate value.

6 FUJI HEAVY INDUSTRIES LTD.

Kyoji Takenaka
President and CEO

Annual Report 2003

7

How Are We Accelerating Transformation Via FDR-1?

Kiyoshi Inoh
Executive Vice President

Just how are we accelerating our transformation to become the kind of company we want
to be 10 years from now—A Global Player with a Premium Brand? Specifically, we haveformed the SUBARU Strategy Development Division within the automotive business unit
and organized a Cross Functional Team that leaps across departmental borders. To implement
our comprehensive brand strategy through activities that transcend the existing organization,
we selected seven major issues—products, sales, communications, corporate social
responsibility (CSR), alliances, personnel development, and new business activities. We thenSubaru Automotive Business Unit
Product Strategy
The key to performance in the Japanese market in fiscal 2003 was how to counter challenging market
conditions—in view of the scheduled introduction of model changes in our flagship Legacy lineup
in May 2003—with our portfolio of Forester and Impreza models. Regarding passenger cars,
the Forester, which underwent a full model change in February 2002, the Impreza, which
underwent a big change in November 2002, and, in minicars, the Sambar, which also
underwent a big change in September 2002, all reported strong performances. However,conditions in the minicar segment as a whole were tough and, because sales of Legacy
models declined 16.9% compared to the previous fiscal year, to 49,000 units, domestic
sales as a whole decreased 9.6% from the previous year, to 252,000.
In the U.S. market, in addition to our cross-over strategy of selling SUVs differentiatedby being based on a passenger car platform, we are also beginning to implement our
high-performance car strategy. Following the success of the Impreza WRX introducedin fiscal 2001, we introduced a significantly more powerful model, the Impreza WRXSTi. We also added a turbo-charged Forester and will launch a turbo-charged Bajamodel only for the North American market. We will introduce a Legacy modelwith a turbo-charged engine in 2004. These introductions are all in line with our
high-performance product strategy. The introduction of the Baja, incorporating aturbo-charged engine and representing a major upgrade in product performance is aimed
at bolstering sales performance.
In overseas markets other than the United States, the Forester is the mainstay of our productportfolio, and we have built strong brand awareness in Canada and Australia. As these developments suggest,
we are making steady progress toward establishing the Subaru brand in overseas markets overall, and sales infiscal 2003 were up 13.2% from the previous fiscal year, to 196,000 units.

8 FUJI HEAVY INDUSTRIES LTD.

broke these seven issues into some 20 themes, and for about six months beginning in
October 2000, we prepared a range of specific proposals. Through these activities thequalities for our transformation advocated by President Takenaka—Individual, Innovative,
and Courageous—were spread throughout FHI.
Let me summarize the current status of the Subaru Automotive Business Unit andprogress we are making toward transformation in the three areas of products, sales, andmanufacturing.

Subaru B11S

Annual Report 2003

9

How Are We Accelerating Transformation Via FDR-1?

10 FUJI HEAVY INDUSTRIES LTD.

The results of our design renovation are going to speak
to the market, and this will be the clear focus of our productstrategy going forward.
The Subaru B11S, which we exhibited in the Geneva
Motor Show in March 2003, is the first concept car to
emerge from our new design system, with President
Takenaka participating in the design process right from theconcept presentation stage. The B11S features Subaru’s
characteristic, distinctive ride and is positioned as a highutility package. While the styling is distinctly Japanese, the

IMPREZA STi

B11S simultaneously boasts an international and strongly unique look.
Clearly, the Legacy will be our most significant product introduction during the fiscal year 2004. We aimed tooffer the new Legacy at a value that would exceed the expectations of the 2.6 million fans who have alreadyowned and know the Legacy.
In the area of minicars, we are scheduled to introduce a newly designed model at the beginning of 2004.
This new entry will feature the individuality unique to Subaru models.
In implementing our overseas strategy for new Legacy models, we plan to begin exports to Europe in fall2003 and then introduce them into the U.S. market in 2004. In the United States, now that SIA has become a

Raising the Bar,
wholly-owned subsidiary of FHI, an urgent issue is introducing high value added products that meetmarket requirements while expanding unit sales and profitability. To address this issue and build abipolar product portfolio in Japanese and U.S. markets, we are moving forward with plansfor introducing a new multi-passenger cross-over vehicle exclusively for the North American
market in 2005. This new product offering will be FHI’s first model which is to be developed forNorth America.
Dynamic Sales Strategy
Our sales and service network is the point of closest interface with our customers and where
our comprehensive brand strategy takes on an concrete shape. We are trying to strengthen
this network both in domestic and oversea markets. In Japan, beginning in 2001, we haveinstigated a program to refurbish our dealer showrooms nationwide and are setting up somenew dealerships and merging some other dealers. In addition we have started Subaru Shopsystem for our sub-dealers. There are two types of dealerships, one is Subaru dealer operated directly by FHI subsidiaries and another is called sub-dealers. We have further separated sub-dealers into those that provide supplementary functions for direct Subaru
dealers and the rest, then Subaru Shop concept to support the former ones which haveresources to invest was introduced. Moreover, we are actively appointing young managers
in our dealerships to promote a more dynamic style.
We are also working to improve sales techniques. For example, we introduced the Partner 21
sales support system for direct dealerships and implemented other measures to enrich the quality ofsales personnel. Along with the introduction of the new Legacy lineup, we invited sales people to test
drive of the new Legacy on a racing circuit and we put particular emphasis on educating them how to communicate with customers by transforming the excitement of the New Legacy ride.

Annual Report 2003

11

How Are We Accelerating Transformation Via FDR-1?

In sales activities, we now have a renewed sense of the real
power of the Legacy brand. In March 2003, the end of the fiscal year and just before the May launch of the new models, we
successfully increased sales of existing models and were able
to sell out most of our inventory. As such, we were superbly
positioned to make a timely introduction of the new models.
Among our other initiatives, we strengthened our used car
sales and customizing services by expanding the number of
G-Park outlets that offer both services.
Baja

In the United States, although the first half of fiscal 2003

was strong, carrying on the momentum of fiscal 2002 when sales set a new record, sales slowed in the second
half as market demand conditions changed. We are nevertheless engaged in a program to improve our sales
network quality. Although around 580 dealerships in the United States currently sell 300 or more Subaru cars
on an annual average basis, they will be encouraged to sell more than 400, thereby raising the number of topranking franchise dealerships. We believe that through these measures we can increase the current annual
sales from above 200,000 to 250,000 and then to 280,000 units. Specific actions include our visual identify (VI)
program to give our showrooms in the United States a uniform look. We are also working to increase the ratioof exclusive dealerships and the ratio of dealerships with separate showrooms for Subaru cars.

Assuring Success
Manufacturing Strategy
The most important development in fiscal 2003 in the manufacturing area was the success of our Cost Structure Revolution-1 (CSR-1). Under CSR-1, we are increasing ourcost-competitiveness by looking at the processes that creates our cost structure, starting with the upstream design functions and downstream to sales and service functions.
This total cost reduction program includes SG&A of Management Planning and
Administration Department. We are looking for cost reductions from these efforts of ¥7billion in Japan and ¥10 billion worldwide in fiscal 2004, and a total of ¥20 billion in fiscal
2005.
To improve efficiency in manufacturing, we invested about ¥6 billion in May 2003 to merge
our assembly lines for passenger and commercial minicars and to set up a flexible manufacturingsystem. These initiatives are expected to strengthen our cost competitiveness.
Overseas, at SIA we began production of the Baja small pickup truck in July 2002. While the Bajais based on the Legacy, it took only 30 months from time it was unveiled as a concept model at autoshows in Los Angeles to bring it to full-scale production. Also in July, cumulated production at SIA since
start-up in 1989 exceeded one million vehicles.
We plan to increase annual production at SIA from the current 100,000 to 160,000 in 2005, when OEM production from Isuzu ends. Also, now that SIA has become a wholly owned subsidiary of FHI, we are scheduled
to utilize facilities formerly shared with Isuzu and will therefore be able to restrict any investment at SIA thatmight be required to expand capacity.

12 FUJI HEAVY INDUSTRIES LTD.

Forester
Cross Sports

Annual Report 2003

13

How Are We Accelerating Transformation Via FDR-1?

Aerospace Company
Norihisa Matsuo
Company President

We, the Aerospace Company, have a clear vision for the future
under FDR-1. We have set specific objectives and are implementing decisive initiatives that are bringing us steadily closer tothese goals. I would like to outline for you where we stand today.
First, to participate aggressively in the long-term growth of theinternational aircraft industry, we are actively partnering with andexpanding our relationship with The Boeing Company and working with Airbus in its A380 commercial aircraft program. We arealso actively participating in the High Performance Environmental
Adaptability of Small-Sized Aircraft Program for development ofdomestic aircraft. In addition, we were selected from among
many supplier candidates to participate in the planning work on
the new Boeing 7E7 commercial aircraft program as an Airframe
Team Member.
In the field of defense aircraft, we have been entrusted with thedevelopment, manufacturing, and maintenance of Japan Defense
Agency aircraft, such as the AH-64D, the T-7, and others as well
as related tools and equipment. In the field of large military aircraft development, we are responsible for the wing and vertical
tail fin sections of both the P-X and C-X. Going forward, we willcontinue to focus on our defense-related activities as a corecomponent of our aerospace business and are committed toplaying an important role in contributing to the defense of Japan.
Looking to future growth, we are closely monitoring thosesegments of the aircraft business offering the greatest potential
and are fully committed to expanding our position. Thus far, ourown previous projects have included the FA-200, 700/710(FA-300) and 204B; looking ahead, we will assess the growthpotential of the projects we undertake and focus on maximizing
profitability. First, in the unmanned aircraft field, we have nearlyexclusive responsibility for the development and production ofpractically all unmanned aircraft in Japan and have successfully
developed and applied the advanced technologies needed
to support these activities in the private and defense sectors.
These core technologies for unmanned aircraft have been
important in enabling us to implement other activities, including
the High-Speed-Flight Demonstration Project (HSFD), otherexperimental aircraft projects, and the development of an airshipsystem for the Stratospheric Platforms Project.
In the period ahead, leveraging our core technologies, we willcontinue to expand our unmanned aircraft business and havereached the point where we have confidently made the decision
to enter the small jet aircraft business under our own brand.
We are steadily working to upgrade our automation, mass
production, and other technologies in preparation for carrying
this enterprise forward. Accordingly, we will undertake in-depth
market research and prepare business plans to guide us forward
and conclude alliances with the best strategic partners to ensure
optimal sales and operational support.
To achieve our goals, we are strengthening management
resources and are making progress as planned to be among theworld’s top companies in terms of quality, cost, and delivery(QCD). Recognition for this progress came during the year when
we received a “Supplier of the Year” award from The Boeing
Company.
Through these initiatives, we of the Aerospace Company plan
to boost sales 50% over current levels, to ¥100 billion, by fiscal
2007. Moreover, in 10 years we are aiming to expand sales morethan three-fold, to ¥200 billion. We will become an aircraft manufacturer with a global presence and are committed to successas a leading manufacturer of aircraft and related systems, basedon the highest level of technology developed independently.

Industrial Products Company
Hiroshi Komatsu
Company President

In fiscal 2002, net sales of the Industrial Products Company
decreased ¥5.9 billion, or 15.9%, from the previous year. This
was a disappointment in light of the development cost of the newflagship EX series of OHC engines, which would be essential toensure future growth. Operating losses sparked a sense of crisis
within the company. Now, the development, manufacturing, andsales divisions are working together to wring all inefficiencies
from product development, manage profitability by product and14 FUJI HEAVY INDUSTRIES LTD.

by region, discontinue unprofitable models to reduce costs,
conduct activities to improve productivity, and undertake othermeasures to restructure the Group. The company started full-scale
marketing activities for the EX series in fiscal 2003 and net sales ofthe engines increased ¥2.2 billion, or 7.0%, putting a halt to thedecline in net sales and mitigating the scope of operating losses.
In fiscal 2004, the company intends to reverse two years oflosses. The war in Iraq, the issue of SARS, the weakness in the
U.S. dollar, and other external factors are hurting the economy,
but the Industrial Products Company plans to maintain the sales

volumes of its established products, mainly engines for recreational vehicles. The company aims to further push up sales of
the EX engine and other new products to boost the company
back into profitability.
For fiscal 2007, the final year of FDR-1, the Industrial ProductsCompany is targeting a full 50% increase in net sales, to ¥50.0
billion, from fiscal 2003, the first year of the five-year plan, andan operating profit margin of 3%. To achieve these goals, thecompany will seek to improve the brand recognition of its Robinbrand to make it a premium offering. General-purpose engines
differ from special purpose engines in that it is difficult to distinguish among products, which tends to drive down market prices.
To avert this problem, it is essential to demonstrate superiority
through strong cooperation in development, manufacturing, andmarketing to ensure the use of designs compatible with customer
needs, strict compliance to delivery dates, and provision ofexpert technical support and meticulous service. This is also thebest way to beat out new market entrants in China.
It is also critical to search for a way to create high-valueadded new businesses, and so it is necessary to promote timely
development with a precise understanding of market needs. In
this age, the race will go to the company who rushes to deliberate action upon obtaining precise information before all others.

EX Series Engine

Eco Technologies Company
Kisaburo Wani
Company President

Fiscal 2003 marked the Eco Technologies Company’s first yearof operations as an internal company of FHI. The start of volume
production of wind turbine generator systems and continued
strong sales of the Fuji Mighty sanitation truck, which remains
number one in the industry, contributed to sales of ¥8.0 billion,
an increase of ¥1.1 billion, or 16%, from the company’s sales as
a division in the previous fiscal year. The company was progressively strengthening its management structure via improvements
in its production and distribution systems, reduction in costs,
and cutbacks in sales and production costs.
Going forward, Eco Technologies plans to further improve
profitability through sales increase, cost reductions and higher
asset utilization.
Increased SalesThe Eco Technologies Company aims to maintain and expand
its dominant share of the domestic sanitation truck market bystrengthening its domestic sales network, as well as to progressively develop a global strategy. In the area of wind-power
generation, the company expanded sales of wind turbine generator systems and is embarking on research and development oflarger-scale systems to achieve additional growth.
Reduction in costs
As sanitation trucks constitute Eco Technologies’ core business,the reduction in material costs is an area of the highest management priority. Through a new production management system,
the company has implemented a systematic plan to reduce
costs from the receipt of orders through to delivery as well asa monitoring system to ensure that the plan proceeds smoothly.
The company will also seek to rationalize operations throughlabor-saving equipment and the reduction of production process
requirements. Management will reduce in costs by efficiently
concentrating purchases according to the supplier’s specialty
and item type, boosting value-added activities through linkage
with design tasks, and, integrating suppliers in the input
materials acquisition and production processes.
Assets Utilization
In conducting its business activities, the Eco Technologies
Company’s assets will be decreased to the absolute minimum,
ensuring that it will become a lean and muscular company.
In line with the strategy oforganizing our operations toincrease sales and reduce
costs, we aim to become agrowth business with ¥14.0
billion in sales and ¥1.0 billion
in operating income by fiscal
2007. Going forward, all of
our employees will dedicate
themselves to making Eco
Technologies Company to be
an enterprise of strong presence and attractive value by
creating a new business for
global environment conservaWind Turbine Generator Systemtion.

Annual Report 2003

15

Management(As of June 25, 2003)

Accelerating Decision-Making, Implemen
Seated from left: Kyoji Takenaka, Hideo Wada
Standing from left: Hiroshi Suzuki, Koichi Arasawa, Takao Tsuchiya, Hiroyuki Nakatsubo, Shunsuke Takagi, Frederick A. Henderson

Executive Officers

Executive Vice Presidents

Vice Presidents

Board of Directors

Kunitaka Nakahara

Masatoshi Iwasaki

Standing Corporate
Auditors

Kiyoshi Inoh

Edward P. Pasternak

Takayoshi Yoshihashi

Hiroshi Komatsu

Toshifumi Terao

Takeo Tsumuji

Kunio Ishigami

Masayoshi Nagano

President and CEO
Kyoji Takenaka*
Senior Executive
Vice President
Hideo Wada*

Senior Vice Presidents

Ichiro Kudo

Yutaka Tsukahara

David J. Malik

Kisaburo Wani

Kiyoshi Sugimoto

Hiroyuki Oikawa

Tsunenori Hoshi

Executive Vice Presidents

Yoji Ishimaru

Ikuo Mori

Hiroshi Suzuki **Kazushige Okuhara

Takashi Ishihara

Koichi Arasawa **Norihisa Matsuo

Jun Kondo

Takao Tsuchiya **Minoru Tamura

Shizuhiro Okazaki

Hiroyuki Nakatsubo **Shoichi Washizu

Masaharu Yuasa

Shunsuke Takagi **Director
Frederick A. Henderson* Representative Director of the Board**Director of the Board

16 FUJI HEAVY INDUSTRIES LTD.

Satoshi Sakurai
Hideki Ishido
Takashi Mochizuki

Corporate Auditor
Kunitake NomuratBasic Policy on Corporate GovernanceFuji Heavy Industries Ltd. (FHI) is proceeding with corporate governance as a means to measure up to the trust placed in the Company by its shareholders, customers, and all stakeholders. The Board of Directors conducts decision-making regarding vital operational issues andthe Board of Auditors supervises and monitors this process. The Board of Directors is composed of eight directors who carry out prompt decision-making regarding business operations. The Board of Auditors comprises four auditors who obtain reports on vital monitoring
issues and deliberate accordingly. Preliminary to the Board of Directors is the Executive
Management Board, which deliberates on company-wide management strategies and theexecution of priority business operations.

nting Corporate Reforms
Progress of Corporate Governance Initiatives
In June 1999, FHI introduced an executive officer system as ameans to clarify administrative and executive responsibility foreach business. In June 2002, FHI took further steps to distinguish the separate functions of business administration and execution as well as further accelerate its management by adopting
an internal company system, structured around its core automotive business.
Accelerating Decision-Making, Implementing
Corporate Reforms
On June 25, 2003, the Company enhanced the functions of
its Board of Directors’ system to support implementation of its
medium-term management plan, Fuji Dynamic Revolution-1(FDR-1), and to increase the speed of decision-making.
1. Roles of Board of Director Members andExecutive Officers• Keeping in mind that the corporate governance structure separates managerial supervision from management of operations, Directors will devote themselves to company-widedecision-making and decide company policy and other matters while supervising overall management of the Company ina manner consistent with actual management conditions. To

accomplish this, without having any specific area of operational management of their own, Directors are responsible
for supervising the operational management duties of the
Executive Officers.
• The responsibility of operational management will be delegatedto Executive Officers who are not members of the Board of
Directors. The purpose of this is to accelerate the speed of theoperational management in each operating unit and to clarify
operational management responsibility.
• Executive Vice Presidents who are not on the Board of
Directors will be responsible for a specific operational area, willassist the President from a company-wide point of view, provide support to management, and serve as a regular memberof the Executive Management Board.
2. Length of Terms for Directors• To respond promptly and flexibly to the changes in a challenging business environment, and to enhance the corporate governance structure, the length of terms for Directors andoperating officers will be shortened from two years to one year.
• To meet the objectives of the group-wide management system
as a whole, suitably qualified individuals will be flexibly
assigned to the appropriate positions.

Annual Report 2003

17

Environment

In May 2002, Fuji Heavy Industries Ltd. formulated its new voluntary environmental plan, the“FHI Environmental Conservation Program” (fiscal 2003 to fiscal 2007), to promote activities
aimed at reducing the burden on the environment at every stage of business—from productdevelopment to procurement, production, use, and disposal. In addition, the Group asa whole has also begun to address this issue.
Environmental Management
1. Environmental Audit
Following the Gunma, Saitama and Utsunomiya Manufacturing
divisions, which have all been evaluated and maintain ISO 14001
environmental certification, both the corporate headquarters andTokyo office commenced activities to obtain ISO 14001 certification in April 2003. Furthermore, aside from this kind of external
environmental audit, the Company has introduced its own internal
environmental risk assessment and environmental performance
evaluation system to minimize environmental risks, and to takepollution prevention and activities to conserve the environment
advancing to the next level.
2. Environmental Accounting
In the fiscal year ending March 31, 2003, the environmental costs
were ¥26,017 million (¥25,378 million in the previous fiscal year)
and the economic effects were ¥1,226 million (¥976 million in theprevious fiscal year).
3. Corporate Environment Management Survey
During the fiscal year under review, FHI improved its rank in the
Nihon Keizai Shimbun Inc.’s Eco-Oriented Business survey. In
the corporate environmental ranking announced in the Nihon
Keizai Shimbun newspaper on December 10, 2002, FHI ranked
64th out of 703 manufacturers and 4th out of 11 automakers,
a noteworthy improvement from the prior fiscal year, when FHI
ranked 103rd out of 820 manufacturers and 8th out of 11
automakers. In fiscal 2004, the Company will continue to strive
to further improve its ranking.
4. Environmental Report
FHI has published an environmental report every year since fiscal
2000, including the fiscal 2003 edition.
Social Action Programs
As a good corporate citizen, FHI wishes to be a part of andprosper together with the communities and surrounding regions
where our plants carry out their daily manufacturing operations.
For this reason, to contribute to the improvement of society, we

18 FUJI HEAVY INDUSTRIES LTD.

are conducting ongoing cleanup activities at all manufacturing
divisions, interacting and initiating dialogues with the people ofeach region in which the Company operates, and making efforts,
contributions, and support to coexist in harmony. We are also
actively taking part in various eco-friendly events, including the
Low Emission Vehicle Fair.
Health and Safety
FHI is working to ensure the safety of all employees and to createa working environment that is both safe and comfortable. To
completely eliminate occupational hazards, the Company conducts ongoing measures to improve the working environment,
activities to prevent traffic accidents, programs to optimally assure
employees’ physical and mental health, and other initiatives.
Group Activities
1. Domestic
In Group affiliated companies, FHI has been holding an
Environmental Problem Meeting periodically with seven affiliatedcompanies whose manufacturing or transporting business greatly
impact the environment since 1999. Furthermore, in fiscal 2003,
the Domestic Affiliated Companies Subcommittee under the
Production Environment Committee, one of the expert committeesof the Corporate Environment Committee, started offering guidance and support in reducing the environmental burden of all
Group companies. In addition, Chiba Subaru Inc., an authorized
Subaru dealership, obtained ISO 14001 certification in March 2003.
2. Overseas
In fiscal 2003, to enhance cooperation in environmental protection, the Company established the North American Environment
Committee—composed of FHI’s North American affiliates (SIA,
SOA, SCI, SRD, and RMI)—as a part of the Corporate
Environment Committee.** At FHI, the Corporate Environment Committee is the highest committee related to environmental protection.

Financial Section

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

Annual Report 2003

19

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

For the Year:Net sales
Cost of sales
Gross profit
Selling, general andadministrative expenses
Operating income
Income before income taxes
and minority interest
Net income
At Year-End:
Shareholders’ equity
Total assets
Ratio of shareholders’ equity
to total assets (%)
Per Share (in yen and U.S. dollars):
Net income:
Basic
DilutedShareholders’ equity

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

2003

2002

2001

2000

1999

2003

¥1,372,337
1,011,582
360,755¥1,362,493
992,950
369,543¥1,311,887
978,841
333,046¥1,330,125
995,131334,994¥1,352,520
1,067,868
284,652$11,417,113
8,415,824
3,001,289

293,234
67,521

281,063
88,480251,373
81,673

243,593
91,401

194,720
89,932

2,439,551
561,738

46,97033,48456,13630,283

21,291
22,62864,83931,34868,42333,706

390,765
278,569¥ 411,252
1,344,072¥ 396,112
1,269,558¥ 357,455
1,168,501¥ 206,404
1,038,558¥ 200,220
981,256$ 3,421,398
11,181,963

30.6%

31.2%

30.6%

19.9%

20.4%

¥

44.84
42.91
553.90

Other Information:
Depreciation and amortization¥ 67,896
Capital expenditures(addition to fixed assets)
119,423
R&D expenses
60,110
Number of shares issued at year-end(thousands of shares)
746,521
Number of shareholders*
35,584
Number of employees*:
Parent only
13,064
Consolidated
27,478

¥

40.74
38.83
532.88

¥

30.44
29.06
480.86

¥

51.90
48.53
338.75

¥

56.18
51.79
332.41

$

0.37
0.36
4.61

¥

63,964¥64,070¥60,190¥38,708$564,859

118,376
54,903102,301
46,622103,922
40,12357,56638,512746,506
33,094

746,502
32,996

614,553
49,381

602,333
55,044

13,374
26,483

13,60326,502

13,66826,914

13,41919,882

Note: U.S. dollar figures have been translated from yen, for convenience only, at the rate of ¥120.20 to US$1.00, the approximate rate of exchange at March 31, 2003.
* As of March 31

20 FUJI HEAVY INDUSTRIES LTD.

993,536
500,083

Management’s Discussion and Analysis of Resultsof Operations and Financial Position
OVERVIEWIn May 2002, the FHI Group announced its new medium-term
plan, Fuji Dynamic Revolution-1 (FDR-1), covering the fiveyear period from fiscal 2003 (ended March 31, 2003) to fiscal
2007, and subsequent business activities have been carriedout in accordance with this plan. FDR-1 states the mediumterm vision of being a “global player with premium brands,”
reflecting the aim of establishing its position as a company
with brands that are recognized by customers around theworld as reliable and offering exceptional value. To accomplish
this, the FHI Group has pursued a wide range of activities,
including production, sales, R&D, and after-sales service, witha particular focus on the automobile business.
In fiscal 2003, the first year of the new five-year plan, the FHIGroup introduced an internal company system, with the automobile business as its core, as part of the structural reform of
its management mechanisms. Simultaneously, the FHI Group
took steady strides toward improving management efficiency,
beginning with the restructuring of unprofitable operations.
On the other hand, the macro-economic environment, particularly the domestic economy, remained harsh with little
prospect for a recovery in business conditions. Under thesecircumstances, the automobile division registered lower
domestic sales in anticipation of the upcoming full modelchanged sales of the flagship Legacy, while minicar sales also
declined. Overseas, however, the North American subsidiarymade substantial sales contributions, and every other major
region turned in healthy revenues. Consequently, consolidated
net sales rose ¥9.8 billion, or 0.7%, to ¥1,372. 3 billion.
Overseas sales accounted for 56.3% of consolidated net
sales, up from 53.7% in the previous fiscal year.
Operating income fell ¥20.9 billion, or 23.7%, to ¥67.5
billion. The decline was primarily attributable to deteriorationin the sales mix for automobiles, costs associated with development investments, and higher SG&A, which more than offset the benefits of gain on currency exchange and reduction
in costs. Net income, however, climbed ¥3.2 billion, or
10.6%, to ¥33.4 billion. This rise was attributable mainly to
lower valuation losses on investment securities, the disappearance of a loss on liquidation of affiliated companies
incurred in the previous fiscal year, and a significantly lower
tax burden as a result of a reversal of the prior year’s accrued
income taxes. The breakdown in sales by business segment
was as follows: automobile 89.4% (versus 89.3% in the previous fiscal year), industrial products 3.0% (2.9%), aerospace
4.6% (4.8%), and other 3.0% (3.0%). This breakdown waslargely unchanged from the previous fiscal year. The breakdown in operating income by segment was as follows: automobile 100.9% (96.7%), industrial products -1.3% (-0.3%),
aerospace 5.0% (8.4%), and other -4.7% (-4.8%). Lower
earnings in the industrial products and aerospace segments
caused the reliance on earnings in the automobile segment torise slightly.

The FHI Group increased its share in the U.S. joint venturewith Isuzu Motors Limited, Subaru Isuzu Automotive, Inc.,
from 51% to 100% on January 1, 2003, making it a wholly
owned subsidiary, and SIA was assigned to produce certain
Isuzu cars on an OEM basis. Due to the use of a class stock
system at SIA, FHI had previously consolidated only the
Subaru Division of SIA and the Isuzu Division was excluded
from the consolidated financial statements. However, asa result of the acquisition of Isuzu’s share of SIA, FHI consolidated SIA as a whole, including the Consignment Division(formerly the Isuzu Division).

REVIEW OF OPERATIONS BY DIVISIONNet Sales
Consolidated net sales in fiscal 2003 rose 0.7%, to ¥1,372.3
billion, setting a record for the second straight year.
Information for each segment is presented below.
Automobile division
Domestic passenger car sales (unit basis) declined 5 thousand
units, or 4.6%, to 103 thousand units. Although the full modelchanged Forester, which was launched in February 2002, andthe Impreza, which underwent a big change in November
2002, were enthusiastically received by the market, our flagship Legacy model faced severe market competition andreluctance by consumers to buy it in anticipation of theupcoming new Legacy models.
In minicars, sales declined 14 thousand units or 8.8 %, to
143 thousand units. Although the Samber struggled during
the first half term, in the second half, its sales volume grew
9.6%, compared with the same half of the previous year,
prompted by a big change in September 2002. Meanwhile,the effect of new passenger minicar models introduced bycompeting manufacturers was greater than expected, andsales of the Pleo dipped significantly.
Net Sales(Billions of yen)
1,500

1,200

900

600

300

0

1999 2000 2001■■ Automobile■■ Industrial Products■■ Aerospace■■ Other

2002 2003

Annual Report 2003

21

Consolidated Sales by Region (Number of vehicles)Japan
U.S.A.
CanadaEuropeAustralia
OthersSubtotal
CKD* in Overseas
Total

Automobile Inventory

2003

2002

2001

245,525
192,389
17,69941,32529,455
14,051

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

290,301
172,686
15,00539,951
27,976
14,378

540,444543,241

560,297

1,500
541,9443,288
546,5293,941
564,238

(%)
50

40

30

* CKD: Complete Knocked Down
20
1999 2000 2001 2002 2003■■ Japan■■ U.S.

Non-Consolidated Sales by Model (Number of vehicles)
2003

2002

2001

2000

1999

Domestic Units:
LegacyImpreza
ForesterOthers49,17925,471
25,3894,174

59,20924,89922,922
4,244

67,42432,362
28,994297

67,97225,65425,985308

63,49933,531
24,4891,438

Subtotal
Minicars

104,213
147,712111,274
167,265

129,077
173,754

119,919
177,842

122,957
156,186

Total

251,925

278,539

302,831

297,761

279,143

Export Units:
LegacyImpreza
ForesterOthers21,42175,354
99,145—24,72775,70072,629—26,25454,72185,453—34,30458,53083,928—29,53054,861
81,385—

Subtotal
Minicars

195,920—

173,056
22

166,428108

176,762760

165,776
2,152

Total

195,920

173,078

166,536

177,522

168,367

CKD in Overseas(SIA Portion)

107,576
106,076

104,234
100,946

111,783
107,842

103,001
98,861

100,440
98,464

U.S. Unit Sales*:LegacyImpreza
ForesterBaja85,35938,22653,922
2,513

95,29135,61255,041—

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

88,66019,04140,132—

180,020

185,944

172,216

156,806

147,833

102,813103,010

107,955

93,070104,229

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

Consequently, domestic sales fell 19 thousand units, or
7.1%, to 246 thousand units.
Meanwhile, overseas car sales rose 16 thousand units, or
5.7%, to 295 thousand units. North American sales (UnitedStates and Canada) rose 1.5%, to 210 thousand units. In
addition, sales in Europe rose 27.8%, to 41 thousand units,
benefiting from enthusiastic praise for the New Forester aswell as the effects of the strong euro. Sales of the New
Forester were also robust in Australia.

22 FUJI HEAVY INDUSTRIES LTD.

Although combined domestic and oversea sales volume
amounted to 540 thousand units, dipping slightly below thefigure for the previous fiscal year, net sales for the Automobile
division edged up 0.8%, to ¥1,233 billion. However, operating
income declined ¥18.3 billion, or 21.4%, to ¥67.3 billion,
reflecting lower sales volume and higher SG&A expenses,
which more than offset reduction in costs.

Industrial Products division
Net sales rose 5.3%, to ¥41.6 billion. Although domestic salesof such products as engines for small construction machinery
declined due to the protracted economic downturn in Japan,
sales of electric generator engines increased, and overall
domestic sales were maintained at approximately the samelevel as that of the previous year. Overseas, increases wereattained in engine sales to Asia and Europe as well as engines
for leisure vehicles in the United States. However, owing tofluctuation in the product model mix as well as severe business conditions for affiliated companies, an operating loss
was recorded for the division of ¥0.8 billion, compared with anoperating loss of ¥0.2 billion for the previous fiscal year.
Aerospace division
Net sales declined 4.9%, to ¥63.0 billion. Sales in the defense
sector expanded on the strength of increased shipments ofsuch products as unmanned target drones and the F-2 support fighter, as well as the commencement of shipments of
the new T-7 trainer. Meanwhile, in the commercial sector,
although sales to the space industry increased through delivery of the High-Speed-Flight Demonstration Project, sales to
The Boeing Company slipped, due to the sharp decline in air

Operating Income

Net Income(Billions of yen)
100

(Billions of yen)
35

Other division
Net sales rose 1.9% to ¥41.4 billion. The Bus division registered a year-on-year decline in sales because of lower ordersof bus bodies, mainly for tour buses. Net sales were also
down for the House division, which was significantly affectedby the decline in public works and restraint in private-sector
capital investment. In the Transportation and Environmental
divisions, pendulum express railcars were shipped to the
Chizu Express Company, and sales of the Fuji Mighty sanitation truck grew on strength of special demand stemming fromcontrol of exhausted emissions from diesel-powered vehicles.
Nevertheless, net sales amounted to less than the comparable
figure for the previous fiscal year. However, net sales for FHI’s
real estate subsidiary grew, therefore covering the loss ofother divisions. Also, an operating loss of ¥3.1 billion was a¥1.0 billion improvement from the previous fiscal year.

COST OF SALES, EXPENSES, AND OPERATINGINCOMEThe cost of sales rose 1.9%, to ¥1,011.5 billion. Because thepercentage rise in the cost of sales was greater than the percentage rise in sales, gross profit dropped 2.4%, to ¥360.7
billion, and the gross margin rate declined 0.8 point, from
27.1% to 26.3%. SG&A expenses rose 4.3%, to ¥293.2
billion. Consequently, operating income declined 23.7%, to¥67.5 billion. The ratio of operating income to net sales fell 1.6
points, from 6.5% to 4.9%. Below is an analysis of the factors
affecting operating income.

30
80
25
60

travelers following the September 11, 2001, terrorist attacks.
Owing to the substantial impact of the decline in orders from
Boeing, operating income fell 54.7%, to ¥3.3 billion.

20
15

40

Analysis of Increases and Decreases in Operating Income(Consolidated Basis)

10
20
5

(Billions of yen)0

1999 2000

2001 2002 2003

R&D Expenses(Billions of yen)
80

1999 2000

2001 2002 2003

Capital Expenditures andDepreciation and Amortization

150

70

Gain oncurrency
exchange120(%) (Billions of yen)
80
5.0

70

90

OperatingincomeEnded
March 2002

60

60
50

0

4.0

3.2
22.9

-27.6

Increase of
SG&A
expensesand others

Reductionin material
costs etc.

Deteriorationof sales mix-14.2

Increase in Operating
incomeR&D
Ended
expenses
March
2003
-5.2

50
60
40

40

88.4
30

3.0

30

20

20

10

10

0
0
2.0
1999 2000 2001 2002 2003
1999 2000 2001 2002 2003■■ R&D Expenses■■ Capital Expenditures■■ R&D Expenses as a Percentage■■ Depreciation and Amortizationof Net Sales (right scale)

30

67.5

0

Annual Report 2003

23

registering the sharpest rise was short-term loans, with anincrease of ¥26.5 billion. This increase was associated mainlywith low-interest loans by a domestic finance subsidiary.
Marketable securities declined ¥21.8 billion, due to the factthat FHI (the parent) sold significant amounts of Free Financial
Funds (FFF) and Money Market Funds (MMF) but made few
new purchases. Cash and time deposits rose ¥13.3 billion,
with the bulk accounted for by FHI (the parent), which built up
liquid assets in light of the war in Iraq toward the end of the
fiscal year. Investment in plant, property, and equipment
increased ¥14.8 billion, of which ¥7.1 billion was related to SIA
becoming a wholly owned subsidiary. Investments and otherassets increased ¥25.8 billion, with the majority due to a¥33.1 billion rise in the item “Other.” Around ¥32.7 billion ofthis amount is restricted collateral cash of SIA, which has
been pledged as an alternative credit for collateral to secure
the lease payment of production equipment for Isuzu vehicles.
SIA Financial Settlement
Summary of assets and liabilities at the time of consolidation(Billions of yen)

Current Iiabilities: ¥5.2

Current assets: ¥20.6

Fixed Iiabilities: ¥7.0

Consolidation adjustment
account: ¥48.8
Fixed assets: ¥40.4(Amortized by each fiscal year
according to the incurred
expenses)

Total assets: ¥61.1

Total Iiabilities and consolidation
adjustments: ¥61.1

Plan to Amortize the Consolidation Adjustment(Millions of U.S. dollars)
500
500

4040

48.8

400
400

(Billions of yen)
5050

407.4
3030

200
200

2020

100
100

1010

13.1

300
300

16.3

Breaking down the ¥27.6 billion negative impact from thedeterioration in the sales mix into more detail, the decline indomestic sales volume and the resulting deterioration in thesales mix had a negative impact of around ¥20 billion, more
stringent specifications, such as those related to safety, had anegative impact of about ¥19 billion, and the increase in overseas sales volume had a positive impact of around ¥12 billion.
Put another way, the operating environment in fiscal 2003,
marked by a weak domestic economy and greater competition in the compact car (mainly 1.0 liter to 1.3 liter) segment,
adversely affected the FHI Group’s sales, which are characterized by high-performance cars, and ongoing efforts within the
FHI Group to reduce total costs, including materials, wereinsufficient to offset the aforementioned adverse effects. For
this reason, operating income in fiscal 2003 declined. Of the¥14.2 billion increase in SG&A and other expenses, ¥7.7 billion
was attributable to Fuji Heavy Industries Ltd. (the parent),around ¥4.0 billion was attributable to U.S. subsidiary Subaru
of America, Inc., (SOA), and the remainder was due toexchange conversion. FHI (the parent) accounted for most ofthe ¥5.2 billion increase in R&D expenses, which rose 0.4
point as a percentage of sales, from 4.0% to 4.4%.
Other expenses, net, totaled ¥20.5 billion, an improvementof ¥11.7 billion from the previous fiscal year. The major items
were a ¥5.0 billion decline in losses on the devaluation of
investment securities and a ¥6.8 billion drop in loss on theliquidation of affiliated companies. The decline in loss on thedevaluation of investment securities was due mainly to lower
valuation losses on financial stocks, which generated valuation
losses of ¥8.9 billion in the previous fiscal year. The decline inlosses on the liquidation of affiliated companies was due tothe disappearance of ¥6.8 billion in losses on the liquidation ofa domestic helicopter operation company and other items
incurred in the previous fiscal year.
As a result, income before income taxes and minority
interests fell 16.3%, to ¥46.9 billion, a smaller decline in percentage terms than the decrease in operating income.
Moreover, income taxes for the year declined ¥14.7 billion, to¥13.5 billion, owing to lower pretax profits, tax deductions
associated with higher R&D expenses by FHI, and the reversalof the prior year’s accrued income taxes. After application ofdeferred-tax accounting, the corporation tax rate dropped to28.9%, from 50.4%. Minority interests amounted to ¥0.1
billion, ¥2.3 billion lower than in the previous fiscal year.
Consequently, net income rose 10.6%, to ¥33.4 billion, marking the second straight annual rise. Net income as a percentage of sales improved 0.2 point, to 2.4%, while return on
equity improved 0.3 point, to 8.3%.

4.9

24 FUJI HEAVY INDUSTRIES LTD.

00

7.8

Total assets at year-end increased ¥74.5 billion, or 5.9%, to¥1,344.0 billion. Of this amount, ¥61.1 billion was due to theaddition of SIA (including the Consignment Division) to theconsolidated accounts. Excluding this factor, total assets rose
only 1.1%. Total current assets rose ¥33.2 billion. The item

6.7

FINANCIAL POSITION

00
2002 2003 2004 2005 2006 2007
2002 2003 2004 2005 2006 2007
andandbeyondbeyond■■ Net assets■■ Balance sheet: Consolidation■■ Depreciation of net assets
adjustment account■■ Statement of income: Non-operating
income (Consolidation adjustment income)Total liabilities at the end of fiscal 2003 increased ¥59.4
billion, up 6.8% from the end of the previous fiscal year. The
bulk of this amount was accounted for by ¥48.9 billion in the
consolidation adjustment account, which was recorded as along-term liability. Most of the amount in the consolidation
adjustment account was a result of making SIA a wholly
owned subsidiary. FHI will sequentially amortize this accountstarting in the fiscal year ending March 31, 2004 (see Notes toConsolidated Financial Statements), with ¥6.7 billion scheduled for amortization in that fiscal year. The amortized amountin the consolidated adjustment account in each year will berecognized as non operating income (see attached chart
describing this financial procedure). A total of ¥18.7 billion inconvertible bonds that had been included under long-term liabilities in the previous fiscal year are now due in less than one
year. Consequently, a nearly identical amount has been
moved to the item “current portion of convertible bonds”
under current liabilities. Total interest-bearing debt was¥389.1 billion, down ¥7.6 billion from ¥396.7 billion in theprevious fiscal year, due mainly to a reduction in straightbonds outstanding.
Shareholders’ equity rose ¥15.1 billion, or 3.8%, to ¥411.2
billion, mainly reflecting a ¥25.8 billion increase in retained
earnings. On the other hand, translation adjustment accounts,
items subtracted from shareholders’ equity, increased ¥8.6
billion, compared with the previous fiscal year, as a result of
yen appreciation. Because of the smaller increase in shareholders’ equity compared with that of total assets, theshareholders’ equity ratio declined 0.6 point, to 30.6%, from
31.2%. However, owing to the decline in interest-bearing
debt, the debt/equity ratio fell to 0.95, from 1.0.
The net debt (interest-bearing debt less cash and time
deposits)/shareholders’ equity ratio improved to 0.78,
from 0.86.

CAPITAL EXPENDITURESThe FHI Group’s capital expenditures totaled ¥64.6 billion in
fiscal 2003 and were concentrated in the Automobile division.
This represents a decline from expenditures of ¥70.6 billion in
the previous fiscal year, principally due to cuts in some outlays
for capital expenditures to maximize automobile manufacturing and sales efficiency as part of the total cost reduction
program CSR-1 (Cost Structure Revolution-1), which mainly
focuses on domestic operations.
In the Automobile division, FHI invested a total of ¥57.5 billion,
accounting for 89.0% of total capital expenditures during the
fiscal year, with ¥37.7 billion allocated to manufacturing, ¥5.8
billion to R&D, and ¥14.0 billion to sales. Outside of theAutomobile division, FHI invested ¥1.0 billion in the Aerospace
division, ¥3.3 billion in the Industrial Products division, and ¥2.8
billion in the Eco Technologies and the Other division.
The plan for the fiscal year ending March 31, 2004, targets
a 50.2% increase in capital expenditures, to ¥97.0 billion. This
increase is expected to be funded by accelerating the production of Legacy models in the North American division andstrengthening the domestic sales network. Though some costs

will be reduced under the CSR-1 program, this amount will benearly the same as the ¥99.0 billion capital expenditures originally targeted in the FDR-1 medium-term management plan.

CASH FLOWSCash and cash equivalents (hereinafter “cash”) at year-end
totaled ¥169.9 billion, up ¥36.2 billion from the previous fiscal
year-end. Free cash flow, defined as net cash provided byoperating activities plus net cash provided by (used in) investing activities, increased ¥63.3 billion. This increase resulted
from the accumulation of liquid assets in light of an increasingly uncertain outlook, including the fallout from the conflict in
Iraq toward the end of the term. The effect of exchange rates
on cash and cash equivalents was an outflow of ¥4.0 billion.
Cash flows from operating activities increased ¥22.3 billion,to ¥108.0 billion. The increase in cash inflow reflected primarily¥46.9 billion in income before income taxes and minority
interest, adjustments for ¥67.8 billion in depreciation andamortization, ¥5.3 billion in losses on the sale or disposal of
fixed assets, ¥3.8 billion in appraisal losses on investment
securities, ¥1.8 billion in losses on withdrawal of unprofitablebusiness, a ¥2.6 billion decline in accounts receivable and a¥16.5 billion increase in accounts payable, a ¥13.4 billion
increase in inventories, and ¥31.0 billion paid in income tax.
Cash flows from investing activities declined ¥40.9 billion
from the previous year-end, to ¥56.0 billion. Net outflows forthe acquisition and disposal of fixed assets totaled ¥89.5
billion, while net outflows for the purchase and sales of marketable and investment securities amounted to ¥32.9 billion,
and net outflows on the extension and collection of loans
receivables amounted to ¥13.0 billion. Along with this, theacquisition of Isuzu’s share of Subaru of Indiana Automotive,
Inc., added ¥12.9 billion to the total.
Cash flows from financing activities declined ¥31.4 billion
from the previous year-end, to ¥11.6 billion. Short-term borrowings increased ¥1.7 billion, commercial paper climbed¥9.0 billion, long-term borrowings grew ¥3.1 billion, and the
net amount on the redemption and the issuance of bonds was¥12.0 billion, while the payment of cash dividends amounted
to ¥6.6 billion.

OUTLOOK
The global economy is vulnerable to several uncertainties,
including the unclear prognosis for business conditions in the
United States and fallout from the situation in the Middle East.
Amid this situation, economic recovery in Japan has come toa standstill, and the outlook remains unclear and harsh. In theautomobile industry, there are indications that sales in the U.S.
market, the largest in the world, are slowing. In Japan, theautomobile sales environment is expected to become severe
because of further weakness in the domestic economy.
Taking these conditions into account, the FHI Group forecasts
consolidated net sales of ¥1,450.0 billion, up 5.7%, operating
income of ¥68.7 billion, up 1.7% (including consolidated
adjustment profit of ¥6.7 billion related to SIA), and net incomeof ¥35.0 billion, up 4.5%.
Annual Report 2003

25

Consolidated Balance Sheets
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIESAs of March 31, 2003 and 2002ASSETS
Current assets: (Note 3)
Cash and time deposits (Note 5)
Marketable securities (Notes 5 and 6)
Notes and accounts receivable, trade (Notes 4 and 10)
Allowance for doubtful accounts
Inventories (Note 7)
Short-term loans (Note 5)
Deferred tax assets (Note 13)
Other current assets (Note 10)
Total current assets¥

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

2003

2002

2003

69,781
94,636
128,523(486)
198,656
98,17740,34040,522¥

56,466
116,461
133,688(571)
192,548
71,67734,27832,322$580,541
787,321
1,069,243(4,043)
1,652,712
816,780
335,607337,122670,149

636,869

5,575,283

1,102,849(606,307)

1,061,179(579,422)

9,175,116(5,044,151)

Net property, plant and equipment

496,542481,757

4,130,965

Investments and other assets: (Note 3)
Investment securities (Notes 6 and 10)
Investments in non-consolidated subsidiaries and affiliates
Long-term loans
Goodwill
Intangibles, net
Deferred tax assets (Note 13)
Other assets (Notes 3 and 10)
Allowance for doubtful accounts

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

48,275
6,536
8,351
22,24915,284
31,79022,256(3,809)345,300
51,07340,175
167,704
149,875
278,419474,126(30,957)

177,381

150,932

1,475,715¥1,344,072¥1,269,558$11,181,963

Property, plant and equipment (Notes 3, 8, 9 and 10)
Less accumulated depreciation

Total assets

26 FUJI HEAVY INDUSTRIES LTD.

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilities: (Note 3)
Short-term borrowings (Note 10)
Current portion of long-term debts (Note 10)
Notes and accounts payable, trade (Note 4)
Accrued expenses
Accrued income taxes (Note 13)
Other current liabilities (Note 13)
Total current liabilities
Long-term liabilities: (Note 3)Long-term debts (Note 10)
Accrued pension and severance liability (Note 12)
Consolidation adjustments (Note 3)
Other long-term liabilities (Notes 9 and 13)

Minority interest in consolidated subsidiaries (Note 13)
Contingent liabilities (Note 18)
Shareholders’ equity (Note 14):
Common stock
Authorized—1,500,000,000 shares
Issued 2003—746,520,881 shares
2002—746,505,560 shares
Additional paid-in capital
Revaluation reserve for land (Notes 9 and 13)
Retained earnings
Net unrealized holding gains on securities
Translation adjustments
Less treasury stock, at cost

Total liabilities and shareholders’ equity

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

2003

2002

2003

¥ 182,084
57,660213,748
115,177
10,047
41,104¥ 169,807
43,845204,959
107,70723,48836,589$ 1,514,842
479,701
1,778,270
958,21183,586
341,962

619,820586,395

5,156,572

149,362
61,17048,94050,166

183,090
62,579—37,896

1,242,612
508,902407,155
417,354309,638

283,565

2,576,023

3,362

3,486

27,970144,455—
150,766
389
133,186
3,446(18,237)(2,753)—
144,450
150,762381
107,328
4,997(9,579)(2,227)1,201,789—
1,254,293
3,236
1,108,037
28,669(151,722)(22,904)

411,252

396,1123,421,398¥1,344,072¥1,269,558$11,181,963

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

Annual Report 2003

27

Consolidated Statements of Income
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2003, 2002 and 2001

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

2003

2002

2001

2003

¥1,372,337
1,011,582¥1,362,493
992,950¥1,311,887
978,841$11,417,113
8,415,824

360,755
293,234

369,543
281,063333,046
251,373

3,001,289
2,439,551

67,521

88,48081,673561,738

1,855(2,941)(994)(1,400)(1,538)(2,013)(3,884)(4,822)
—
1,882

2,868
(3,499)0
92(4,996)—(8,970)(3,670)(6,880)—

3,663(4,623)2,815—(3,027)—(487)(2,551)——

15,433(24,468)(8,270)(11,647)(12,795)(16,747)(32,313)(40,116)—
15,657—(2,932)—(7,197)(44,520)(11,652)—(24,393)(20,551)(32,344)(60,382)(170,973)

Income before income taxes and minority interest

46,97056,136

21,291

390,765

Income taxes (Note 13):
Current
Reversal of prior year’s accrued income taxes
Deferred

20,359(2,973)(3,810)38,325—(10,042)

25,814—(25,631)

169,376(24,734)(31,697)

13,57628,283

183

112,945

33,39490

27,853
2,430

21,1081,520

277,820749

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses (Note 15)
Operating income
Other income (expenses):
Interest and dividend income
Interest expenses
Gain (loss) on sale of securities
Loss on devaluation of inventories
Foreign exchange losses
Environmental cost
Loss on devaluation of securities
Loss on sale or disposal of property, plant and equipment, net
Loss on liquidation of affiliated companies (Note 16)
Loss on discontinued operations (Note 16)
Full amortization of net pension andseverance obligation at transition
Other, net

Income before minority interest
Minority interest in consolidated subsidiaries
Net income

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

28 FUJI HEAVY INDUSTRIES LTD.

¥

33,484¥30,283¥

22,628$278,569

Yen

Yen

Yen

U.S. dollars(Note 1)¥44.8442.91
9.00¥40.7438.83
9.00¥30.44
29.06
9.00

$0.37
0.36
0.07

Consolidated Statements of Shareholders’ Equity
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2003, 2002 and 2001

Thousands

Balance, March 31, 2000
Foreign currency translation adjustment
Retained earnings of merger ofa consolidated subsidiary
Cash dividends
Payment of bonuses to directors
and statutory auditors
Shares issued to GM
Shares issued upon conversion of convertible bonds
Treasury stock held by subsidiaries
newly included in consolidation
Adoption of new accounting standard
for financial instruments
Net income
Balance, March 31, 2001
Foreign currency translation adjustment
Retained earnings of merger of
non-consolidated subsidiaries
Cash dividends
Payment of bonuses to directors
and statutory auditors
Shares issued upon conversion of convertible bonds
Increase in treasury stock
Revaluation of land
Increase in unrealized holding gains on securities
Net income
Balance, March 31, 2002
Foreign currency translation adjustment
Cash dividends
Payment of bonuses to directors
and statutory auditors
Shares issued upon conversion of convertible bonds
Increase in treasury stock
Revaluation of land
Increase in unrealized holding gains on securities
Comprenhensive loss
Net income
Balance, March 31, 2003

Millions of yen

Number ofsharesissuedCommonstock

Additional
paid-in
capital

Revaluation
reservefor landRetainedearnings

614,553¥ 88,115¥ 94,559¥ —¥ 53,129

131,89654

56,31914

Net
unrealized
holding
gains onsecurities¥—

Accumulatedtranslation
adjustment

Treasurystock,
at costTotal
shareholders’equity¥(28,254)
7,333¥(1,145)¥206,404
7,333

14,484(6,394)

14,484(6,394)

(167)

(167)
112,50828

56,18814(1,070)1,701

746,5024

144,4491

150,761—

22,62883,6801,701(20,921)
11,342(2,215)211(6,694)

(152)

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

1
(12)
3,296

144,450

150,762381

30,283
107,328

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

5

4
(526)
8
(1,551)

746,521¥150,766

¥389

(776)
33,484¥133,186$1,201,747 $1,254,260$3,170$892,912 $41,572¥144,455

1,701
22,628357,455
11,342

211(6,694)

381

746,506(1,070)¥3,446¥(18,237)¥(2,753)

(161)
9
(526)
8
(1,551)(776)
33,484¥411,252

Thousands of U.S. dollars (Note 1)

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

(55,649)$ (79,692) $ (18,528) $3,295,441(72,030)(72,030)(55,649)(1,339)42

33$1,201,789 $1,254,293(1,339)75(4,376)(4,376)
66
66(12,903)(12,903)(6,456)(6,456)
278,569
278,569$3,236 $1,108,037 $28,669 $(151,722) $(22,904) $3,421,398

The accompanying notes are an integral part of these statements.

Annual Report 2003

29

Consolidated Statements of Cash Flows
FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2003, 2002 and 2001

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

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

2003

2002

2001

2003

¥ 46,970¥ 56,136¥ 21,291$ 390,765

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

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

564,859
40,116(882)
8,270
32,313
21,739(99,975)
137,554(258,727)—
15,65747,338108,063

85,72179,099899,027(115,553)
32,213(10,167)(38,596)
9,114
72,588(109,117)
36,634(4,754)(56,013)
1,832
39,493(91,734)
21,439(2,714)(50,274)
7,355
28,423(961,339)
267,995(84,584)(321,098)
75,824
603,893

12,989(6,240)(75,898)
62,889573—(6,577)(52,115)
52,958586—(5,992)(52,216)
54,8152,520

108,062(51,914)(631,431)
523,203
4,767(56,088)(97,073)(88,378)(466,622)

55,150(58,324)
10,000(22,027)
9,000
1,732
—
(531)
—
(6,689)27,704(40,489)
50,500——(11,237)—(47)
35(6,694)46,443(63,677)—(10,000)(30,000)(31,831)112,224(2,249)3,901(6,394)

458,819(485,224)
83,195(183,253)
74,875
14,409—(4,418)—(55,649)(11,689)

19,772

18,417(97,246)

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

4,704

2,529

(33,694)

Net increase in cash and cash equivalents

36,236

13,124

11,667

301,465

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

133,708—

120,436
148

108,769—

1,112,379—

Balance at end of year (Note 5)¥169,944¥133,708¥120,436$1,413,844

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

¥

¥

¥

$

The accompanying notes are an integral part of these statements.

30 FUJI HEAVY INDUSTRIES LTD.

3,327
9

3,384
2

4,573
28

27,67975

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

1. Basis of Presentation of the Financial Statements
Fuji Heavy Industries Ltd. (the “Company”) and its consolidated domestic subsidiaries maintain their official accounting records in Japanese yen, and in accordance with the provisions set forth in Japan(“Japanese GAAP”). The accounts of overseas subsidiaries are based on their accounting records maintained in conformity with generally accepted accounting principles and practices generally accepted in
the respective countries of domicile. Certain accounting principles and practices generally accepted inJapan are different from International Accounting Standards and standards in other countries in certain
respects as to application and disclosure requirements. Accordingly, the accompanying consolidated
financial statements are intended for use by those who are informed about Japanese accounting principles and practices.
The accompanying consolidated financial statements have been restructured and translated into
English (with some expanded descriptions and the inclusion of consolidated statements of shareholders’equity) from the consolidated financial statements of the Company prepared in accordance withJapanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as
required by the Securities and Exchange Law. Some supplementary information included in the statutory
Japanese language consolidated financial statements, but not required for fair presentation, is notpresented in the accompanying consolidated financial statements.
The translation of the Japanese yen amounts into U.S. dollars are included solely for the convenienceof readers outside Japan, using the prevailing exchange rate at March 31, 2003, which was ¥120.20 to
U.S.$1. The convenience translations should not be construed as representations that the Japanese yenamounts have been, could have been, or could in the future be, converted into U.S. dollars at this or any
other rate of exchange.

2. Summary of Significant Accounting Policies
Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its
significant subsidiaries. All significant intercompany transactions and balances have been eliminated inconsolidation. The fiscal year-end of the consolidated domestic subsidiaries is the same as that of theparent company, while the fiscal year-end of the consolidated foreign subsidiaries is December 31.
Although these foreign subsidiaries are included based on their fiscal year ended December 31, significant transactions that incurred between December 31 and March 31 are reflected in the consolidated
financial statements.
The consolidated financial statements include the accounts of the Company and 66 subsidiaries in theyear 2003 (67 in the year ended March 31, 2002 and 68 in the year ended March 31, 2001). In addition,
1 non-consolidated affiliate in the year 2003 (1 in the year ended March 31, 2002 and 2 in the year ended
March 31, 2001) are accounted for by the equity method.
Investments in insignificant non-consolidated subsidiaries and affiliates not accounted for under theequity method are carried at cost.
The difference between the cost and underlying net equity of investments in subsidiaries and affiliatedcompanies is allocated to identifiable assets based on fair value at the date of acquisition. The unallocated residual value of the excess of the cost over the underlying net equity is recognized as consolidation
adjustments and goodwill, and is amortized over a period of 5 years on the straight-line basis. However,consolidation adjustments that arose from making Subaru of Indiana Automotive, Inc. (SIA) a wholly
owned subsidiary of the Company are amortized differently. The portion that clearly corresponds to forecasted future losses will be amortized according to the generation of such losses, and the remaining
portion of the consolidation adjustments will be amortized by the straight-line method over 5 years.
All assets and liabilities of subsidiaries, which include not only the Company’s interest in the subsidiary
but also the minority interest portion, are valued based on fair values at the date the Company acquires control over the subsidiary. The investment cost of the Company is allocated to the identifiable assets andliabilities of the subsidiary; the unallocated cost is recorded as consolidated adjustments and goodwill.

Annual Report 2003

31

Translation of foreign currency accounts
Under Japanese accounting standard for foreign currency translation, monetary assets and liabilities
denominated in foreign currencies are translated into Japanese yen at the exchange rates prevailing at
each balance sheet date with the resulting gain or loss included in the current statements of income.
Assets and liabilities of foreign subsidiaries and affiliates are translated into Japanese yen at theexchange rates in effect at the balance sheet date of the foreign subsidiaries and affiliates, except forcommon stock and capital surplus, which are translated at historical rates. Revenue and expense
accounts are translated at the average exchange rates during the current year. The resulting foreign currency translation adjustments are included “Translation adjustments” in shareholders’ equity and minority
interest in the consolidated balance sheet.
Cash equivalents
Cash and cash equivalents include all highly liquid investments, generally with original maturities of threemonths or less that are readily convertible to known amounts of cash and have negligible risk of changes
in value due to their short maturities.
Revenue recognition
Revenue from sales of finished products is generally recognized when such products are shipped to dealers
or customers. Provisions for sales allowances and incentives are recognized at the time of the sale.
Revenue from operating leases is recognized on a straight-line basis over the lease term.
Allowance for doubtful accounts
The allowance for doubtful accounts is provided based on the amount calculated as the actual ratio ofbad debt for ordinary receivables, and an amount required for uncollectible account for specific doubtfulreceivables.
Marketable securities and investment securities
Under Japanese accounting standards for financial instruments, securities for which fair value is available
are stated at fair value as of the balance sheet date with unrealized holding gains and losses included as
a component of shareholders’ equity until realized, while securities for which fair value is not available arestated at cost as determined by the moving-average method. Held-to-maturity debt securities are statedusing the amortized interest cost method. Securities not listed on stock exchanges were stated at cost,
as determined by the moving-average method, after devaluation for any permanent impairment.
Derivative financial instruments and hedge accounting
Japanese accounting standard for financial instruments requires the Company and consolidated subsidiaries to state derivative financial instruments at fair value and to recognize changes in the fair value as
gains or losses unless derivative financial instruments are used for hedging purposes.
For derivative financial instruments used as hedges and which meet certain hedging criteria, theCompany and consolidated subsidiaries defer recognition of gains or losses resulting from changes infair value of derivative financial instruments until the related gains or losses on the hedged items arerecognized.
For interest rate swap contracts used as hedges and which meet certain hedging criteria, the net
amount to be paid or received under the interest rate swap contract is added to or deducted from theinterest on the assets or liabilities for which the swap contract was executed.
Derivative financial instruments qualifying as a hedge, along with the related transactions, assets andliabilities, are summarized as follows:
Financial Instrument

Transaction, Assets and Liabilities

Forward exchange contracts
Interest swaps

Future foreign exchange transactions
Borrowings

The risk exposures to movements in the foreign exchange rates and interest rates are hedged
according to the Company’s and consolidated subsidiaries’ risk management policy. Evaluation of hedge

32 FUJI HEAVY INDUSTRIES LTD.

effectiveness is not considered necessary as the terms and notional amounts of these hedge instruments
are the same as those of the related transactions, assets and liabilities, and therefore they are assumed
to be highly effective in offsetting movements in the exchange rates and interest rates at their inception
as well as during their term.
Inventories
Finished products are stated principally at cost determined by the moving-average method. Raw materials,
work in process and supplies are stated principally at cost determined by the first-in, first-out method.
Property, plant and equipment
Property, plant and equipment are stated at cost. Significant renewals and additions are capitalized;
ordinary maintenance and ordinary repairs, and minor renewals and minor improvements are charged toconsolidated statement of income as incurred.
Depreciation of the property, plant and equipment is principally computed by the declining-balancemethod for the Company and domestic consolidated subsidiaries, and using the straight-line method forforeign consolidated subsidiaries at rates based on the estimated useful lives of the assets according to
general class, type of construction and use.
Accounting for leases
In principle, finance leases are accounted for on a similar basis to sales by lessors or purchases bylessees. However, finance leases which do not transfer ownership of leased assets to lessees as stipulated in lease contracts can be accounted for as an operating lease if certain “as if capitalized” information is disclosed in the notes to the financial statements. Therefore, as a lessee, the Company andconsolidated subsidiaries have accounted for those leases as operating leases and have charged
periodic lease payments to expenses when paid.
Intangible assets
Goodwill is principally amortized by the straight-line method based on the accounting principles generally
accepted in the respective countries of domicile. However, goodwill of the consolidated subsidiary in the
U.S. is not amortized, while other identifiable assets are amortized by the straight-line method, in
accordance with SFAS 142.
Computer software used internally by the Company and consolidated subsidiaries is amortized by thestraight-line method over the relevant economic useful lives (3 or 5 years).
Accrued pension and severance liability
On terminating employment, employees of the Company and subsidiaries in Japan are entitled, undermost circumstances, to lump-sum indemnities or pensions as described below, based on current rates
of pay, length of service, and conditions under which the termination occurs. The minimum payment is
an amount based on voluntary retirement. In addition to the minimum payment based on voluntary
retirement, employees receive additional benefits for retirement due to age limit, death or other definedreasons.
Certain subsidiaries in Japan have contributory funded defined benefit pension plans, which are pursuant
to the Japanese Welfare Pension Insurance Law. The contributory pension plans cover a portion of thegovernmental welfare pension program, under which the contributions are made by the companies andtheir employees, and an additional portion representing the substituted noncontributory pension plan.
Under Japanese accounting standards for pension and severance benefits, accrued pension and severance liability for employees has been provided based on the estimated amounts of projected benefit
obligation and fair value of plan assets at the end of the fiscal year. Actuarial gains and losses will be

Annual Report 200333

amortized from the next fiscal year by the straight-line method over the periods (5–18 years); which areless than the estimated remaining service periods of employees.
Accrued pension contribution for defined benefit pension plans is included in accrued pension andseverance liability.
Retirement benefits to directors and statutory auditors are subject to approval at a meeting of shareholders. Previously, severance and retirement benefits for directors were recorded as expense when
paid. However, for the purpose of more accurately matching them with the period in which they arise, anaccrual method of recording such expenses has been employed from April 1, 2001. The impact of suchchange on statements of income has not been significant and is also stated in Note 20.
Research and development costs
Research and development costs are expensed as incurred and amounted to ¥60,110 million(US$550,083 thousand), ¥54,903 million and ¥46,622 million for the years ended March 31, 2003, 2002
and 2001, respectively.
Other costs
The Company and consolidated subsidiaries provide for accrued warranty claims on products soldbased on their past experience of warranty services and estimated future warranty costs.
Income taxes
The provision for income taxes is computed based on the pretax income for the financial reporting
purposes. Deferred tax assets and liabilities are recognized for expected future tax consequences of
temporary differences between the financial statement carrying amounts and the tax bases of assets andliabilities. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than notthat a tax benefit will not be realized.
Net income per share
Basic net income per share (EPS) is computed based on the average number of shares of common stock
outstanding during each year. Diluted EPS assumes the potential dilution that could occur if all convertible securities were converted or other contracts to issue common stock were exercised to the extent
that it is not antidilutive.
Effective April 1, 2002, the Company and consolidated subsidiaries adopted the new accounting standard for earnings per share and related guidance (Accounting Standards Board Statement No. 2,“Accounting Standard for Earnings Per Share” and Financial Standards Implementation Guidance No. 4,“Implementation Guidance for Accounting Standard for Earnings Per Share,” issued by the AccountingStandards Board of Japan on September 25, 2002). Earnings per share for the previous year would havebeen ¥40.52 (US$ 0.34), if this new accounting standard were applied retroactively.
Accounting Standard for Treasury Stock and Reversal of Statutory Reserves
Effective April 1, 2002, the Company and consolidated subsidiaries adopted the new accounting standard for treasury stock and reversal of statutory reserves (Accounting Standards Board Statement No. 1,“Accounting Standard for Treasury Stock and Reversal of Statutory Reserves,” issued by the AccountingStandards Board of Japan on February 21, 2002). The effect on consolidated financial statements of the
adoption of this new accounting standard was immaterial.
Reclassifications
Certain reclassifications within the financial statements for the years ended March 31, 2002 and 2001
have been made to conform to the presentation for the year ended March 31, 2003.

34 FUJI HEAVY INDUSTRIES LTD.

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

Current assets
Long-term assets¥20,691
40,464$172,138
336,639

Total assets
Current liabilities
Long-term liabilities

61,1555,287
7,010

508,777
43,98558,319Total liabilities
Difference: Net assets
Acquisition cost of Isuzu’s share

12,29748,8580

102,304
406,4730Consolidation adjustments¥48,858$406,473

Prior to the Company’s acquisition of Isuzu’s share of SIA, Isuzu Motors Ltd. made a capital injection
into SIA in connection with the forecasted future losses related to the former Isuzu Division. In relation to
the consignment of production agreement with Isuzu, the Company will operate the former Isuzu Division
as the Consignment Division. As the consigned production activities are completed, SIA is expected toincur certain losses on the disposal of fixed assets, losses on cancellation of capital leases, and losses
related to personnel reduction.
Consequently, the consolidation adjustments (credit side) arose.
The portion of the consolidation adjustments that clearly corresponds to the forecasted future losses
will be amortized according to the generation of those losses, and the remaining portion will be amortizedby the straight-line method over 5 years.
Since Isuzu’s share was acquired at end of the fiscal year, the straight-line amortization portion will
start from the following fiscal year. The annual amortization based on currently forecasted losses was asfollows:

March 31, 2004
March 31, 2005
March 31, 2006
March 31, 2007
March 31, 2008 and thereafter

Millionsof yenThousands of
U.S. dollars¥ 6,700
7,800
13,1004,900
16,358$ 55,741
64,892
108,985
40,765136,090¥48,858$406,473

Annual Report 2003

35

Other assets under “investments and other assets” included ¥32,794 million (US$ 272,829) in restricted collateral cash of SIA, has been pledged as alternative credit for collateral to secure the lease payment of production equipment of Isuzu vehicles. The restricted collateral cash was part of the capital
injection by Isuzu Motors Ltd. made before acquisition of Isuzu’s share of SIA.

4. Effect of Bank Holiday on March 31, 2002
As financial institutions in Japan were closed on March 31, 2002, ¥1,647 million of notes receivable and¥209 million of notes payable maturing on March 31, 2002 were settled on the following business day,April 1, 2002 and accounted for accordingly.

5. Additional Cash Flow Information(a) Cash and cash equivalents as of March 31, 2003 and 2002 consisted of the following:
Millionsof yenMillionsof yenThousands of
U.S. dollars

2003

2002

2003

Cash and time deposits
Marketable securities
Short-term loans¥ 69,781
94,636
98,177¥ 56,466
116,461
71,677$ 580,541
787,321816,780

Less maturity over three months

262,594(92,650)

244,604(110,896)

2,184,642(770,798)

Cash and cash equivalents¥169,944¥133,708$1,413,844(b) Assets and liabilities of newly consolidated subsidiary and the division of a consolidated subsidiary
which was being consolidated for the first time due to acquisition of the share:
Assets and liabilities of YAMANASHI SUBARU MOTOR CO., LTD. and relationship with acquisition
cost and net cash outflow of such acquisition, which included in “Other, net” under cash flows frominvesting activities, were as follows:

36 FUJI HEAVY INDUSTRIES LTD.

Millionsof yenThousands of
U.S. dollars

Current assets
Long-term assets
Consolidation adjustments
Current liabilities
Long-term liabilities

¥333
520
277
(572)
(273)

$2,7704,326
2,305(4,759)(2,271)

Acquisition cost of YAMANASHI SUBARUCash and cash equivalents of YAMANASHI SUBARU

285
(167)

2,371
(1,389)Net cash used for acquisition of YAMANASHI SUBARU

¥118

$ 982

Assets and liabilities of the Consignment Division of Subaru of Indiana Automotive, Inc. (SIA) at the
beginning of its consolidation, and relationship with acquisition cost of Isuzu’s share of SIA and net
increase in cash and cash equivalents due to such acquisition of the share were as follows:
Millionsof yenThousands of
U.S. dollars

Current assets
Long-term assets
Current liabilities
Long-term liabilities
Consolidation adjustments¥20,691
40,464(5,287)(7,010)(48,858)$172,138
336,639(43,985)(58,319)(406,473)

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

0(12,989)

0(108,062)

Net increase in cash and cash equivalents
due to acquisition of Isuzu’s share of SIA¥12,989$108,062

6. Marketable Securities and Investment Securities
Information as to the value of marketable securities and investment securities at March 31, 2003 and2002 was as follows:(1) Held-to-maturity debt securities for which fair market value are available:(a) As of March 31, 2003:
Millions of yen
Book value

Fair market value

Difference

¥5

¥5

¥0

¥5

¥5

¥0)

Book value

Fair market value

Difference

$42

$42

$0

$42

$42

$0

Book value

Fair market value

Difference¥¥

Fair market value exceeding book value:
Government bonds
Total

Thousands of U.S. dollars

Fair market value exceeding book value:
Government bonds
Total(b) As of March 31, 2002:

Millions of yen

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

¥

5

5

0

5

5

0

5,000

4,860

(140)

Sub-total

5,000

4,860

(140)

Total

¥5,005¥4,865¥(140)

Annual Report 2003

37

(2) Other investment securities (available for sale securities) with fair market value:(a) As of March 31, 2003:
Millions of yen
Acquisition cost

Book value

Difference¥ 6,181¥13,974¥7,793

4,966
6,566
201
300

5,142
6,631
201
300

176
65
0
0

18,214

26,248

8,034

15,844

13,634(2,210)

—
4,317
1,959
325

—
4,309
1,958
306

—
(8)
(1)
(19)

Sub-total

22,44520,207(2,238)

Total¥40,659¥46,455¥5,796

Acquisition cost

Book value

Difference$ 51,423$116,256$64,833

41,31454,626
1,672
2,496

42,77955,166
1,672
2,496

1,465
540
0
0

151,531

218,369

66,838131,813

113,428(18,385)—
35,915
16,2982,704—
35,84916,289
2,546

—
(66)
(9)
(158)

Sub-total

186,730

168,112(18,618)

Total$338,261$386,481$48,220

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

Thousands of U.S. dollars

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

38 FUJI HEAVY INDUSTRIES LTD.

(b) As of March 31, 2002:
Millions of yen
Acquisition cost

Book value

Difference¥10,215¥19,906¥ 9,691

1,068
674
2,636
6,505

1,074
677
2,637
6,575

6
3
1
70

21,09830,8699,771

14,714

13,624(1,090)

1,998
15,955
4,450
198

1,972
15,921
4,445
172

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

Sub-total

37,31536,134(1,181)

Total¥58,413¥67,003¥ 8,590

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

Annual Report 2003

39

(3) Other investment securities (available for sale securities) sold during the years ended March 31, 2003
and 2002:(a) For the year ended March 31, 2003:
Sales amount

Total gain

¥431,864 million
US$3,592,879 thousand

Total loss

¥51 million
US$424 thousand¥31 million
US$258 thousand(b) For the year ended March 31, 2002:
Sales amount

Total gain

¥815,133 million

Total loss

¥49 million¥136 million(4) Book value of major marketable securities without available fair market value (except for held-tomaturity debt securities stated in (1)) as of March 31, 2003 and 2002:

Commercial paper
Money management fund
Unlisted stocks (excluding over-the-counter stocks)
Medium-term government bond fund
Beneficiary rights to the trust
Negotiable certificated deposit
Free financial fundMedium-term noteMillionsof yenMillionsof yenThousands of
U.S. dollars

2003

2002

2003

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

¥20,174
31,897
6,523
7,103
—
—
17,8068,000$296,556
275,075
56,464
54,11034,293
16,639——Note: The Company and consolidated subsidiaries recognized ¥3,188 million (US$ 26,522 thousand) and ¥8,970 million in loss on devaluation of securities
for the years ended March 31, 2003 and 2002, respectively, out of which, the devaluation of investment securities with fair market value was ¥2,950
million (US$ 24,542 thousand) and ¥7,577 million for the years ended March 31, 2003 and 2002, respectively.
For purpose of recording the loss on devaluation of securities, the Company and consolidated subsidiaries consider all securities whose fair market value has fallen below 50% of the book value to be permanently impaired, and records the relevant loss on devaluation. For securities whose fairvalue has declined between 30% to 50% in relation to book value, the Company and consolidated subsidiaries specifically consider the probability ofrecovery of the fair value, and records a loss on devaluation in an amount deemed sufficient.

(5) Schedule of redemption for other securities with maturity and held-to-maturity debt securities as ofMarch 31, 2003 and 2002:(a) As of March 31, 2003:
Millions of yen

1) Debt securities
Government andmunicipal bonds
Corporate bonds
Other2) OtherTotal

40 FUJI HEAVY INDUSTRIES LTD.

Within 1
year

1 to 5years

5 to 10years

Over 10years¥
68
10,06237,814
4,424¥3,843505
161—¥1,010
699
—
—

¥225
505
—
—

¥52,368¥4,509¥1,709¥730

Thousands of U.S. dollars
Within 1
year

1 to 5years

5 to 10years

Over 10
years

$

566
83,711
314,592
36,805$31,972
4,201
1,339
—

$ 8,403
5,815——$1,8724,201——$435,674$37,512$14,218$6,073

(b) As of March 31, 2002:
Millions of yen

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

Within 1
year

1 to 5years

5 to 10years

Over 10
years

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

¥671
243
—
—

¥147
28
—
—

¥53,249¥6,947¥914¥175

7. Inventories
Inventories at March 31, 2003 and 2002 consisted of the following:
Millionsof yenFinished products
Work in process
Raw materials
Supplies

Millionsof yenThousands of
U.S. dollars

2003

2002

2003

¥120,986
55,69820,005
1,967¥119,925
53,364
17,1572,102$1,006,539
463,378
166,431
16,364¥198,656¥192,548$1,652,712

8. Property, Plant and Equipment
Property, plant and equipment at March 31, 2003 and 2002 were summarized as follows:
Millionsof yenMillionsof yenThousands of
U.S. dollars

2003

2002

2003

Buildings and structures
Machinery and vehicles
Other¥254,567
477,782
198,164¥239,229
459,791
189,630$2,117,862
3,974,892
1,648,619

Less accumulated depreciation
Land
Construction in progress

930,513(606,307)
157,895
14,441

888,650(579,422)
150,649
21,8807,741,373(5,044,151)
1,313,602
120,141¥496,542¥481,757$4,130,965

Total

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

¥ 592
1,704

Annual Report 2003

41

The fair value of land is determined based on official notice prices that are assessed and published by
the Commissioner of the National Tax Administration, as stipulated in Article 2, paragraph 3 of theOrdinance Implementing the Law Concerning Land Revaluation. Reasonable adjustments, including
those for the timing of assessment, are made to the official notice prices.
According to the Law, the Company and consolidated subsidiaries are not permitted to revalue theland after April 1, 2002. Such unrecorded gain on revaluation at March 31, 2003 was ¥209 million (US$1,739 thousand).

10. Short-Term Borrowings and Long-Term Debts
Short-term borrowings at March 31, 2003 and 2002 consisted of the following:

Bank loans with average interest rate of 1.09% and 1.60%
per annum as of March 31, 2003 and 2002, respectively
Commercial paper with average interest rateof 0.03% per annum as of March 31, 2003

Millionsof yenMillionsof yenThousands of
U.S. dollars

2003

2002

2003

¥173,084¥169,807$1,439,967

9,000

—

74,875¥182,084¥169,807$1,514,842

Millionsof yenMillionsof yenThousands of
U.S. dollars

2003

2002

2003

¥105,325$ 810,715

2,033

—

18,77720,00010,00010,00010,00020,00030,000—300

156,190—
83,19583,19583,195
166,389249,584
83,194
2,496

500

4,160

207,022(57,660)

226,935(43,845)

1,722,313(479,701)¥149,362¥183,090$1,242,612

Long-term debts at March 31, 2003 and 2002 consisted of the following:

Loans principally from banks and insurance companies due
through 2019 with average interest rate of 2.17%
and 4.30% per annum as of March 31, 2003
and 2002, respectively¥ 97,448
Unsecured 1.80% convertible bonds due March 31, 2003,
convertible currently at ¥633.30 for one common share,
redeemable before due date—Unsecured 0.90% convertible bonds due September 30, 2003,
convertible currently at ¥513.00 ($4.27) for one common share,
redeemable before due date
18,774
Unsecured 2.25% bonds due July 31, 2002—
Unsecured 2.10% bonds due August 29, 2003
10,000Unsecured 2.30% bonds due September 30, 2005
10,000Unsecured 1.76% bonds due April 30, 2004
10,000Unsecured 0.97% bonds due May 15, 2006
20,000Unsecured 1.22% bonds due September 30, 2008
30,000Unsecured 0.89% bonds due September 28, 2007
10,000
Secured 1.80% bonds of a consolidated subsidiary due July 7, 2005
300
Secured 0.93% bonds of a consolidated subsidiary
due February 15, 2007
500
Less—Portion due within one year

42 FUJI HEAVY INDUSTRIES LTD.

Annual maturities of long-term debts at March 31, 2003 were as follows:

2004
2005
2006
2007
2008
2009 and thereafter

Millionsof yenThousands of
U.S. dollars¥ 57,660
43,37338,67425,44010,45931,416$ 479,701
360,840
321,747
211,647
87,013
261,365¥207,022$1,722,313

The following assets as of March 31, 2003 and 2002 were pledged as collateral for certain loans:

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

Millionsof yenMillionsof yenThousands of
U.S. dollars

2003

2002

2003

¥ 34,843
1,079
105,815——¥ 22,934
784
116,311206
376$ 289,875
8,977
880,324——¥141,737¥140,611$1,179,176

The unexecuted balance of commitments for borrowings by the Company and consolidated
subsidiaries (Subaru of America, Inc. and Subaru Europe N.V./S.A.) at March 31, 2003 were as follows:
Millionsof yenThousands of
U.S. dollars

Total commitments
Less amounts currently executed¥109,337
19,369$909,626
161,140

Unexecuted balance¥ 89,968$748,486

11. 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.) at March 31, 2003 was as follows:
Millionsof yenThousands of
U.S. dollars

Total overdraft facilities and lending commitments
Less amounts currently executed¥6,215
1,980$51,706
16,473Unexecuted balance¥4,235$35,233

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

12. Pension and Severance Plans
The Company and consolidated domestic subsidiaries have non-contributory funded defined benefit pension plans. The plan of the Company covers 80% of retirement and severance benefits for employees who
terminate employment at age 50 or over. Foreign subsidiaries primarily have defined contribution plans.

Annual Report 2003

43

Reconciliation between the projected pension and severance obligation and accrued for pension andseverance liability as of March 31, 2003 and 2002 was as follows:
Millionsof yenMillionsof yenThousands of
U.S. dollars

2003

2002

2003

a. Projected pension and severance obligationb. Plan assets¥130,994(44,873)¥129,766(49,856)$1,089,800(373,319)

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

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

79,910(13,779)(4,137)

716,481(175,849)(31,955)

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

61,143(27)

61,994(19)

508,677(225)

h. Accrued pension and severance liability¥ 61,170¥ 62,013$ 508,902

Notes: 1. The above amounts included the government pension plan funded by social security taxes paid by employees and employer.
2. Certain insignificant consolidated subsidiaries calculated the liability using the simplified method.
3. In addition to the above plan assets, there were plan assets for the multi-employer pension plan amounted to ¥17,560 million (US$146,090
thousand) and ¥18,001 million for the years ended March 31, 2003 and 2002, respectively. The plan assets for the multi-employer pension plan
could not be allocated to each specific participating employer and were allocated based on the number of participants.

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

2003

2002

2001

2003

a. Service costb. Interest costc. Expected return on plan asset
d. Amortization of transition liabilitye. Amortization of actuarial gain/loss
f. Amortization of prior service cost

¥10,004
3,047(1,262)—770
296¥ 9,099
3,284(1,856)—422—¥ 8,405
3,187(1,886)44,519——$ 83,228
25,349(10,499)
—
6,406
2,463

g. Pension and severance cost

¥12,855¥10,949¥54,225$106,947

Notes: 1. The above amounts did not include the social security taxes paid by employees.
2. Service costs of consolidated subsidiaries using the simplified method were included in service cost above.
3. Service costs above included service cost for the multi-employer pension plan amounted to ¥907 million (US$7,546 thousand) and ¥846 million
for the years ended March 31, 2003 and 2002, respectively, in which plan assets could not be allocated to each specific participating employer.
4. Service costs above included contributions for the defined contribution plans of foreign subsidiaries amounted to ¥1,579 million (US$13,136
thousand) and ¥1,286 million for the years ended March 31, 2003 and 2002, respectively.
5. In addition to the pension and severance cost above, additional retirement payments amounted to ¥137 million (US$ 1,140 thousand) and ¥56
million for the years ended March 31, 2003 and 2002, respectively, were included in general and administrative expenses.

44 FUJI HEAVY INDUSTRIES LTD.

Actuarial assumptions used in computation of pension and severance liability were as follows:a. Attribution of expected benefit obligation
The straight-line method
b. Discount rate
Primarily 2.5% (FY2002–3.0%)
c. Expected rate of return on plan assets
Primarily 2.5% (FY2002–4.0%)
d. Amortization of actuarial gain/loss
Primarily 18 years (will be amortized by the straightline method starting from the next fiscal year basedon periods less than estimated average remaining
service period of employees)e. Amortization of prior service costPrimarily 14 years (will be amortized by the straightline method based on periods less than estimatedaverage remaining service period of employees)

13. Income Taxes
The Company and consolidated subsidiaries are subject to a number of taxes based on income, which inaggregate, resulted in normal statutory income tax rates of approximately 41.8% for the years ended
March 31, 2003, 2002 and 2001.
A reconciliation of the statutory tax rate in Japan to the Company’s effective income tax rate for theyears ended March 31, 2003, 2002 and 2001 was as follows:
2003

2002

2001

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

41.8%

41.8%

41.8%

(8.1)
(6.3)
(3.1)
2.5
1.5
—
0.6

6.8
1.4
—
1.4
—
(0.7)
(0.3)

(35.3)
—
—
2.1
(4.0)
(2.3)
(1.4)

Effective income tax rate

28.9%

50.4%

0.9%

Annual Report 2003

45

Significant components of the deferred tax assets and liabilities at March 31, 2003 and 2002 wereas follows:
Millionsof yenMillionsof yenThousands of
U.S. dollars

2003

2002

2003

¥ 4,733
11,28020,409
5,047
6,005
7,452
3,964
6,491
3,400
25,303¥ 4,190
9,078
22,428
3,858
5,008
7,843
4,067
7,417
—
22,693$ 39,376
93,844
169,792
41,98849,95861,99732,97854,00228,286
210,508

94,084(8,967)86,582(10,378)

782,729(74,601)

Total deferred tax assets, net of valuation allowance

85,117

76,204

708,128

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

(15,931)(2,332)
(442)
(721)

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

(132,538)(19,401)(3,677)(5,998)Deferred tax assets:
Deficit carry forwards
Unrealized gain on sales of inventories
Accrued pension and severance liabilities
Accrued expenses
Accrued employees bonuses
Warranty claims
Loss on valuation of investment securities
Unrealized gain on sales of property, plant and equipment
Loss on valuation of property, plant and equipment
Other
Total deferred tax assets
Valuation allowance

46 FUJI HEAVY INDUSTRIES LTD.

Total deferred tax liabilities(19,426)(16,664)(161,614)

Net deferred tax assets¥65,691¥59,540$546,514

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

2003

2002

2003

Current assets—Deferred tax assets
Investments and other assets—Deferred tax assets
Current liabilities—Other current liabilities
Long-term liabilities—Other long-term liabilities¥40,340
33,466(1)(8,114)¥34,278
31,790—(6,528)$335,607
278,419(8)(67,504)

Total net deferred tax assets¥65,691¥59,540$546,514

The aggregate statutory income tax rate used for calculation of deferred tax assets and liabilities was
41.8% for the year ended March 31, 2002. Effective for years commencing on April 1, 2004 or later,according to the revised local tax law, income tax rates for enterprise taxes will be reduced as a result of
introducing the assessment by estimation on the basis of the size of business. Based on the change ofincome tax rates, for calculation of deferred tax assets and liabilities, the Company and consolidated
domestic subsidiaries used the aggregate statutory income tax rates of 41.8% for current items and40.5% for non-current items at March 31, 2003.
As a result of the change in the aggregate statutory income tax rates, net deferred tax assets
decreased by ¥640 million (US$5,324 thousand) and income taxes—deferred on the consolidated statement of income, net unrealized holding gains on securities, revaluation reserve for land and minority
interest increased by ¥728 million (US$6,057 thousand), ¥73 million (US$607 thousand), ¥8 million(US$67 thousand) and ¥7 million (US$58 thousand), respectively.

14. Shareholders’ Equity
Under the Commercial Code of Japan, the entire amount of the issue price of shares is required to beaccounted for as capital, although a company may, by resolution of its Board of Directors, account for an
amount not exceeding one-half of the issue price of the new shares as additional paid-in capital, which isincluded in capital surplus.
Effective October 1, 2001, the Commercial Code provides that an amount equal to at least 10% of
cash dividends and other cash appropriations shall be appropriated and set aside as a legal earnings
reserve until the total amount of legal earnings reserve and additional paid-in capital equals 25% of common stock. [The total amount of legal earnings reserve and additional paid-in capital of the Company has
been reached to 25% of common stock, and therefore the Company is not required to provide legal
earnings reserve any more.] The legal earnings reserve and additional paid-in capital may be used toeliminate or reduce a deficit by resolution of the shareholders’ meeting or may be capitalized by resolution of the Board of Directors. On condition that the total amount of legal earnings reserve and additional
paid-in capital remains being equal to or exceeding 25% of common stock, they are available for distribution by the resolution of shareholders’ meeting. Legal earnings reserve is included in retained earnings
in the accompanying financial statements.
The maximum amount that the Company can distribute as dividends is calculated based on the nonconsolidated financial statements of the Company in accordance with the Commercial Code.
In accordance with customary practice in Japan, the appropriations are not accrued in the financial
statements for the period to which they relate, but are recorded in the subsequent accounting period
after shareholders’ approval has been obtained. Retained earnings at March 31, 2003 include amounts
representing final cash dividends of ¥3,341 million (US$27,795 thousand), ¥9 (US$0.07) per share,and directors’ bonuses of ¥110 million (US$915 thousand), which were approved at the shareholders’meeting held on June 25, 2003.

Annual Report 2003

47

15. Selling, General and Administrative Expenses
Selling, general and administrative expenses for the years ended March 31, 2003, 2002 and 2001
consisted of the following:Transportation and packing expenses
Advertisement cost
Sales incentives
Salary and bonus
Research and development cost
OthersMillionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2003

2002

2001

2003

¥ 14,089
51,27925,64055,44658,78887,992¥ 14,171
51,19622,18255,29853,73584,481¥ 14,578
42,633
15,24854,02645,78079,108$ 117,215
426,614
213,311461,281
489,085732,045¥293,234¥281,063¥251,373$2,439,551

16. Loss on Liquidation of Affiliated Companies and Discontinued Operations
In fiscal 2002 the Company recorded loss on liquidation of affiliated companies to cover potential losses
from liquidation and guarantees based on the reasonable assessment of the financial condition of theaffiliated companies.
The Company terminated the operation of Bus and Train Production by March 31, 2003. Loss on discontinued operations due to the termination of bus production was ¥893 million (US$7,429 thousand)and train production was ¥989 million (US$8,228 thousand).

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

2003

2002

2003

Machinery, equipment and vehicles
Other tangible assets
Intangibles assets¥1,156
2,677
536¥1,1594,556
659$ 9,617
22,271
4,459

Accumulated depreciation

4,369(2,671)

6,374(3,785)36,347(22,221)

Net¥1,698¥2,589$14,126

Information related to finance leases for the years ended March 31, 2003, 2002 and 2001 was as follows:

Lease expense
Depreciation expense
Interest expense portion

48 FUJI HEAVY INDUSTRIES LTD.

Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2003

2002

2001

2003

¥990
895
54

¥1,331
1,246
73¥1,8791,725
111$8,236
7,446
449

Future minimum lease/rent payments, excluding the portion of interest thereon, as of March 31, 2003
and 2002 were as follows:

Finance leases:
Due within one year
Due after one year

Millionsof yenMillionsof yenThousands of
U.S. dollars

2003

2002

2003

597
868

¥ 1,026
1,518$¥ 1,465¥ 2,544$ 12,188¥ 6,296
65,570¥ 3,317
36,779$ 52,379
545,508¥71,866¥40,096$597,887¥

Operating leases:
Due within one year
Due after one year

4,967
7,221

(2) Information as lessor
Capitalized lease assets for finance leases at March 31, 2003 and 2002 were as follows:
Millionsof yenMillionsof yenThousands of
U.S. dollars

2003

2002

2003

Machinery, equipment and vehicles
Other tangible assets
Intangible assets¥21,5447,742
755¥11,961
7,781
213$179,235
64,4096,281

Accumulated depreciation

30,041(12,585)

19,955(8,867)

249,925(104,700)¥17,456¥11,088$145,225

Information related to finance leases for the years ended March 31, 2003, 2002 and 2001 was as follows:

Lease income
Depreciation expense
Interest income portion

Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2003

2002

2001

2003

¥9,273
6,236
1,688¥7,832
5,894
1,153¥5,086
3,901
1,286$77,146
51,88014,043Future minimum lease/rent payments receivable, excluding the portion of interest thereon, as of March
31, 2003 and 2002 was as follows:

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

Millionsof yenMillionsof yenThousands of
U.S. dollars

2003

2002

2003

¥ 7,083
13,071¥ 5,624
10,710$ 58,927
108,744¥20,154¥16,334$167,671¥ 5,084
3,291¥ 9,086
6,962$ 42,296
27,379¥ 8,375¥16,048$ 69,675

Annual Report 2003

49

18. Contingent Liabilities
Contingent liabilities at March 31, 2003 were as follows:
Millionsof yenTrade notes discounted with banks
As guarantor of the indebtedness from financial institutes
As guarantor of the indebtedness of affiliated companies¥

184
36,241
6,187

Thousands of
U.S. dollars

$

1,531
301,506
51,473

19. Derivative Financial Instruments
In the normal course of business, the Company and consolidated subsidiaries employ derivative financial
instruments, including foreign exchange forward contracts and interest rate swaps, to manage their
exposure to fluctuations in foreign currency exchange rates and interest rates. The Company and consolidated subsidiaries do not use derivatives for speculative or trading purposes.
Fair value information of the derivative financial instruments at March 31, 2003 and 2002 was as follows:(1) Foreign currency contracts:(a) As of March 31, 2003:
Millions of yen
Contract
amountForeign currency options contracts:
Sell—
Call U.S. dollar¥10,582[97]
Buy—
Put U.S. dollar
10,582[97]

Thousands of U.S. dollars

Fair value

Unrealized
gains (losses)

Contract
amountFair value

Unrealized
gains (losses)¥196¥ (99)$88,037[807]$1,631$(824)

12730

88,037
[807]

1,057

250

(b) As of March 31, 2002:
Millions of yen
Contract
amountForeign currency options contracts:
Sell—
Call U.S. dollar¥2,648[22]
Buy—
Put U.S. dollar
2,522
[22]

Fair value

Unrealized
gains (losses)¥48¥ (26)

6(16)

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

50 FUJI HEAVY INDUSTRIES LTD.

(2) Interest rate contracts:(a) As of March 31, 2003:
Millions of yen

Interest swap contracts:
Receive floating rate
pay fixed rate

Contract
amount¥5,800Thousands of U.S. dollars

Fair value

Unrealized
gains (losses)

Contract
amountFair value

Unrealized
gains (losses)¥(134)¥(134)$48,253$(1,115)$(1,115)(b) As of March 31, 2002:
Millions of yen

Interest swap contracts:
Receive floating rate
pay fixed rate

Contract
amountFair value

Unrealized
gains (losses)¥3,000

¥(34)

¥(34)

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

Annual Report 2003

51

20. Segment Information
Information by industry segment
The Company and its consolidated subsidiaries operate principally in four industry segments: automobiles, industrial products, aerospace and other business fields (including transportation equipment).
A summary of net sales, operating income, assets, depreciation expense and capital expenditures byindustry segments for the years ended March 31, 2003, 2002 and 2001 is shown below:
Net sales:
Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2003

2002

2001

2003

¥1,229,807
3,231¥1,219,766
2,970¥1,167,209
3,131$10,231,340
26,880

Total
Industrial products—
Outside customers
Inter-segment

1,233,038

1,222,736

1,170,340

10,258,220

41,58675

39,419136

44,224140

345,973
624

Total
Aerospace—
Outside customers
Inter-segment

41,661

39,55544,364

346,597

63,00976

66,27653

65,504
118

524,202632

Total
Other—
Outside customers
Inter-segment

63,08566,32965,622524,834

37,935
3,526

37,032
3,658

34,951
2,555

315,599
29,334

Total
Corporate and elimination

41,461(6,908)40,690(6,817)37,506(5,945)344,933(57,471)¥1,372,337¥1,362,493¥1,311,887$11,417,113

Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

Net sales:
Automobiles—
Outside customers
Inter-segment

Consolidated total
Segment profit or loss:

52 FUJI HEAVY INDUSTRIES LTD.

2003

2002

2001

2003

Operating income (loss):
Automobiles
Industrial products
Aerospace
Other¥67,307(866)
3,359(3,114)¥85,649(290)
7,412(4,209)¥82,211
784
2,467(4,100)$559,958(7,205)27,945(25,907)

Total
Corporate and elimination

66,686835

88,562(82)

81,362311

554,791
6,947

Consolidated operating income¥67,521¥88,480¥81,673$561,738

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

2003

2002

2001

2003

Total assets:
Automobiles
Industrial products
Aerospace
Other¥1,140,525
55,793
101,130
75,360¥1,053,708
62,126110,156
70,233¥ 956,131
57,372
106,955
74,851$ 9,488,560
464,168
841,348
626,955

Total
Corporate and elimination

1,372,808(28,736)

1,296,223(26,665)

1,195,309(26,808)

11,421,031(239,068)

Consolidated total¥1,344,072¥1,269,558¥1,168,501$11,181,963

Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2003

2002

2001

2003

¥ 61,743
2,133
1,772
2,248

¥ 57,724
2,055
2,084
2,101

¥ 57,225
1,943
2,392
2,510

$513,669
17,746
14,742
18,702

67,896—

63,964—64,070—564,859—

Consolidated total¥ 67,896¥ 63,964¥ 64,070$564,859

Capital expenditures for segment assets:
Automobiles
Industrial products
Aerospace
Other¥111,584
3,551
1,284
3,004

¥109,054
3,223
988
5,111

¥ 95,255
2,155
1,535
3,356

$928,320
29,542
10,682
24,992

Total
Corporate and elimination

119,423—

118,376—

102,301—

993,536—

Consolidated total¥119,423¥118,376¥102,301$993,536

Other significant items:

Depreciation expense:
Automobiles
Industrial products
Aerospace
Other
Total
Corporate and elimination

Notes: 1. Definition of business segments
Business segments are defined based on product line and market.
2. Main products by each business segment
Business segment
Main products
Automobiles
Passenger cars, minicars
Industrial products
General-purpose engines, power generators
Aerospace
Aircraft, parts of space-related devices
Other
Rail cars, specialized vehicles, buses, houses, real estate
3. All operating costs and expense are allocated to each business segment.
4. All figures in corporate and elimination represent elimination.
5. Change of accounting policy(Fiscal 2003)
None.
(Fiscal 2002)
Accrued directors’ severance and retirement benefits.
Previously, severance and retirement benefits for directors were recorded as expense when paid. However, for the purpose of more accurately
matching them with the period in which they arise, an accrual method of recording such expenses has been employed beginning from the current
year. The impact of such change on statements of income has not been significant.
(Fiscal 2001)
None.
6. As stated in “3. Acquisition of Isuzu’s Share of Subaru of Indiana Automotive, Inc.,” the Company acquired Isuzu’s share of SIA and started toconsolidate Consignment Division of SIA which had been formerly excluded from the consolidated financial statements of the Company. As aresult, assets have increased by ¥61,155 million (US$508,777 thousand) in the automobile segment.

Annual Report 2003

53

Information by geographic area
A summary of net sales, operating income and assets by geographic area for the years ended March 31,
2003, 2002 and 2001 is shown below:
Net sales:
Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2003

2002

2001

2003

¥ 786,257
295,900¥ 801,351
280,213¥ 866,161
218,288$ 6,541,240
2,461,730

Total
North America—
Outside customers
Inter-segment

1,082,157

1,081,564

1,084,449

9,002,970

582,326
1,971

557,509
1,972

441,566
1,645

4,844,642
16,398

Total
Other—
Outside customers
Inter-segment584,297559,481443,211

4,861,040

3,754
231

3,633
85

4,161
69

31,231
1,922

Total
Corporate and elimination

3,985(298,102)

3,718(282,270)

4,230(220,003)

33,153(2,480,050)¥1,372,337¥1,362,493¥1,311,887$11,417,113

Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2003

2002

2001

2003

Operating income:Japan
North America
Other¥57,136
15,824
127¥72,393
20,705
63¥62,818
21,84862$475,341
131,647
1,056

Total
Corporate and elimination

73,087(5,566)

93,161(4,681)

84,728(3,055)608,044(46,306)

Consolidated total¥67,521¥88,480¥81,673$561,738

Net sales:
Japan—
Outside customers
Inter-segment

Consolidated total
Segment profit or loss:

54 FUJI HEAVY INDUSTRIES LTD.

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

2003

2002

2001

2003

Assets:Japan
North America
Other¥1,020,224
373,125
1,141¥1,031,129
282,230
1,220¥ 963,528
244,201
1,281$ 8,487,720
3,104,201
9,493

Total
Corporate and elimination

1,394,490(50,418)

1,314,579(45,021)

1,209,010(40,509)

11,601,414(419,451)

Consolidated total¥1,344,072¥1,269,558¥1,168,501$11,181,963

Notes: 1. Geographic areas are based on geographical proximity.
2. Principal countries or districts in each geographic area:
North America: United States and Canada
Other:
Europe3. All operating costs and expense are allocated to each segment.
4. All figures in corporate and elimination represent elimination.
5. Change of accounting policy(Fiscal 2003)
None.
(Fiscal 2002)
Accrued directors’ severance and retirement benefits.
Previously, severance and retirement benefits for directors were recorded as expense when paid. However, for the purpose of more accurately
matching them with the period in which they arise, an accrual method of recording such expenses has been employed beginning from the current
year. The impact of such change on statements of income has not been significant.
(Fiscal 2001)
None.
6. As stated in “3. Acquisition of Isuzu’s Share of Subaru of Indiana Automotive, Inc.,” the Company acquired Isuzu’s share of SIA and started toconsolidate Consignment Division of SIA which had been formerly excluded from the consolidated financial statements of the Company. As aresult, assets have increased by ¥61,155 million (US$508,777 thousand) in the North America segment.

Overseas sales
Overseas sales for the years ended March 31, 2003, 2002 and 2001 are summarized as follows:
Millionsof yenMillionsof yenMillionsof yenThousands of
U.S. dollars

2003

2002

2001

2003

Overseas sales:
North America
EuropeOther¥ 622,783
72,841
77,453

45.4% ¥ 607,630
5.3
56,820
5.6
66,778

44.6% ¥ 491,068
4.2
66,463
4.9
66,16037.4% $ 5,181,223
5.1
605,998
5.0
644,368

Total¥ 773,077

56.3

53.7% ¥ 623,691

47.5% $ 6,431,589

Consolidated net sales¥ 731,228¥1,372,337 100.0% ¥1,362,493 100.0% ¥1,311,887 100.0% $11,417,113

Notes: 1. Geographic areas are based on geographical proximity.
2. Principal countries or districts in each geographic area:
North America: United States and Canada
Europe:Germany, Switzerland and England
Other:
Australia and Chile
3. Overseas sales are sales outside of Japan by the Company and consolidated subsidiaries.

Annual Report 2003

55

Independent Auditors’ Report

To the Board of Directors of
FUJI HEAVY INDUSTRIES LTD.
We have audited the accompanying consolidated balance sheets of FUJI HEAVY INDUSTRIES LTD. and consolidated
subsidiaries as of March 31, 2003 and 2002, and the related consolidated statements of income, shareholders’ equity andcash flows for each of the two years in the period ended March 31, 2003, expressed in Japanese yen. These consolidated
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion onthese consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis forour opinion. The consolidated financial statements of FUJI HEAVY INDUSTRIES LTD. and consolidated subsidiaries for year
2001, which are presented for comparative purposes, were audited by other auditors whose report dated June 27, 2001
expressed an unqualified opinion on those statements.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of FUJI HEAVY INDUSTRIES LTD. and consolidated subsidiaries as of March 31, 2003 and 2002, and theconsolidated results of their operations and their cash flows for each of the two years in the period ended March 31, 2003,
in conformity with accounting principles generally accepted in Japan as described in Note 1 to the consolidated financial
statements.
Without qualifying our opinion, we draw attention to the following.
FUJI HEAVY INDUSTRIES LTD. and consolidated subsidiaries changed the methods of accounting for retirement benefit
to directors and statutory auditors, effective April 1, 2001, as referred to in Notes 2 and 20 with which we concur.
The consolidated financial statements as of and for the year ended March 31, 2003 have been translated into United States
dollars solely for the convenience of the reader. We have recomputed the translation and, in our opinion, the consolidated
financial statements expressed in Japanese yen have been translated into United States dollars on the basis set forth inNote 1 to the consolidated financial statements.

Tokyo, Japan
June 25, 2003

Asahi & Co.

56 FUJI HEAVY INDUSTRIES LTD.

Consolidated Subsidiaries and Affiliates (As of March 31, 2003)

JAPAN
Fuji Robin Industries Ltd. (58.0%)
Manufacture, service, and sales of agricultural/forestry equipment,
engines, fire pumps, and related parts
http://www5.mediagalaxy.co.jp/fujirobin/

Fuji Machinery Co., Ltd. (69.5%)
Manufacture and sales of automobile parts and industrial product parts
http://www.fuji-machinery.co.jp/

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

Kiryu Industrial Co., Ltd. (97.5%)
Manufacture of Subaru specially equipped automobiles and management of Subaru automobile parts distribution
http://www.kiryu-kougyo.co.jp/

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

OVERSEAS
Subaru of America, Inc. (100.0%)
and 10 subsidiaries
Subaru Plaza, 2235 Route 70 West, Cherry Hill, NJ 08002, U.S.A.
Phone: +1-856-488-8500
Fax: +1-856-665-3346
Distribution and sales of Subaru automobiles and parts
http://www.subaru.com/

Fuji Heavy Industries U.S.A. Inc. (100.0%)
and one subsidiaryc/o Subaru of America, Inc.
Subaru Plaza, 2235 Route 70 West, Cherry Hill, NJ 08002, U.S.A.
Phone: +1-856-488-8532
Fax: +1-856-488-9279
Distribution and sales of Subaru automobiles and parts
Subaru Research & Development, Inc.

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

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

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

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

Distribution and service of Volvo automobiles

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

Subaru of Taiwan Co., Ltd.

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

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

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

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

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

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

Yusoki Kogyo K.K. (45.6%)

NIIGATA SUBARU, Inc.* (46.7%)
Distribution, sales, and service of Subaru automobiles
http://www.niigata-subaru.co.jp/

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

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

Annual Report 2003

57

Investor Information (As of March 31, 2003)

Head Office

Major Shareholders

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

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

General Motors of Canada Limited
The Chase Manhattan Bank, N.A. London
The Master Trust Bank of Japan, Ltd.
Japan Trustee Services Bank, Ltd.
Mizuho Corporate Bank, Ltd.
Suzuki Motor Corporation
The Nippon Life Insurance Company
UFJ Trust Bank Ltd.
Sompo Japan Insurance Inc.
Mitsui Asset Trust and Banking Company Limited

Established

Stock Listings

July 15, 1953

Tokyo Stock Exchange

Paid-in Capital

Transfer Agent¥144,454 million

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

Investor Relations Office

Number of Shareholders
Web Site Address

46,101

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

Number of Common Stock Issued and Outstanding
746,520,881

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

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

FY

1999

2000

2001

2002

2003

High

¥871

¥1,189

¥925

¥944

¥712

Low

469

647

608

471

362

58 FUJI HEAVY INDUSTRIES LTD.

Printe50-Year Anniversary of Fuji Heavy Industries Ltd.

Aerospace Company
1953 Licensed production of the T-34A Mentor trainer commences
1958 Successful first flight of Japanese-made T-1 jet trainer test plane1991 Agreement reached with Boeing providing for FHI’s participation indevelopment of Boeing 777

1996 First(Main

1961 Prototype of YS-11 twin turboprop airliner, for which FHI supplied the empennage and main wing beams, completed

1992 Utsunomiya 2nd Plant completed and operations begin• Boeing 777 assembly plant (Handa Plant) commences operation• Projefor th1963 Manufacture of UH-1B turbine helicopter begun

1996 Successful first flight of high-performance large remote-piloted
RPH2 helicopter

1998 Aeroman• Successful first flight of FHI-developed new-model helicopter main
rotor system Fuji bearingless rotor (FBR)

1999 Firstin the• Successful first flight and automated landing of ALFLEX, small-scale
automated landing experimental vehicle of HOPE, the H-II Orbiting
Plane being developed by the National Space Development Agencyof Japan (NASDA)• Utsumana

1965 Aero Subaru FA-200, the first light airplane to be made in postwar
Japan, successfully test-flown1969 Utsunomiya Manufacturing Division Aircraft Plant completed
1978 Contract received from Boeing Commercial Airplane Group forthe manufacture of Boeing 767 components
1982 FHI becomes prime contractor for AH-1S antitank helicopter

2000 Sign
in deIndustrial Products Company
1956 KD11 model announced
Robin mark adopted for the trademark and registered in July 1960
1960 Robin Tractor T-4 model introduced
1968 Production of EY18 Robin engine, mainly for construction
equipment, begins• Export of engines for Polaris snowmobiles in U.S. commences
1971 Robin engine export contract signed with Wisconsin Motor of
Teledyne, Inc., of the United States

1975 Export of Robin RG series generators begins
1980 EY15-20 launched1983 Subaru SG500, the lightest domestic generator for its output, launched
1992 Subaru SGV series generators with OHV engine introduced
1993 Robin America, Inc., sales company established in U.S.
1994 Local U.S. production subsidiary, Robin Manufacturing U.S.A.,
Inc., established through merger with Polaris Industries

1995 Saitamen• Fuji1996 Indusman

1998 Robin

1999 Saitamen

Eco Technologies Company
1955 Official designation as a diesel railcar maker received from Japan
National Railways (JNR)

1975 Practicality of new KRT transportation system demonstrated at
Okinawa Marine Expo

1997 Incincom

1960 First Hatsukari diesel express passenger cars completed

1979 Ohzora (Kiha 183-type) express railcars for Hokkaido completed
and delivered• First1962 Manufacture of LP-101 Roadpacker begun using technologies
from U.S.-based Gawaado Corp.
1964 Technological alliance signed on trailers with West Germany’s Karlkesboler
1973 Factory exclusively for the production of Fuji Mighty sanitation
trucks completed
1974 Specialized catenary maintenance car developed for use on
the Tokaido Shinkansen bullet train line

1982 LE-car, a diesel-engine railway bus, introduced• Sepato a1989 Three of the world’s first pendulum-type diesel express carsdelivered to JR Shikoku

1998 Tran
certi

1993 Operational testing of Fuswton automated waste management
system for high-rises gets under way

1999 Utsu
ronm

1984 Minihouse developed; launched in March as Fuji Minihouse

1997 Nongove

Others1949 Japan’s first frameless rear-engine bus, Fuji, completed(Fuji Sangyo Co., Ltd.)
1956 Japan’s first air-suspension bus completed and delivered to JNR
1969 Tomei Highway Bus 1 delivered to JNR1971 Prefabricated unit houses introduced
1977 R1-type full-decker bus launched
1980 R3-type full-decker bus completed
1983 Prototype of first Japanese-made double-decker bus completed• FHI’s first articulated bus completed; 100 units employed at the
Tsukuba ’85 Science Expo
1987 Astetope sight-seeing bus developed in cooperation with Volvo
Bus Corporation
1994 Low-pollution CNG buses delivered to Tokyo Metropolitan
government and other customers
1996 One-step ultra-low floor compact route bus introduced, thefirst in its class1998 New• First1999 CNG
Toky

2000 Car

• Bus
9001

pation ineration1996 First Japanese maker to be recognized as “Supplier of the Year”(Main Structure Section) by Boeing

2000 Chosen as main contractor for Air Self-Defense Force’s new
trainer (follow-up to T-3 Mentor)• Project participation contract with Raytheon Aircraft Company
for the Hawker Horizon advanced business jet signed

2001 Chosen as main contractor for Supersonic Transport (SST)from National Aerospace Laboratory of Japan-piloted

1998 Aerospace Division receives ISO 9001 certification for quality
management and quality assurance

2002 Signed on a agreement with Boeing providing for FHI’s participation in development of ultra high-speed Sonic Cruser

r main1999 First Wing System delivered to Raytheon Aircraft Company for use
in the Hawker Horizon business jet• Contract received from Airbus for the manufacture of A380
components

all-scalerbiting
Agency• Utsunomiya Manufacturing Division receives ISO 14001environmental
management systems certification

2003 Received a “Supplier of the Year” from the Boeing Company

2000 Signed contract with America’s Bell Helicopter for participationin development of a civilian tilt-rotor transport, the BA609

1995 Saitama Manufacturing Division plant completed and commences operation in April
aunched• HSFD PhaseáTflight test succeeded• Fuji Heavy Industries Singapore Pte. Ltd. established.

1996 Industrial Products Division receives ISO 9001 certification for quality
management and quality assurance

S.A.,

1998 Robin Europe GmbH Industrial Engine and Equipment established in Germany

1999 Production and sales joint company, Changzhou Fuji Changchai
Robin Gasoline Engine Co., Ltd., established in China
2001 Four models of the EX series of OHC engines launched
Production begins at Changzhou Fuji Changchai Robin
Gasoline Engine Co., Ltd.
2002 Robin mini four-cycle engine EH035 launched1999 Saitama Manufacturing Division receives ISO 14001 environmental management systems certification

ated at1997 Incinerated waste ash resource plant developed with threecompanies, including Ogihara Ecology

2000 Fuswton receives Location Bureau Chief Award from Ministry ofInternational Trade and Industry for recycling system technology

pleted• First Fuswton system delivered to JR East Head Office

2001 Cumulative production of Fuji Mighty sanitation truck hits 50,000 units• Separation system (beverage container recycling plant) delivered
to a company in Katori, Chiba

2002 CVSR (Convenience Store Recycler) developed Pre-treatment systemof separate organic content developedcars1998 Transportation & Ecology Systems Division receives ISO 9001
certification for quality management and quality assurance

gement1999 Utsunomiya Manufacturing Division receives ISO 14001 environmental management systems certificationuse

1997 Non-step large route bus developed; delivered to Tokyo Metropolitan
government and Osaka Cityd at the1998 New gable-type prefabricated minihouse introduced
Volvo• First articulated bus for use as a route bus introduced

tan

1999 CNG non-step large route bus developed and introduced with
Tokyo Metropolitan government and Osaka City
2000 Care room “Tender-family” introduced, the• Bus Manufacturing & House Prefabricating Division receives ISO
9001 certification for quality management and quality assurance

1999 Unmanned “Robo-cleaner” introduced
2002 Wind Turbine Generator System received Fiscal 2001 New EnergyAward, the Director-General of the Agency of Natural Resources
and Energy Prize and the 2001-2002 Good Design Award

2000 Full-model changes and introduction of large-sightseeing buses
2001 Agreement signed with China’s Tong Fong Hangzhow
Motors to provide technological support on bus bodies
2002 Announcement of withdrawl from bus body and railway car
business within 2002 (Bus/Transportation)
2003 Withdrawal from bus and transportation (rail car) businessFUJI HEAVY INDUSTRIES LTD. Annual Report 2003

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

Printed on recycled paper in Japan

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