Subaru Corporation Annual Report 2016

Plain-text annual report

Annual Report 2016 For the year ended March 31, 2016 Contents 02 Subaru Story 06 Business Highlights 08 To Our Shareholders 14 Message from our CFO 18 Special Feature Innovativeness of the Subaru Global Platform that will Serve as the Backbone of Next Generation Automobile Manufacturing 26 Corporate Governance 28 Board Directors / Executive Ofﬁcers 30 Financial Information 30 Consolidated Ten-Year Financial Summary 31 Five-Year Automobile Sales 33 Management's Discussion and Analysis of Results of Operations and Financial Position 41 Corporate Data / Stock Information Disclaimer Regarding Forward-Looking Statements Statements herein concerning plans and strategies, expecta- tions or projections about the future, FHI’s efforts with regard to various management issues, and other statements, except for historical facts, are forward-looking statements. These forward-looking statements are subject to uncertainties that could cause actual results to differ materially from those anticipated. These uncertainties include, but are not limited to, general economic conditions, demand for and prices of FHI’s products, FHI’s ability to continue to develop and market advanced products, raw material prices, and currency exchange rates. FHI disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. 01 FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016 Subaru Story Subaru Vehicle Manufacturing that Breathes Life into “Enjoyment and Peace of Mind” Enjoyment and peace of mind to everyone: The unchanging concept built into Subaru vehicles 02 FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016Subaru Story Subaru Story Subaru Vehicle Manufacturing that Breathes Life into “Enjoyment and Peace of Mind” Enjoyment and peace of mind to everyone: The unchanging concept built into Subaru vehicles Peace of Mind Subaru has continued to research safety performance for over half a century since the introduction of the “Subaru 360.” One of the most important factors that have formed the identity of Subaru that was founded as an airplane manufacturer is a high level of safety performance. For example, the Subaru 360 was the ﬁrst to make it possible for four adults to ﬁt comfortably in a mass production mini vehicles in 1958. The ﬁrst ever monocoque body in Japan built by airplane manufacturing know how made spacious space and high strength a reality. Furthermore, at a time when the concept of crash safety was not common knowledge, since 1965, about 30 years before safety standard for frontal collisions started to be applied, we have run repeated tests and succeeded in developing a lightweight high-rigidity body. Also, in terms of the horizontally-opposed engine, based on data obtained in experiments, structures that are less susceptible to engine intrusion into the cabin during frontal collision were realized and shock absorbing space was secured when a pedestrian hit the hood of the vehicle, etc. were some of the innovations that have been highly rated. And now, Subaru will continue to pursue advances in safety 03 performance from four angles, “Primary Safety” that is incorporated in the basic design so that the driver is not easily fatigued and can concentrate on driving with peace of mind, “Active Safety” with low center of gravity design and AWD to be able to drive in a wide variety of weather and road surface conditions, “Pre-Collision Safety” represented by EyeSight that detects danger and avoids the damage of a collision, and “Passive Safety” to protect people from the shocks in the event of a collision. Subaru’s Safety Concept Preemptive accident avoidance Damage reduction during an accident Safe state Dangerous state Accident Collision Damage spreads FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016Subaru Story Enjoyment The driving performance of Subaru. It is at this origin that we find “Human Centered Automobile Manufacturing” Enjoyment of the automobile. At the center of this is the excellence of driving performance for the driver to be able to operate intuitively. The joy of that motion that is felt at the moment you step on the accelerator pedal. A car for which speed, sound, vibration and everything exists to satisfy the senses of the driver. At the core of this kind of ultimate packaging is Subaru’s proprietary “Horizontally-opposed (boxer) engine.” The advantages of superiority in rotational balance, having low vibration, being lightweight, compact and having a low center of gravity, it realizes superior handling performance with high driving stability. In the same way, Subaru’s proprietary “Symmetrical All-Wheel Drive,” realizes a high level of maneuverability such as the superior stability that AWD is supposed to have, superior weight balance and run-through performance regardless of the road surface, etc. It will arouse the joy of driving. Subaru also does not stop with keeping the automobile as simply a means of transport and delivers to every single customer a richer daily life as we believe that we would like to be a partner accompanying people through their lives. The enjoyment of life is as unlimited as there are human beings. Subaru will continue to meet and exceed the expectations of customers by “Human Centered Automobile Manufacturing” going forward. 04 FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016Subaru Story Subaru Story Enjoyment The driving performance of Subaru. It is at this origin that we find “Human Centered Automobile Manufacturing” Enjoyment of the automobile. At the center of this is the All-Wheel Drive,” realizes a high level of maneuverability such as excellence of driving performance for the driver to be able to the superior stability that AWD is supposed to have, superior operate intuitively. The joy of that motion that is felt at the weight balance and run-through performance regardless of the moment you step on the accelerator pedal. A car for which road surface, etc. It will arouse the joy of driving. speed, sound, vibration and everything exists to satisfy the Subaru also does not stop with keeping the automobile as senses of the driver. At the core of this kind of ultimate packaging simply a means of transport and delivers to every single customer is Subaru’s proprietary “Horizontally-opposed (boxer) engine.” a richer daily life as we believe that we would like to be a partner The advantages of superiority in rotational balance, having low accompanying people through their lives. The enjoyment of life is vibration, being lightweight, compact and having a low center of as unlimited as there are human beings. Subaru will continue to gravity, it realizes superior handling performance with high driving meet and exceed the expectations of customers by “Human stability. In the same way, Subaru’s proprietary “Symmetrical Centered Automobile Manufacturing” going forward. Prominence 2020 In the aim of having a “prominent presence” in customers’ minds, we pursue our corporate vision to become “a high-quality company that is not big in size but has distinctive strength” by focusing on two initiatives — enhancing the Subaru brand and building a strong business structure. Enhancing the Subaru Brand Building a Strong Business Structure Vision for 2020 Corporate Vision High-quality company that is not big in size but has distinctive strength Speciﬁc Goals • No.1 for customer trust • Brand strength • Industry-leading high proﬁtability • Global sales of 1.2 million-plus vehicles 05 FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016Business Highlights FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES Years ended March 31 Financial Highlights Net Sales (Billions of yen) 4,000 3,000 2,000 1,000 1,913.0 1,517.1 3,232.3 2,877.9 2,408.1 Operating Income / Operating Margin Capital expenses / R&D expenses Operating Income Operating Margin Capital expenses R&D expenses (Billions of yen) 600 565.6 (%) 40 12.3 % UP 33.7 % UP 450 300 423.0 30 326.5 14.7 13.6 20 17.5 2.8 UP pt 150 120.4 10 6.3 44.0 2.9 (Billions of yen) 150 135.7 22.6 UP % 120 90 60 30 0 110.7 102.4 83.5 70.2 68.5 60.1 54.3 48.1 49.1 22.6 UP % 2012 2013 2014 2015 2016 Free Cash Flow / Ratio of Shareholders’ Equity to Total Assets Ratio of Shareholders’ Equity to Total Assets Free Cash Flow (Billions of yen) 400 358.6 (%) 80 158.4 % UP 0 2012 2013 2014 2015 2016 0 2012 2013 2014 2015 2016 0 Interest-Bearing Debt Balance Automobiles sales volume ROE / ROA *ROA was calculated as operaing income / (average of assets at the beginning and end of the term) ROE ROA 958 911 825 5.2 UP % (Billions of yen) 400 (Thousand units) 1,000 341.0 307.2 269.7 19.5 % DOWN 211.2 170.0 300 200 100 724 640 800 600 400 200 0 2012 2013 2014 2015 2016 0 2012 2013 2014 2015 2016 (%) 40 30 20 10 0 06 36.9 7.6 UP pt 22.9 30.4 29.3 23.6 20.7 18.8 8.9 3.5 8.2 300 279.1 60 51.8 46.5 2.9 UP pt 37.7 40.5 200 33.3 138.8 95.3 100 28.3 5.3 UP pt 40 20 2012 2013 2014 2015 2016 0 2012 2013 2014 2015 2016 0 FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016Business Highlights Years ended March 31 FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES Financial Highlights Net Sales (Billions of yen) 4,000 Operating Income / Operating Margin Capital expenses / R&D expenses Operating Income Operating Margin Capital expenses R&D expenses (Billions of yen) 600 12.3 % UP 3,232.3 565.6 (%) 40 33.7 % UP (Billions of yen) 150 135.7 22.6 % UP 0 2012 2013 2014 2015 2016 0 2012 2013 2014 2015 2016 0 2012 2013 2014 2015 2016 2,877.9 2,408.1 1,913.0 1,517.1 3,000 2,000 1,000 800 600 400 200 423.0 30 326.5 14.7 13.6 20 17.5 2.8 UP pt 110.7 102.4 83.5 70.2 68.5 60.1 54.3 48.1 49.1 22.6 % UP 150 120.4 10 6.3 44.0 2.9 120 90 60 30 0 *ROA was calculated as operaing income / (average of assets at the beginning and ROE / ROA end of the term) ROE ROA Free Cash Flow / Ratio of Shareholders’ Equity to Total Assets Free Cash Flow Ratio of Shareholders’ Equity to Total Assets (Billions of yen) 400 358.6 (%) 80 158.4 % UP 36.9 7.6 pt UP 22.9 30.4 29.3 23.6 20.7 18.8 2.9 pt UP 8.9 3.5 8.2 300 279.1 37.7 40.5 200 33.3 46.5 138.8 60 51.8 40 20 5.3 pt UP 95.3 100 28.3 450 300 (%) 40 30 20 10 0 (Thousand units) 1,000 724 640 958 911 825 5.2 % UP (Billions of yen) 400 341.0 307.2 269.7 300 200 100 19.5 % DOWN 211.2 170.0 0 2012 2013 2014 2015 2016 0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 0 2012 2013 2014 2015 2016 0 Business Highlights Non-Financial Highlights EyeSight Accident Reduction Data 61% reduction in accident rate Comparison of rate of accidents resulting in injury or death with and without EyeSight (Ver.2) No. per 10,000 vehicles (over 4 years) Between vehicles* * Placed top in frequency Between people and vehicles 61% down 51% down 83% down 48% down 41% down 34% down 58% down 52% down 36 % down Without EyeSight With EyeSight Rear-end collision Intersection collision Turning left Turning right Other Rear/ front While crossing road Other * Independent calculations from data on accidents that took place over the four years from 2011 – 2014 among vehicles sold between 2010 and 2013 in which installation of EyeSight (Ver. 2) is possible based on Institute for Trafﬁc Accident Research and Data Analysis (ITARDA) data. There were 2,234 accidents. * Calculates the number of accidents resulting in injury or death per 10,000 vehicles with and without EyeSight (over four years). Of the target vehicles, there were 246,139 with EyeSight (Ver. 2) and 48,085 without it. Interest-Bearing Debt Balance Automobiles sales volume Global Rollout and Penetration of EyeSight Europe Russia China Middle East ASEAN North America Japan Nearly all Subaru models can be equipped with EyeSight. Installation possible in approximately 90% of models. (7 out of 8 models) * Of the Legacy, Levorg, WRX, Impreza, Subaru XV, Forester, Crossover 7, and Subaru BRZ models, installation is possible in all models except Subaru BRZ. Australia Existing markets Markets targeted for release Central and South America Large numbers of customers are choosing EyeSight in models that offer it. *FHI research Region EyeSight penetration, Jan. to Dec. 2015 Japan 83% Australia Europe U.S. 62% 96% 31% EyeSight highest penetration (models) 100% of Legacy, Levorg, WRX, Crossover 7 models 100% of Legacy models 96% of Outback models 57% of Outback models 07 FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016To Our Shareholders Enhancing the Subaru brand through our value-adding and thorough differentiation strategies as we aim for sustainable growth. Yasuyuki Yoshinaga Representative Director of the Board, President and CEO (up 66.7% year on year). FHI recorded its highest historical levels 9.6% year-on-year growth and our ﬁrst time exceeding one million of net sales as well as all income categories for the fourth units. As for consolidated results, we foresee being able to offset consecutive ﬁscal year. Additionally, the operating margin was the increase in overhead costs and R&D expenses by increasing 17.5%. Although the number of passenger vehicles sold in Japan the number of units sold and further cost reductions. Since the yen neared the cyclical end of the new-model effect and trailed the is projected to strengthen from 121 yen/US$ in the ﬁscal year under previous year, overseas sales (mainly in the North American review to 105 yen/US$, we expect consolidated net sales to dip market) progressed smoothly. Our worldwide sales numbers 1.9% to 3,170.0 billion yen, operating proﬁt to fall 25.7% to 420.0 Fuji Heavy Industries Ltd. Group’s consolidated net sales in FYE totaled 957,900 units (up 5.2% year on year), a historical high for billion yen, ordinary income to fall 27.2% to 420.0 billion yen, the March 2016 came to 3,232.3 billion yen, a 12.3% year-on-year the fourth consecutive year. The result of this growth in units ﬁscal year net income attributable to owners of parent to fall 32.9% increase. As for consolidated performance, due to favorable sold, thanks to robust global support for the Subaru brand, to 293.0 billion yen, and an operating margin of 13.2%*. We will foreign exchange rates, the increase in the number of units sold, allowed us to achieve steady increases in income and proﬁt in steadily bolster the strength of our business regardless of currency and cost reductions, we were able to offset the increase in actual ﬁgures excluding gains on foreign exchange, which is impacts, while maintaining an industry-leading proﬁt margin. various overhead costs and R&D expenses. Operating proﬁt was what pleases me most. 565.6 billion yen (up 33.7% year on year), ordinary income came As for projections for FYE March 2017, we expect the Subaru to 577.0 billion yen (up 46.6% year on year), and the ﬁscal year brand to show continued strength and an increase in units sold in net income attributable to owners of parent was 436.7 billion yen North America. We forecast global sales of 1,049.7 thousand units, 08 With regard to consolidated global sales units in FY 2020, we business model of high proﬁtability and an industry-leading revised forecasts upward, to top 1,200.0 thousand units from the operating margin. original target north of 1,100.0 thousand units, given that Because we are not comparatively large, our value-adding on-going sales strength is expected in the favorably performing and thorough differentiation strategies are indispensable for North American market. We also reassessed our plans for competing with the world’s major automobile manufacturers. increasing production capacity along the same lines. Existing Consequently, it is vital that we avoid entering the volume-sales safety features and drivability. The Subaru Global Platform developed with the year 2025 in mind brings broad improvements to the rigidity of bodies and chassis compared to current models, while also pursuing a lower center of gravity and evolution in the suspension system. This will allow even further gains in the basic “run, turn and stop” features that have earned Subaru an established reputation. In addition, the new platform increases impact energy In working to be “a high-quality company that is not big in size but plans had envisioned global production capacity (excluding CKD in zone in order to grow our sales units. That zone is the specialty of has distinctive strength”—a stance we outlined in May 2014 in our Malaysia) of 1,050.0 thousand units (under standard operations) major automakers and we would eventually be forced to As one of our measures to accelerate our “enhancing the Subaru brand” initiative, we will change our name from Fuji Heavy mid-term management vision, “Prominence 2020”—FHI has been in FY 2020. We raised this ﬁgure to 1,132.0 thousand units in FY compete on price. We believe that it is beneﬁcial to limit our Industries Ltd. to Subaru Corporation in April 2017, which is the As initiatives to “enhance the Subaru brand,” FHI is dedicating effort absorption in the event of a collision by 40% compared to current striving to increase corporate value, while focusing on the two 2018 (under standard operations; 1,276.0 thousand units at categories and markets to those in which we can leverage our 100th anniversary of the founding of our predecessor, the to further boost comprehensive performance and safety features, models. Currently, Subaru models have received top marks in initiatives of “enhancing the Subaru brand” and “building a strong maximum operation). strengths, and to steadily grow our sales units by concentrating Nakajima Aircraft Company. pursue characteristic Subaru design, adopt environmentally conscious safety tests by rating agencies inside and outside Japan, business structure.” Furthermore, we announced a new Three-Year Business our management resources in those areas. Of course, simply changing the company name and logo features, improve quality and service, and strengthen communication including the Japan New Car Assessment Program (JNCAP), the This fundamental policy has not changed; however, we Operation/Proﬁt Plan for FYE March 2017-2019. Planned FHI is ardently pursuing value-adding and differentiation does not immediately impart greater brand value. Brand value is with customers. Insurance Institute for Highway Safety (IIHS) in the U.S., and the announced updates of our 3-year consolidated proﬁt plan, three-year totals are 9,800 billion yen in net sales, 1,100 billion strategies that set us apart from other automakers, while further something that increases as a result of having customers actually The Subaru Global Platform, to be adopted starting with the European New Car Assessment Programme (EuroNCAP), which consolidated sales units, production plans, etc. in May 2016 in yen in operating proﬁt, 360.0 billion yen in R&D expenses, and accelerating our initiatives to “enhance the Subaru brand” and use our cars and approve of their features and quality. In that next Impreza model slated for launch this fall, is one of these has resulted in our greatest competitive strength in the response to subsequent changes in the business environment and 470.0 billion yen in capital expenditures. While continuing to “build a strong business structure.” sense, Subaru cars have garnered high evaluations in recent activities to “enhance the Subaru brand.” In recent years in the marketplace. These safety tests continue to apply ever more sales performance in each market. expand investment in future growth, we will maintain our current years from customers and third-party agencies for their safety automobile industry, companies are eagerly pursuing shared stringent standards, including new types of collision tests. At features and drivability. platforms that serve as the foundation for multiple vehicle FHI, introduction of the new Subaru Global Platform is further By using Subaru as a name for both the company and the models, though most are primarily doing so in order to lower increasing our collision safety performance and will help us brand, the Group’s employees will rally together to make Subaru costs through more efﬁcient new model development, common maintain the world’s highest levels of safety going forward. the choice of even more customers and to dedicate effort to parts, etc. In contrast, FHI is adopting a new platform with the further boosting the value of the Subaru brand. central intention of enhancing the Subaru brand strengths of increase the number of units sold at each dealer. Our sales plan for production subsidiary Subaru of Indiana Automotive, Inc. (SIA), in the U.S. in calendar year 2016 is 615,000 cars, approximately 1,000 order to meet sales growth in North America. Production of the cars per dealer, though somewhere around 750,000 cars should be Outback model will commence from July 2016, after SIA ends possible by boosting the per-dealer number to approximately 1,200 consignment production of the Toyota Camry, and we will take units. In order to provide sales support for our local dealers, we early steps to relieve supply shortfalls. Also, production capacity plan to introduce a three-row crossover as a new model in North at SIA will be expanded nearly twofold—from 200,000 units to America in 2018. approximately 400,000 units by the end of 2016. Local dealers in the U.S., our most important market, have Meanwhile, our Subaru incentive program was the lowest in In the U.S. market, all Subaru models equipped with reported that they could increase sales and seize a 5% market the industry, approximately $900/vehicle for FYE March 2016, EyeSight have received top marks in safety evaluations by the share if our supply were sufﬁcient. In light of our current 3.4% which is far less expensive than the industry average of around U.S. rating agency IIHS. This and other factors have solidiﬁed an quintessential “enjoyment and peace of mind” will be imbued in a new generation of eco-cars. At the same time, we are also making steady inroads with our automated driving R&D. FHI’s view of automated driving is not “cars that drive in place of people,” but rather, “cars that provide driving support with the driver in the central role.” From this fundamental perspective, we are pushing the evolution of For FHI to achieve sustainable growth into the future, we must the highly praised EyeSight, our current driving support product fulﬁll our corporate role of social responsibility and continue to be that includes pre-collision safety technology. We are following a company that constantly earns the trust and support of a broad this approach to develop automated driving technology that is group of stakeholders. To that end, it is vital to boost the overall market share, 5% might be a bit over-optimistic, but I believe 4% $3,000/vehicle. Considering that incentives are on a growth image that “Subaru = safety and security,” which I think has led In addition to the above, the Subaru Global Platform has been distinctly Subaru technology. quality of our corporate management to yet another level. is entirely reasonable. If total vehicle demand in the U.S. is 17 trajectory for the industry as a whole, we forecast a year-on-year to our current deep-rooted demand. Going forward, we intend of designed while keeping in mind developments in current gasoline We plan to actively invest in R&D expenses going forward, in In the automotive business, we cannot deliver “enjoyment million cars, that puts us at 680,000 units. If overall demand grows increase, rising to $1,100 for the full year, for FYE March 2017. course to provide high quality, safe vehicles, while also striving to engines and hybrid vehicles (HV), as well as plug-in hybrids order to accelerate development of these types of environmental and peace of mind” to customers unless we provide sufﬁcient slightly, that number could rise to 700,000, so I would ﬁrst like to However, we still do not intend to grow sales by competing on strengthen our service framework enabling us to deliver (PHEV) and electric vehicles (EV). In the strong U.S. market, the features and advanced safety technologies. Furthermore, in order quality, even if our cars are equipped with safety features at the increase our units sold to equal about a 4% market share in the price and will continue to sell vehicles with a low incentive after-sales service that will delight new Subaru customers. scope of California’s ZEV (Zero Emission Vehicle) regulations will to optimize management resource allocation throughout the world’s highest standards. Amid continuing robust sales, next few years. We are basically not planning to increase the program going forward. number of dealers from the current 625 dealers, but rather to Additionally, we are expanding production capacity at our U.S. be expanded to include mid-sized automakers (including FHI) in Group, and to expand development resources in our Automotive primarily in North America, maximum capacity operations have 2018. To coincide with this timeline, we are proceeding with Business, we decided to integrate our Industrial Products become standard operations for each of our production sites in research and development to launch PHEVs, followed by the Company into our Automobiles Division in October 2016. Existing recent years. However, it is absolutely inexcusable for quality subsequent launch of EVs in 2021. In essence, we are not production, sales, and service in our Industrial Products Company control to suffer as production accelerates. Our production units developing dedicated PHEV and EV models. Our policy is to add will continue for the duration, though development projects will be are thoroughly aware of their responsibility to stop the line if they PHEV and EV grades to our existing cars in the Subaru brand, idled and management resources such as development personnel are not absolutely conﬁdent in the quality of products. leveraging their characteristic individuality and driving will be shifted to the Automobiles Division. performance. This approach, I think, will ensure that Subaru’s Additionally, as society directs increased attention to corporate governance, FHI has been incorporating outside directors and auditors. Their participation has helped reﬂect stakeholder opinions to a greater extent in our business management. When putting together the Corporate Governance Guidelines we formulated last year, outside directors and auditors also took an active role in providing advice. Their participation greatly contributes to further establishing our corporate governance framework and increasing corporate value. Under our new name of Subaru Corporation, management and Group employees alike will ensure thorough compliance with laws and regulations, conduct themselves responsibly every day, and continue to strive for even greater brand and corporate value. Thank you for your support and feedback going forward. FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016To Our Shareholders To Our Shareholders Enhancing the Subaru brand through our value-adding and thorough differentiation strategies as we aim for sustainable growth. Yasuyuki Yoshinaga Representative Director of the Board, President and CEO FYE March 2016 Results and FYE March 2017 Outlook Bolstering our corporate strength, regardless of currency impacts, while maintaining an industry-leading operating margin. Fuji Heavy Industries Ltd. Group’s consolidated net sales in FYE Fuji Heavy Industries Ltd. Group’s consolidated net sales in FYE March 2016 came to 3,232.3 billion yen, a 12.3% year-on-year March 2016 came to 3,232.3 billion yen, a 12.3% year-on-year increase. As for consolidated performance, due to favorable increase. As for consolidated performance, due to favorable foreign exchange rates, the increase in the number of units sold, foreign exchange rates, the increase in the number of units sold, and cost reductions, we were able to offset the increase in and cost reductions, we were able to offset the increase in various overhead costs and R&D expenses. Operating proﬁt was various overhead costs and R&D expenses. Operating proﬁt was 565.6 billion yen (up 33.7% year on year), ordinary income came 565.6 billion yen (up 33.7% year on year), ordinary income came to 577.0 billion yen (up 46.6% year on year), and the ﬁscal year to 577.0 billion yen (up 46.6% year on year), and the ﬁscal year net income attributable to owners of parent was 436.7 billion yen net income attributable to owners of parent was 436.7 billion yen (up 66.7% year on year). FHI recorded its highest historical levels (up 66.7% year on year). FHI recorded its highest historical levels of net sales as well as all income categories for the fourth of net sales as well as all income categories for the fourth consecutive ﬁscal year. Additionally, the operating margin was consecutive ﬁscal year. Additionally, the operating margin was 17.5%. Although the number of passenger vehicles sold in Japan 17.5%. Although the number of passenger vehicles sold in Japan neared the cyclical end of the new-model effect and trailed the neared the cyclical end of the new-model effect and trailed the previous year, overseas sales (mainly in the North American previous year, overseas sales (mainly in the North American market) progressed smoothly. Our worldwide sales numbers market) progressed smoothly. Our worldwide sales numbers totaled 957,900 units (up 5.2% year on year), a historical high for totaled 957,900 units (up 5.2% year on year), a historical high for the fourth consecutive year. The result of this growth in units the fourth consecutive year. The result of this growth in units sold, thanks to robust global support for the Subaru brand, sold, thanks to robust global support for the Subaru brand, allowed us to achieve steady increases in income and proﬁt in allowed us to achieve steady increases in income and proﬁt in actual ﬁgures excluding gains on foreign exchange, which is actual ﬁgures excluding gains on foreign exchange, which is what pleases me most. what pleases me most. As for projections for FYE March 2017, we expect the Subaru As for projections for FYE March 2017, we expect the Subaru brand to show continued strength and an increase in units sold in brand to show continued strength and an increase in units sold in North America. We forecast global sales of 1,049.7 thousand units, North America. We forecast global sales of 1,049.7 thousand units, 9.6% year-on-year growth and our ﬁrst time exceeding one million 9.6% year-on-year growth and our ﬁrst time exceeding one million units. As for consolidated results, we foresee being able to offset units. As for consolidated results, we foresee being able to offset the increase in overhead costs and R&D expenses by increasing the increase in overhead costs and R&D expenses by increasing the number of units sold and further cost reductions. Since the yen the number of units sold and further cost reductions. Since the yen is projected to strengthen from 121 yen/US$ in the ﬁscal year under is projected to strengthen from 121 yen/US$ in the ﬁscal year under review to 105 yen/US$, we expect consolidated net sales to dip review to 105 yen/US$, we expect consolidated net sales to dip 1.9% to 3,170.0 billion yen, operating proﬁt to fall 25.7% to 420.0 1.9% to 3,170.0 billion yen, operating proﬁt to fall 25.7% to 420.0 billion yen, ordinary income to fall 27.2% to 420.0 billion yen, the billion yen, ordinary income to fall 27.2% to 420.0 billion yen, the ﬁscal year net income attributable to owners of parent to fall 32.9% ﬁscal year net income attributable to owners of parent to fall 32.9% to 293.0 billion yen, and an operating margin of 13.2%*. We will to 293.0 billion yen, and an operating margin of 13.2%*. We will steadily bolster the strength of our business regardless of currency steadily bolster the strength of our business regardless of currency impacts, while maintaining an industry-leading proﬁt margin. impacts, while maintaining an industry-leading proﬁt margin. *Figures in projections for FYE March 2017 were announced May 12, 2016, then revised August 3, 2016. For details, please see the Company website (http://www.fhi.co.jp/english/ir/index.html). Net Sales Years ended March 31 (Billions of yen) 3,600 3,232.3 3,170.0 2,877.9 2,408.1 2,400 1,200 Operating Income / Operating Margin Years ended March 31 Operating Margin 565.6 17.5 420.0 13.2 Operating Income (Billions of yen) 600 423.0 14.7 13.6 326.5 400 200 0 2014 2015 2016 2017 * (Planned) 0 2014 2015 2016 2017 * (Planned) 09 (%) 20 15 10 5 0 With regard to consolidated global sales units in FY 2020, we With regard to consolidated global sales units in FY 2020, we business model of high proﬁtability and an industry-leading business model of high proﬁtability and an industry-leading revised forecasts upward, to top 1,200.0 thousand units from the revised forecasts upward, to top 1,200.0 thousand units from the operating margin. operating margin. original target north of 1,100.0 thousand units, given that original target north of 1,100.0 thousand units, given that Because we are not comparatively large, our value-adding Because we are not comparatively large, our value-adding on-going sales strength is expected in the favorably performing on-going sales strength is expected in the favorably performing and thorough differentiation strategies are indispensable for and thorough differentiation strategies are indispensable for North American market. We also reassessed our plans for North American market. We also reassessed our plans for competing with the world’s major automobile manufacturers. competing with the world’s major automobile manufacturers. increasing production capacity along the same lines. Existing increasing production capacity along the same lines. Existing Consequently, it is vital that we avoid entering the volume-sales Consequently, it is vital that we avoid entering the volume-sales safety features and drivability. safety features and drivability. The Subaru Global Platform developed with the year 2025 in The Subaru Global Platform developed with the year 2025 in mind brings broad improvements to the rigidity of bodies and mind brings broad improvements to the rigidity of bodies and chassis compared to current models, while also pursuing a lower chassis compared to current models, while also pursuing a lower center of gravity and evolution in the suspension system. This center of gravity and evolution in the suspension system. This will allow even further gains in the basic “run, turn and stop” will allow even further gains in the basic “run, turn and stop” features that have earned Subaru an established reputation. features that have earned Subaru an established reputation. In addition, the new platform increases impact energy In addition, the new platform increases impact energy In working to be “a high-quality company that is not big in size but In working to be “a high-quality company that is not big in size but plans had envisioned global production capacity (excluding CKD in plans had envisioned global production capacity (excluding CKD in zone in order to grow our sales units. That zone is the specialty of zone in order to grow our sales units. That zone is the specialty of has distinctive strength”—a stance we outlined in May 2014 in our has distinctive strength”—a stance we outlined in May 2014 in our Malaysia) of 1,050.0 thousand units (under standard operations) Malaysia) of 1,050.0 thousand units (under standard operations) major automakers and we would eventually be forced to major automakers and we would eventually be forced to As one of our measures to accelerate our “enhancing the Subaru As one of our measures to accelerate our “enhancing the Subaru brand” initiative, we will change our name from Fuji Heavy brand” initiative, we will change our name from Fuji Heavy mid-term management vision, “Prominence 2020”—FHI has been mid-term management vision, “Prominence 2020”—FHI has been in FY 2020. We raised this ﬁgure to 1,132.0 thousand units in FY in FY 2020. We raised this ﬁgure to 1,132.0 thousand units in FY compete on price. We believe that it is beneﬁcial to limit our compete on price. We believe that it is beneﬁcial to limit our Industries Ltd. to Subaru Corporation in April 2017, which is the Industries Ltd. to Subaru Corporation in April 2017, which is the As initiatives to “enhance the Subaru brand,” FHI is dedicating effort As initiatives to “enhance the Subaru brand,” FHI is dedicating effort absorption in the event of a collision by 40% compared to current absorption in the event of a collision by 40% compared to current striving to increase corporate value, while focusing on the two striving to increase corporate value, while focusing on the two 2018 (under standard operations; 1,276.0 thousand units at 2018 (under standard operations; 1,276.0 thousand units at categories and markets to those in which we can leverage our categories and markets to those in which we can leverage our 100th anniversary of the founding of our predecessor, the 100th anniversary of the founding of our predecessor, the to further boost comprehensive performance and safety features, to further boost comprehensive performance and safety features, models. Currently, Subaru models have received top marks in models. Currently, Subaru models have received top marks in initiatives of “enhancing the Subaru brand” and “building a strong initiatives of “enhancing the Subaru brand” and “building a strong maximum operation). maximum operation). strengths, and to steadily grow our sales units by concentrating strengths, and to steadily grow our sales units by concentrating Nakajima Aircraft Company. Nakajima Aircraft Company. pursue characteristic Subaru design, adopt environmentally conscious pursue characteristic Subaru design, adopt environmentally conscious safety tests by rating agencies inside and outside Japan, safety tests by rating agencies inside and outside Japan, business structure.” business structure.” Furthermore, we announced a new Three-Year Business Furthermore, we announced a new Three-Year Business our management resources in those areas. our management resources in those areas. Of course, simply changing the company name and logo Of course, simply changing the company name and logo features, improve quality and service, and strengthen communication features, improve quality and service, and strengthen communication including the Japan New Car Assessment Program (JNCAP), the including the Japan New Car Assessment Program (JNCAP), the This fundamental policy has not changed; however, we This fundamental policy has not changed; however, we Operation/Proﬁt Plan for FYE March 2017-2019. Planned Operation/Proﬁt Plan for FYE March 2017-2019. Planned FHI is ardently pursuing value-adding and differentiation FHI is ardently pursuing value-adding and differentiation does not immediately impart greater brand value. Brand value is does not immediately impart greater brand value. Brand value is with customers. with customers. Insurance Institute for Highway Safety (IIHS) in the U.S., and the Insurance Institute for Highway Safety (IIHS) in the U.S., and the announced updates of our 3-year consolidated proﬁt plan, announced updates of our 3-year consolidated proﬁt plan, three-year totals are 9,800 billion yen in net sales, 1,100 billion three-year totals are 9,800 billion yen in net sales, 1,100 billion strategies that set us apart from other automakers, while further strategies that set us apart from other automakers, while further something that increases as a result of having customers actually something that increases as a result of having customers actually The Subaru Global Platform, to be adopted starting with the The Subaru Global Platform, to be adopted starting with the European New Car Assessment Programme (EuroNCAP), which European New Car Assessment Programme (EuroNCAP), which consolidated sales units, production plans, etc. in May 2016 in consolidated sales units, production plans, etc. in May 2016 in yen in operating proﬁt, 360.0 billion yen in R&D expenses, and yen in operating proﬁt, 360.0 billion yen in R&D expenses, and accelerating our initiatives to “enhance the Subaru brand” and accelerating our initiatives to “enhance the Subaru brand” and use our cars and approve of their features and quality. In that use our cars and approve of their features and quality. In that next Impreza model slated for launch this fall, is one of these next Impreza model slated for launch this fall, is one of these has resulted in our greatest competitive strength in the has resulted in our greatest competitive strength in the response to subsequent changes in the business environment and response to subsequent changes in the business environment and 470.0 billion yen in capital expenditures. While continuing to 470.0 billion yen in capital expenditures. While continuing to “build a strong business structure.” “build a strong business structure.” sense, Subaru cars have garnered high evaluations in recent sense, Subaru cars have garnered high evaluations in recent activities to “enhance the Subaru brand.” In recent years in the activities to “enhance the Subaru brand.” In recent years in the marketplace. These safety tests continue to apply ever more marketplace. These safety tests continue to apply ever more sales performance in each market. sales performance in each market. expand investment in future growth, we will maintain our current expand investment in future growth, we will maintain our current years from customers and third-party agencies for their safety years from customers and third-party agencies for their safety automobile industry, companies are eagerly pursuing shared automobile industry, companies are eagerly pursuing shared stringent standards, including new types of collision tests. At stringent standards, including new types of collision tests. At features and drivability. features and drivability. platforms that serve as the foundation for multiple vehicle platforms that serve as the foundation for multiple vehicle FHI, introduction of the new Subaru Global Platform is further FHI, introduction of the new Subaru Global Platform is further By using Subaru as a name for both the company and the By using Subaru as a name for both the company and the models, though most are primarily doing so in order to lower models, though most are primarily doing so in order to lower increasing our collision safety performance and will help us increasing our collision safety performance and will help us brand, the Group’s employees will rally together to make Subaru brand, the Group’s employees will rally together to make Subaru costs through more efﬁcient new model development, common costs through more efﬁcient new model development, common maintain the world’s highest levels of safety going forward. maintain the world’s highest levels of safety going forward. the choice of even more customers and to dedicate effort to the choice of even more customers and to dedicate effort to parts, etc. In contrast, FHI is adopting a new platform with the parts, etc. In contrast, FHI is adopting a new platform with the further boosting the value of the Subaru brand. further boosting the value of the Subaru brand. central intention of enhancing the Subaru brand strengths of central intention of enhancing the Subaru brand strengths of increase the number of units sold at each dealer. Our sales plan for increase the number of units sold at each dealer. Our sales plan for production subsidiary Subaru of Indiana Automotive, Inc. (SIA), in production subsidiary Subaru of Indiana Automotive, Inc. (SIA), in the U.S. in calendar year 2016 is 615,000 cars, approximately 1,000 the U.S. in calendar year 2016 is 615,000 cars, approximately 1,000 order to meet sales growth in North America. Production of the order to meet sales growth in North America. Production of the cars per dealer, though somewhere around 750,000 cars should be cars per dealer, though somewhere around 750,000 cars should be Outback model will commence from July 2016, after SIA ends Outback model will commence from July 2016, after SIA ends possible by boosting the per-dealer number to approximately 1,200 possible by boosting the per-dealer number to approximately 1,200 consignment production of the Toyota Camry, and we will take consignment production of the Toyota Camry, and we will take units. In order to provide sales support for our local dealers, we units. In order to provide sales support for our local dealers, we early steps to relieve supply shortfalls. Also, production capacity early steps to relieve supply shortfalls. Also, production capacity plan to introduce a three-row crossover as a new model in North plan to introduce a three-row crossover as a new model in North at SIA will be expanded nearly twofold—from 200,000 units to at SIA will be expanded nearly twofold—from 200,000 units to America in 2018. America in 2018. approximately 400,000 units by the end of 2016. approximately 400,000 units by the end of 2016. Local dealers in the U.S., our most important market, have Local dealers in the U.S., our most important market, have Meanwhile, our Subaru incentive program was the lowest in Meanwhile, our Subaru incentive program was the lowest in In the U.S. market, all Subaru models equipped with In the U.S. market, all Subaru models equipped with reported that they could increase sales and seize a 5% market reported that they could increase sales and seize a 5% market the industry, approximately $900/vehicle for FYE March 2016, the industry, approximately $900/vehicle for FYE March 2016, EyeSight have received top marks in safety evaluations by the EyeSight have received top marks in safety evaluations by the share if our supply were sufﬁcient. In light of our current 3.4% share if our supply were sufﬁcient. In light of our current 3.4% which is far less expensive than the industry average of around which is far less expensive than the industry average of around U.S. rating agency IIHS. This and other factors have solidiﬁed an U.S. rating agency IIHS. This and other factors have solidiﬁed an quintessential “enjoyment and peace of mind” will be imbued in quintessential “enjoyment and peace of mind” will be imbued in a new generation of eco-cars. a new generation of eco-cars. At the same time, we are also making steady inroads with At the same time, we are also making steady inroads with our automated driving R&D. FHI’s view of automated driving is our automated driving R&D. FHI’s view of automated driving is not “cars that drive in place of people,” but rather, “cars that not “cars that drive in place of people,” but rather, “cars that provide driving support with the driver in the central role.” From provide driving support with the driver in the central role.” From this fundamental perspective, we are pushing the evolution of this fundamental perspective, we are pushing the evolution of For FHI to achieve sustainable growth into the future, we must For FHI to achieve sustainable growth into the future, we must the highly praised EyeSight, our current driving support product the highly praised EyeSight, our current driving support product fulﬁll our corporate role of social responsibility and continue to be fulﬁll our corporate role of social responsibility and continue to be that includes pre-collision safety technology. We are following that includes pre-collision safety technology. We are following a company that constantly earns the trust and support of a broad a company that constantly earns the trust and support of a broad this approach to develop automated driving technology that is this approach to develop automated driving technology that is group of stakeholders. To that end, it is vital to boost the overall group of stakeholders. To that end, it is vital to boost the overall market share, 5% might be a bit over-optimistic, but I believe 4% market share, 5% might be a bit over-optimistic, but I believe 4% $3,000/vehicle. Considering that incentives are on a growth $3,000/vehicle. Considering that incentives are on a growth image that “Subaru = safety and security,” which I think has led image that “Subaru = safety and security,” which I think has led In addition to the above, the Subaru Global Platform has been In addition to the above, the Subaru Global Platform has been distinctly Subaru technology. distinctly Subaru technology. quality of our corporate management to yet another level. quality of our corporate management to yet another level. is entirely reasonable. If total vehicle demand in the U.S. is 17 is entirely reasonable. If total vehicle demand in the U.S. is 17 trajectory for the industry as a whole, we forecast a year-on-year trajectory for the industry as a whole, we forecast a year-on-year to our current deep-rooted demand. Going forward, we intend of to our current deep-rooted demand. Going forward, we intend of designed while keeping in mind developments in current gasoline designed while keeping in mind developments in current gasoline We plan to actively invest in R&D expenses going forward, in We plan to actively invest in R&D expenses going forward, in In the automotive business, we cannot deliver “enjoyment In the automotive business, we cannot deliver “enjoyment million cars, that puts us at 680,000 units. If overall demand grows million cars, that puts us at 680,000 units. If overall demand grows increase, rising to $1,100 for the full year, for FYE March 2017. increase, rising to $1,100 for the full year, for FYE March 2017. course to provide high quality, safe vehicles, while also striving to course to provide high quality, safe vehicles, while also striving to engines and hybrid vehicles (HV), as well as plug-in hybrids engines and hybrid vehicles (HV), as well as plug-in hybrids order to accelerate development of these types of environmental order to accelerate development of these types of environmental and peace of mind” to customers unless we provide sufﬁcient and peace of mind” to customers unless we provide sufﬁcient slightly, that number could rise to 700,000, so I would ﬁrst like to slightly, that number could rise to 700,000, so I would ﬁrst like to However, we still do not intend to grow sales by competing on However, we still do not intend to grow sales by competing on strengthen our service framework enabling us to deliver strengthen our service framework enabling us to deliver (PHEV) and electric vehicles (EV). In the strong U.S. market, the (PHEV) and electric vehicles (EV). In the strong U.S. market, the features and advanced safety technologies. Furthermore, in order features and advanced safety technologies. Furthermore, in order quality, even if our cars are equipped with safety features at the quality, even if our cars are equipped with safety features at the increase our units sold to equal about a 4% market share in the increase our units sold to equal about a 4% market share in the price and will continue to sell vehicles with a low incentive price and will continue to sell vehicles with a low incentive after-sales service that will delight new Subaru customers. after-sales service that will delight new Subaru customers. scope of California’s ZEV (Zero Emission Vehicle) regulations will scope of California’s ZEV (Zero Emission Vehicle) regulations will to optimize management resource allocation throughout the to optimize management resource allocation throughout the world’s highest standards. Amid continuing robust sales, world’s highest standards. Amid continuing robust sales, next few years. We are basically not planning to increase the next few years. We are basically not planning to increase the program going forward. program going forward. number of dealers from the current 625 dealers, but rather to number of dealers from the current 625 dealers, but rather to Additionally, we are expanding production capacity at our U.S. Additionally, we are expanding production capacity at our U.S. be expanded to include mid-sized automakers (including FHI) in be expanded to include mid-sized automakers (including FHI) in Group, and to expand development resources in our Automotive Group, and to expand development resources in our Automotive primarily in North America, maximum capacity operations have primarily in North America, maximum capacity operations have 2018. To coincide with this timeline, we are proceeding with 2018. To coincide with this timeline, we are proceeding with Business, we decided to integrate our Industrial Products Business, we decided to integrate our Industrial Products become standard operations for each of our production sites in become standard operations for each of our production sites in research and development to launch PHEVs, followed by the research and development to launch PHEVs, followed by the Company into our Automobiles Division in October 2016. Existing Company into our Automobiles Division in October 2016. Existing recent years. However, it is absolutely inexcusable for quality recent years. However, it is absolutely inexcusable for quality subsequent launch of EVs in 2021. In essence, we are not subsequent launch of EVs in 2021. In essence, we are not production, sales, and service in our Industrial Products Company production, sales, and service in our Industrial Products Company control to suffer as production accelerates. Our production units control to suffer as production accelerates. Our production units developing dedicated PHEV and EV models. Our policy is to add developing dedicated PHEV and EV models. Our policy is to add will continue for the duration, though development projects will be will continue for the duration, though development projects will be are thoroughly aware of their responsibility to stop the line if they are thoroughly aware of their responsibility to stop the line if they PHEV and EV grades to our existing cars in the Subaru brand, PHEV and EV grades to our existing cars in the Subaru brand, idled and management resources such as development personnel idled and management resources such as development personnel are not absolutely conﬁdent in the quality of products. are not absolutely conﬁdent in the quality of products. leveraging leveraging their their characteristic characteristic individuality individuality and driving and driving will be shifted to the Automobiles Division. will be shifted to the Automobiles Division. performance. This approach, I think, will ensure that Subaru’s performance. This approach, I think, will ensure that Subaru’s Additionally, as society directs Additionally, as society directs increased attention to increased attention to corporate governance, FHI has been incorporating outside corporate governance, FHI has been incorporating outside directors and auditors. Their participation has helped reﬂect directors and auditors. Their participation has helped reﬂect stakeholder opinions to a greater extent in our business stakeholder opinions to a greater extent in our business management. When putting together the Corporate Governance management. When putting together the Corporate Governance Guidelines we formulated last year, outside directors and Guidelines we formulated last year, outside directors and auditors also took an active role in providing advice. Their auditors also took an active role in providing advice. Their participation greatly contributes to further establishing our participation greatly contributes to further establishing our corporate governance framework and increasing corporate value. corporate governance framework and increasing corporate value. Under our new name of Subaru Corporation, management Under our new name of Subaru Corporation, management and Group employees alike will ensure thorough compliance with and Group employees alike will ensure thorough compliance with laws and regulations, conduct themselves responsibly every day, laws and regulations, conduct themselves responsibly every day, and continue to strive for even greater brand and corporate value. and continue to strive for even greater brand and corporate value. Thank you for your support and feedback going forward. Thank you for your support and feedback going forward. FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016(up 66.7% year on year). FHI recorded its highest historical levels 9.6% year-on-year growth and our ﬁrst time exceeding one million of net sales as well as all income categories for the fourth units. As for consolidated results, we foresee being able to offset consecutive ﬁscal year. Additionally, the operating margin was the increase in overhead costs and R&D expenses by increasing 17.5%. Although the number of passenger vehicles sold in Japan the number of units sold and further cost reductions. Since the yen neared the cyclical end of the new-model effect and trailed the is projected to strengthen from 121 yen/US$ in the ﬁscal year under previous year, overseas sales (mainly in the North American review to 105 yen/US$, we expect consolidated net sales to dip market) progressed smoothly. Our worldwide sales numbers 1.9% to 3,170.0 billion yen, operating proﬁt to fall 25.7% to 420.0 Fuji Heavy Industries Ltd. Group’s consolidated net sales in FYE totaled 957,900 units (up 5.2% year on year), a historical high for billion yen, ordinary income to fall 27.2% to 420.0 billion yen, the March 2016 came to 3,232.3 billion yen, a 12.3% year-on-year the fourth consecutive year. The result of this growth in units ﬁscal year net income attributable to owners of parent to fall 32.9% increase. As for consolidated performance, due to favorable sold, thanks to robust global support for the Subaru brand, to 293.0 billion yen, and an operating margin of 13.2%*. We will foreign exchange rates, the increase in the number of units sold, allowed us to achieve steady increases in income and proﬁt in steadily bolster the strength of our business regardless of currency and cost reductions, we were able to offset the increase in actual ﬁgures excluding gains on foreign exchange, which is impacts, while maintaining an industry-leading proﬁt margin. various overhead costs and R&D expenses. Operating proﬁt was what pleases me most. 565.6 billion yen (up 33.7% year on year), ordinary income came As for projections for FYE March 2017, we expect the Subaru to 577.0 billion yen (up 46.6% year on year), and the ﬁscal year brand to show continued strength and an increase in units sold in net income attributable to owners of parent was 436.7 billion yen North America. We forecast global sales of 1,049.7 thousand units, To Our Shareholders Update on the Mid-Term Management Vision 2020 global sales units revised upward in line with favorable sales in the North American market. In working to be “a high-quality company that is not big in size but has distinctive strength”—a stance we outlined in May 2014 in our mid-term management vision, “Prominence 2020”—FHI has been striving to increase corporate value, while focusing on the two initiatives of “enhancing the Subaru brand” and “building a strong business structure.” This fundamental policy has not changed; however, we announced updates of our 3-year consolidated proﬁt plan, consolidated sales units, production plans, etc. in May 2016 in response to subsequent changes in the business environment and sales performance in each market. With regard to consolidated global sales units in FY 2020, we revised forecasts upward, to top 1,200.0 thousand units from the original target north of 1,100.0 thousand units, given that on-going sales strength is expected in the favorably performing North American market. We also reassessed our plans for increasing production capacity along the same lines. Existing plans had envisioned global production capacity (excluding CKD in Malaysia) of 1,050.0 thousand units (under standard operations) in FY 2020. We raised this ﬁgure to 1,132.0 thousand units in FY 2018 (under standard operations; 1,276.0 thousand units at maximum operation). Furthermore, we announced a new Three-Year Business Operation/Proﬁt Plan for FYE March 2017-2019. Planned three-year totals are 9,800 billion yen in net sales, 1,100 billion yen in operating proﬁt, 360.0 billion yen in R&D expenses, and 470.0 billion yen in capital expenditures. While continuing to expand investment in future growth, we will maintain our current business model of high proﬁtability and an industry-leading operating margin. Because we are not comparatively large, our value-adding and thorough differentiation strategies are indispensable for competing with the world’s major automobile manufacturers. Consequently, it is vital that we avoid entering the volume-sales zone in order to grow our sales units. That zone is the specialty of major automakers and we would eventually be forced to compete on price. We believe that it is beneﬁcial to limit our categories and markets to those in which we can leverage our strengths, and to steadily grow our sales units by concentrating our management resources in those areas. FHI is ardently pursuing value-adding and differentiation strategies that set us apart from other automakers, while further accelerating our initiatives to “enhance the Subaru brand” and “build a strong business structure.” safety features and drivability. The Subaru Global Platform developed with the year 2025 in mind brings broad improvements to the rigidity of bodies and chassis compared to current models, while also pursuing a lower center of gravity and evolution in the suspension system. This will allow even further gains in the basic “run, turn and stop” features that have earned Subaru an established reputation. In addition, the new platform increases impact energy As one of our measures to accelerate our “enhancing the Subaru brand” initiative, we will change our name from Fuji Heavy Industries Ltd. to Subaru Corporation in April 2017, which is the As initiatives to “enhance the Subaru brand,” FHI is dedicating effort absorption in the event of a collision by 40% compared to current 100th anniversary of the founding of our predecessor, the to further boost comprehensive performance and safety features, models. Currently, Subaru models have received top marks in Nakajima Aircraft Company. pursue characteristic Subaru design, adopt environmentally conscious safety tests by rating agencies inside and outside Japan, Of course, simply changing the company name and logo features, improve quality and service, and strengthen communication including the Japan New Car Assessment Program (JNCAP), the does not immediately impart greater brand value. Brand value is with customers. Insurance Institute for Highway Safety (IIHS) in the U.S., and the something that increases as a result of having customers actually The Subaru Global Platform, to be adopted starting with the European New Car Assessment Programme (EuroNCAP), which use our cars and approve of their features and quality. In that next Impreza model slated for launch this fall, is one of these has resulted in our greatest competitive strength in the sense, Subaru cars have garnered high evaluations in recent activities to “enhance the Subaru brand.” In recent years in the marketplace. These safety tests continue to apply ever more years from customers and third-party agencies for their safety automobile industry, companies are eagerly pursuing shared stringent standards, including new types of collision tests. At features and drivability. platforms that serve as the foundation for multiple vehicle FHI, introduction of the new Subaru Global Platform is further By using Subaru as a name for both the company and the models, though most are primarily doing so in order to lower increasing our collision safety performance and will help us brand, the Group’s employees will rally together to make Subaru costs through more efﬁcient new model development, common maintain the world’s highest levels of safety going forward. the choice of even more customers and to dedicate effort to parts, etc. In contrast, FHI is adopting a new platform with the further boosting the value of the Subaru brand. central intention of enhancing the Subaru brand strengths of Consolidated unit sales North America Japan China Other (1,000 units) 1,200 1,050 149 49 156 958 138 44 145 911 124 54 163 800 400 1,200+α 200 50 150 200 570 630 696 800+α 500 Production capacity expansion plans Yajima Plant (Japan) Main Plant (Japan) SIA (USA) (1,000 units) 1,500 Production capacity at full operation: 1,276 thousand units 1,132 1,000 836 854 200 207 218 207 429 429 1,036 394 213 429 436 213 483 0 2014 (Actual) 2015 (Actual) 2016 (Planned) 2020 (Forecast) (FY) 0 Sept. 2015 Spring 2016 2016 year end (Planned) FY 2019 (Planned) 10 increase the number of units sold at each dealer. Our sales plan for production subsidiary Subaru of Indiana Automotive, Inc. (SIA), in the U.S. in calendar year 2016 is 615,000 cars, approximately 1,000 order to meet sales growth in North America. Production of the cars per dealer, though somewhere around 750,000 cars should be Outback model will commence from July 2016, after SIA ends possible by boosting the per-dealer number to approximately 1,200 consignment production of the Toyota Camry, and we will take units. In order to provide sales support for our local dealers, we early steps to relieve supply shortfalls. Also, production capacity plan to introduce a three-row crossover as a new model in North at SIA will be expanded nearly twofold—from 200,000 units to America in 2018. approximately 400,000 units by the end of 2016. Local dealers in the U.S., our most important market, have Meanwhile, our Subaru incentive program was the lowest in In the U.S. market, all Subaru models equipped with reported that they could increase sales and seize a 5% market the industry, approximately $900/vehicle for FYE March 2016, EyeSight have received top marks in safety evaluations by the share if our supply were sufﬁcient. In light of our current 3.4% which is far less expensive than the industry average of around U.S. rating agency IIHS. This and other factors have solidiﬁed an quintessential “enjoyment and peace of mind” will be imbued in a new generation of eco-cars. At the same time, we are also making steady inroads with our automated driving R&D. FHI’s view of automated driving is not “cars that drive in place of people,” but rather, “cars that provide driving support with the driver in the central role.” From this fundamental perspective, we are pushing the evolution of For FHI to achieve sustainable growth into the future, we must the highly praised EyeSight, our current driving support product fulﬁll our corporate role of social responsibility and continue to be that includes pre-collision safety technology. We are following a company that constantly earns the trust and support of a broad this approach to develop automated driving technology that is group of stakeholders. To that end, it is vital to boost the overall market share, 5% might be a bit over-optimistic, but I believe 4% $3,000/vehicle. Considering that incentives are on a growth image that “Subaru = safety and security,” which I think has led In addition to the above, the Subaru Global Platform has been distinctly Subaru technology. quality of our corporate management to yet another level. is entirely reasonable. If total vehicle demand in the U.S. is 17 trajectory for the industry as a whole, we forecast a year-on-year to our current deep-rooted demand. Going forward, we intend of designed while keeping in mind developments in current gasoline We plan to actively invest in R&D expenses going forward, in In the automotive business, we cannot deliver “enjoyment million cars, that puts us at 680,000 units. If overall demand grows increase, rising to $1,100 for the full year, for FYE March 2017. course to provide high quality, safe vehicles, while also striving to engines and hybrid vehicles (HV), as well as plug-in hybrids order to accelerate development of these types of environmental and peace of mind” to customers unless we provide sufﬁcient slightly, that number could rise to 700,000, so I would ﬁrst like to However, we still do not intend to grow sales by competing on strengthen our service framework enabling us to deliver (PHEV) and electric vehicles (EV). In the strong U.S. market, the features and advanced safety technologies. Furthermore, in order quality, even if our cars are equipped with safety features at the increase our units sold to equal about a 4% market share in the price and will continue to sell vehicles with a low incentive after-sales service that will delight new Subaru customers. scope of California’s ZEV (Zero Emission Vehicle) regulations will to optimize management resource allocation throughout the world’s highest standards. Amid continuing robust sales, next few years. We are basically not planning to increase the program going forward. number of dealers from the current 625 dealers, but rather to Additionally, we are expanding production capacity at our U.S. be expanded to include mid-sized automakers (including FHI) in Group, and to expand development resources in our Automotive primarily in North America, maximum capacity operations have 2018. To coincide with this timeline, we are proceeding with Business, we decided to integrate our Industrial Products become standard operations for each of our production sites in research and development to launch PHEVs, followed by the Company into our Automobiles Division in October 2016. Existing recent years. However, it is absolutely inexcusable for quality subsequent launch of EVs in 2021. In essence, we are not production, sales, and service in our Industrial Products Company control to suffer as production accelerates. Our production units developing dedicated PHEV and EV models. Our policy is to add will continue for the duration, though development projects will be are thoroughly aware of their responsibility to stop the line if they PHEV and EV grades to our existing cars in the Subaru brand, idled and management resources such as development personnel are not absolutely conﬁdent in the quality of products. leveraging their characteristic individuality and driving will be shifted to the Automobiles Division. performance. This approach, I think, will ensure that Subaru’s Additionally, as society directs increased attention to corporate governance, FHI has been incorporating outside directors and auditors. Their participation has helped reﬂect stakeholder opinions to a greater extent in our business management. When putting together the Corporate Governance Guidelines we formulated last year, outside directors and auditors also took an active role in providing advice. Their participation greatly contributes to further establishing our corporate governance framework and increasing corporate value. Under our new name of Subaru Corporation, management and Group employees alike will ensure thorough compliance with laws and regulations, conduct themselves responsibly every day, and continue to strive for even greater brand and corporate value. Thank you for your support and feedback going forward. FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016(up 66.7% year on year). FHI recorded its highest historical levels (up 66.7% year on year). FHI recorded its highest historical levels 9.6% year-on-year growth and our ﬁrst time exceeding one million 9.6% year-on-year growth and our ﬁrst time exceeding one million of net sales as well as all income categories for the fourth of net sales as well as all income categories for the fourth units. As for consolidated results, we foresee being able to offset units. As for consolidated results, we foresee being able to offset consecutive ﬁscal year. Additionally, the operating margin was consecutive ﬁscal year. Additionally, the operating margin was the increase in overhead costs and R&D expenses by increasing the increase in overhead costs and R&D expenses by increasing 17.5%. Although the number of passenger vehicles sold in Japan 17.5%. Although the number of passenger vehicles sold in Japan the number of units sold and further cost reductions. Since the yen the number of units sold and further cost reductions. Since the yen neared the cyclical end of the new-model effect and trailed the neared the cyclical end of the new-model effect and trailed the is projected to strengthen from 121 yen/US$ in the ﬁscal year under is projected to strengthen from 121 yen/US$ in the ﬁscal year under previous year, overseas sales (mainly in the North American previous year, overseas sales (mainly in the North American review to 105 yen/US$, we expect consolidated net sales to dip review to 105 yen/US$, we expect consolidated net sales to dip market) progressed smoothly. Our worldwide sales numbers market) progressed smoothly. Our worldwide sales numbers 1.9% to 3,170.0 billion yen, operating proﬁt to fall 25.7% to 420.0 1.9% to 3,170.0 billion yen, operating proﬁt to fall 25.7% to 420.0 Fuji Heavy Industries Ltd. Group’s consolidated net sales in FYE Fuji Heavy Industries Ltd. Group’s consolidated net sales in FYE totaled 957,900 units (up 5.2% year on year), a historical high for totaled 957,900 units (up 5.2% year on year), a historical high for billion yen, ordinary income to fall 27.2% to 420.0 billion yen, the billion yen, ordinary income to fall 27.2% to 420.0 billion yen, the March 2016 came to 3,232.3 billion yen, a 12.3% year-on-year March 2016 came to 3,232.3 billion yen, a 12.3% year-on-year the fourth consecutive year. The result of this growth in units the fourth consecutive year. The result of this growth in units ﬁscal year net income attributable to owners of parent to fall 32.9% ﬁscal year net income attributable to owners of parent to fall 32.9% increase. As for consolidated performance, due to favorable increase. As for consolidated performance, due to favorable sold, thanks to robust global support for the Subaru brand, sold, thanks to robust global support for the Subaru brand, to 293.0 billion yen, and an operating margin of 13.2%*. We will to 293.0 billion yen, and an operating margin of 13.2%*. We will foreign exchange rates, the increase in the number of units sold, foreign exchange rates, the increase in the number of units sold, allowed us to achieve steady increases in income and proﬁt in allowed us to achieve steady increases in income and proﬁt in steadily bolster the strength of our business regardless of currency steadily bolster the strength of our business regardless of currency and cost reductions, we were able to offset the increase in and cost reductions, we were able to offset the increase in actual ﬁgures excluding gains on foreign exchange, which is actual ﬁgures excluding gains on foreign exchange, which is impacts, while maintaining an industry-leading proﬁt margin. impacts, while maintaining an industry-leading proﬁt margin. various overhead costs and R&D expenses. Operating proﬁt was various overhead costs and R&D expenses. Operating proﬁt was what pleases me most. what pleases me most. 565.6 billion yen (up 33.7% year on year), ordinary income came 565.6 billion yen (up 33.7% year on year), ordinary income came As for projections for FYE March 2017, we expect the Subaru As for projections for FYE March 2017, we expect the Subaru to 577.0 billion yen (up 46.6% year on year), and the ﬁscal year to 577.0 billion yen (up 46.6% year on year), and the ﬁscal year brand to show continued strength and an increase in units sold in brand to show continued strength and an increase in units sold in net income attributable to owners of parent was 436.7 billion yen net income attributable to owners of parent was 436.7 billion yen North America. We forecast global sales of 1,049.7 thousand units, North America. We forecast global sales of 1,049.7 thousand units, To Our Shareholders To Our Shareholders Update on the Mid-Term Management Vision With regard to consolidated global sales units in FY 2020, we With regard to consolidated global sales units in FY 2020, we business model of high proﬁtability and an industry-leading business model of high proﬁtability and an industry-leading 2020 global sales units revised upward in line with favorable sales in the North American market. revised forecasts upward, to top 1,200.0 thousand units from the revised forecasts upward, to top 1,200.0 thousand units from the operating margin. operating margin. original target north of 1,100.0 thousand units, given that original target north of 1,100.0 thousand units, given that Because we are not comparatively large, our value-adding Because we are not comparatively large, our value-adding on-going sales strength is expected in the favorably performing on-going sales strength is expected in the favorably performing and thorough differentiation strategies are indispensable for and thorough differentiation strategies are indispensable for North American market. We also reassessed our plans for North American market. We also reassessed our plans for competing with the world’s major automobile manufacturers. competing with the world’s major automobile manufacturers. increasing production capacity along the same lines. Existing increasing production capacity along the same lines. Existing Consequently, it is vital that we avoid entering the volume-sales Consequently, it is vital that we avoid entering the volume-sales In working to be “a high-quality company that is not big in size but In working to be “a high-quality company that is not big in size but plans had envisioned global production capacity (excluding CKD in plans had envisioned global production capacity (excluding CKD in zone in order to grow our sales units. That zone is the specialty of zone in order to grow our sales units. That zone is the specialty of has distinctive strength”—a stance we outlined in May 2014 in our has distinctive strength”—a stance we outlined in May 2014 in our Malaysia) of 1,050.0 thousand units (under standard operations) Malaysia) of 1,050.0 thousand units (under standard operations) major automakers and we would eventually be forced to major automakers and we would eventually be forced to mid-term management vision, “Prominence 2020”—FHI has been mid-term management vision, “Prominence 2020”—FHI has been in FY 2020. We raised this ﬁgure to 1,132.0 thousand units in FY in FY 2020. We raised this ﬁgure to 1,132.0 thousand units in FY compete on price. We believe that it is beneﬁcial to limit our compete on price. We believe that it is beneﬁcial to limit our striving to increase corporate value, while focusing on the two striving to increase corporate value, while focusing on the two 2018 (under standard operations; 1,276.0 thousand units at 2018 (under standard operations; 1,276.0 thousand units at categories and markets to those in which we can leverage our categories and markets to those in which we can leverage our initiatives of “enhancing the Subaru brand” and “building a strong initiatives of “enhancing the Subaru brand” and “building a strong maximum operation). maximum operation). strengths, and to steadily grow our sales units by concentrating strengths, and to steadily grow our sales units by concentrating business structure.” business structure.” Furthermore, we announced a new Three-Year Business Furthermore, we announced a new Three-Year Business our management resources in those areas. our management resources in those areas. This fundamental policy has not changed; however, we This fundamental policy has not changed; however, we Operation/Proﬁt Plan for FYE March 2017-2019. Planned Operation/Proﬁt Plan for FYE March 2017-2019. Planned FHI is ardently pursuing value-adding and differentiation FHI is ardently pursuing value-adding and differentiation announced updates of our 3-year consolidated proﬁt plan, announced updates of our 3-year consolidated proﬁt plan, three-year totals are 9,800 billion yen in net sales, 1,100 billion three-year totals are 9,800 billion yen in net sales, 1,100 billion strategies that set us apart from other automakers, while further strategies that set us apart from other automakers, while further consolidated sales units, production plans, etc. in May 2016 in consolidated sales units, production plans, etc. in May 2016 in yen in operating proﬁt, 360.0 billion yen in R&D expenses, and yen in operating proﬁt, 360.0 billion yen in R&D expenses, and accelerating our initiatives to “enhance the Subaru brand” and accelerating our initiatives to “enhance the Subaru brand” and response to subsequent changes in the business environment and response to subsequent changes in the business environment and 470.0 billion yen in capital expenditures. While continuing to 470.0 billion yen in capital expenditures. While continuing to “build a strong business structure.” “build a strong business structure.” sales performance in each market. sales performance in each market. expand investment in future growth, we will maintain our current expand investment in future growth, we will maintain our current Consolidated unit sales North America Japan China Other (1,000 units) 1,200 Production capacity expansion plans Yajima Plant (Japan) Main Plant (Japan) SIA (USA) (1,000 units) 1,500 1,200+α 200 50 150 1,050 149 49 156 958 138 44 145 911 124 54 163 800 400 200 570 630 696 800+α 500 1,000 836 854 200 207 218 207 429 429 Production capacity at full operation: 1,276 thousand units 1,132 1,036 394 213 429 436 213 483 0 2014 (Actual) 2015 (Actual) 2016 (Planned) 2020 (Forecast) (FY) 0 Sept. 2015 Spring 2016 2016 year end (Planned) FY 2019 (Planned) Changing Our Company Name in April 2017 Rallying all of our employees to enhance the brand under a new company name: Subaru Corporation. As one of our measures to accelerate our “enhancing the Subaru As one of our measures to accelerate our “enhancing the Subaru brand” initiative, we will change our name from Fuji Heavy brand” initiative, we will change our name from Fuji Heavy Industries Ltd. to Subaru Corporation in April 2017, which is the Industries Ltd. to Subaru Corporation in April 2017, which is the 100th anniversary of the founding of our predecessor, the 100th anniversary of the founding of our predecessor, the Nakajima Aircraft Company. Nakajima Aircraft Company. Of course, simply changing the company name and logo Of course, simply changing the company name and logo does not immediately impart greater brand value. Brand value is does not immediately impart greater brand value. Brand value is something that increases as a result of having customers actually something that increases as a result of having customers actually use our cars and approve of their features and quality. In that use our cars and approve of their features and quality. In that sense, Subaru cars have garnered high evaluations in recent sense, Subaru cars have garnered high evaluations in recent years from customers and third-party agencies for their safety years from customers and third-party agencies for their safety features and drivability. features and drivability. By using Subaru as a name for both the company and the By using Subaru as a name for both the company and the brand, the Group’s employees will rally together to make Subaru brand, the Group’s employees will rally together to make Subaru the choice of even more customers and to dedicate effort to the choice of even more customers and to dedicate effort to further boosting the value of the Subaru brand. further boosting the value of the Subaru brand. Adopting a Subaru Global Platform Adopting a new platform that looks ten years into the future and enhances “enjoyment and peace of mind,” which is one of Subaru’s strengths. As initiatives to “enhance the Subaru brand,” FHI is dedicating effort As initiatives to “enhance the Subaru brand,” FHI is dedicating effort to further boost comprehensive performance and safety features, to further boost comprehensive performance and safety features, pursue characteristic Subaru design, adopt environmentally conscious pursue characteristic Subaru design, adopt environmentally conscious features, improve quality and service, and strengthen communication features, improve quality and service, and strengthen communication with customers. with customers. The Subaru Global Platform, to be adopted starting with the The Subaru Global Platform, to be adopted starting with the next Impreza model slated for launch this fall, is one of these next Impreza model slated for launch this fall, is one of these activities to “enhance the Subaru brand.” In recent years in the activities to “enhance the Subaru brand.” In recent years in the automobile industry, companies are eagerly pursuing shared automobile industry, companies are eagerly pursuing shared platforms that serve as the foundation for multiple vehicle platforms that serve as the foundation for multiple vehicle models, though most are primarily doing so in order to lower models, though most are primarily doing so in order to lower costs through more efﬁcient new model development, common costs through more efﬁcient new model development, common parts, etc. In contrast, FHI is adopting a new platform with the parts, etc. In contrast, FHI is adopting a new platform with the central intention of enhancing the Subaru brand strengths of central intention of enhancing the Subaru brand strengths of safety features and drivability. safety features and drivability. The Subaru Global Platform developed with the year 2025 in The Subaru Global Platform developed with the year 2025 in mind brings broad improvements to the rigidity of bodies and mind brings broad improvements to the rigidity of bodies and chassis compared to current models, while also pursuing a lower chassis compared to current models, while also pursuing a lower center of gravity and evolution in the suspension system. This center of gravity and evolution in the suspension system. This will allow even further gains in the basic “run, turn and stop” will allow even further gains in the basic “run, turn and stop” features that have earned Subaru an established reputation. features that have earned Subaru an established reputation. In addition, the new platform increases impact energy In addition, the new platform increases impact energy absorption in the event of a collision by 40% compared to current absorption in the event of a collision by 40% compared to current models. Currently, Subaru models have received top marks in models. Currently, Subaru models have received top marks in safety tests by rating agencies inside and outside Japan, safety tests by rating agencies inside and outside Japan, including the Japan New Car Assessment Program (JNCAP), the including the Japan New Car Assessment Program (JNCAP), the Insurance Institute for Highway Safety (IIHS) in the U.S., and the Insurance Institute for Highway Safety (IIHS) in the U.S., and the European New Car Assessment Programme (EuroNCAP), which European New Car Assessment Programme (EuroNCAP), which has resulted in our greatest competitive strength in the has resulted in our greatest competitive strength in the marketplace. These safety tests continue to apply ever more marketplace. These safety tests continue to apply ever more stringent standards, including new types of collision tests. At stringent standards, including new types of collision tests. At FHI, introduction of the new Subaru Global Platform is further FHI, introduction of the new Subaru Global Platform is further increasing our collision safety performance and will help us increasing our collision safety performance and will help us maintain the world’s highest levels of safety going forward. maintain the world’s highest levels of safety going forward. Product Strategy Calender year 2016 Fuji Heavy Industries Ltd. Model plans 2017 FMC 2018 FMC 2019 FMC 2020~ FMC Continuously introduce new models in our mainstay vehicle lineups Next-generation platform: the Subaru Global Platform *Starting with the new Impreza model, incorporate the platform in all full model change (FMC) vehicles from FY 2017 3-row crossover for North America Environmental initiatives Expanded rollout of direct injection units 2019 Newly designed downsized-turbo *Comply with regulations in each region by combining electrification with significant efficiency gains for internal combustion engines 2021 Electric vehicles Plug-in hybrids 11 increase the number of units sold at each dealer. Our sales plan for increase the number of units sold at each dealer. Our sales plan for production subsidiary Subaru of Indiana Automotive, Inc. (SIA), in production subsidiary Subaru of Indiana Automotive, Inc. (SIA), in the U.S. in calendar year 2016 is 615,000 cars, approximately 1,000 the U.S. in calendar year 2016 is 615,000 cars, approximately 1,000 order to meet sales growth in North America. Production of the order to meet sales growth in North America. Production of the cars per dealer, though somewhere around 750,000 cars should be cars per dealer, though somewhere around 750,000 cars should be Outback model will commence from July 2016, after SIA ends Outback model will commence from July 2016, after SIA ends possible by boosting the per-dealer number to approximately 1,200 possible by boosting the per-dealer number to approximately 1,200 consignment production of the Toyota Camry, and we will take consignment production of the Toyota Camry, and we will take units. In order to provide sales support for our local dealers, we units. In order to provide sales support for our local dealers, we early steps to relieve supply shortfalls. Also, production capacity early steps to relieve supply shortfalls. Also, production capacity plan to introduce a three-row crossover as a new model in North plan to introduce a three-row crossover as a new model in North at SIA will be expanded nearly twofold—from 200,000 units to at SIA will be expanded nearly twofold—from 200,000 units to America in 2018. America in 2018. approximately 400,000 units by the end of 2016. approximately 400,000 units by the end of 2016. Local dealers in the U.S., our most important market, have Local dealers in the U.S., our most important market, have Meanwhile, our Subaru incentive program was the lowest in Meanwhile, our Subaru incentive program was the lowest in In the U.S. market, all Subaru models equipped with In the U.S. market, all Subaru models equipped with reported that they could increase sales and seize a 5% market reported that they could increase sales and seize a 5% market the industry, approximately $900/vehicle for FYE March 2016, the industry, approximately $900/vehicle for FYE March 2016, EyeSight have received top marks in safety evaluations by the EyeSight have received top marks in safety evaluations by the share if our supply were sufﬁcient. In light of our current 3.4% share if our supply were sufﬁcient. In light of our current 3.4% which is far less expensive than the industry average of around which is far less expensive than the industry average of around U.S. rating agency IIHS. This and other factors have solidiﬁed an U.S. rating agency IIHS. This and other factors have solidiﬁed an quintessential “enjoyment and peace of mind” will be imbued in quintessential “enjoyment and peace of mind” will be imbued in a new generation of eco-cars. a new generation of eco-cars. At the same time, we are also making steady inroads with At the same time, we are also making steady inroads with our automated driving R&D. FHI’s view of automated driving is our automated driving R&D. FHI’s view of automated driving is not “cars that drive in place of people,” but rather, “cars that not “cars that drive in place of people,” but rather, “cars that provide driving support with the driver in the central role.” From provide driving support with the driver in the central role.” From this fundamental perspective, we are pushing the evolution of this fundamental perspective, we are pushing the evolution of For FHI to achieve sustainable growth into the future, we must For FHI to achieve sustainable growth into the future, we must the highly praised EyeSight, our current driving support product the highly praised EyeSight, our current driving support product fulﬁll our corporate role of social responsibility and continue to be fulﬁll our corporate role of social responsibility and continue to be that includes pre-collision safety technology. We are following that includes pre-collision safety technology. We are following a company that constantly earns the trust and support of a broad a company that constantly earns the trust and support of a broad this approach to develop automated driving technology that is this approach to develop automated driving technology that is group of stakeholders. To that end, it is vital to boost the overall group of stakeholders. To that end, it is vital to boost the overall market share, 5% might be a bit over-optimistic, but I believe 4% market share, 5% might be a bit over-optimistic, but I believe 4% $3,000/vehicle. Considering that incentives are on a growth $3,000/vehicle. Considering that incentives are on a growth image that “Subaru = safety and security,” which I think has led image that “Subaru = safety and security,” which I think has led In addition to the above, the Subaru Global Platform has been In addition to the above, the Subaru Global Platform has been distinctly Subaru technology. distinctly Subaru technology. quality of our corporate management to yet another level. quality of our corporate management to yet another level. is entirely reasonable. If total vehicle demand in the U.S. is 17 is entirely reasonable. If total vehicle demand in the U.S. is 17 trajectory for the industry as a whole, we forecast a year-on-year trajectory for the industry as a whole, we forecast a year-on-year to our current deep-rooted demand. Going forward, we intend of to our current deep-rooted demand. Going forward, we intend of designed while keeping in mind developments in current gasoline designed while keeping in mind developments in current gasoline We plan to actively invest in R&D expenses going forward, in We plan to actively invest in R&D expenses going forward, in In the automotive business, we cannot deliver “enjoyment In the automotive business, we cannot deliver “enjoyment million cars, that puts us at 680,000 units. If overall demand grows million cars, that puts us at 680,000 units. If overall demand grows increase, rising to $1,100 for the full year, for FYE March 2017. increase, rising to $1,100 for the full year, for FYE March 2017. course to provide high quality, safe vehicles, while also striving to course to provide high quality, safe vehicles, while also striving to engines and hybrid vehicles (HV), as well as plug-in hybrids engines and hybrid vehicles (HV), as well as plug-in hybrids order to accelerate development of these types of environmental order to accelerate development of these types of environmental and peace of mind” to customers unless we provide sufﬁcient and peace of mind” to customers unless we provide sufﬁcient slightly, that number could rise to 700,000, so I would ﬁrst like to slightly, that number could rise to 700,000, so I would ﬁrst like to However, we still do not intend to grow sales by competing on However, we still do not intend to grow sales by competing on strengthen our service framework enabling us to deliver strengthen our service framework enabling us to deliver (PHEV) and electric vehicles (EV). In the strong U.S. market, the (PHEV) and electric vehicles (EV). In the strong U.S. market, the features and advanced safety technologies. Furthermore, in order features and advanced safety technologies. Furthermore, in order quality, even if our cars are equipped with safety features at the quality, even if our cars are equipped with safety features at the increase our units sold to equal about a 4% market share in the increase our units sold to equal about a 4% market share in the price and will continue to sell vehicles with a low incentive price and will continue to sell vehicles with a low incentive after-sales service that will delight new Subaru customers. after-sales service that will delight new Subaru customers. scope of California’s ZEV (Zero Emission Vehicle) regulations will scope of California’s ZEV (Zero Emission Vehicle) regulations will to optimize management resource allocation throughout the to optimize management resource allocation throughout the world’s highest standards. Amid continuing robust sales, world’s highest standards. Amid continuing robust sales, next few years. We are basically not planning to increase the next few years. We are basically not planning to increase the program going forward. program going forward. number of dealers from the current 625 dealers, but rather to number of dealers from the current 625 dealers, but rather to Additionally, we are expanding production capacity at our U.S. Additionally, we are expanding production capacity at our U.S. be expanded to include mid-sized automakers (including FHI) in be expanded to include mid-sized automakers (including FHI) in Group, and to expand development resources in our Automotive Group, and to expand development resources in our Automotive primarily in North America, maximum capacity operations have primarily in North America, maximum capacity operations have 2018. To coincide with this timeline, we are proceeding with 2018. To coincide with this timeline, we are proceeding with Business, we decided to integrate our Industrial Products Business, we decided to integrate our Industrial Products become standard operations for each of our production sites in become standard operations for each of our production sites in research and development to launch PHEVs, followed by the research and development to launch PHEVs, followed by the Company into our Automobiles Division in October 2016. Existing Company into our Automobiles Division in October 2016. Existing recent years. However, it is absolutely inexcusable for quality recent years. However, it is absolutely inexcusable for quality subsequent launch of EVs in 2021. In essence, we are not subsequent launch of EVs in 2021. In essence, we are not production, sales, and service in our Industrial Products Company production, sales, and service in our Industrial Products Company control to suffer as production accelerates. Our production units control to suffer as production accelerates. Our production units developing dedicated PHEV and EV models. Our policy is to add developing dedicated PHEV and EV models. Our policy is to add will continue for the duration, though development projects will be will continue for the duration, though development projects will be are thoroughly aware of their responsibility to stop the line if they are thoroughly aware of their responsibility to stop the line if they PHEV and EV grades to our existing cars in the Subaru brand, PHEV and EV grades to our existing cars in the Subaru brand, idled and management resources such as development personnel idled and management resources such as development personnel are not absolutely conﬁdent in the quality of products. are not absolutely conﬁdent in the quality of products. leveraging leveraging their their characteristic characteristic individuality individuality and driving and driving will be shifted to the Automobiles Division. will be shifted to the Automobiles Division. performance. This approach, I think, will ensure that Subaru’s performance. This approach, I think, will ensure that Subaru’s Additionally, as society directs Additionally, as society directs increased attention to increased attention to corporate governance, FHI has been incorporating outside corporate governance, FHI has been incorporating outside directors and auditors. Their participation has helped reﬂect directors and auditors. Their participation has helped reﬂect stakeholder opinions to a greater extent in our business stakeholder opinions to a greater extent in our business management. When putting together the Corporate Governance management. When putting together the Corporate Governance Guidelines we formulated last year, outside directors and Guidelines we formulated last year, outside directors and auditors also took an active role in providing advice. Their auditors also took an active role in providing advice. Their participation greatly contributes to further establishing our participation greatly contributes to further establishing our corporate governance framework and increasing corporate value. corporate governance framework and increasing corporate value. Under our new name of Subaru Corporation, management Under our new name of Subaru Corporation, management and Group employees alike will ensure thorough compliance with and Group employees alike will ensure thorough compliance with laws and regulations, conduct themselves responsibly every day, laws and regulations, conduct themselves responsibly every day, and continue to strive for even greater brand and corporate value. and continue to strive for even greater brand and corporate value. Thank you for your support and feedback going forward. Thank you for your support and feedback going forward. FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016(up 66.7% year on year). FHI recorded its highest historical levels 9.6% year-on-year growth and our ﬁrst time exceeding one million of net sales as well as all income categories for the fourth units. As for consolidated results, we foresee being able to offset consecutive ﬁscal year. Additionally, the operating margin was the increase in overhead costs and R&D expenses by increasing 17.5%. Although the number of passenger vehicles sold in Japan the number of units sold and further cost reductions. Since the yen neared the cyclical end of the new-model effect and trailed the is projected to strengthen from 121 yen/US$ in the ﬁscal year under previous year, overseas sales (mainly in the North American review to 105 yen/US$, we expect consolidated net sales to dip market) progressed smoothly. Our worldwide sales numbers 1.9% to 3,170.0 billion yen, operating proﬁt to fall 25.7% to 420.0 Fuji Heavy Industries Ltd. Group’s consolidated net sales in FYE totaled 957,900 units (up 5.2% year on year), a historical high for billion yen, ordinary income to fall 27.2% to 420.0 billion yen, the March 2016 came to 3,232.3 billion yen, a 12.3% year-on-year the fourth consecutive year. The result of this growth in units ﬁscal year net income attributable to owners of parent to fall 32.9% increase. As for consolidated performance, due to favorable sold, thanks to robust global support for the Subaru brand, to 293.0 billion yen, and an operating margin of 13.2%*. We will foreign exchange rates, the increase in the number of units sold, allowed us to achieve steady increases in income and proﬁt in steadily bolster the strength of our business regardless of currency and cost reductions, we were able to offset the increase in actual ﬁgures excluding gains on foreign exchange, which is impacts, while maintaining an industry-leading proﬁt margin. various overhead costs and R&D expenses. Operating proﬁt was what pleases me most. 565.6 billion yen (up 33.7% year on year), ordinary income came As for projections for FYE March 2017, we expect the Subaru to 577.0 billion yen (up 46.6% year on year), and the ﬁscal year brand to show continued strength and an increase in units sold in net income attributable to owners of parent was 436.7 billion yen North America. We forecast global sales of 1,049.7 thousand units, quintessential “enjoyment and peace of mind” will be imbued in a new generation of eco-cars. At the same time, we are also making steady inroads with our automated driving R&D. FHI’s view of automated driving is not “cars that drive in place of people,” but rather, “cars that provide driving support with the driver in the central role.” From this fundamental perspective, we are pushing the evolution of For FHI to achieve sustainable growth into the future, we must the highly praised EyeSight, our current driving support product fulﬁll our corporate role of social responsibility and continue to be that includes pre-collision safety technology. We are following a company that constantly earns the trust and support of a broad this approach to develop automated driving technology that is group of stakeholders. To that end, it is vital to boost the overall In addition to the above, the Subaru Global Platform has been distinctly Subaru technology. quality of our corporate management to yet another level. designed while keeping in mind developments in current gasoline We plan to actively invest in R&D expenses going forward, in In the automotive business, we cannot deliver “enjoyment engines and hybrid vehicles (HV), as well as plug-in hybrids order to accelerate development of these types of environmental and peace of mind” to customers unless we provide sufﬁcient (PHEV) and electric vehicles (EV). In the strong U.S. market, the features and advanced safety technologies. Furthermore, in order quality, even if our cars are equipped with safety features at the scope of California’s ZEV (Zero Emission Vehicle) regulations will to optimize management resource allocation throughout the world’s highest standards. Amid continuing robust sales, be expanded to include mid-sized automakers (including FHI) in Group, and to expand development resources in our Automotive primarily in North America, maximum capacity operations have 2018. To coincide with this timeline, we are proceeding with Business, we decided to integrate our Industrial Products become standard operations for each of our production sites in research and development to launch PHEVs, followed by the Company into our Automobiles Division in October 2016. Existing recent years. However, it is absolutely inexcusable for quality subsequent launch of EVs in 2021. In essence, we are not production, sales, and service in our Industrial Products Company control to suffer as production accelerates. Our production units developing dedicated PHEV and EV models. Our policy is to add will continue for the duration, though development projects will be are thoroughly aware of their responsibility to stop the line if they PHEV and EV grades to our existing cars in the Subaru brand, idled and management resources such as development personnel are not absolutely conﬁdent in the quality of products. leveraging their characteristic individuality and driving will be shifted to the Automobiles Division. performance. This approach, I think, will ensure that Subaru’s Additionally, as society directs increased attention to corporate governance, FHI has been incorporating outside directors and auditors. Their participation has helped reﬂect stakeholder opinions to a greater extent in our business management. When putting together the Corporate Governance Guidelines we formulated last year, outside directors and auditors also took an active role in providing advice. Their participation greatly contributes to further establishing our corporate governance framework and increasing corporate value. Under our new name of Subaru Corporation, management and Group employees alike will ensure thorough compliance with laws and regulations, conduct themselves responsibly every day, and continue to strive for even greater brand and corporate value. Thank you for your support and feedback going forward. With regard to consolidated global sales units in FY 2020, we business model of high proﬁtability and an industry-leading revised forecasts upward, to top 1,200.0 thousand units from the operating margin. original target north of 1,100.0 thousand units, given that Because we are not comparatively large, our value-adding on-going sales strength is expected in the favorably performing and thorough differentiation strategies are indispensable for North American market. We also reassessed our plans for competing with the world’s major automobile manufacturers. increasing production capacity along the same lines. Existing Consequently, it is vital that we avoid entering the volume-sales safety features and drivability. The Subaru Global Platform developed with the year 2025 in mind brings broad improvements to the rigidity of bodies and chassis compared to current models, while also pursuing a lower center of gravity and evolution in the suspension system. This will allow even further gains in the basic “run, turn and stop” features that have earned Subaru an established reputation. In addition, the new platform increases impact energy In working to be “a high-quality company that is not big in size but plans had envisioned global production capacity (excluding CKD in zone in order to grow our sales units. That zone is the specialty of has distinctive strength”—a stance we outlined in May 2014 in our Malaysia) of 1,050.0 thousand units (under standard operations) major automakers and we would eventually be forced to As one of our measures to accelerate our “enhancing the Subaru brand” initiative, we will change our name from Fuji Heavy mid-term management vision, “Prominence 2020”—FHI has been in FY 2020. We raised this ﬁgure to 1,132.0 thousand units in FY compete on price. We believe that it is beneﬁcial to limit our Industries Ltd. to Subaru Corporation in April 2017, which is the As initiatives to “enhance the Subaru brand,” FHI is dedicating effort absorption in the event of a collision by 40% compared to current striving to increase corporate value, while focusing on the two 2018 (under standard operations; 1,276.0 thousand units at categories and markets to those in which we can leverage our 100th anniversary of the founding of our predecessor, the to further boost comprehensive performance and safety features, models. Currently, Subaru models have received top marks in initiatives of “enhancing the Subaru brand” and “building a strong maximum operation). strengths, and to steadily grow our sales units by concentrating Nakajima Aircraft Company. pursue characteristic Subaru design, adopt environmentally conscious safety tests by rating agencies inside and outside Japan, business structure.” Furthermore, we announced a new Three-Year Business our management resources in those areas. Of course, simply changing the company name and logo features, improve quality and service, and strengthen communication including the Japan New Car Assessment Program (JNCAP), the This fundamental policy has not changed; however, we Operation/Proﬁt Plan for FYE March 2017-2019. Planned FHI is ardently pursuing value-adding and differentiation does not immediately impart greater brand value. Brand value is with customers. Insurance Institute for Highway Safety (IIHS) in the U.S., and the announced updates of our 3-year consolidated proﬁt plan, three-year totals are 9,800 billion yen in net sales, 1,100 billion strategies that set us apart from other automakers, while further something that increases as a result of having customers actually The Subaru Global Platform, to be adopted starting with the European New Car Assessment Programme (EuroNCAP), which consolidated sales units, production plans, etc. in May 2016 in yen in operating proﬁt, 360.0 billion yen in R&D expenses, and accelerating our initiatives to “enhance the Subaru brand” and use our cars and approve of their features and quality. In that next Impreza model slated for launch this fall, is one of these has resulted in our greatest competitive strength in the response to subsequent changes in the business environment and 470.0 billion yen in capital expenditures. While continuing to “build a strong business structure.” sense, Subaru cars have garnered high evaluations in recent activities to “enhance the Subaru brand.” In recent years in the marketplace. These safety tests continue to apply ever more sales performance in each market. expand investment in future growth, we will maintain our current years from customers and third-party agencies for their safety automobile industry, companies are eagerly pursuing shared stringent standards, including new types of collision tests. At features and drivability. platforms that serve as the foundation for multiple vehicle FHI, introduction of the new Subaru Global Platform is further By using Subaru as a name for both the company and the models, though most are primarily doing so in order to lower increasing our collision safety performance and will help us brand, the Group’s employees will rally together to make Subaru costs through more efﬁcient new model development, common maintain the world’s highest levels of safety going forward. the choice of even more customers and to dedicate effort to parts, etc. In contrast, FHI is adopting a new platform with the further boosting the value of the Subaru brand. central intention of enhancing the Subaru brand strengths of To Our Shareholders Sales Strategy in the U.S. Expanding production capacity and strengthening our dealer service framework to meet customer expectations. Local dealers in the U.S., our most important market, have reported that they could increase sales and seize a 5% market share if our supply were sufﬁcient. In light of our current 3.4% market share, 5% might be a bit over-optimistic, but I believe 4% is entirely reasonable. If total vehicle demand in the U.S. is 17 million cars, that puts us at 680,000 units. If overall demand grows slightly, that number could rise to 700,000, so I would ﬁrst like to increase our units sold to equal about a 4% market share in the next few years. We are basically not planning to increase the number of dealers from the current 625 dealers, but rather to increase the number of units sold at each dealer. Our sales plan for the U.S. in calendar year 2016 is 615,000 cars, approximately 1,000 cars per dealer, though somewhere around 750,000 cars should be possible by boosting the per-dealer number to approximately 1,200 units. In order to provide sales support for our local dealers, we plan to introduce a three-row crossover as a new model in North America in 2018. Meanwhile, our Subaru incentive program was the lowest in the industry, approximately $900/vehicle for FYE March 2016, which is far less expensive than the industry average of around $3,000/vehicle. Considering that incentives are on a growth trajectory for the industry as a whole, we forecast a year-on-year increase, rising to $1,100 for the full year, for FYE March 2017. However, we still do not intend to grow sales by competing on price and will continue to sell vehicles with a low incentive program going forward. Additionally, we are expanding production capacity at our U.S. production subsidiary Subaru of Indiana Automotive, Inc. (SIA), in order to meet sales growth in North America. Production of the Outback model will commence from July 2016, after SIA ends consignment production of the Toyota Camry, and we will take early steps to relieve supply shortfalls. Also, production capacity at SIA will be expanded nearly twofold—from 200,000 units to approximately 400,000 units by the end of 2016. In the U.S. market, all Subaru models equipped with EyeSight have received top marks in safety evaluations by the U.S. rating agency IIHS. This and other factors have solidiﬁed an image that “Subaru = safety and security,” which I think has led to our current deep-rooted demand. Going forward, we intend of course to provide high quality, safe vehicles, while also striving to strengthen our service framework enabling us to deliver after-sales service that will delight new Subaru customers. Changes in the number of dealers Changes in the number of retail sales units Units sold per dealer (Units) 1,000 No. of dealers 984 (Dealers) 800 LEGACY (1,000 units) 640 932 IMPREZA FORESTER TRIBECA WRX BRZ 618 621 750 621 684 542 500 430 250 827 621 625 625 600 480 400 320 267 200 160 3 76 41 147 615 583 5 34 175 156 514 8 1 25 160 129 425 9 2 124 131 336 4 2 76 89 165 160 191 213 0 2011 2012 2013 2014 2015 2016 (Planned) 0 (CY) 0 2011 2012 2013 2014 2015 2016 (Planned) (CY) 12 FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016(up 66.7% year on year). FHI recorded its highest historical levels (up 66.7% year on year). FHI recorded its highest historical levels 9.6% year-on-year growth and our ﬁrst time exceeding one million 9.6% year-on-year growth and our ﬁrst time exceeding one million of net sales as well as all income categories for the fourth of net sales as well as all income categories for the fourth units. As for consolidated results, we foresee being able to offset units. As for consolidated results, we foresee being able to offset consecutive ﬁscal year. Additionally, the operating margin was consecutive ﬁscal year. Additionally, the operating margin was the increase in overhead costs and R&D expenses by increasing the increase in overhead costs and R&D expenses by increasing 17.5%. Although the number of passenger vehicles sold in Japan 17.5%. Although the number of passenger vehicles sold in Japan the number of units sold and further cost reductions. Since the yen the number of units sold and further cost reductions. Since the yen neared the cyclical end of the new-model effect and trailed the neared the cyclical end of the new-model effect and trailed the is projected to strengthen from 121 yen/US$ in the ﬁscal year under is projected to strengthen from 121 yen/US$ in the ﬁscal year under previous year, overseas sales (mainly in the North American previous year, overseas sales (mainly in the North American review to 105 yen/US$, we expect consolidated net sales to dip review to 105 yen/US$, we expect consolidated net sales to dip market) progressed smoothly. Our worldwide sales numbers market) progressed smoothly. Our worldwide sales numbers 1.9% to 3,170.0 billion yen, operating proﬁt to fall 25.7% to 420.0 1.9% to 3,170.0 billion yen, operating proﬁt to fall 25.7% to 420.0 Fuji Heavy Industries Ltd. Group’s consolidated net sales in FYE Fuji Heavy Industries Ltd. Group’s consolidated net sales in FYE totaled 957,900 units (up 5.2% year on year), a historical high for totaled 957,900 units (up 5.2% year on year), a historical high for billion yen, ordinary income to fall 27.2% to 420.0 billion yen, the billion yen, ordinary income to fall 27.2% to 420.0 billion yen, the March 2016 came to 3,232.3 billion yen, a 12.3% year-on-year March 2016 came to 3,232.3 billion yen, a 12.3% year-on-year the fourth consecutive year. The result of this growth in units the fourth consecutive year. The result of this growth in units ﬁscal year net income attributable to owners of parent to fall 32.9% ﬁscal year net income attributable to owners of parent to fall 32.9% increase. As for consolidated performance, due to favorable increase. As for consolidated performance, due to favorable sold, thanks to robust global support for the Subaru brand, sold, thanks to robust global support for the Subaru brand, to 293.0 billion yen, and an operating margin of 13.2%*. We will to 293.0 billion yen, and an operating margin of 13.2%*. We will foreign exchange rates, the increase in the number of units sold, foreign exchange rates, the increase in the number of units sold, allowed us to achieve steady increases in income and proﬁt in allowed us to achieve steady increases in income and proﬁt in steadily bolster the strength of our business regardless of currency steadily bolster the strength of our business regardless of currency and cost reductions, we were able to offset the increase in and cost reductions, we were able to offset the increase in actual ﬁgures excluding gains on foreign exchange, which is actual ﬁgures excluding gains on foreign exchange, which is impacts, while maintaining an industry-leading proﬁt margin. impacts, while maintaining an industry-leading proﬁt margin. various overhead costs and R&D expenses. Operating proﬁt was various overhead costs and R&D expenses. Operating proﬁt was what pleases me most. what pleases me most. 565.6 billion yen (up 33.7% year on year), ordinary income came 565.6 billion yen (up 33.7% year on year), ordinary income came As for projections for FYE March 2017, we expect the Subaru As for projections for FYE March 2017, we expect the Subaru to 577.0 billion yen (up 46.6% year on year), and the ﬁscal year to 577.0 billion yen (up 46.6% year on year), and the ﬁscal year brand to show continued strength and an increase in units sold in brand to show continued strength and an increase in units sold in net income attributable to owners of parent was 436.7 billion yen net income attributable to owners of parent was 436.7 billion yen North America. We forecast global sales of 1,049.7 thousand units, North America. We forecast global sales of 1,049.7 thousand units, With regard to consolidated global sales units in FY 2020, we With regard to consolidated global sales units in FY 2020, we business model of high proﬁtability and an industry-leading business model of high proﬁtability and an industry-leading revised forecasts upward, to top 1,200.0 thousand units from the revised forecasts upward, to top 1,200.0 thousand units from the operating margin. operating margin. original target north of 1,100.0 thousand units, given that original target north of 1,100.0 thousand units, given that Because we are not comparatively large, our value-adding Because we are not comparatively large, our value-adding on-going sales strength is expected in the favorably performing on-going sales strength is expected in the favorably performing and thorough differentiation strategies are indispensable for and thorough differentiation strategies are indispensable for North American market. We also reassessed our plans for North American market. We also reassessed our plans for competing with the world’s major automobile manufacturers. competing with the world’s major automobile manufacturers. increasing production capacity along the same lines. Existing increasing production capacity along the same lines. Existing Consequently, it is vital that we avoid entering the volume-sales Consequently, it is vital that we avoid entering the volume-sales safety features and drivability. safety features and drivability. The Subaru Global Platform developed with the year 2025 in The Subaru Global Platform developed with the year 2025 in mind brings broad improvements to the rigidity of bodies and mind brings broad improvements to the rigidity of bodies and chassis compared to current models, while also pursuing a lower chassis compared to current models, while also pursuing a lower center of gravity and evolution in the suspension system. This center of gravity and evolution in the suspension system. This will allow even further gains in the basic “run, turn and stop” will allow even further gains in the basic “run, turn and stop” features that have earned Subaru an established reputation. features that have earned Subaru an established reputation. In addition, the new platform increases impact energy In addition, the new platform increases impact energy In working to be “a high-quality company that is not big in size but In working to be “a high-quality company that is not big in size but plans had envisioned global production capacity (excluding CKD in plans had envisioned global production capacity (excluding CKD in zone in order to grow our sales units. That zone is the specialty of zone in order to grow our sales units. That zone is the specialty of has distinctive strength”—a stance we outlined in May 2014 in our has distinctive strength”—a stance we outlined in May 2014 in our Malaysia) of 1,050.0 thousand units (under standard operations) Malaysia) of 1,050.0 thousand units (under standard operations) major automakers and we would eventually be forced to major automakers and we would eventually be forced to As one of our measures to accelerate our “enhancing the Subaru As one of our measures to accelerate our “enhancing the Subaru brand” initiative, we will change our name from Fuji Heavy brand” initiative, we will change our name from Fuji Heavy mid-term management vision, “Prominence 2020”—FHI has been mid-term management vision, “Prominence 2020”—FHI has been in FY 2020. We raised this ﬁgure to 1,132.0 thousand units in FY in FY 2020. We raised this ﬁgure to 1,132.0 thousand units in FY compete on price. We believe that it is beneﬁcial to limit our compete on price. We believe that it is beneﬁcial to limit our Industries Ltd. to Subaru Corporation in April 2017, which is the Industries Ltd. to Subaru Corporation in April 2017, which is the As initiatives to “enhance the Subaru brand,” FHI is dedicating effort As initiatives to “enhance the Subaru brand,” FHI is dedicating effort absorption in the event of a collision by 40% compared to current absorption in the event of a collision by 40% compared to current striving to increase corporate value, while focusing on the two striving to increase corporate value, while focusing on the two 2018 (under standard operations; 1,276.0 thousand units at 2018 (under standard operations; 1,276.0 thousand units at categories and markets to those in which we can leverage our categories and markets to those in which we can leverage our 100th anniversary of the founding of our predecessor, the 100th anniversary of the founding of our predecessor, the to further boost comprehensive performance and safety features, to further boost comprehensive performance and safety features, models. Currently, Subaru models have received top marks in models. Currently, Subaru models have received top marks in initiatives of “enhancing the Subaru brand” and “building a strong initiatives of “enhancing the Subaru brand” and “building a strong maximum operation). maximum operation). strengths, and to steadily grow our sales units by concentrating strengths, and to steadily grow our sales units by concentrating Nakajima Aircraft Company. Nakajima Aircraft Company. pursue characteristic Subaru design, adopt environmentally conscious pursue characteristic Subaru design, adopt environmentally conscious safety tests by rating agencies inside and outside Japan, safety tests by rating agencies inside and outside Japan, business structure.” business structure.” Furthermore, we announced a new Three-Year Business Furthermore, we announced a new Three-Year Business our management resources in those areas. our management resources in those areas. Of course, simply changing the company name and logo Of course, simply changing the company name and logo features, improve quality and service, and strengthen communication features, improve quality and service, and strengthen communication including the Japan New Car Assessment Program (JNCAP), the including the Japan New Car Assessment Program (JNCAP), the This fundamental policy has not changed; however, we This fundamental policy has not changed; however, we Operation/Proﬁt Plan for FYE March 2017-2019. Planned Operation/Proﬁt Plan for FYE March 2017-2019. Planned FHI is ardently pursuing value-adding and differentiation FHI is ardently pursuing value-adding and differentiation does not immediately impart greater brand value. Brand value is does not immediately impart greater brand value. Brand value is with customers. with customers. Insurance Institute for Highway Safety (IIHS) in the U.S., and the Insurance Institute for Highway Safety (IIHS) in the U.S., and the announced updates of our 3-year consolidated proﬁt plan, announced updates of our 3-year consolidated proﬁt plan, three-year totals are 9,800 billion yen in net sales, 1,100 billion three-year totals are 9,800 billion yen in net sales, 1,100 billion strategies that set us apart from other automakers, while further strategies that set us apart from other automakers, while further something that increases as a result of having customers actually something that increases as a result of having customers actually The Subaru Global Platform, to be adopted starting with the The Subaru Global Platform, to be adopted starting with the European New Car Assessment Programme (EuroNCAP), which European New Car Assessment Programme (EuroNCAP), which consolidated sales units, production plans, etc. in May 2016 in consolidated sales units, production plans, etc. in May 2016 in yen in operating proﬁt, 360.0 billion yen in R&D expenses, and yen in operating proﬁt, 360.0 billion yen in R&D expenses, and accelerating our initiatives to “enhance the Subaru brand” and accelerating our initiatives to “enhance the Subaru brand” and use our cars and approve of their features and quality. In that use our cars and approve of their features and quality. In that next Impreza model slated for launch this fall, is one of these next Impreza model slated for launch this fall, is one of these has resulted in our greatest competitive strength in the has resulted in our greatest competitive strength in the response to subsequent changes in the business environment and response to subsequent changes in the business environment and 470.0 billion yen in capital expenditures. While continuing to 470.0 billion yen in capital expenditures. While continuing to “build a strong business structure.” “build a strong business structure.” sense, Subaru cars have garnered high evaluations in recent sense, Subaru cars have garnered high evaluations in recent activities to “enhance the Subaru brand.” In recent years in the activities to “enhance the Subaru brand.” In recent years in the marketplace. These safety tests continue to apply ever more marketplace. These safety tests continue to apply ever more sales performance in each market. sales performance in each market. expand investment in future growth, we will maintain our current expand investment in future growth, we will maintain our current years from customers and third-party agencies for their safety years from customers and third-party agencies for their safety automobile industry, companies are eagerly pursuing shared automobile industry, companies are eagerly pursuing shared stringent standards, including new types of collision tests. At stringent standards, including new types of collision tests. At features and drivability. features and drivability. platforms that serve as the foundation for multiple vehicle platforms that serve as the foundation for multiple vehicle FHI, introduction of the new Subaru Global Platform is further FHI, introduction of the new Subaru Global Platform is further By using Subaru as a name for both the company and the By using Subaru as a name for both the company and the models, though most are primarily doing so in order to lower models, though most are primarily doing so in order to lower increasing our collision safety performance and will help us increasing our collision safety performance and will help us brand, the Group’s employees will rally together to make Subaru brand, the Group’s employees will rally together to make Subaru costs through more efﬁcient new model development, common costs through more efﬁcient new model development, common maintain the world’s highest levels of safety going forward. maintain the world’s highest levels of safety going forward. the choice of even more customers and to dedicate effort to the choice of even more customers and to dedicate effort to parts, etc. In contrast, FHI is adopting a new platform with the parts, etc. In contrast, FHI is adopting a new platform with the further boosting the value of the Subaru brand. further boosting the value of the Subaru brand. central intention of enhancing the Subaru brand strengths of central intention of enhancing the Subaru brand strengths of To Our Shareholders To Our Shareholders Responding to Environmental Regulations and Initiatives for Automated Driving Expanding the R&D framework of the Automotive Business in order to accelerate our environmental response and our development of driving support technology. In addition to the above, the Subaru Global Platform has been In addition to the above, the Subaru Global Platform has been designed while keeping in mind developments in current gasoline designed while keeping in mind developments in current gasoline engines and hybrid vehicles (HV), as well as plug-in hybrids engines and hybrid vehicles (HV), as well as plug-in hybrids (PHEV) and electric vehicles (EV). In the strong U.S. market, the (PHEV) and electric vehicles (EV). In the strong U.S. market, the scope of California’s ZEV (Zero Emission Vehicle) regulations will scope of California’s ZEV (Zero Emission Vehicle) regulations will be expanded to include mid-sized automakers (including FHI) in be expanded to include mid-sized automakers (including FHI) in 2018. To coincide with this timeline, we are proceeding with 2018. To coincide with this timeline, we are proceeding with research and development to launch PHEVs, followed by the research and development to launch PHEVs, followed by the subsequent launch of EVs in 2021. In essence, we are not subsequent launch of EVs in 2021. In essence, we are not developing dedicated PHEV and EV models. Our policy is to add developing dedicated PHEV and EV models. Our policy is to add PHEV and EV grades to our existing cars in the Subaru brand, PHEV and EV grades to our existing cars in the Subaru brand, leveraging and driving leveraging and driving performance. This approach, I think, will ensure that Subaru’s performance. This approach, I think, will ensure that Subaru’s characteristic characteristic individuality individuality their their quintessential “enjoyment and peace of mind” will be imbued in quintessential “enjoyment and peace of mind” will be imbued in a new generation of eco-cars. a new generation of eco-cars. At the same time, we are also making steady inroads with At the same time, we are also making steady inroads with our automated driving R&D. FHI’s view of automated driving is our automated driving R&D. FHI’s view of automated driving is not “cars that drive in place of people,” but rather, “cars that not “cars that drive in place of people,” but rather, “cars that provide driving support with the driver in the central role.” From provide driving support with the driver in the central role.” From this fundamental perspective, we are pushing the evolution of this fundamental perspective, we are pushing the evolution of the highly praised EyeSight, our current driving support product the highly praised EyeSight, our current driving support product that includes pre-collision safety technology. We are following that includes pre-collision safety technology. We are following this approach to develop automated driving technology that is this approach to develop automated driving technology that is distinctly Subaru technology. distinctly Subaru technology. We plan to actively invest in R&D expenses going forward, in We plan to actively invest in R&D expenses going forward, in order to accelerate development of these types of environmental order to accelerate development of these types of environmental features and advanced safety technologies. Furthermore, in order features and advanced safety technologies. Furthermore, in order to optimize management resource allocation throughout the to optimize management resource allocation throughout the Group, and to expand development resources in our Automotive Group, and to expand development resources in our Automotive Business, we decided to integrate our Industrial Products Business, we decided to integrate our Industrial Products Company into our Automobiles Division in October 2016. Existing Company into our Automobiles Division in October 2016. Existing production, sales, and service in our Industrial Products Company production, sales, and service in our Industrial Products Company will continue for the duration, though development projects will be will continue for the duration, though development projects will be idled and management resources such as development personnel idled and management resources such as development personnel will be shifted to the Automobiles Division. will be shifted to the Automobiles Division. Company name change / business integration Fuji Heavy Industries Ltd. Automobiles Division Aerospace Company Industrial Products Company Subaru Corporation Automobiles Division Industrial Products Division Aerospace Company 13 Sales Strategy in the U.S. increase the number of units sold at each dealer. Our sales plan for increase the number of units sold at each dealer. Our sales plan for production subsidiary Subaru of Indiana Automotive, Inc. (SIA), in production subsidiary Subaru of Indiana Automotive, Inc. (SIA), in Expanding production capacity and strengthening our dealer service framework to meet customer expectations. the U.S. in calendar year 2016 is 615,000 cars, approximately 1,000 the U.S. in calendar year 2016 is 615,000 cars, approximately 1,000 order to meet sales growth in North America. Production of the order to meet sales growth in North America. Production of the cars per dealer, though somewhere around 750,000 cars should be cars per dealer, though somewhere around 750,000 cars should be Outback model will commence from July 2016, after SIA ends Outback model will commence from July 2016, after SIA ends possible by boosting the per-dealer number to approximately 1,200 possible by boosting the per-dealer number to approximately 1,200 consignment production of the Toyota Camry, and we will take consignment production of the Toyota Camry, and we will take units. In order to provide sales support for our local dealers, we units. In order to provide sales support for our local dealers, we early steps to relieve supply shortfalls. Also, production capacity early steps to relieve supply shortfalls. Also, production capacity plan to introduce a three-row crossover as a new model in North plan to introduce a three-row crossover as a new model in North at SIA will be expanded nearly twofold—from 200,000 units to at SIA will be expanded nearly twofold—from 200,000 units to America in 2018. America in 2018. approximately 400,000 units by the end of 2016. approximately 400,000 units by the end of 2016. Local dealers in the U.S., our most important market, have Local dealers in the U.S., our most important market, have Meanwhile, our Subaru incentive program was the lowest in Meanwhile, our Subaru incentive program was the lowest in In the U.S. market, all Subaru models equipped with In the U.S. market, all Subaru models equipped with reported that they could increase sales and seize a 5% market reported that they could increase sales and seize a 5% market the industry, approximately $900/vehicle for FYE March 2016, the industry, approximately $900/vehicle for FYE March 2016, EyeSight have received top marks in safety evaluations by the EyeSight have received top marks in safety evaluations by the share if our supply were sufﬁcient. In light of our current 3.4% share if our supply were sufﬁcient. In light of our current 3.4% which is far less expensive than the industry average of around which is far less expensive than the industry average of around U.S. rating agency IIHS. This and other factors have solidiﬁed an U.S. rating agency IIHS. This and other factors have solidiﬁed an market share, 5% might be a bit over-optimistic, but I believe 4% market share, 5% might be a bit over-optimistic, but I believe 4% $3,000/vehicle. Considering that incentives are on a growth $3,000/vehicle. Considering that incentives are on a growth image that “Subaru = safety and security,” which I think has led image that “Subaru = safety and security,” which I think has led is entirely reasonable. If total vehicle demand in the U.S. is 17 is entirely reasonable. If total vehicle demand in the U.S. is 17 trajectory for the industry as a whole, we forecast a year-on-year trajectory for the industry as a whole, we forecast a year-on-year to our current deep-rooted demand. Going forward, we intend of to our current deep-rooted demand. Going forward, we intend of million cars, that puts us at 680,000 units. If overall demand grows million cars, that puts us at 680,000 units. If overall demand grows increase, rising to $1,100 for the full year, for FYE March 2017. increase, rising to $1,100 for the full year, for FYE March 2017. course to provide high quality, safe vehicles, while also striving to course to provide high quality, safe vehicles, while also striving to slightly, that number could rise to 700,000, so I would ﬁrst like to slightly, that number could rise to 700,000, so I would ﬁrst like to However, we still do not intend to grow sales by competing on However, we still do not intend to grow sales by competing on strengthen our service framework enabling us to deliver strengthen our service framework enabling us to deliver increase our units sold to equal about a 4% market share in the increase our units sold to equal about a 4% market share in the price and will continue to sell vehicles with a low incentive price and will continue to sell vehicles with a low incentive after-sales service that will delight new Subaru customers. after-sales service that will delight new Subaru customers. next few years. We are basically not planning to increase the next few years. We are basically not planning to increase the program going forward. program going forward. number of dealers from the current 625 dealers, but rather to number of dealers from the current 625 dealers, but rather to Additionally, we are expanding production capacity at our U.S. Additionally, we are expanding production capacity at our U.S. Changes in the number of dealers Units sold per dealer (Units) 1,000 No. of dealers 984 (Dealers) 800 (1,000 units) 640 932 Changes in the number of retail sales units LEGACY IMPREZA FORESTER TRIBECA WRX BRZ 618 621 827 621 625 625 621 684 600 480 615 583 5 34 514 8 1 25 160 129 175 156 425 9 2 124 131 336 4 2 76 89 165 160 191 213 400 320 267 200 160 3 76 41 147 542 500 430 750 250 0 2011 2012 2013 2014 2015 0 2011 2012 2013 2014 2015 2016 (Planned) 0 (CY) 2016 (Planned) (CY) A Word about CSR Management Aiming to be a company that is continually trusted by society as we boost the quality of our management. For FHI to achieve sustainable growth into the future, we must For FHI to achieve sustainable growth into the future, we must fulﬁll our corporate role of social responsibility and continue to be fulﬁll our corporate role of social responsibility and continue to be a company that constantly earns the trust and support of a broad a company that constantly earns the trust and support of a broad group of stakeholders. To that end, it is vital to boost the overall group of stakeholders. To that end, it is vital to boost the overall quality of our corporate management to yet another level. quality of our corporate management to yet another level. In the automotive business, we cannot deliver “enjoyment In the automotive business, we cannot deliver “enjoyment and peace of mind” to customers unless we provide sufﬁcient and peace of mind” to customers unless we provide sufﬁcient quality, even if our cars are equipped with safety features at the quality, even if our cars are equipped with safety features at the world’s highest standards. Amid continuing robust sales, world’s highest standards. Amid continuing robust sales, primarily in North America, maximum capacity operations have primarily in North America, maximum capacity operations have become standard operations for each of our production sites in become standard operations for each of our production sites in recent years. However, it is absolutely inexcusable for quality recent years. However, it is absolutely inexcusable for quality control to suffer as production accelerates. Our production units control to suffer as production accelerates. Our production units are thoroughly aware of their responsibility to stop the line if they are thoroughly aware of their responsibility to stop the line if they are not absolutely conﬁdent in the quality of products. are not absolutely conﬁdent in the quality of products. Additionally, as society directs Additionally, as society directs increased attention to increased attention to corporate governance, FHI has been incorporating outside corporate governance, FHI has been incorporating outside directors and auditors. Their participation has helped reﬂect directors and auditors. Their participation has helped reﬂect stakeholder opinions to a greater extent in our business stakeholder opinions to a greater extent in our business management. When putting together the Corporate Governance management. When putting together the Corporate Governance Guidelines we formulated last year, outside directors and Guidelines we formulated last year, outside directors and auditors also took an active role in providing advice. Their auditors also took an active role in providing advice. Their participation greatly contributes to further establishing our participation greatly contributes to further establishing our corporate governance framework and increasing corporate value. corporate governance framework and increasing corporate value. Under our new name of Subaru Corporation, management Under our new name of Subaru Corporation, management and Group employees alike will ensure thorough compliance with and Group employees alike will ensure thorough compliance with laws and regulations, conduct themselves responsibly every day, laws and regulations, conduct themselves responsibly every day, and continue to strive for even greater brand and corporate value. and continue to strive for even greater brand and corporate value. Thank you for your support and feedback going forward. Thank you for your support and feedback going forward. FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016Message from our CFO We will keep our industry-leading profit margin while aiming for sustainable growth and continuous return of profit to shareholders. In FYE March 2016, FHI (on a consolidated basis) posted record was 423.0 billion yen (at an exchange rate of 108 yen/US$) and operating margin (assuming an exchange rate of 100 yen/US$), in high levels for the fourth straight year in net sales and all income 565.6 billion yen for FYE March 2016 (121 yen/US$). Assumptions of addition to increased investment in R&D and capital expenditures. categories. Operating proﬁt came to 565.6 billion yen, an increase an exchange rate of 105 yen/US$ for FYE March 2017 have us The new plan demonstrates our management’s resolve to of 142.5 billion yen year on year. 108.4 billion yen of that amount expecting operating proﬁt of 420.0 billion yen for that period, implement the investment necessary to achieve sustainable was from advantageous exchange rates; however, I see the result producing a projected 3-year total of 1,400 billion yen*. Recalculating growth, while also maintaining our industry-leading operating proﬁt as extremely favorable, given that the actual ﬁgure excluding gains using the initially projected exchange rate of 95 yen/US$ yields margin going forward. 95 yen/US$) in our 3-year forecast for consolidated results (FYE been consistently strengthened according to our plans. March 2015-2017). This year, we formulated a new 3-year forecast for consolidated Current exchange rate ﬂuctuations, however, show a shift in results (FYE March 2017-2019). We are planning for net sales of the direction of a weaker yen; operating proﬁt for FYE March 2015 9,800 billion yen, operating proﬁt of 1,100 billion yen, and an 11.2% Mitsuru Takahashi Director of the Board Corporate Executive Vice President and CFO on foreign exchange was a 34.1 billion yen increase. 870.0 billion yen, which underperforms the target of 1,000 billion In the Company’s “Prominence 2020” mid-term management yen. However, this amount includes systematically increased vision, we are targeting 3-year total net sales of 8,000 billion yen and investments in future growth through greater R&D and capital operating proﬁt of 1,000 billion yen (assuming an exchange rate of expenditures, and we are conﬁdent that our real proﬁtability has 14 Given that exchange rate gains led the Company to expect signiﬁcant over-performance in FYE March 2015-2016, we boosted investment in R&D expenses above our initial plan. Background factors prompting this decision included the intensifying R&D competition surrounding environmental features and automated driving. Heading into 2020, major global markets appear set to further strengthen their exhaust and fuel efﬁciency regulations, as seen by the expanded scope of ZEV (Zero Emission Vehicle) regulations for 2018 in the U.S. (primarily in California). At the same time, readers are no doubt aware that development and demonstration of automated driving technologies is being actively implemented by the world’s major automobile manufacturers and IT companies. FHI is proud of our industry-leading EyeSight technology for preventing accidents before they occur. We aim to preserve that leading position by evolving our EyeSight technology further as well as achieve automated driving in quintessentially Subaru fashion. At the same time, we are aware that we still have gains to be made in order to catch up with industry frontrunners in terms of environmental features such as electriﬁcation. FHI has efﬁciently produced results with what was a comparatively low level of R&D investment. Going forward, however, I think it is no surprise that much more robust investment will be needed to clear the two signiﬁcant technological hurdles of environmental features and automated driving. Furthermore, considering the continued vehicle supply shortfalls, primarily in North America, larger capital expenditures are also indispensable for expanding production capacity. We project production capacity of 400,000 vehicles (which is nearly a two-fold increase) in the U.S. by the end of 2016, and plan for further capital expenditures beyond that in order to meet demand. FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016Message from our CFO We will strive to strengthen real profitability, excluding gains on foreign exchange, while aiming for 1,100 billion yen in operating income over the next three years. In FYE March 2016, FHI (on a consolidated basis) posted record high levels for the fourth straight year in net sales and all income categories. Operating proﬁt came to 565.6 billion yen, an increase of 142.5 billion yen year on year. 108.4 billion yen of that amount was from advantageous exchange rates; however, I see the result as extremely favorable, given that the actual ﬁgure excluding gains on foreign exchange was a 34.1 billion yen increase. In the Company’s “Prominence 2020” mid-term management vision, we are targeting 3-year total net sales of 8,000 billion yen and operating proﬁt of 1,000 billion yen (assuming an exchange rate of 95 yen/US$) in our 3-year forecast for consolidated results (FYE March 2015-2017). Current exchange rate ﬂuctuations, however, show a shift in the direction of a weaker yen; operating proﬁt for FYE March 2015 was 423.0 billion yen (at an exchange rate of 108 yen/US$) and 565.6 billion yen for FYE March 2016 (121 yen/US$). Assumptions of an exchange rate of 105 yen/US$ for FYE March 2017 have us expecting operating proﬁt of 420.0 billion yen for that period, producing a projected 3-year total of 1,400 billion yen*. Recalculating using the initially projected exchange rate of 95 yen/US$ yields 870.0 billion yen, which underperforms the target of 1,000 billion yen. However, this amount includes systematically increased investments in future growth through greater R&D and capital expenditures, and we are conﬁdent that our real proﬁtability has been consistently strengthened according to our plans. This year, we formulated a new 3-year forecast for consolidated results (FYE March 2017-2019). We are planning for net sales of 9,800 billion yen, operating proﬁt of 1,100 billion yen, and an 11.2% operating margin (assuming an exchange rate of 100 yen/US$), in addition to increased investment in R&D and capital expenditures. The new plan demonstrates our management’s resolve to implement the investment necessary to achieve sustainable growth, while also maintaining our industry-leading operating proﬁt margin going forward. *Figures in projections for FYE March 2017 were announced May 12, 2016, then revised August 3, 2016. For details, please see the Company website (http://www.fhi.co.jp/english/ir/index.html). FYE March 2016: Analysis of Increase and Decrease in Operating Income Changes (consolidated) (Billions of yen) Cost reduction +33.1 Improvement of sales volume & mixture and others +58.8 Gain on currency exchange +108.4 423.0 565.6 –39.0 SG&A expenses and others –18.8 R&D expenses Three-Year Business Operation / Profit Plan (Total of FYE March 2017-2019) FYE March 2017 Consolidated Operating Plan (¥100/US$) Net sales 9.8 trillion yen Original plan (announced May 12, 2016) Revised plan (announced August 3, 2016) Operating Income 1.1 trillion yen Net sales 3,170 billion yen 3,190 billion yen Operating Margin 11.2% Operating Income 420 billion yen 400 billion yen R&D expenses 360 billion yen (+29%) Ordinary Income 420 billion yen 410 billion yen Capital expenses 470 billion yen (+18%) Net income attributable to owners of parent 293 billion yen 285 billion yen Depreciation expenses 290 billion yen (+38%) Exchange rate ¥105/US$ ¥106/US$ Operating income FYE March 2015 +142.5 billion yen Operating income FYE March 2016 ( ): vs. previous 3 fiscal-year (FYE March 2017-2019) period 15 Given that exchange rate gains led the Company to expect signiﬁcant over-performance in FYE March 2015-2016, we boosted investment in R&D expenses above our initial plan. Background factors prompting this decision included the intensifying R&D competition surrounding environmental features and automated driving. Heading into 2020, major global markets appear set to further strengthen their exhaust and fuel efﬁciency regulations, as seen by the expanded scope of ZEV (Zero Emission Vehicle) regulations for 2018 in the U.S. (primarily in California). At the same time, readers are no doubt aware that development and demonstration of automated driving technologies is being actively implemented by the world’s major automobile manufacturers and IT companies. FHI is proud of our industry-leading EyeSight technology for preventing accidents before they occur. We aim to preserve that leading position by evolving our EyeSight technology further as well as achieve automated driving in quintessentially Subaru fashion. At the same time, we are aware that we still have gains to be made in order to catch up with industry frontrunners in terms of environmental features such as electriﬁcation. FHI has efﬁciently produced results with what was a comparatively low level of R&D investment. Going forward, however, I think it is no surprise that much more robust investment will be needed to clear the two signiﬁcant technological hurdles of environmental features and automated driving. Furthermore, considering the continued vehicle supply shortfalls, primarily in North America, larger capital expenditures are also indispensable for expanding production capacity. We project production capacity of 400,000 vehicles (which is nearly a two-fold increase) in the U.S. by the end of 2016, and plan for further capital expenditures beyond that in order to meet demand. FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 201695 yen/US$) in our 3-year forecast for consolidated results (FYE been consistently strengthened according to our plans. March 2015-2017). This year, we formulated a new 3-year forecast for consolidated Current exchange rate ﬂuctuations, however, show a shift in results (FYE March 2017-2019). We are planning for net sales of the direction of a weaker yen; operating proﬁt for FYE March 2015 9,800 billion yen, operating proﬁt of 1,100 billion yen, and an 11.2% In FYE March 2016, FHI (on a consolidated basis) posted record was 423.0 billion yen (at an exchange rate of 108 yen/US$) and operating margin (assuming an exchange rate of 100 yen/US$), in high levels for the fourth straight year in net sales and all income 565.6 billion yen for FYE March 2016 (121 yen/US$). Assumptions of addition to increased investment in R&D and capital expenditures. categories. Operating proﬁt came to 565.6 billion yen, an increase an exchange rate of 105 yen/US$ for FYE March 2017 have us The new plan demonstrates our management’s resolve to of 142.5 billion yen year on year. 108.4 billion yen of that amount expecting operating proﬁt of 420.0 billion yen for that period, implement the investment necessary to achieve sustainable was from advantageous exchange rates; however, I see the result producing a projected 3-year total of 1,400 billion yen*. Recalculating growth, while also maintaining our industry-leading operating proﬁt as extremely favorable, given that the actual ﬁgure excluding gains using the initially projected exchange rate of 95 yen/US$ yields margin going forward. on foreign exchange was a 34.1 billion yen increase. 870.0 billion yen, which underperforms the target of 1,000 billion In the Company’s “Prominence 2020” mid-term management yen. However, this amount includes systematically increased vision, we are targeting 3-year total net sales of 8,000 billion yen and investments in future growth through greater R&D and capital operating proﬁt of 1,000 billion yen (assuming an exchange rate of expenditures, and we are conﬁdent that our real proﬁtability has Current free cash ﬂows are judged to be at a level sufﬁcient for maintaining the Company’s sustained growth, though we would like to adjust our cash position going forward so that we maintain a healthy ﬁnancial standing, while keeping the balance with ROE in mind. FHI’s fundamental capital policy is to keep a high balance between shareholders’ equity and ROE. ROE for FYE March 2016 reached the very high level of 36.9%, though this was due to uncommon circumstances and is forecast to decline with time. We see strategic capital costs at approximately 8% and we would like to maintain ROE at roughly twice that for as long as possible. dividend. We plan to retire all of the shares bought back. Our possible, dividends cuts from proﬁt ﬂuctuations, and that is the fundamental stance of delivering returns of proﬁt to shareholders reason why we utilize a range for our consolidated payout ratio. through a dividend is unchanged; however, we would also like to In working to be “a high-quality company that is not big in size consider the approach like the share buyback carried out this year but has distinctive strength”—a stance we outlined in our The shareholder returns aspect of FHI’s capital policy is to pay a as an additional means for handling one-time proﬁts that occur. mid-term management vision “Prominence 2020”—FHI aims to continuous dividend while considering performance-linked The annual dividend payment for FYE March 2016 was 144 achieve sustainable growth, maintain our industry-leading level of beneﬁts. The dividend each ﬁscal year is determined based on a yen per share (72-yen half-year and 72-yen year-end dividends), a proﬁtability, increase corporate value, and meet the expectations 20-40% consolidated payout ratio and takes a variety of conditions 76-yen increase year on year. We forecast a dip in proﬁt for FYE of shareholders. into consideration. Based on our policy of paying a continuous March 2017 due to foreign exchange impacts, though we plan to Thank you for your understanding and ongoing support for dividend, we decided to use nearly the same amount as the maintain the 144-yen (72-yen half-year and 72-yen year-end) the future. one-time proﬁt (48.2 billion yen) gained from the Ministry of dividend per share by raising the payout ratio. While we link our Defense helicopter lawsuit for a share buyback, as opposed to a dividend with performance results, we aim to avoid, as much as Message from our CFO Expanding investment in future growth, while maintaining our industry-leading operating profit margin. Balancing shareholders’ equity and ROE at high levels, while maintaining an optimal cash position. In tandem with our performance growth, FHI’s capacity for cash ﬂow generation is steadily increasing. Free cash ﬂows for FYE March 2016 were 358.6 billion yen. This was a marked increase over FYE March 2015 (138.8 billion yen), which had special temporary factors including a cash-out equivalent to a year and half of corporate taxes, and FYE March 2014 (279.1 billion yen), which saw an almost 50 billion yen cash inﬂow from the sale of Polaris (U.S.) stock and an unrecorded expense of approximately 90 billion yen cash-out for corporate tax, due to net operating loss carryforwards from past terms. Given that exchange rate gains led the Company to expect signiﬁcant over-performance in FYE March 2015-2016, we boosted investment in R&D expenses above our initial plan. Background factors prompting this decision included the intensifying R&D competition surrounding environmental features and automated driving. Heading into 2020, major global markets appear set to further strengthen their exhaust and fuel efﬁciency regulations, as seen by the expanded scope of ZEV (Zero Emission Vehicle) regulations for 2018 in the U.S. (primarily in California). At the same time, readers are no doubt aware that development and demonstration of automated driving technologies is being actively implemented by the world’s major automobile manufacturers and IT companies. FHI is proud of our industry-leading EyeSight technology for preventing accidents before they occur. We aim to preserve that leading position by evolving our EyeSight technology further as well as achieve automated driving in quintessentially Subaru fashion. At the same time, we are aware that we still have gains to be made in order to catch up with industry frontrunners in terms of environmental features such as electriﬁcation. FHI has efﬁciently produced results with what was a comparatively low level of R&D investment. Going forward, however, I think it is no surprise that much more robust investment will be needed to clear the two signiﬁcant technological hurdles of environmental features and automated driving. Furthermore, considering the continued vehicle supply shortfalls, primarily in North America, larger capital expenditures are also indispensable for expanding production capacity. We project production capacity of 400,000 vehicles (which is nearly a two-fold increase) in the U.S. by the end of 2016, and plan for further capital expenditures beyond that in order to meet demand. Free Cash Flow / Ratio of Shareholders' Equity to Total Assets Years ended March 31 Free Cash Flow Ratio of Shareholders' Equity to Total Assets ROE Years ended March 31 (Billions of yen) 400 (%) 80 (%) 40 358.6 279.1 60 30 46.5 51.8 37.7 40.5 40 20 138.8 95.3 20 10 8.9 33.3 28.3 300 200 100 0 36.9 30.4 29.3 22.9 2012 2013 2014 2015 2016 0 0 2012 2013 2014 2015 2016 16 FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 201695 yen/US$) in our 3-year forecast for consolidated results (FYE 95 yen/US$) in our 3-year forecast for consolidated results (FYE been consistently strengthened according to our plans. been consistently strengthened according to our plans. March 2015-2017). March 2015-2017). This year, we formulated a new 3-year forecast for consolidated This year, we formulated a new 3-year forecast for consolidated Current exchange rate ﬂuctuations, however, show a shift in Current exchange rate ﬂuctuations, however, show a shift in results (FYE March 2017-2019). We are planning for net sales of results (FYE March 2017-2019). We are planning for net sales of the direction of a weaker yen; operating proﬁt for FYE March 2015 the direction of a weaker yen; operating proﬁt for FYE March 2015 9,800 billion yen, operating proﬁt of 1,100 billion yen, and an 11.2% 9,800 billion yen, operating proﬁt of 1,100 billion yen, and an 11.2% In FYE March 2016, FHI (on a consolidated basis) posted record In FYE March 2016, FHI (on a consolidated basis) posted record was 423.0 billion yen (at an exchange rate of 108 yen/US$) and was 423.0 billion yen (at an exchange rate of 108 yen/US$) and operating margin (assuming an exchange rate of 100 yen/US$), in operating margin (assuming an exchange rate of 100 yen/US$), in high levels for the fourth straight year in net sales and all income high levels for the fourth straight year in net sales and all income 565.6 billion yen for FYE March 2016 (121 yen/US$). Assumptions of 565.6 billion yen for FYE March 2016 (121 yen/US$). Assumptions of addition to increased investment in R&D and capital expenditures. addition to increased investment in R&D and capital expenditures. categories. Operating proﬁt came to 565.6 billion yen, an increase categories. Operating proﬁt came to 565.6 billion yen, an increase an exchange rate of 105 yen/US$ for FYE March 2017 have us an exchange rate of 105 yen/US$ for FYE March 2017 have us The new plan demonstrates our management’s resolve to The new plan demonstrates our management’s resolve to of 142.5 billion yen year on year. 108.4 billion yen of that amount of 142.5 billion yen year on year. 108.4 billion yen of that amount expecting operating proﬁt of 420.0 billion yen for that period, expecting operating proﬁt of 420.0 billion yen for that period, implement the investment necessary to achieve sustainable implement the investment necessary to achieve sustainable was from advantageous exchange rates; however, I see the result was from advantageous exchange rates; however, I see the result producing a projected 3-year total of 1,400 billion yen*. Recalculating producing a projected 3-year total of 1,400 billion yen*. Recalculating growth, while also maintaining our industry-leading operating proﬁt growth, while also maintaining our industry-leading operating proﬁt as extremely favorable, given that the actual ﬁgure excluding gains as extremely favorable, given that the actual ﬁgure excluding gains using the initially projected exchange rate of 95 yen/US$ yields using the initially projected exchange rate of 95 yen/US$ yields margin going forward. margin going forward. on foreign exchange was a 34.1 billion yen increase. on foreign exchange was a 34.1 billion yen increase. 870.0 billion yen, which underperforms the target of 1,000 billion 870.0 billion yen, which underperforms the target of 1,000 billion In the Company’s “Prominence 2020” mid-term management In the Company’s “Prominence 2020” mid-term management yen. However, this amount includes systematically increased yen. However, this amount includes systematically increased vision, we are targeting 3-year total net sales of 8,000 billion yen and vision, we are targeting 3-year total net sales of 8,000 billion yen and investments in future growth through greater R&D and capital investments in future growth through greater R&D and capital operating proﬁt of 1,000 billion yen (assuming an exchange rate of operating proﬁt of 1,000 billion yen (assuming an exchange rate of expenditures, and we are conﬁdent that our real proﬁtability has expenditures, and we are conﬁdent that our real proﬁtability has Message from our CFO Message from our CFO Expanding investment in future growth, while Balancing shareholders’ equity and ROE at high levels, maintaining our industry-leading operating profit margin. while maintaining an optimal cash position. Current free cash ﬂows are judged to be at a level sufﬁcient Current free cash ﬂows are judged to be at a level sufﬁcient for maintaining the Company’s sustained growth, though we for maintaining the Company’s sustained growth, though we would like to adjust our cash position going forward so that we would like to adjust our cash position going forward so that we Given that exchange rate gains led the Company to expect signiﬁcant Given that exchange rate gains led the Company to expect signiﬁcant In tandem with our performance growth, FHI’s capacity for cash ﬂow In tandem with our performance growth, FHI’s capacity for cash ﬂow maintain a healthy ﬁnancial standing, while keeping the balance maintain a healthy ﬁnancial standing, while keeping the balance over-performance in FYE March 2015-2016, we boosted investment over-performance in FYE March 2015-2016, we boosted investment generation is steadily increasing. Free cash ﬂows for FYE March 2016 generation is steadily increasing. Free cash ﬂows for FYE March 2016 with ROE in mind. with ROE in mind. in R&D expenses above our initial plan. Background factors in R&D expenses above our initial plan. Background factors were 358.6 billion yen. This was a marked increase over FYE March were 358.6 billion yen. This was a marked increase over FYE March FHI’s fundamental capital policy is to keep a high balance FHI’s fundamental capital policy is to keep a high balance prompting this decision included the intensifying R&D competition prompting this decision included the intensifying R&D competition 2015 (138.8 billion yen), which had special temporary factors including 2015 (138.8 billion yen), which had special temporary factors including between shareholders’ equity and ROE. ROE for FYE March 2016 between shareholders’ equity and ROE. ROE for FYE March 2016 surrounding environmental features and automated driving. surrounding environmental features and automated driving. a cash-out equivalent to a year and half of corporate taxes, and FYE a cash-out equivalent to a year and half of corporate taxes, and FYE reached the very high level of 36.9%, though this was due to reached the very high level of 36.9%, though this was due to Heading into 2020, major global markets appear set to further Heading into 2020, major global markets appear set to further March 2014 (279.1 billion yen), which saw an almost 50 billion yen March 2014 (279.1 billion yen), which saw an almost 50 billion yen uncommon circumstances and is forecast to decline with time. uncommon circumstances and is forecast to decline with time. strengthen their exhaust and fuel efﬁciency regulations, as seen strengthen their exhaust and fuel efﬁciency regulations, as seen cash inﬂow from the sale of Polaris (U.S.) stock and an unrecorded cash inﬂow from the sale of Polaris (U.S.) stock and an unrecorded We see strategic capital costs at approximately 8% and we would We see strategic capital costs at approximately 8% and we would by the expanded scope of ZEV (Zero Emission Vehicle) regulations by the expanded scope of ZEV (Zero Emission Vehicle) regulations expense of approximately 90 billion yen cash-out for corporate tax, expense of approximately 90 billion yen cash-out for corporate tax, like to maintain ROE at roughly twice that for as long as possible. like to maintain ROE at roughly twice that for as long as possible. for 2018 in the U.S. (primarily in California). At the same time, for 2018 in the U.S. (primarily in California). At the same time, due to net operating loss carryforwards from past terms. due to net operating loss carryforwards from past terms. Achieving continuous dividend payments within a 20-40% consolidated payout ratio range linked with performance results. The shareholder returns aspect of FHI’s capital policy is to pay a The shareholder returns aspect of FHI’s capital policy is to pay a continuous dividend while considering performance-linked continuous dividend while considering performance-linked beneﬁts. The dividend each ﬁscal year is determined based on a beneﬁts. The dividend each ﬁscal year is determined based on a 20-40% consolidated payout ratio and takes a variety of conditions 20-40% consolidated payout ratio and takes a variety of conditions into consideration. Based on our policy of paying a continuous into consideration. Based on our policy of paying a continuous dividend, we decided to use nearly the same amount as the dividend, we decided to use nearly the same amount as the one-time proﬁt (48.2 billion yen) gained from the Ministry of one-time proﬁt (48.2 billion yen) gained from the Ministry of Defense helicopter lawsuit for a share buyback, as opposed to a Defense helicopter lawsuit for a share buyback, as opposed to a dividend. We plan to retire all of the shares bought back. Our dividend. We plan to retire all of the shares bought back. Our fundamental stance of delivering returns of proﬁt to shareholders fundamental stance of delivering returns of proﬁt to shareholders through a dividend is unchanged; however, we would also like to through a dividend is unchanged; however, we would also like to consider the approach like the share buyback carried out this year consider the approach like the share buyback carried out this year as an additional means for handling one-time proﬁts that occur. as an additional means for handling one-time proﬁts that occur. The annual dividend payment for FYE March 2016 was 144 The annual dividend payment for FYE March 2016 was 144 yen per share (72-yen half-year and 72-yen year-end dividends), a yen per share (72-yen half-year and 72-yen year-end dividends), a 76-yen increase year on year. We forecast a dip in proﬁt for FYE 76-yen increase year on year. We forecast a dip in proﬁt for FYE March 2017 due to foreign exchange impacts, though we plan to March 2017 due to foreign exchange impacts, though we plan to maintain the 144-yen (72-yen half-year and 72-yen year-end) maintain the 144-yen (72-yen half-year and 72-yen year-end) dividend per share by raising the payout ratio. While we link our dividend per share by raising the payout ratio. While we link our dividend with performance results, we aim to avoid, as much as dividend with performance results, we aim to avoid, as much as possible, dividends cuts from proﬁt ﬂuctuations, and that is the possible, dividends cuts from proﬁt ﬂuctuations, and that is the reason why we utilize a range for our consolidated payout ratio. reason why we utilize a range for our consolidated payout ratio. In working to be “a high-quality company that is not big in size In working to be “a high-quality company that is not big in size but has distinctive strength”—a stance we outlined in our but has distinctive strength”—a stance we outlined in our mid-term management vision “Prominence 2020”—FHI aims to mid-term management vision “Prominence 2020”—FHI aims to achieve sustainable growth, maintain our industry-leading level of achieve sustainable growth, maintain our industry-leading level of proﬁtability, increase corporate value, and meet the expectations proﬁtability, increase corporate value, and meet the expectations of shareholders. of shareholders. Thank you for your understanding and ongoing support for Thank you for your understanding and ongoing support for the future. the future. fashion. At the same time, we are aware that we still have gains to fashion. At the same time, we are aware that we still have gains to Free Cash Flow / Ratio of Shareholders' Equity to Total Assets ROE be made in order to catch up with industry frontrunners in terms of be made in order to catch up with industry frontrunners in terms of environmental features such as electriﬁcation. environmental features such as electriﬁcation. Years ended March 31 Free Cash Flow (Billions of yen) FHI has efﬁciently produced results with what was a FHI has efﬁciently produced results with what was a 400 Ratio of Shareholders' Equity to Total Assets Years ended March 31 (%) 80 (%) 40 358.6 readers are no doubt aware that development and demonstration readers are no doubt aware that development and demonstration of automated driving technologies is being actively implemented of automated driving technologies is being actively implemented by the world’s major automobile manufacturers and IT companies. by the world’s major automobile manufacturers and IT companies. FHI is proud of our industry-leading EyeSight technology for FHI is proud of our industry-leading EyeSight technology for preventing accidents before they occur. We aim to preserve that preventing accidents before they occur. We aim to preserve that leading position by evolving our EyeSight technology further as leading position by evolving our EyeSight technology further as well as achieve automated driving in quintessentially Subaru well as achieve automated driving in quintessentially Subaru comparatively low level of R&D investment. Going forward, comparatively low level of R&D investment. Going forward, however, I think it is no surprise that much more robust investment however, I think it is no surprise that much more robust investment will be needed to clear the two signiﬁcant technological hurdles of will be needed to clear the two signiﬁcant technological hurdles of environmental features and automated driving. environmental features and automated driving. Furthermore, considering the continued vehicle supply Furthermore, considering the continued vehicle supply shortfalls, primarily in North America, larger capital expenditures shortfalls, primarily in North America, larger capital expenditures are also indispensable for expanding production capacity. We are also indispensable for expanding production capacity. We project production capacity of 400,000 vehicles (which is nearly a project production capacity of 400,000 vehicles (which is nearly a two-fold increase) in the U.S. by the end of 2016, and plan for two-fold increase) in the U.S. by the end of 2016, and plan for further capital expenditures beyond that in order to meet demand. further capital expenditures beyond that in order to meet demand. 36.9 30.4 29.3 22.9 279.1 60 30 46.5 51.8 37.7 40.5 40 20 138.8 95.3 20 10 8.9 300 200 100 0 33.3 28.3 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 0 0 (yen) 150 120 90 60 30 0 Dividend per share / Dividend Payout Ratio Years ended March 31 Dividend per share Dividend Payout Ratio 144 (%) 30 25.7 20.0 20.3 68 53 18.3 9 9.8 15 2012 2013 2014 2015 2016 20 10 0 17 FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016The roots of Fuji Heavy Industries lie in the Nakajima Aircraft putting it at the forefront of a global trend to switch to front-wheel- Company as an aircraft manufacturer. Founded in 1917 makes next drive on compact vehicles. year our 100th year anniversary. A great number of airplanes were In Japan, frontal crash safety standards started to be applied in developed and produced in the days of the Nakajima Aircraft April, 1994 but if we take a look back 29 years prior to this, Subaru Company. The uncompromising pursuit of safety performance and had already been working on frontal crash safety testing voluntarily rational design that had developed because of the fact that we on the “Subaru 360” since 1965. Following this, based on a safety were an airplane manufacturer has been passed down over concept to protect not only the driver but also the passengers as generations as the car making DNA of Subaru. well as pedestrians, crash safety data in various forms such as The “Subaru 360” is a mini vehicle that was released in 1958 rollovers and rear end collisions has been accumulated as we have but, regardless of being a mini vehicle, it was the ﬁrst time anyone continued with development of unique safety technologies to had adopted a monocoque body in Japan to realize a revolutionary where we stand now. package that ﬁt four adult passengers comfortably while keeping In this way, here at Subaru, where we have worked on safety the vehicle compact and lightweight. The “Subaru 1000,” that was for over half a century, we currently view safety for car making released in 1966, adopted an all-aluminum horizontally-opposed from four angles: “Primary Safety,” “Active Safety,” “Pre-Collision four-cylinder engine and a front-engine front-wheel-drive system, Safety,” and “Passive Safety.” “Primary Safety,” “Active Safety,” and “Pre-Collision Safety” are technologies that have the purpose of avoiding an accident before it happens and “Passive Safety” is technologies that have the purpose of minimizing damage in the event of an accident. In “Primary Safety,” we develop vehicles with evaluation criteria in designing such as excellent visibility, driving positions that make driving easy, intuitive interfaces, etc. so that driver fatigue is reduced, allowing the driver to concentrate on driving with peace of mind. “Active Safety” features the low center of gravity design of the body that takes advantage of the horizontally-opposed engine and symmetrical AWD that makes sure-footed driving possible in a wide variety of road surface conditions. Having a low center of gravity makes it easy for anyone to drive straight with peace of mind and corner smoothly. In terms of “Pre-Collision Safety,” the core technology is Special Feature Innovativeness of the Subaru Global Platform that will Serve as the Backbone of Next Generation Automobile Manufacturing Subaru has provided “enjoyment and peace of mind” to customers around the world through “Human Centered Automobile Manufacturing.” The core technology that will greatly evolve Subaru’s next generation automobile manufacturing is the “Subaru Global Platform.” SUBARU GLOBAL PLATFORM 18 vehicles feel the enjoyment, we have placed importance on the The EyeSight that has been well received by customers for “feelings” of customers in the developments. We have improved safety will also continue to improve safety levels going forward. “enhanced dynamic feel” of the vehicle so the enjoyment and how The EyeSight will also react to and stop for bicycles that are great it feels to drive straight and take turns intuitively could be felt encountered in intersections, and provide automated driving that with the senses. can also cover lane changes on expressways on a mass production To have the user feel a sense of security the moment he/she vehicle. Of course, automated driving for Subaru does not mean steps into the vehicle, sits downs, and closes the door. To have the unmanned driving; it is automated driving that is centered on the user feel a solid rumble when turning the engine on and feel that customer. It will also be fun and safe automated driving. smoothness as he/she steps on the accelerator pedal and starts to pull All of the functions described above have been incorporated away from a stop. The vehicle runs so straight that the customer on vehicles with the Subaru Global Platform. forgets about the existence of the steering wheel and when cornering, It is a platform that polishes up on the world’s highest level of the vehicle turns exactly in line with the image that the customer has safety performance, realizes safety performance that anticipates in mind when a turning maneuver is made on the steering wheel. To 2025 that not only will have high performance but have a have the car move linearly interlocked to what the customer has in performance feel of movement that ﬁts the human senses that mind. This kind of relationship with the vehicle is what we have can be understood by users the moment they step into the vehicle prepared in our vehicles so that the enjoyment can be truly felt. and that point in time that the car takes off. This platform will also Moreover, to expand extend the enjoyment of customers be able to accommodate electriﬁcation as well as electric vehicles further from the perspective of making “living life” for our that will be key for future environment requirement compliance customers richer, we eliminate or avoid unnecessary packaging, and furthermore will also be incorporated into automated driving. pursue and utility, and have developed a vehicle that will be able to The Subaru Global Platform will be equipped on the next “EyeSight.” It is a system that recognizes what is in front of the work in various situations with customers. generation Impreza that will be released for sale this fall, then it will vehicle with two cameras that function similarly to human eyes In addition to the development of new small displacement turbo be adopted on all independently developed vehicles by Subaru. to provide safe protection with the car in front, pedestrians, and engines that realizes signiﬁcant fuel economy efﬁciency and hybrids Designs of cars that express these functionalities are designs bicycles. Last year, actual market results were released showing (HV) that many of our current customers still use, we are also that exude the “enjoyment and peace of mind” of Subaru. Integrated a 61% reduction in accidents resulting in human injury or death developing Plug-In Hybrid Electric Vehicles (PHEV) that can also be under a concept called DYNAMIC×SOLID that comes with a lively for vehicles equipped with EyeSight. Subaru will continue to charged at home that is now under development for the US market and solid feel that has the Subaru touch, all Subaru vehicles will have evolve “EyeSight” greatly going forward and focus our efforts on and Electric Vehicles (EV) that aiming for a market launch in 2021. the uniﬁed design to be brought to our customers everywhere. protecting the lives of Subaru customers around the world. In terms of “Passive Safety,” even if a crash was to take place, with the key concept of protecting the integrity of the cabin by smoothly crushing the front zone of the vehicle in an extremely short amount of time in mind, we develop a collision system that can adeptly cope with the actual market. Subaru has continued to research crash safety performance independently since the days of the “Subaru 360” and has garnered the highest level of rating in all safety performance tests performed by third parties in countries around the world. Synchronized with the making of cars built with a safety concept as reliable technologies as the fundamentals of the vehicle, we follow the “Human Centered Automobile Manufacturing” concept so that the customers that use our FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016Special Feature Innovativeness of the Subaru Global Platform that will Serve as the Backbone of Next Generation Automobile Manufacturing The DNA of Subaru that Underlies the Subaru Global Platform Facilitates “Enjoyment and Peace of Mind” Naoto Muto Director of the Board Corporate Executive Vice President The roots of Fuji Heavy Industries lie in the Nakajima Aircraft Company as an aircraft manufacturer. Founded in 1917 makes next year our 100th year anniversary. A great number of airplanes were developed and produced in the days of the Nakajima Aircraft Company. The uncompromising pursuit of safety performance and rational design that had developed because of the fact that we were an airplane manufacturer has been passed down over generations as the car making DNA of Subaru. The “Subaru 360” is a mini vehicle that was released in 1958 but, regardless of being a mini vehicle, it was the ﬁrst time anyone had adopted a monocoque body in Japan to realize a revolutionary package that ﬁt four adult passengers comfortably while keeping the vehicle compact and lightweight. The “Subaru 1000,” that was released in 1966, adopted an all-aluminum horizontally-opposed four-cylinder engine and a front-engine front-wheel-drive system, The Roots of Fuji Heavy Industries: The DNA of an Airplane Manufacturer Pursuit of ultimate performance Condensed vehicle package without waste Uncompromising pursuit of safety in any environment 19 putting it at the forefront of a global trend to switch to front-wheel- drive on compact vehicles. In Japan, frontal crash safety standards started to be applied in April, 1994 but if we take a look back 29 years prior to this, Subaru had already been working on frontal crash safety testing voluntarily on the “Subaru 360” since 1965. Following this, based on a safety concept to protect not only the driver but also the passengers as well as pedestrians, crash safety data in various forms such as rollovers and rear end collisions has been accumulated as we have continued with development of unique safety technologies to where we stand now. In this way, here at Subaru, where we have worked on safety for over half a century, we currently view safety for car making from four angles: “Primary Safety,” “Active Safety,” “Pre-Collision Safety,” and “Passive Safety.” “Primary Safety,” “Active Safety,” and “Pre-Collision Safety” are technologies that have the purpose of avoiding an accident before it happens and “Passive Safety” is technologies that have the purpose of minimizing damage in the event of an accident. In “Primary Safety,” we develop vehicles with evaluation criteria in designing such as excellent visibility, driving positions that make driving easy, intuitive interfaces, etc. so that driver fatigue is reduced, allowing the driver to concentrate on driving with peace of mind. “Active Safety” features the low center of gravity design of the body that takes advantage of the horizontally-opposed engine and symmetrical AWD that makes sure-footed driving possible in a wide variety of road surface conditions. Having a low center of gravity makes it easy for anyone to drive straight with peace of mind and corner smoothly. In terms of “Pre-Collision Safety,” the core technology is SUBARU GLOBAL PLATFORM vehicles feel the enjoyment, we have placed importance on the The EyeSight that has been well received by customers for “feelings” of customers in the developments. We have improved safety will also continue to improve safety levels going forward. “enhanced dynamic feel” of the vehicle so the enjoyment and how The EyeSight will also react to and stop for bicycles that are great it feels to drive straight and take turns intuitively could be felt encountered in intersections, and provide automated driving that with the senses. can also cover lane changes on expressways on a mass production To have the user feel a sense of security the moment he/she vehicle. Of course, automated driving for Subaru does not mean steps into the vehicle, sits downs, and closes the door. To have the unmanned driving; it is automated driving that is centered on the user feel a solid rumble when turning the engine on and feel that customer. It will also be fun and safe automated driving. smoothness as he/she steps on the accelerator pedal and starts to pull All of the functions described above have been incorporated away from a stop. The vehicle runs so straight that the customer on vehicles with the Subaru Global Platform. forgets about the existence of the steering wheel and when cornering, It is a platform that polishes up on the world’s highest level of the vehicle turns exactly in line with the image that the customer has safety performance, realizes safety performance that anticipates in mind when a turning maneuver is made on the steering wheel. To 2025 that not only will have high performance but have a have the car move linearly interlocked to what the customer has in performance feel of movement that ﬁts the human senses that mind. This kind of relationship with the vehicle is what we have can be understood by users the moment they step into the vehicle prepared in our vehicles so that the enjoyment can be truly felt. and that point in time that the car takes off. This platform will also Moreover, to expand extend the enjoyment of customers be able to accommodate electriﬁcation as well as electric vehicles further from the perspective of making “living life” for our that will be key for future environment requirement compliance customers richer, we eliminate or avoid unnecessary packaging, and furthermore will also be incorporated into automated driving. pursue and utility, and have developed a vehicle that will be able to The Subaru Global Platform will be equipped on the next “EyeSight.” It is a system that recognizes what is in front of the work in various situations with customers. generation Impreza that will be released for sale this fall, then it will vehicle with two cameras that function similarly to human eyes In addition to the development of new small displacement turbo be adopted on all independently developed vehicles by Subaru. to provide safe protection with the car in front, pedestrians, and engines that realizes signiﬁcant fuel economy efﬁciency and hybrids Designs of cars that express these functionalities are designs bicycles. Last year, actual market results were released showing (HV) that many of our current customers still use, we are also that exude the “enjoyment and peace of mind” of Subaru. Integrated a 61% reduction in accidents resulting in human injury or death developing Plug-In Hybrid Electric Vehicles (PHEV) that can also be under a concept called DYNAMIC×SOLID that comes with a lively for vehicles equipped with EyeSight. Subaru will continue to charged at home that is now under development for the US market and solid feel that has the Subaru touch, all Subaru vehicles will have evolve “EyeSight” greatly going forward and focus our efforts on and Electric Vehicles (EV) that aiming for a market launch in 2021. the uniﬁed design to be brought to our customers everywhere. protecting the lives of Subaru customers around the world. In terms of “Passive Safety,” even if a crash was to take place, with the key concept of protecting the integrity of the cabin by smoothly crushing the front zone of the vehicle in an extremely short amount of time in mind, we develop a collision system that can adeptly cope with the actual market. Subaru has continued to research crash safety performance independently since the days of the “Subaru 360” and has garnered the highest level of rating in all safety performance tests performed by third parties in countries around the world. Synchronized with the making of cars built with a safety concept as reliable technologies as the fundamentals of the vehicle, we follow the “Human Centered Automobile Manufacturing” concept so that the customers that use our FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016The roots of Fuji Heavy Industries lie in the Nakajima Aircraft putting it at the forefront of a global trend to switch to front-wheel- Company as an aircraft manufacturer. Founded in 1917 makes next drive on compact vehicles. year our 100th year anniversary. A great number of airplanes were In Japan, frontal crash safety standards started to be applied in developed and produced in the days of the Nakajima Aircraft April, 1994 but if we take a look back 29 years prior to this, Subaru Company. The uncompromising pursuit of safety performance and had already been working on frontal crash safety testing voluntarily rational design that had developed because of the fact that we on the “Subaru 360” since 1965. Following this, based on a safety were an airplane manufacturer has been passed down over concept to protect not only the driver but also the passengers as generations as the car making DNA of Subaru. well as pedestrians, crash safety data in various forms such as The “Subaru 360” is a mini vehicle that was released in 1958 rollovers and rear end collisions has been accumulated as we have but, regardless of being a mini vehicle, it was the ﬁrst time anyone continued with development of unique safety technologies to had adopted a monocoque body in Japan to realize a revolutionary where we stand now. package that ﬁt four adult passengers comfortably while keeping In this way, here at Subaru, where we have worked on safety the vehicle compact and lightweight. The “Subaru 1000,” that was for over half a century, we currently view safety for car making released in 1966, adopted an all-aluminum horizontally-opposed from four angles: “Primary Safety,” “Active Safety,” “Pre-Collision four-cylinder engine and a front-engine front-wheel-drive system, Safety,” and “Passive Safety.” “Primary Safety,” “Active Safety,” and “Pre-Collision Safety” are technologies that have the purpose of avoiding an accident before it happens and “Passive Safety” is technologies that have the purpose of minimizing damage in the event of an accident. In “Primary Safety,” we develop vehicles with evaluation criteria in designing such as excellent visibility, driving positions that make driving easy, intuitive interfaces, etc. so that driver fatigue is reduced, allowing the driver to concentrate on driving with peace of mind. “Active Safety” features the low center of gravity design of the body that takes advantage of the horizontally-opposed engine and symmetrical AWD that makes sure-footed driving possible in a wide variety of road surface conditions. Having a low center of gravity makes it easy for anyone to drive straight with peace of mind and corner smoothly. In terms of “Pre-Collision Safety,” the core technology is For example, when a driver is driving a vehicle, following the operation of the steering wheel, the forces trying to turn the vehicle is transmitted from the front wheels to the body and there is normally about a one tenth of a second delay that occurs until the The “Subaru Global Platform,” that was developed as a far-sighted vehicle actually starts to change its orientation. Reducing this slight technology in the year 2025, is a new platform that will be adopted delay is what leads to smooth and stable vehicle behavior and on all forthcoming Subaru vehicles that we independently improvements in steering feel. Here at Subaru, we have developed developed starting off with the next generation Impreza. A major our own original sensors, measured suspension inputs in 1/1000 aim of introducing the Subaru Global Platform is to realize second unit intervals and measured strain in 200 locations on the signiﬁcant evolutions in overall performance, that would have been vehicle body to quantify the movements of each part of the vehicle. difﬁcult as just an extension of conventional technologies, by Furthermore, bench testing equipment that reproduces the executing a complete overhaul of the platform, which is the basic movement of the suspension on actual roads was developed and structure of an automobile, and to facilitate “enjoyment and peace development of vehicle elements has also progressed. of mind” which is the greatest appeal of Subaru vehicles. To Taking this kind of fundamental research and elemental accomplish this, the element that the development team poured all developments into consideration, Subaru has established three of their efforts into was simply the pursuit of “enhanced dynamic factors to pursue “enhanced dynamic feel” which are (1) being able feel” that resonates with human senses beyond high performance to drive straight (straight line stability), (2) having no unpleasant and “safety performance” at the highest levels in the world. vibration or noise, and (3) pleasant ride comfort. In order to realize So what is “enhanced dynamic feel?” It is the performance these factors in the Subaru Global Platform development, the work feel that a person driving or riding a car feels, such as operation feel and drive feel while driving, as well as ride comfort. At Subaru, this “enhanced dynamic feel” is captured as a combination of three factors [1] performance feel that is felt when operating the steering wheel and pedals, [2] performance feel that is felt audibly, [3] performance feel that is felt from the movement of the vehicle and as has been done in the past we have pursued a high level of quality that delves into the realm of human sensations such as “smoothness” or “how great it feels.” Furthermore, in the development of the Subaru Global Platform we have attempted to visualize “enhanced dynamic feel” that had been difﬁcult to capture as physical values till now. Safety Philosophy and Four Focus Areas Safe state Hazardous state Accident Collision Spread of damage Hazard avoidance Reduction of damage in an accident Primary Safety - Peace-of-mind visibility design - Easy-to-drive position - Easy-to-operate interface Active Safety - Symmetrical All-Wheel Drive - Low center of gravity - Reassuring chassis Pre-Collision Safety - EyeSight (Significant development with an eye on automated driving) Passive Safety - Protection of vehicle passengers - Protection of pedestrians “EyeSight.” It is a system that recognizes what is in front of the vehicle with two cameras that function similarly to human eyes to provide safe protection with the car in front, pedestrians, and bicycles. Last year, actual market results were released showing a 61% reduction in accidents resulting in human injury or death for vehicles equipped with EyeSight. Subaru will continue to evolve “EyeSight” greatly going forward and focus our efforts on protecting the lives of Subaru customers around the world. In terms of “Passive Safety,” even if a crash was to take place, with the key concept of protecting the integrity of the cabin by smoothly crushing the front zone of the vehicle in an extremely short amount of time in mind, we develop a collision system that can adeptly cope with the actual market. Subaru has continued to research crash safety performance independently since the days of the “Subaru 360” and has garnered the highest level of rating in all safety performance tests performed by third parties in countries around the world. Synchronized with the making of cars built with a safety concept as reliable technologies as the fundamentals of the vehicle, we the “Human Centered Automobile Manufacturing” concept so that the customers that use our follow vehicles feel the enjoyment, we have placed importance on the “feelings” of customers in the developments. We have improved “enhanced dynamic feel” of the vehicle so the enjoyment and how great it feels to drive straight and take turns intuitively could be felt with the senses. To have the user feel a sense of security the moment he/she steps into the vehicle, sits downs, and closes the door. To have the user feel a solid rumble when turning the engine on and feel that smoothness as he/she steps on the accelerator pedal and starts to pull away from a stop. The vehicle runs so straight that the customer forgets about the existence of the steering wheel and when cornering, the vehicle turns exactly in line with the image that the customer has in mind when a turning maneuver is made on the steering wheel. To have the car move linearly interlocked to what the customer has in mind. This kind of relationship with the vehicle is what we have prepared in our vehicles so that the enjoyment can be truly felt. Moreover, to expand extend the enjoyment of customers further from the perspective of making “living life” for our customers richer, we eliminate or avoid unnecessary packaging, pursue and utility, and have developed a vehicle that will be able to work in various situations with customers. In addition to the development of new small displacement turbo engines that realizes signiﬁcant fuel economy efﬁciency and hybrids (HV) that many of our current customers still use, we are also developing Plug-In Hybrid Electric Vehicles (PHEV) that can also be charged at home that is now under development for the US market and Electric Vehicles (EV) that aiming for a market launch in 2021. The EyeSight that has been well received by customers for safety will also continue to improve safety levels going forward. The EyeSight will also react to and stop for bicycles that are encountered in intersections, and provide automated driving that can also cover lane changes on expressways on a mass production vehicle. Of course, automated driving for Subaru does not mean unmanned driving; it is automated driving that is centered on the customer. It will also be fun and safe automated driving. All of the functions described above have been incorporated on vehicles with the Subaru Global Platform. It is a platform that polishes up on the world’s highest level of safety performance, realizes safety performance that anticipates 2025 that not only will have high performance but have a performance feel of movement that ﬁts the human senses that can be understood by users the moment they step into the vehicle and that point in time that the car takes off. This platform will also be able to accommodate electriﬁcation as well as electric vehicles that will be key for future environment requirement compliance and furthermore will also be incorporated into automated driving. The Subaru Global Platform will be equipped on the next generation Impreza that will be released for sale this fall, then it will be adopted on all independently developed vehicles by Subaru. Designs of cars that express these functionalities are designs that exude the “enjoyment and peace of mind” of Subaru. Integrated under a concept called DYNAMIC×SOLID that comes with a lively and solid feel that has the Subaru touch, all Subaru vehicles will have the uniﬁed design to be brought to our customers everywhere. Activities to facilitate enjoyment and peace of mind Platform Driver Assist Technology Design SUBARU GLOBAL PLATFORM Subaru best ever levels of overall performance evolutions to facilitate Subaru’s vehicle manufacturing with enjoyment and peace of mind. To achieve Zero Traffic Accidents Next Generation Subaru Design Uncompromising pursuit of accident avoidance performance with the “EyeSight” as the base. Realize an automated driving function that is centered on the human as a part of this evolution. Shapes that are meaningful that incorporate Subaru characteristic functionality along with a high level of dynamism and solid feel. 20 was focused on “signiﬁcant increases of body and chassis rigidity,” vehicle by 50% compared to present models. of safety performance. Among the four focus areas based on the “pursuit of an even lower center of gravity,” and “evolution of the Through these activities, next generation Subaru vehicles Subaru safety concept, the new platform brings major beneﬁts suspension system.” equipped with the Subaru Global Platform will provide enhanced especially in “Active Safety” and “Passive Safety.” For example, comparing the Subaru Global Platform to current dynamic feel that will surely dominate not only Japanese vehicles In terms of “Active Safety,” signiﬁcant improvements to body the load transmission paths, adoption of high strength material, as well as improving collision energy absorption by 40% versus existing vehicles. These improvements further evolved crash safety performance that had already achieved the highest level of vehicles, improvements have been made to the front body lateral but also top grade European vehicles as well. and chassis rigidity and even lower center of gravity has improved steering stability on Subaru cars that had already been rated highly and had taken it up to the next level. In internal tests, the next generation Impreza danger avoidance speed has exceeded the 84.5 km/h on the existing vehicle considerably at 92.5 km/h which achieves levels comparable to European sports cars. ratings in the world. In the future, compliance to various and For Subaru that has “Human Centered Automobile Manufacturing” diverse forms of crashes will be required, and we believe that at its essence, the ultimate goal for automated driving is not “to collision energy absorption will have to be improved further by have the car drive itself in place of the human” but it is “to aim for more than 30% at around 2025. The Subaru Global Platform is zero trafﬁc accidents” that threaten human life and assets. Based designed to have the potential to be able to comply with these on technical concepts such as these, Subaru will evolve driver improvements by further increasing strength to higher levels, assist and automated driving toward the realization of “Zero Trafﬁc current vehicles. The suspension has also advanced signiﬁcantly by Another major objective of introducing the Subaru Global Platform is At the same time, in terms of “Passive Safety,” body strength expanding adoption of non-ferrous materials, etc. Accidents” by the introduction of the Subaru Global Platform and revising the suspension geometry and improving the rigidity of the further evolution and enhancement of the world’s highest level was raised by optimization of the frame structure, multiplexing of If the rigidity and strength of the vehicle is improved further advances to high performance and high functionality for the signiﬁcantly in this way, it would normally increase weight but driver assist system “EyeSight.” the Subaru Global Platform effectively utilizes the amount of Surveys in Japan have revealed a 61% fewer accidents weight saved due to the rational design, on performance resulting in injury or death for vehicles equipped with the improvements and safety improvements, as a lightweight body “EyeSight Ver. 2” compared to those without it. If the conditions that is on par with conventional Subaru vehicles has been made a of the accidents are broken down further, car-to-car accidents reality. Moreover, in anticipation of the evolution of vehicles up till dropped 80%, broadside collisions dropped 50% to demonstrate 2025, starting with gasoline engine vehicles, hybrid vehicles the beneﬁts the system provides. The latest “EyeSight Ver. 3” that (HEV/PHEV) to electric vehicles (EV), it is designed as a platform is currently launched in the market has improved performance in that can accommodate various types of power units. The Subaru areas such as capabilities to detect obstacles, speed range that Global Platform that makes overall vehicle performance evolution the brakes actuate, etc. thus we should be able to expect even possible such as outstanding straight line stability, high level further reductions in accident occurrences. danger avoidance performance, and the world’s highest level of In terms of activities toward driver assist and automated crash safety performance, will be an important core technology driving, automated follow-up system in congested express ways even in terms of realizing automated driving in the future. will be added in 2017. This is a function that drives the car at 0 km/h to 65 km/h on the same lane while recognizing the movements of the vehicle driving ahead and the conditions of curves in the roadway with the “EyeSight” in trafﬁc jam on expressways. Furthermore, in 2020, we plan to add a radar and digital map to the “EyeSight” that uses only stereo camera technology to realize automated driving on expressway roads including lane changes. In this way, by practical implementation placing a priority on driver assist functions targeting situations with a high risk of becoming an accident, such as during heavy trafﬁc when drivers are susceptible to losing their concentration, lane changes that demand careful checks in the rearward direction, etc. through this the capability of Subaru vehicles to avoid accidents will be improved exponentially. As a result of this pursuit of safety performance, we hope to make automated driving with distinctive Subaru value and provide “enjoyment and peace of mind” that is one step above to users. rigidity, body torsional rigidity, front suspension rigidity, and rear sub-frame rigidity, by 90%, 70%, 70%, and 100%, respectively. Moreover, Subaru cars have traditionally had the characteristic “low center of gravity design” but on the Subaru Global Platform, an even lower center of gravity was achieved that is 5mm lower than mounting points. As a result of all of these advances, next generation vehicles that adopted the Subaru Global Platform have realized astounding straight line stability as if gliding solidly anchored to rails. As the steering responsive is extremely high, this astounding straight line stability was made possible by the driver being able to rectify turbulence of the trajectory path due to factors such as slight bumpiness to the road surface, side winds, etc. At the same time in terms of countermeasures for noise and vibration, conventionally there were certain areas of the body and suspension that resonated to amplify vibrations but on the "Subaru Global Platform", the natural frequency of the body is raised by improving body rigidity, preventing resonance with the suspension. In addition, as concentration of localized strain was averted on the subframe mounting points, known to be the portion that is the weak point for stiffness, and the body’s overall torsional characteristics were evened out for uniformity, then by optimizing the body frame structure and utilizing structural adhesive, we have rationally improved the body rigidity without adding weight. Furthermore, the amount of mass offset on the strut suspension, which is a source of vibration input, was also reduced 15% versus conventional levels which also contributed to reduction in noise and vibration. In terms of providing a smooth and comfortable drive, increasing the rigidity of the body frame brought out the intrinsic shock damping performance capabilities of the suspension that enabled quick convergence of vibrations generated by factors such as bumps in the road, etc. By mounting the rear stabilizer directly onto the body, the new platform reduces the body roll of the FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016The roots of Fuji Heavy Industries lie in the Nakajima Aircraft The roots of Fuji Heavy Industries lie in the Nakajima Aircraft putting it at the forefront of a global trend to switch to front-wheel- putting it at the forefront of a global trend to switch to front-wheel- Company as an aircraft manufacturer. Founded in 1917 makes next Company as an aircraft manufacturer. Founded in 1917 makes next drive on compact vehicles. drive on compact vehicles. year our 100th year anniversary. A great number of airplanes were year our 100th year anniversary. A great number of airplanes were In Japan, frontal crash safety standards started to be applied in In Japan, frontal crash safety standards started to be applied in developed and produced in the days of the Nakajima Aircraft developed and produced in the days of the Nakajima Aircraft April, 1994 but if we take a look back 29 years prior to this, Subaru April, 1994 but if we take a look back 29 years prior to this, Subaru Company. The uncompromising pursuit of safety performance and Company. The uncompromising pursuit of safety performance and had already been working on frontal crash safety testing voluntarily had already been working on frontal crash safety testing voluntarily rational design that had developed because of the fact that we rational design that had developed because of the fact that we on the “Subaru 360” since 1965. Following this, based on a safety on the “Subaru 360” since 1965. Following this, based on a safety were an airplane manufacturer has been passed down over were an airplane manufacturer has been passed down over concept to protect not only the driver but also the passengers as concept to protect not only the driver but also the passengers as generations as the car making DNA of Subaru. generations as the car making DNA of Subaru. well as pedestrians, crash safety data in various forms such as well as pedestrians, crash safety data in various forms such as The “Subaru 360” is a mini vehicle that was released in 1958 The “Subaru 360” is a mini vehicle that was released in 1958 rollovers and rear end collisions has been accumulated as we have rollovers and rear end collisions has been accumulated as we have but, regardless of being a mini vehicle, it was the ﬁrst time anyone but, regardless of being a mini vehicle, it was the ﬁrst time anyone continued with development of unique safety technologies to continued with development of unique safety technologies to had adopted a monocoque body in Japan to realize a revolutionary had adopted a monocoque body in Japan to realize a revolutionary where we stand now. where we stand now. package that ﬁt four adult passengers comfortably while keeping package that ﬁt four adult passengers comfortably while keeping In this way, here at Subaru, where we have worked on safety In this way, here at Subaru, where we have worked on safety the vehicle compact and lightweight. The “Subaru 1000,” that was the vehicle compact and lightweight. The “Subaru 1000,” that was for over half a century, we currently view safety for car making for over half a century, we currently view safety for car making released in 1966, adopted an all-aluminum horizontally-opposed released in 1966, adopted an all-aluminum horizontally-opposed from four angles: “Primary Safety,” “Active Safety,” “Pre-Collision from four angles: “Primary Safety,” “Active Safety,” “Pre-Collision four-cylinder engine and a front-engine front-wheel-drive system, four-cylinder engine and a front-engine front-wheel-drive system, Safety,” and “Passive Safety.” “Primary Safety,” “Active Safety,” and Safety,” and “Passive Safety.” “Primary Safety,” “Active Safety,” and “Pre-Collision Safety” are technologies that have the purpose of “Pre-Collision Safety” are technologies that have the purpose of avoiding an accident before it happens and “Passive Safety” is avoiding an accident before it happens and “Passive Safety” is technologies that have the purpose of minimizing damage in the technologies that have the purpose of minimizing damage in the event of an accident. event of an accident. In “Primary Safety,” we develop vehicles with evaluation In “Primary Safety,” we develop vehicles with evaluation criteria in designing such as excellent visibility, driving positions that criteria in designing such as excellent visibility, driving positions that make driving easy, intuitive interfaces, etc. so that driver fatigue is make driving easy, intuitive interfaces, etc. so that driver fatigue is reduced, allowing the driver to concentrate on driving with peace reduced, allowing the driver to concentrate on driving with peace of mind. of mind. “Active Safety” features the low center of gravity design of the “Active Safety” features the low center of gravity design of the body that takes advantage of the horizontally-opposed engine and body that takes advantage of the horizontally-opposed engine and symmetrical AWD that makes sure-footed driving possible in a symmetrical AWD that makes sure-footed driving possible in a wide variety of road surface conditions. Having a low center of wide variety of road surface conditions. Having a low center of gravity makes it easy for anyone to drive straight with peace of gravity makes it easy for anyone to drive straight with peace of mind and corner smoothly. mind and corner smoothly. In terms of “Pre-Collision Safety,” the core technology is In terms of “Pre-Collision Safety,” the core technology is A New Platform that Anticipates the Year 2025 that will Realize Subaru’s Best Ever Overall Performance Evolutions Tetsuo Onuki Corporate Senior Vice President Chief General Manager of Subaru Engineering Division 1 Do not stop with just raising performance and specs and pursue “enhanced dynamic feel” that resonates with human senses. The “Subaru Global Platform,” that was developed as a far-sighted The “Subaru Global Platform,” that was developed as a far-sighted technology in the year 2025, is a new platform that will be adopted technology in the year 2025, is a new platform that will be adopted on all forthcoming Subaru vehicles that we independently on all forthcoming Subaru vehicles that we independently developed starting off with the next generation Impreza. A major developed starting off with the next generation Impreza. A major aim of introducing the Subaru Global Platform is to realize aim of introducing the Subaru Global Platform is to realize signiﬁcant evolutions in overall performance, that would have been signiﬁcant evolutions in overall performance, that would have been difﬁcult as just an extension of conventional technologies, by difﬁcult as just an extension of conventional technologies, by executing a complete overhaul of the platform, which is the basic executing a complete overhaul of the platform, which is the basic structure of an automobile, and to facilitate “enjoyment and peace structure of an automobile, and to facilitate “enjoyment and peace of mind” which is the greatest appeal of Subaru vehicles. To of mind” which is the greatest appeal of Subaru vehicles. To accomplish this, the element that the development team poured all accomplish this, the element that the development team poured all of their efforts into was simply the pursuit of “enhanced dynamic of their efforts into was simply the pursuit of “enhanced dynamic feel” that resonates with human senses beyond high performance feel” that resonates with human senses beyond high performance and “safety performance” at the highest levels in the world. and “safety performance” at the highest levels in the world. So what is “enhanced dynamic feel?” It is the performance So what is “enhanced dynamic feel?” It is the performance feel that a person driving or riding a car feels, such as operation feel feel that a person driving or riding a car feels, such as operation feel and drive feel while driving, as well as ride comfort. At Subaru, this and drive feel while driving, as well as ride comfort. At Subaru, this “enhanced dynamic feel” is captured as a combination of three “enhanced dynamic feel” is captured as a combination of three factors [1] performance feel that is felt when operating the steering factors [1] performance feel that is felt when operating the steering wheel and pedals, [2] performance feel that is felt audibly, [3] wheel and pedals, [2] performance feel that is felt audibly, [3] performance feel that is felt from the movement of the vehicle and performance feel that is felt from the movement of the vehicle and as has been done in the past we have pursued a high level of as has been done in the past we have pursued a high level of quality that delves into the realm of human sensations such as quality that delves into the realm of human sensations such as “smoothness” or “how great it feels.” Furthermore, in the “smoothness” or “how great it feels.” Furthermore, in the development of the Subaru Global Platform we have attempted to development of the Subaru Global Platform we have attempted to visualize “enhanced dynamic feel” that had been difﬁcult to visualize “enhanced dynamic feel” that had been difﬁcult to capture as physical values till now. capture as physical values till now. 21 For example, when a driver is driving a vehicle, following the For example, when a driver is driving a vehicle, following the operation of the steering wheel, the forces trying to turn the operation of the steering wheel, the forces trying to turn the vehicle is transmitted from the front wheels to the body and there vehicle is transmitted from the front wheels to the body and there is normally about a one tenth of a second delay that occurs until the is normally about a one tenth of a second delay that occurs until the vehicle actually starts to change its orientation. Reducing this slight vehicle actually starts to change its orientation. Reducing this slight delay is what leads to smooth and stable vehicle behavior and delay is what leads to smooth and stable vehicle behavior and improvements in steering feel. Here at Subaru, we have developed improvements in steering feel. Here at Subaru, we have developed our own original sensors, measured suspension inputs in 1/1000 our own original sensors, measured suspension inputs in 1/1000 second unit intervals and measured strain in 200 locations on the second unit intervals and measured strain in 200 locations on the vehicle body to quantify the movements of each part of the vehicle. vehicle body to quantify the movements of each part of the vehicle. Furthermore, bench testing equipment that reproduces the Furthermore, bench testing equipment that reproduces the movement of the suspension on actual roads was developed and movement of the suspension on actual roads was developed and development of vehicle elements has also progressed. development of vehicle elements has also progressed. Taking this kind of fundamental research and elemental Taking this kind of fundamental research and elemental developments into consideration, Subaru has established three developments into consideration, Subaru has established three factors to pursue “enhanced dynamic feel” which are (1) being able factors to pursue “enhanced dynamic feel” which are (1) being able to drive straight (straight line stability), (2) having no unpleasant to drive straight (straight line stability), (2) having no unpleasant vibration or noise, and (3) pleasant ride comfort. In order to realize vibration or noise, and (3) pleasant ride comfort. In order to realize these factors in the Subaru Global Platform development, the work these factors in the Subaru Global Platform development, the work Factors that make up enhanced dynamic feel The Enhanced Dynamic Feel that Subaru strives for Subaru Global Platform (1) Superior straight-line stability (2) Having no unpleasant vibrations or noises (3) Pleasant ride comfort •Major improvement of body and chassis rigidity; •Pursuit of an even lower center of gravity •Evolution of the suspension 70 to 100% rigidity increase versus current vehicles Special Feature Innovativeness of the Subaru Global Platform that will Serve as the Backbone of Next Generation Automobile Manufacturing Safety Philosophy and Four Focus Areas Safe state Hazardous state Accident Collision Spread of damage Hazard avoidance Reduction of damage in an accident Primary Safety - Peace-of-mind visibility design - Easy-to-drive position - Easy-to-operate interface Active Safety - Symmetrical All-Wheel Drive - Low center of gravity - Reassuring chassis Pre-Collision Safety - EyeSight (Significant development with an eye on automated driving) Passive Safety - Protection of vehicle passengers - Protection of pedestrians vehicles feel the enjoyment, we have placed importance on the vehicles feel the enjoyment, we have placed importance on the The EyeSight that has been well received by customers for The EyeSight that has been well received by customers for “feelings” of customers in the developments. We have improved “feelings” of customers in the developments. We have improved safety will also continue to improve safety levels going forward. safety will also continue to improve safety levels going forward. “enhanced dynamic feel” of the vehicle so the enjoyment and how “enhanced dynamic feel” of the vehicle so the enjoyment and how The EyeSight will also react to and stop for bicycles that are The EyeSight will also react to and stop for bicycles that are great it feels to drive straight and take turns intuitively could be felt great it feels to drive straight and take turns intuitively could be felt encountered in intersections, and provide automated driving that encountered in intersections, and provide automated driving that with the senses. with the senses. can also cover lane changes on expressways on a mass production can also cover lane changes on expressways on a mass production To have the user feel a sense of security the moment he/she To have the user feel a sense of security the moment he/she vehicle. Of course, automated driving for Subaru does not mean vehicle. Of course, automated driving for Subaru does not mean steps into the vehicle, sits downs, and closes the door. To have the steps into the vehicle, sits downs, and closes the door. To have the unmanned driving; it is automated driving that is centered on the unmanned driving; it is automated driving that is centered on the user feel a solid rumble when turning the engine on and feel that user feel a solid rumble when turning the engine on and feel that customer. It will also be fun and safe automated driving. customer. It will also be fun and safe automated driving. smoothness as he/she steps on the accelerator pedal and starts to pull smoothness as he/she steps on the accelerator pedal and starts to pull All of the functions described above have been incorporated All of the functions described above have been incorporated away from a stop. The vehicle runs so straight that the customer away from a stop. The vehicle runs so straight that the customer on vehicles with the Subaru Global Platform. on vehicles with the Subaru Global Platform. forgets about the existence of the steering wheel and when cornering, forgets about the existence of the steering wheel and when cornering, It is a platform that polishes up on the world’s highest level of It is a platform that polishes up on the world’s highest level of the vehicle turns exactly in line with the image that the customer has the vehicle turns exactly in line with the image that the customer has safety performance, realizes safety performance that anticipates safety performance, realizes safety performance that anticipates in mind when a turning maneuver is made on the steering wheel. To in mind when a turning maneuver is made on the steering wheel. To 2025 that not only will have high performance but have a 2025 that not only will have high performance but have a have the car move linearly interlocked to what the customer has in have the car move linearly interlocked to what the customer has in performance feel of movement that ﬁts the human senses that performance feel of movement that ﬁts the human senses that mind. This kind of relationship with the vehicle is what we have mind. This kind of relationship with the vehicle is what we have can be understood by users the moment they step into the vehicle can be understood by users the moment they step into the vehicle prepared in our vehicles so that the enjoyment can be truly felt. prepared in our vehicles so that the enjoyment can be truly felt. and that point in time that the car takes off. This platform will also and that point in time that the car takes off. This platform will also Moreover, to expand extend the enjoyment of customers Moreover, to expand extend the enjoyment of customers be able to accommodate electriﬁcation as well as electric vehicles be able to accommodate electriﬁcation as well as electric vehicles further from the perspective of making “living life” for our further from the perspective of making “living life” for our that will be key for future environment requirement compliance that will be key for future environment requirement compliance customers richer, we eliminate or avoid unnecessary packaging, customers richer, we eliminate or avoid unnecessary packaging, and furthermore will also be incorporated into automated driving. and furthermore will also be incorporated into automated driving. pursue and utility, and have developed a vehicle that will be able to pursue and utility, and have developed a vehicle that will be able to The Subaru Global Platform will be equipped on the next The Subaru Global Platform will be equipped on the next “EyeSight.” It is a system that recognizes what is in front of the “EyeSight.” It is a system that recognizes what is in front of the work in various situations with customers. work in various situations with customers. generation Impreza that will be released for sale this fall, then it will generation Impreza that will be released for sale this fall, then it will vehicle with two cameras that function similarly to human eyes vehicle with two cameras that function similarly to human eyes In addition to the development of new small displacement turbo In addition to the development of new small displacement turbo be adopted on all independently developed vehicles by Subaru. be adopted on all independently developed vehicles by Subaru. to provide safe protection with the car in front, pedestrians, and to provide safe protection with the car in front, pedestrians, and engines that realizes signiﬁcant fuel economy efﬁciency and hybrids engines that realizes signiﬁcant fuel economy efﬁciency and hybrids Designs of cars that express these functionalities are designs Designs of cars that express these functionalities are designs bicycles. Last year, actual market results were released showing bicycles. Last year, actual market results were released showing (HV) that many of our current customers still use, we are also (HV) that many of our current customers still use, we are also that exude the “enjoyment and peace of mind” of Subaru. Integrated that exude the “enjoyment and peace of mind” of Subaru. Integrated a 61% reduction in accidents resulting in human injury or death a 61% reduction in accidents resulting in human injury or death developing Plug-In Hybrid Electric Vehicles (PHEV) that can also be developing Plug-In Hybrid Electric Vehicles (PHEV) that can also be under a concept called DYNAMIC×SOLID that comes with a lively under a concept called DYNAMIC×SOLID that comes with a lively for vehicles equipped with EyeSight. Subaru will continue to for vehicles equipped with EyeSight. Subaru will continue to charged at home that is now under development for the US market charged at home that is now under development for the US market and solid feel that has the Subaru touch, all Subaru vehicles will have and solid feel that has the Subaru touch, all Subaru vehicles will have evolve “EyeSight” greatly going forward and focus our efforts on evolve “EyeSight” greatly going forward and focus our efforts on and Electric Vehicles (EV) that aiming for a market launch in 2021. and Electric Vehicles (EV) that aiming for a market launch in 2021. the uniﬁed design to be brought to our customers everywhere. the uniﬁed design to be brought to our customers everywhere. protecting the lives of Subaru customers around the world. protecting the lives of Subaru customers around the world. In terms of “Passive Safety,” even if a crash was to take place, In terms of “Passive Safety,” even if a crash was to take place, with the key concept of protecting the integrity of the cabin by with the key concept of protecting the integrity of the cabin by smoothly crushing the front zone of the vehicle in an extremely smoothly crushing the front zone of the vehicle in an extremely short amount of time in mind, we develop a collision system that short amount of time in mind, we develop a collision system that can adeptly cope with the actual market. Subaru has continued to can adeptly cope with the actual market. Subaru has continued to research crash safety performance independently since the days research crash safety performance independently since the days of the “Subaru 360” and has garnered the highest level of rating in of the “Subaru 360” and has garnered the highest level of rating in all safety performance tests performed by third parties in countries all safety performance tests performed by third parties in countries around the world. around the world. Synchronized with the making of cars built with a safety Synchronized with the making of cars built with a safety concept as reliable technologies as the fundamentals of the concept as reliable technologies as the fundamentals of the vehicle, we vehicle, we follow follow the “Human Centered Automobile the “Human Centered Automobile Manufacturing” concept so that the customers that use our Manufacturing” concept so that the customers that use our Activities to facilitate enjoyment and peace of mind Platform Driver Assist Technology Design SUBARU GLOBAL PLATFORM Next Generation Subaru Design To achieve Zero Traffic Accidents Subaru best ever levels of overall performance evolutions to Uncompromising pursuit of accident avoidance Shapes that are meaningful that facilitate Subaru’s vehicle manufacturing with enjoyment and performance with the “EyeSight” as the base. incorporate Subaru characteristic peace of mind. Realize an automated driving function that is functionality along with a high level centered on the human as a part of this evolution. of dynamism and solid feel. was focused on “signiﬁcant increases of body and chassis rigidity,” was focused on “signiﬁcant increases of body and chassis rigidity,” vehicle by 50% compared to present models. vehicle by 50% compared to present models. of safety performance. Among the four focus areas based on the of safety performance. Among the four focus areas based on the “pursuit of an even lower center of gravity,” and “evolution of the “pursuit of an even lower center of gravity,” and “evolution of the Through these activities, next generation Subaru vehicles Through these activities, next generation Subaru vehicles Subaru safety concept, the new platform brings major beneﬁts Subaru safety concept, the new platform brings major beneﬁts suspension system.” suspension system.” equipped with the Subaru Global Platform will provide enhanced equipped with the Subaru Global Platform will provide enhanced especially in “Active Safety” and “Passive Safety.” especially in “Active Safety” and “Passive Safety.” For example, comparing the Subaru Global Platform to current For example, comparing the Subaru Global Platform to current dynamic feel that will surely dominate not only Japanese vehicles dynamic feel that will surely dominate not only Japanese vehicles In terms of “Active Safety,” signiﬁcant improvements to body In terms of “Active Safety,” signiﬁcant improvements to body the load transmission paths, adoption of high strength material, as the load transmission paths, adoption of high strength material, as well as improving collision energy absorption by 40% versus well as improving collision energy absorption by 40% versus existing vehicles. These improvements further evolved crash existing vehicles. These improvements further evolved crash safety performance that had already achieved the highest level of safety performance that had already achieved the highest level of vehicles, improvements have been made to the front body lateral vehicles, improvements have been made to the front body lateral but also top grade European vehicles as well. but also top grade European vehicles as well. and chassis rigidity and even lower center of gravity has improved and chassis rigidity and even lower center of gravity has improved steering stability on Subaru cars that had already been rated steering stability on Subaru cars that had already been rated highly and had taken it up to the next level. In internal tests, the highly and had taken it up to the next level. In internal tests, the next generation Impreza danger avoidance speed has exceeded next generation Impreza danger avoidance speed has exceeded the 84.5 km/h on the existing vehicle considerably at 92.5 km/h the 84.5 km/h on the existing vehicle considerably at 92.5 km/h which achieves levels comparable to European sports cars. which achieves levels comparable to European sports cars. ratings in the world. In the future, compliance to various and ratings in the world. In the future, compliance to various and For Subaru that has “Human Centered Automobile Manufacturing” For Subaru that has “Human Centered Automobile Manufacturing” diverse forms of crashes will be required, and we believe that diverse forms of crashes will be required, and we believe that at its essence, the ultimate goal for automated driving is not “to at its essence, the ultimate goal for automated driving is not “to collision energy absorption will have to be improved further by collision energy absorption will have to be improved further by have the car drive itself in place of the human” but it is “to aim for have the car drive itself in place of the human” but it is “to aim for more than 30% at around 2025. The Subaru Global Platform is more than 30% at around 2025. The Subaru Global Platform is zero trafﬁc accidents” that threaten human life and assets. Based zero trafﬁc accidents” that threaten human life and assets. Based designed to have the potential to be able to comply with these designed to have the potential to be able to comply with these on technical concepts such as these, Subaru will evolve driver on technical concepts such as these, Subaru will evolve driver improvements by further increasing strength to higher levels, improvements by further increasing strength to higher levels, assist and automated driving toward the realization of “Zero Trafﬁc assist and automated driving toward the realization of “Zero Trafﬁc current vehicles. The suspension has also advanced signiﬁcantly by current vehicles. The suspension has also advanced signiﬁcantly by Another major objective of introducing the Subaru Global Platform is Another major objective of introducing the Subaru Global Platform is At the same time, in terms of “Passive Safety,” body strength At the same time, in terms of “Passive Safety,” body strength expanding adoption of non-ferrous materials, etc. expanding adoption of non-ferrous materials, etc. Accidents” by the introduction of the Subaru Global Platform and Accidents” by the introduction of the Subaru Global Platform and revising the suspension geometry and improving the rigidity of revising the suspension geometry and improving the rigidity of the further evolution and enhancement of the world’s highest level the further evolution and enhancement of the world’s highest level was raised by optimization of the frame structure, multiplexing of was raised by optimization of the frame structure, multiplexing of If the rigidity and strength of the vehicle is improved If the rigidity and strength of the vehicle is improved further advances to high performance and high functionality for the further advances to high performance and high functionality for the signiﬁcantly in this way, it would normally increase weight but signiﬁcantly in this way, it would normally increase weight but driver assist system “EyeSight.” driver assist system “EyeSight.” the Subaru Global Platform effectively utilizes the amount of the Subaru Global Platform effectively utilizes the amount of Surveys in Japan have revealed a 61% fewer accidents Surveys in Japan have revealed a 61% fewer accidents weight saved due to the rational design, on performance weight saved due to the rational design, on performance resulting in injury or death for vehicles equipped with the resulting in injury or death for vehicles equipped with the improvements and safety improvements, as a lightweight body improvements and safety improvements, as a lightweight body “EyeSight Ver. 2” compared to those without it. If the conditions “EyeSight Ver. 2” compared to those without it. If the conditions that is on par with conventional Subaru vehicles has been made a that is on par with conventional Subaru vehicles has been made a of the accidents are broken down further, car-to-car accidents of the accidents are broken down further, car-to-car accidents reality. Moreover, in anticipation of the evolution of vehicles up till reality. Moreover, in anticipation of the evolution of vehicles up till dropped 80%, broadside collisions dropped 50% to demonstrate dropped 80%, broadside collisions dropped 50% to demonstrate 2025, starting with gasoline engine vehicles, hybrid vehicles 2025, starting with gasoline engine vehicles, hybrid vehicles the beneﬁts the system provides. The latest “EyeSight Ver. 3” that the beneﬁts the system provides. The latest “EyeSight Ver. 3” that (HEV/PHEV) to electric vehicles (EV), it is designed as a platform (HEV/PHEV) to electric vehicles (EV), it is designed as a platform is currently launched in the market has improved performance in is currently launched in the market has improved performance in that can accommodate various types of power units. The Subaru that can accommodate various types of power units. The Subaru areas such as capabilities to detect obstacles, speed range that areas such as capabilities to detect obstacles, speed range that Global Platform that makes overall vehicle performance evolution Global Platform that makes overall vehicle performance evolution the brakes actuate, etc. thus we should be able to expect even the brakes actuate, etc. thus we should be able to expect even possible such as outstanding straight line stability, high level possible such as outstanding straight line stability, high level further reductions in accident occurrences. further reductions in accident occurrences. danger avoidance performance, and the world’s highest level of danger avoidance performance, and the world’s highest level of In terms of activities toward driver assist and automated In terms of activities toward driver assist and automated crash safety performance, will be an important core technology crash safety performance, will be an important core technology driving, automated follow-up system in congested express ways driving, automated follow-up system in congested express ways even in terms of realizing automated driving in the future. even in terms of realizing automated driving in the future. will be added in 2017. This is a function that drives the car at 0 km/h will be added in 2017. This is a function that drives the car at 0 km/h to 65 km/h on the same lane while recognizing the movements of to 65 km/h on the same lane while recognizing the movements of the vehicle driving ahead and the conditions of curves in the the vehicle driving ahead and the conditions of curves in the roadway with the “EyeSight” in trafﬁc jam on expressways. roadway with the “EyeSight” in trafﬁc jam on expressways. Furthermore, in 2020, we plan to add a radar and digital map to the Furthermore, in 2020, we plan to add a radar and digital map to the “EyeSight” that uses only stereo camera technology to realize “EyeSight” that uses only stereo camera technology to realize automated driving on expressway roads including lane changes. automated driving on expressway roads including lane changes. In this way, by practical implementation placing a priority on driver In this way, by practical implementation placing a priority on driver assist functions targeting situations with a high risk of becoming an assist functions targeting situations with a high risk of becoming an accident, such as during heavy trafﬁc when drivers are susceptible to accident, such as during heavy trafﬁc when drivers are susceptible to losing their concentration, lane changes that demand careful checks losing their concentration, lane changes that demand careful checks in the rearward direction, etc. through this the capability of Subaru in the rearward direction, etc. through this the capability of Subaru vehicles to avoid accidents will be improved exponentially. As a result vehicles to avoid accidents will be improved exponentially. As a result of this pursuit of safety performance, we hope to make automated of this pursuit of safety performance, we hope to make automated driving with distinctive Subaru value and provide “enjoyment and driving with distinctive Subaru value and provide “enjoyment and peace of mind” that is one step above to users. peace of mind” that is one step above to users. rigidity, body torsional rigidity, front suspension rigidity, and rear rigidity, body torsional rigidity, front suspension rigidity, and rear sub-frame rigidity, by 90%, 70%, 70%, and 100%, respectively. sub-frame rigidity, by 90%, 70%, 70%, and 100%, respectively. Moreover, Subaru cars have traditionally had the characteristic “low Moreover, Subaru cars have traditionally had the characteristic “low center of gravity design” but on the Subaru Global Platform, an center of gravity design” but on the Subaru Global Platform, an even lower center of gravity was achieved that is 5mm lower than even lower center of gravity was achieved that is 5mm lower than mounting points. mounting points. As a result of all of these advances, next generation vehicles As a result of all of these advances, next generation vehicles that adopted the Subaru Global Platform have realized astounding that adopted the Subaru Global Platform have realized astounding straight line stability as if gliding solidly anchored to rails. As the straight line stability as if gliding solidly anchored to rails. As the steering responsive is extremely high, this astounding straight line steering responsive is extremely high, this astounding straight line stability was made possible by the driver being able to rectify stability was made possible by the driver being able to rectify turbulence of the trajectory path due to factors such as slight turbulence of the trajectory path due to factors such as slight bumpiness to the road surface, side winds, etc. bumpiness to the road surface, side winds, etc. At the same time in terms of countermeasures for noise and At the same time in terms of countermeasures for noise and vibration, conventionally there were certain areas of the body and vibration, conventionally there were certain areas of the body and suspension that resonated to amplify vibrations but on the "Subaru suspension that resonated to amplify vibrations but on the "Subaru Global Platform", the natural frequency of the body is raised by Global Platform", the natural frequency of the body is raised by improving body improving body rigidity, preventing rigidity, preventing resonance with resonance with the the suspension. In addition, as concentration of localized strain was suspension. In addition, as concentration of localized strain was averted on the subframe mounting points, known to be the portion averted on the subframe mounting points, known to be the portion that is the weak point for stiffness, and the body’s overall torsional that is the weak point for stiffness, and the body’s overall torsional characteristics were evened out for uniformity, then by optimizing characteristics were evened out for uniformity, then by optimizing the body frame structure and utilizing structural adhesive, we have the body frame structure and utilizing structural adhesive, we have rationally improved the body rigidity without adding weight. rationally improved the body rigidity without adding weight. Furthermore, the amount of mass offset on the strut suspension, Furthermore, the amount of mass offset on the strut suspension, which is a source of vibration input, was also reduced 15% versus which is a source of vibration input, was also reduced 15% versus conventional levels which also contributed to reduction in noise conventional levels which also contributed to reduction in noise and vibration. and vibration. In terms of providing a smooth and comfortable drive, In terms of providing a smooth and comfortable drive, increasing the rigidity of the body frame brought out the intrinsic increasing the rigidity of the body frame brought out the intrinsic shock damping performance capabilities of the suspension that shock damping performance capabilities of the suspension that enabled quick convergence of vibrations generated by factors such enabled quick convergence of vibrations generated by factors such as bumps in the road, etc. By mounting the rear stabilizer directly as bumps in the road, etc. By mounting the rear stabilizer directly onto the body, the new platform reduces the body roll of the onto the body, the new platform reduces the body roll of the FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016For example, when a driver is driving a vehicle, following the operation of the steering wheel, the forces trying to turn the vehicle is transmitted from the front wheels to the body and there is normally about a one tenth of a second delay that occurs until the The “Subaru Global Platform,” that was developed as a far-sighted vehicle actually starts to change its orientation. Reducing this slight technology in the year 2025, is a new platform that will be adopted delay is what leads to smooth and stable vehicle behavior and on all forthcoming Subaru vehicles that we independently improvements in steering feel. Here at Subaru, we have developed developed starting off with the next generation Impreza. A major our own original sensors, measured suspension inputs in 1/1000 aim of introducing the Subaru Global Platform is to realize second unit intervals and measured strain in 200 locations on the signiﬁcant evolutions in overall performance, that would have been vehicle body to quantify the movements of each part of the vehicle. difﬁcult as just an extension of conventional technologies, by Furthermore, bench testing equipment that reproduces the executing a complete overhaul of the platform, which is the basic movement of the suspension on actual roads was developed and structure of an automobile, and to facilitate “enjoyment and peace development of vehicle elements has also progressed. of mind” which is the greatest appeal of Subaru vehicles. To Taking this kind of fundamental research and elemental accomplish this, the element that the development team poured all developments into consideration, Subaru has established three of their efforts into was simply the pursuit of “enhanced dynamic factors to pursue “enhanced dynamic feel” which are (1) being able feel” that resonates with human senses beyond high performance to drive straight (straight line stability), (2) having no unpleasant and “safety performance” at the highest levels in the world. vibration or noise, and (3) pleasant ride comfort. In order to realize So what is “enhanced dynamic feel?” It is the performance these factors in the Subaru Global Platform development, the work feel that a person driving or riding a car feels, such as operation feel and drive feel while driving, as well as ride comfort. At Subaru, this “enhanced dynamic feel” is captured as a combination of three factors [1] performance feel that is felt when operating the steering wheel and pedals, [2] performance feel that is felt audibly, [3] performance feel that is felt from the movement of the vehicle and as has been done in the past we have pursued a high level of quality that delves into the realm of human sensations such as “smoothness” or “how great it feels.” Furthermore, in the development of the Subaru Global Platform we have attempted to visualize “enhanced dynamic feel” that had been difﬁcult to capture as physical values till now. the load transmission paths, adoption of high strength material, as well as improving collision energy absorption by 40% versus existing vehicles. These improvements further evolved crash safety performance that had already achieved the highest level of ratings in the world. In the future, compliance to various and For Subaru that has “Human Centered Automobile Manufacturing” diverse forms of crashes will be required, and we believe that at its essence, the ultimate goal for automated driving is not “to collision energy absorption will have to be improved further by have the car drive itself in place of the human” but it is “to aim for more than 30% at around 2025. The Subaru Global Platform is zero trafﬁc accidents” that threaten human life and assets. Based designed to have the potential to be able to comply with these on technical concepts such as these, Subaru will evolve driver improvements by further increasing strength to higher levels, assist and automated driving toward the realization of “Zero Trafﬁc expanding adoption of non-ferrous materials, etc. Accidents” by the introduction of the Subaru Global Platform and If the rigidity and strength of the vehicle is improved further advances to high performance and high functionality for the signiﬁcantly in this way, it would normally increase weight but driver assist system “EyeSight.” the Subaru Global Platform effectively utilizes the amount of Surveys in Japan have revealed a 61% fewer accidents weight saved due to the rational design, on performance resulting in injury or death for vehicles equipped with the improvements and safety improvements, as a lightweight body “EyeSight Ver. 2” compared to those without it. If the conditions that is on par with conventional Subaru vehicles has been made a of the accidents are broken down further, car-to-car accidents reality. Moreover, in anticipation of the evolution of vehicles up till dropped 80%, broadside collisions dropped 50% to demonstrate 2025, starting with gasoline engine vehicles, hybrid vehicles the beneﬁts the system provides. The latest “EyeSight Ver. 3” that (HEV/PHEV) to electric vehicles (EV), it is designed as a platform is currently launched in the market has improved performance in that can accommodate various types of power units. The Subaru areas such as capabilities to detect obstacles, speed range that Global Platform that makes overall vehicle performance evolution the brakes actuate, etc. thus we should be able to expect even danger avoidance performance, and the world’s highest level of In terms of activities toward driver assist and automated crash safety performance, will be an important core technology driving, automated follow-up system in congested express ways even in terms of realizing automated driving in the future. will be added in 2017. This is a function that drives the car at 0 km/h to 65 km/h on the same lane while recognizing the movements of the vehicle driving ahead and the conditions of curves in the roadway with the “EyeSight” in trafﬁc jam on expressways. Furthermore, in 2020, we plan to add a radar and digital map to the “EyeSight” that uses only stereo camera technology to realize automated driving on expressway roads including lane changes. In this way, by practical implementation placing a priority on driver assist functions targeting situations with a high risk of becoming an accident, such as during heavy trafﬁc when drivers are susceptible to losing their concentration, lane changes that demand careful checks in the rearward direction, etc. through this the capability of Subaru vehicles to avoid accidents will be improved exponentially. As a result of this pursuit of safety performance, we hope to make automated driving with distinctive Subaru value and provide “enjoyment and peace of mind” that is one step above to users. was focused on “signiﬁcant increases of body and chassis rigidity,” “pursuit of an even lower center of gravity,” and “evolution of the suspension system.” For example, comparing the Subaru Global Platform to current vehicles, improvements have been made to the front body lateral rigidity, body torsional rigidity, front suspension rigidity, and rear sub-frame rigidity, by 90%, 70%, 70%, and 100%, respectively. Moreover, Subaru cars have traditionally had the characteristic “low center of gravity design” but on the Subaru Global Platform, an even lower center of gravity was achieved that is 5mm lower than current vehicles. The suspension has also advanced signiﬁcantly by revising the suspension geometry and improving the rigidity of mounting points. As a result of all of these advances, next generation vehicles that adopted the Subaru Global Platform have realized astounding straight line stability as if gliding solidly anchored to rails. As the steering responsive is extremely high, this astounding straight line stability was made possible by the driver being able to rectify turbulence of the trajectory path due to factors such as slight bumpiness to the road surface, side winds, etc. resonance with rigidity, preventing At the same time in terms of countermeasures for noise and vibration, conventionally there were certain areas of the body and suspension that resonated to amplify vibrations but on the "Subaru Global Platform", the natural frequency of the body is raised by improving body the suspension. In addition, as concentration of localized strain was averted on the subframe mounting points, known to be the portion that is the weak point for stiffness, and the body’s overall torsional characteristics were evened out for uniformity, then by optimizing the body frame structure and utilizing structural adhesive, we have rationally improved the body rigidity without adding weight. Furthermore, the amount of mass offset on the strut suspension, which is a source of vibration input, was also reduced 15% versus conventional levels which also contributed to reduction in noise and vibration. vehicle by 50% compared to present models. Through these activities, next generation Subaru vehicles equipped with the Subaru Global Platform will provide enhanced dynamic feel that will surely dominate not only Japanese vehicles but also top grade European vehicles as well. Pursuing Far-sighted Safety Technology that Anticipates Ten Years in the Future Based On Subaru’s Unique Safety Concept. of safety performance. Among the four focus areas based on the Subaru safety concept, the new platform brings major beneﬁts especially in “Active Safety” and “Passive Safety.” In terms of “Active Safety,” signiﬁcant improvements to body and chassis rigidity and even lower center of gravity has improved steering stability on Subaru cars that had already been rated highly and had taken it up to the next level. In internal tests, the next generation Impreza danger avoidance speed has exceeded the 84.5 km/h on the existing vehicle considerably at 92.5 km/h which achieves levels comparable to European sports cars. Another major objective of introducing the Subaru Global Platform is the further evolution and enhancement of the world’s highest level At the same time, in terms of “Passive Safety,” body strength was raised by optimization of the frame structure, multiplexing of Active Safety Realized even lower center of gravity and further improved steering stability A center of gravity 50 mm lower than other OEM models in the same class On the Subaru global platform, the center of gravity height is 5 mm reduced than current levels SUV Passenger cars Sport cars ) m m ( i t h g e h y t i v a r g f o r e t n e C Passive safety Other brand average Subaru vehicle average Power unit -10mm Current vehicles Vehicles in development Minimum ground clearance (mm) Hip -10mm Heel -20mm Hip -10mm Propeller shaft/ rear differential -10mm ) m m ( i t h g e h y t i v a r g f o r e t n e C 5mm reduction possible such as outstanding straight line stability, high level further reductions in accident occurrences. Average of other C segment brands Current vehicles Vehicles in development Major awards all over the world Body strength improvement for passive safety In terms of providing a smooth and comfortable drive, increasing the rigidity of the body frame brought out the intrinsic shock damping performance capabilities of the suspension that enabled quick convergence of vibrations generated by factors such as bumps in the road, etc. By mounting the rear stabilizer directly onto the body, the new platform reduces the body roll of the EuroNCAP (EU) ANCAP (Australia) IIHS (USA) USNCAP (USA) JNCAP (Japan) ) J K ( n o i t p r o s b a y g r e n e n o i s i l l o C 22 Body strength compared to current vehicles 40% increase Anticipate to cover out to the year 2025 by further increasing strength, expanding adoption of non-ferrous materials, etc. 2015 2025 FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016 For example, when a driver is driving a vehicle, following the For example, when a driver is driving a vehicle, following the operation of the steering wheel, the forces trying to turn the operation of the steering wheel, the forces trying to turn the vehicle is transmitted from the front wheels to the body and there vehicle is transmitted from the front wheels to the body and there is normally about a one tenth of a second delay that occurs until the is normally about a one tenth of a second delay that occurs until the The “Subaru Global Platform,” that was developed as a far-sighted The “Subaru Global Platform,” that was developed as a far-sighted vehicle actually starts to change its orientation. Reducing this slight vehicle actually starts to change its orientation. Reducing this slight technology in the year 2025, is a new platform that will be adopted technology in the year 2025, is a new platform that will be adopted delay is what leads to smooth and stable vehicle behavior and delay is what leads to smooth and stable vehicle behavior and on all forthcoming Subaru vehicles that we independently on all forthcoming Subaru vehicles that we independently improvements in steering feel. Here at Subaru, we have developed improvements in steering feel. Here at Subaru, we have developed developed starting off with the next generation Impreza. A major developed starting off with the next generation Impreza. A major our own original sensors, measured suspension inputs in 1/1000 our own original sensors, measured suspension inputs in 1/1000 aim of introducing the Subaru Global Platform is to realize aim of introducing the Subaru Global Platform is to realize second unit intervals and measured strain in 200 locations on the second unit intervals and measured strain in 200 locations on the signiﬁcant evolutions in overall performance, that would have been signiﬁcant evolutions in overall performance, that would have been vehicle body to quantify the movements of each part of the vehicle. vehicle body to quantify the movements of each part of the vehicle. difﬁcult as just an extension of conventional technologies, by difﬁcult as just an extension of conventional technologies, by Furthermore, bench testing equipment that reproduces the Furthermore, bench testing equipment that reproduces the executing a complete overhaul of the platform, which is the basic executing a complete overhaul of the platform, which is the basic movement of the suspension on actual roads was developed and movement of the suspension on actual roads was developed and structure of an automobile, and to facilitate “enjoyment and peace structure of an automobile, and to facilitate “enjoyment and peace development of vehicle elements has also progressed. development of vehicle elements has also progressed. of mind” which is the greatest appeal of Subaru vehicles. To of mind” which is the greatest appeal of Subaru vehicles. To Taking this kind of fundamental research and elemental Taking this kind of fundamental research and elemental accomplish this, the element that the development team poured all accomplish this, the element that the development team poured all developments into consideration, Subaru has established three developments into consideration, Subaru has established three of their efforts into was simply the pursuit of “enhanced dynamic of their efforts into was simply the pursuit of “enhanced dynamic factors to pursue “enhanced dynamic feel” which are (1) being able factors to pursue “enhanced dynamic feel” which are (1) being able feel” that resonates with human senses beyond high performance feel” that resonates with human senses beyond high performance to drive straight (straight line stability), (2) having no unpleasant to drive straight (straight line stability), (2) having no unpleasant and “safety performance” at the highest levels in the world. and “safety performance” at the highest levels in the world. vibration or noise, and (3) pleasant ride comfort. In order to realize vibration or noise, and (3) pleasant ride comfort. In order to realize So what is “enhanced dynamic feel?” It is the performance So what is “enhanced dynamic feel?” It is the performance these factors in the Subaru Global Platform development, the work these factors in the Subaru Global Platform development, the work feel that a person driving or riding a car feels, such as operation feel feel that a person driving or riding a car feels, such as operation feel and drive feel while driving, as well as ride comfort. At Subaru, this and drive feel while driving, as well as ride comfort. At Subaru, this “enhanced dynamic feel” is captured as a combination of three “enhanced dynamic feel” is captured as a combination of three factors [1] performance feel that is felt when operating the steering factors [1] performance feel that is felt when operating the steering wheel and pedals, [2] performance feel that is felt audibly, [3] wheel and pedals, [2] performance feel that is felt audibly, [3] performance feel that is felt from the movement of the vehicle and performance feel that is felt from the movement of the vehicle and as has been done in the past we have pursued a high level of as has been done in the past we have pursued a high level of quality that delves into the realm of human sensations such as quality that delves into the realm of human sensations such as “smoothness” or “how great it feels.” Furthermore, in the “smoothness” or “how great it feels.” Furthermore, in the development of the Subaru Global Platform we have attempted to development of the Subaru Global Platform we have attempted to visualize “enhanced dynamic feel” that had been difﬁcult to visualize “enhanced dynamic feel” that had been difﬁcult to capture as physical values till now. capture as physical values till now. was focused on “signiﬁcant increases of body and chassis rigidity,” was focused on “signiﬁcant increases of body and chassis rigidity,” vehicle by 50% compared to present models. vehicle by 50% compared to present models. of safety performance. Among the four focus areas based on the of safety performance. Among the four focus areas based on the “pursuit of an even lower center of gravity,” and “evolution of the “pursuit of an even lower center of gravity,” and “evolution of the Through these activities, next generation Subaru vehicles Through these activities, next generation Subaru vehicles Subaru safety concept, the new platform brings major beneﬁts Subaru safety concept, the new platform brings major beneﬁts suspension system.” suspension system.” equipped with the Subaru Global Platform will provide enhanced equipped with the Subaru Global Platform will provide enhanced especially in “Active Safety” and “Passive Safety.” especially in “Active Safety” and “Passive Safety.” For example, comparing the Subaru Global Platform to current For example, comparing the Subaru Global Platform to current dynamic feel that will surely dominate not only Japanese vehicles dynamic feel that will surely dominate not only Japanese vehicles In terms of “Active Safety,” signiﬁcant improvements to body In terms of “Active Safety,” signiﬁcant improvements to body vehicles, improvements have been made to the front body lateral vehicles, improvements have been made to the front body lateral but also top grade European vehicles as well. but also top grade European vehicles as well. rigidity, body torsional rigidity, front suspension rigidity, and rear rigidity, body torsional rigidity, front suspension rigidity, and rear sub-frame rigidity, by 90%, 70%, 70%, and 100%, respectively. sub-frame rigidity, by 90%, 70%, 70%, and 100%, respectively. Moreover, Subaru cars have traditionally had the characteristic “low Moreover, Subaru cars have traditionally had the characteristic “low center of gravity design” but on the Subaru Global Platform, an center of gravity design” but on the Subaru Global Platform, an even lower center of gravity was achieved that is 5mm lower than even lower center of gravity was achieved that is 5mm lower than Pursuing Far-sighted Safety Technology that Anticipates Ten Years in the Future Based On Subaru’s Unique Safety Concept. and chassis rigidity and even lower center of gravity has improved and chassis rigidity and even lower center of gravity has improved steering stability on Subaru cars that had already been rated steering stability on Subaru cars that had already been rated highly and had taken it up to the next level. In internal tests, the highly and had taken it up to the next level. In internal tests, the next generation Impreza danger avoidance speed has exceeded next generation Impreza danger avoidance speed has exceeded the 84.5 km/h on the existing vehicle considerably at 92.5 km/h the 84.5 km/h on the existing vehicle considerably at 92.5 km/h which achieves levels comparable to European sports cars. which achieves levels comparable to European sports cars. current vehicles. The suspension has also advanced signiﬁcantly by current vehicles. The suspension has also advanced signiﬁcantly by Another major objective of introducing the Subaru Global Platform is Another major objective of introducing the Subaru Global Platform is At the same time, in terms of “Passive Safety,” body strength At the same time, in terms of “Passive Safety,” body strength revising the suspension geometry and improving the rigidity of revising the suspension geometry and improving the rigidity of the further evolution and enhancement of the world’s highest level the further evolution and enhancement of the world’s highest level was raised by optimization of the frame structure, multiplexing of was raised by optimization of the frame structure, multiplexing of suspension that resonated to amplify vibrations but on the "Subaru suspension that resonated to amplify vibrations but on the "Subaru Passenger cars 5mm reduction mounting points. mounting points. As a result of all of these advances, next generation vehicles As a result of all of these advances, next generation vehicles that adopted the Subaru Global Platform have realized astounding that adopted the Subaru Global Platform have realized astounding straight line stability as if gliding solidly anchored to rails. As the straight line stability as if gliding solidly anchored to rails. As the steering responsive is extremely high, this astounding straight line steering responsive is extremely high, this astounding straight line stability was made possible by the driver being able to rectify stability was made possible by the driver being able to rectify turbulence of the trajectory path due to factors such as slight turbulence of the trajectory path due to factors such as slight bumpiness to the road surface, side winds, etc. bumpiness to the road surface, side winds, etc. At the same time in terms of countermeasures for noise and At the same time in terms of countermeasures for noise and vibration, conventionally there were certain areas of the body and vibration, conventionally there were certain areas of the body and Global Platform", the natural frequency of the body is raised by Global Platform", the natural frequency of the body is raised by improving body improving body rigidity, preventing rigidity, preventing resonance with resonance with the the suspension. In addition, as concentration of localized strain was suspension. In addition, as concentration of localized strain was averted on the subframe mounting points, known to be the portion averted on the subframe mounting points, known to be the portion that is the weak point for stiffness, and the body’s overall torsional that is the weak point for stiffness, and the body’s overall torsional characteristics were evened out for uniformity, then by optimizing characteristics were evened out for uniformity, then by optimizing the body frame structure and utilizing structural adhesive, we have the body frame structure and utilizing structural adhesive, we have rationally improved the body rigidity without adding weight. rationally improved the body rigidity without adding weight. Furthermore, the amount of mass offset on the strut suspension, Furthermore, the amount of mass offset on the strut suspension, which is a source of vibration input, was also reduced 15% versus which is a source of vibration input, was also reduced 15% versus conventional levels which also contributed to reduction in noise conventional levels which also contributed to reduction in noise and vibration. and vibration. In terms of providing a smooth and comfortable drive, In terms of providing a smooth and comfortable drive, increasing the rigidity of the body frame brought out the intrinsic increasing the rigidity of the body frame brought out the intrinsic shock damping performance capabilities of the suspension that shock damping performance capabilities of the suspension that enabled quick convergence of vibrations generated by factors such enabled quick convergence of vibrations generated by factors such as bumps in the road, etc. By mounting the rear stabilizer directly as bumps in the road, etc. By mounting the rear stabilizer directly onto the body, the new platform reduces the body roll of the onto the body, the new platform reduces the body roll of the Active Safety in the same class SUV ) m m ( t h g i e h y t i v a r g f o r e t n e C Sport cars EuroNCAP (EU) ANCAP (Australia) Realized even lower center of gravity and further improved steering stability A center of gravity 50 mm lower than other OEM models On the Subaru global platform, the center of gravity height is 5 mm reduced than current levels Other brand average Subaru vehicle average Power unit -10mm Current vehicles Vehicles in development Hip -10mm Heel -20mm Hip -10mm Propeller shaft/ rear differential -10mm ) m m ( t h g i e h y t i v a r g f o r e t n e C Minimum ground clearance (mm) Passive safety Major awards all over the world Body strength improvement for passive safety Average of other C segment Current vehicles Vehicles in development brands IIHS (USA) USNCAP (USA) JNCAP (Japan) ) J K ( n o i t p r o s b a y g r e n e n o i s i l l o C Anticipate to cover out to the year 2025 by further increasing strength, expanding adoption of non-ferrous materials, etc. Body strength compared to current vehicles 40% increase 2015 2025 the load transmission paths, adoption of high strength material, as the load transmission paths, adoption of high strength material, as well as improving collision energy absorption by 40% versus well as improving collision energy absorption by 40% versus existing vehicles. These improvements further evolved crash existing vehicles. These improvements further evolved crash safety performance that had already achieved the highest level of safety performance that had already achieved the highest level of ratings in the world. In the future, compliance to various and ratings in the world. In the future, compliance to various and diverse forms of crashes will be required, and we believe that diverse forms of crashes will be required, and we believe that collision energy absorption will have to be improved further by collision energy absorption will have to be improved further by more than 30% at around 2025. The Subaru Global Platform is more than 30% at around 2025. The Subaru Global Platform is designed to have the potential to be able to comply with these designed to have the potential to be able to comply with these improvements by further increasing strength to higher levels, improvements by further increasing strength to higher levels, expanding adoption of non-ferrous materials, etc. expanding adoption of non-ferrous materials, etc. If the rigidity and strength of the vehicle is improved If the rigidity and strength of the vehicle is improved signiﬁcantly in this way, it would normally increase weight but signiﬁcantly in this way, it would normally increase weight but the Subaru Global Platform effectively utilizes the amount of the Subaru Global Platform effectively utilizes the amount of weight saved due to the rational design, on performance weight saved due to the rational design, on performance improvements and safety improvements, as a lightweight body improvements and safety improvements, as a lightweight body that is on par with conventional Subaru vehicles has been made a that is on par with conventional Subaru vehicles has been made a reality. Moreover, in anticipation of the evolution of vehicles up till reality. Moreover, in anticipation of the evolution of vehicles up till 2025, starting with gasoline engine vehicles, hybrid vehicles 2025, starting with gasoline engine vehicles, hybrid vehicles (HEV/PHEV) to electric vehicles (EV), it is designed as a platform (HEV/PHEV) to electric vehicles (EV), it is designed as a platform that can accommodate various types of power units. The Subaru that can accommodate various types of power units. The Subaru Global Platform that makes overall vehicle performance evolution Global Platform that makes overall vehicle performance evolution possible such as outstanding straight line stability, high level possible such as outstanding straight line stability, high level danger avoidance performance, and the world’s highest level of danger avoidance performance, and the world’s highest level of crash safety performance, will be an important core technology crash safety performance, will be an important core technology even in terms of realizing automated driving in the future. even in terms of realizing automated driving in the future. Platform that anticipates out to 2025 Pursuing Human Centered Automated Driving Functions Toward Making “Zero Traffic Accidents” a Reality. For Subaru that has “Human Centered Automobile Manufacturing” For Subaru that has “Human Centered Automobile Manufacturing” at its essence, the ultimate goal for automated driving is not “to at its essence, the ultimate goal for automated driving is not “to have the car drive itself in place of the human” but it is “to aim for have the car drive itself in place of the human” but it is “to aim for zero trafﬁc accidents” that threaten human life and assets. Based zero trafﬁc accidents” that threaten human life and assets. Based on technical concepts such as these, Subaru will evolve driver on technical concepts such as these, Subaru will evolve driver assist and automated driving toward the realization of “Zero Trafﬁc assist and automated driving toward the realization of “Zero Trafﬁc Accidents” by the introduction of the Subaru Global Platform and Accidents” by the introduction of the Subaru Global Platform and further advances to high performance and high functionality for the further advances to high performance and high functionality for the driver assist system “EyeSight.” driver assist system “EyeSight.” Surveys in Japan have revealed a 61% fewer accidents Surveys in Japan have revealed a 61% fewer accidents resulting in injury or death for vehicles equipped with the resulting in injury or death for vehicles equipped with the “EyeSight Ver. 2” compared to those without it. If the conditions “EyeSight Ver. 2” compared to those without it. If the conditions of the accidents are broken down further, car-to-car accidents of the accidents are broken down further, car-to-car accidents dropped 80%, broadside collisions dropped 50% to demonstrate dropped 80%, broadside collisions dropped 50% to demonstrate the beneﬁts the system provides. The latest “EyeSight Ver. 3” that the beneﬁts the system provides. The latest “EyeSight Ver. 3” that is currently launched in the market has improved performance in is currently launched in the market has improved performance in areas such as capabilities to detect obstacles, speed range that areas such as capabilities to detect obstacles, speed range that the brakes actuate, etc. thus we should be able to expect even the brakes actuate, etc. thus we should be able to expect even further reductions in accident occurrences. further reductions in accident occurrences. In terms of activities toward driver assist and automated In terms of activities toward driver assist and automated driving, automated follow-up system in congested express ways driving, automated follow-up system in congested express ways will be added in 2017. This is a function that drives the car at 0 km/h will be added in 2017. This is a function that drives the car at 0 km/h to 65 km/h on the same lane while recognizing the movements of to 65 km/h on the same lane while recognizing the movements of the vehicle driving ahead and the conditions of curves in the the vehicle driving ahead and the conditions of curves in the roadway with the “EyeSight” in trafﬁc jam on expressways. roadway with the “EyeSight” in trafﬁc jam on expressways. Furthermore, in 2020, we plan to add a radar and digital map to the Furthermore, in 2020, we plan to add a radar and digital map to the “EyeSight” that uses only stereo camera technology to realize “EyeSight” that uses only stereo camera technology to realize automated driving on expressway roads including lane changes. automated driving on expressway roads including lane changes. In this way, by practical implementation placing a priority on driver In this way, by practical implementation placing a priority on driver assist functions targeting situations with a high risk of becoming an assist functions targeting situations with a high risk of becoming an accident, such as during heavy trafﬁc when drivers are susceptible to accident, such as during heavy trafﬁc when drivers are susceptible to losing their concentration, lane changes that demand careful checks losing their concentration, lane changes that demand careful checks in the rearward direction, etc. through this the capability of Subaru in the rearward direction, etc. through this the capability of Subaru vehicles to avoid accidents will be improved exponentially. As a result vehicles to avoid accidents will be improved exponentially. As a result of this pursuit of safety performance, we hope to make automated of this pursuit of safety performance, we hope to make automated driving with distinctive Subaru value and provide “enjoyment and driving with distinctive Subaru value and provide “enjoyment and peace of mind” that is one step above to users. peace of mind” that is one step above to users. 23 Evolution of the EyeSight 2017 Automated follow-up on congested expressways 2020 Automated driving including lane changes on expressways EyeSight Accident Reduction Data*1 61% reduction in accident rate Comparison of rate of accidents resulting in injury or death with and without EyeSight (Ver.2) No. per 10,000 vehicles (over 4 years) Between people and vehicles 200 154.1 10 61% down 60.7 52% down 36% down 58% down 0 Without EyeSight With EyeSight 0 Rear/ front While crossing road Other Between vehicles*2 60 51% down 83% down 34% down 41% down 48% down 0 Rear-end collision Intersection collision Turning left Turning right Other *1 Independent calculations from data on accidents that took place over the four years from 2011 – 2014 among vehicles sold between 2010 and 2013 in which installation of EyeSight (Ver. 2) is possible based on Institute for Traffic Accident Research and Data Analysis (ITARDA) data. There were 2,234 accidents. Calculates the number of accidents resulting in injury or death per 10,000 vehicles with and without EyeSight (over four years). Of the target vehicles, there were 246,139 with EyeSight (Ver. 2) and 48,085 without it. *2 Placed top in frequency FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016 Special Feature Innovativeness of the Subaru Global Platform that will Serve as the Backbone of Next Generation Automobile Manufacturing New Subaru Design that Puts “Enjoyment and Peace of Mind” Into the Physical Form of a Vehicle Mamoru Ishii General Manager, Subaru Design Department a Subaru car in a single glance. and is the structure of framework that determines the proﬁle of the The latest design philosophy that embodies this new Subaru vehicle. The second factor is “solid mass.” This could also be design is DYNAMIC×SOLID. The “solidness full of sense of referred to as volume or volume feel, and develops the way the security” and “sturdiness to protect passengers,” that had been muscles are built to give an impression of trust and toughness that carefully developed into designs conventionally by Subaru is the vehicle possesses. The third factor is “surface structure.” expressed by SOLID and throbbing Dynamic for next generation Starting with Subaru’s unique hexagon grille through this and active lifestyle, etc. is expressed by the keyword DYNAMIC. three-dimensional expression, this is what gives the impression of At Subaru, this design philosophy of DYNAMIC×SOLID is car’s individual facial expression and character. incorporated into speciﬁc three-dimensional forms from the The next generation Impreza will be the ﬁrst mass production following three factors. The ﬁrst and most important is the vehicle to fully adopt this DYNAMIC×SOLID design. Please look “stance.” This could also be called the proportions of the vehicle forward with high expectations for future Subaru designs. Pursuing “Lifestyle Design” to make life richer, and “Long Life Design” that people will want to use for a long time. genuine beauty of the vehicle that came about naturally. Reﬂecting the mentality of this kind of Subaru car making is what we believe will lead to “Long life design”. At Subaru, for the mid-term management vision “Prominence 2020,” six activities have been established to polish up the brand. One of the major items of these activities is positioned in the realm of design. In order for Subaru to be a prominent presence for customers, we have reconﬁrmed goals that design should be aiming for and developed a renewed Subaru design strategy. The new Subaru design will aim for “lifestyle design” to make the lives of customers richer and “long life design” that customers will want to use for a long time. At Subaru, cars will obviously be designed to comfortably ﬁt the customer’s lifestyle but on top of that, to take that next step, and actively promote the design a new lifestyle that will make the life of customers richer. This is “Lifestyle design.” Of course, the car will become a partner in the rich life of the customer, thus it must be equipped with functional performance that can be used daily without stress but at the same time be designed in a way that customers will feel an afﬁnity to want to use the car for a long time. For example, at Subaru, in order to achieve superior visibility performance, sure, effective ﬁeld of view angle was secured but an interior design was executed that went as far as taking into account controlling light glare and reﬂections in the glass. On top of this, instead of following the latest trends haphazardly, the priority was placed on design that pursued 24 Design Philosophy of DYNAMIC×SOLID that Expresses “Enjoyment and Peace of Mind” from the Perspective of Design. In pursuing our new design direction, we have also worked to interpret from a design perspective the value of “Enjoyment and Peace of Mind” that Subaru offers to customers and put it into the form of vehicles. As a result of analyzing “Enjoyment and Peace of Mind” based on this concept, we reacknowledged three meanings that should be expressed as a common theme throughout the new Subaru design and decided to evolve each area accordingly. The ﬁrst meaning is “functional value” in terms of “ﬁne visibility,” “comfortable interior space,” “load capacity” and “run through capability,” that had been a priority since the founding of Subaru. In addition to these factors, in recent years “Aerodynamic performance,” have also become important factors. The second meaning is “manufacturing spirit” in terms of “rational design concepts” and a “Challenging spirit” that have been passed down over generations since the founding of Subaru as our DNA to want to create new value. Then the third meaning is “emotional value” in terms of communicating the sophisticated “shape” borne out of necessity represented by the distinct front face that is identiﬁed as FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016Special Feature Innovativeness of the Subaru Global Platform that will Serve as the Backbone of Next Generation Automobile Manufacturing New Subaru Design that Puts “Enjoyment and Peace of Mind” Into the Physical Form of a Vehicle Mamoru Ishii General Manager, Subaru Design Department a Subaru car in a single glance. a Subaru car in a single glance. The latest design philosophy that embodies this new Subaru The latest design philosophy that embodies this new Subaru design is DYNAMIC×SOLID. The “solidness full of sense of design is DYNAMIC×SOLID. The “solidness full of sense of security” and “sturdiness to protect passengers,” that had been security” and “sturdiness to protect passengers,” that had been carefully developed into designs conventionally by Subaru is carefully developed into designs conventionally by Subaru is expressed by SOLID and throbbing Dynamic for next generation expressed by SOLID and throbbing Dynamic for next generation and active lifestyle, etc. is expressed by the keyword DYNAMIC. and active lifestyle, etc. is expressed by the keyword DYNAMIC. At Subaru, this design philosophy of DYNAMIC×SOLID is At Subaru, this design philosophy of DYNAMIC×SOLID is incorporated into speciﬁc three-dimensional forms from the incorporated into speciﬁc three-dimensional forms from the following three factors. The ﬁrst and most important is the following three factors. The ﬁrst and most important is the “stance.” This could also be called the proportions of the vehicle “stance.” This could also be called the proportions of the vehicle and is the structure of framework that determines the proﬁle of the and is the structure of framework that determines the proﬁle of the vehicle. The second factor is “solid mass.” This could also be vehicle. The second factor is “solid mass.” This could also be referred to as volume or volume feel, and develops the way the referred to as volume or volume feel, and develops the way the muscles are built to give an impression of trust and toughness that muscles are built to give an impression of trust and toughness that the vehicle possesses. The third factor is “surface structure.” the vehicle possesses. The third factor is “surface structure.” Starting with Subaru’s unique hexagon grille through this Starting with Subaru’s unique hexagon grille through this three-dimensional expression, this is what gives the impression of three-dimensional expression, this is what gives the impression of car’s individual facial expression and character. car’s individual facial expression and character. The next generation Impreza will be the ﬁrst mass production The next generation Impreza will be the ﬁrst mass production vehicle to fully adopt this DYNAMIC×SOLID design. Please look vehicle to fully adopt this DYNAMIC×SOLID design. Please look forward with high expectations for future Subaru designs. forward with high expectations for future Subaru designs. Pursuing “Lifestyle Design” to make life richer, and “Long Life Design” that people will want to use for a genuine beauty of the vehicle that came about naturally. Reﬂecting genuine beauty of the vehicle that came about naturally. Reﬂecting the mentality of this kind of Subaru car making is what we believe the mentality of this kind of Subaru car making is what we believe long time. will lead to “Long life design”. will lead to “Long life design”. At Subaru, for the mid-term management vision “Prominence At Subaru, for the mid-term management vision “Prominence 2020,” six activities have been established to polish up the brand. 2020,” six activities have been established to polish up the brand. One of the major items of these activities is positioned in the realm One of the major items of these activities is positioned in the realm of design. In order for Subaru to be a prominent presence for of design. In order for Subaru to be a prominent presence for customers, we have reconﬁrmed goals that design should be customers, we have reconﬁrmed goals that design should be aiming for and developed a renewed Subaru design strategy. The aiming for and developed a renewed Subaru design strategy. The new Subaru design will aim for “lifestyle design” to make the lives new Subaru design will aim for “lifestyle design” to make the lives of customers richer and “long life design” that customers will want of customers richer and “long life design” that customers will want to use for a long time. to use for a long time. At Subaru, cars will obviously be designed to comfortably ﬁt At Subaru, cars will obviously be designed to comfortably ﬁt the customer’s lifestyle but on top of that, to take that next step, the customer’s lifestyle but on top of that, to take that next step, life of customers richer. This is “Lifestyle design.” life of customers richer. This is “Lifestyle design.” Of course, the car will become a partner in the rich life of the Of course, the car will become a partner in the rich life of the customer, thus it must be equipped with functional performance customer, thus it must be equipped with functional performance that can be used daily without stress but at the same time be that can be used daily without stress but at the same time be designed in a way that customers will feel an afﬁnity to want to designed in a way that customers will feel an afﬁnity to want to use the car for a long time. For example, at Subaru, in order to use the car for a long time. For example, at Subaru, in order to achieve superior visibility performance, sure, effective ﬁeld of view achieve superior visibility performance, sure, effective ﬁeld of view angle was secured but an interior design was executed that went angle was secured but an interior design was executed that went as far as taking into account controlling light glare and reﬂections in as far as taking into account controlling light glare and reﬂections in the glass. On top of this, instead of following the latest trends the glass. On top of this, instead of following the latest trends haphazardly, the priority was placed on design that pursued haphazardly, the priority was placed on design that pursued Design Philosophy of DYNAMIC×SOLID that Expresses “Enjoyment and Peace of Mind” from the Perspective of Design. In pursuing our new design direction, we have also worked to In pursuing our new design direction, we have also worked to interpret from a design perspective the value of “Enjoyment and interpret from a design perspective the value of “Enjoyment and Peace of Mind” that Subaru offers to customers and put it into the Peace of Mind” that Subaru offers to customers and put it into the form of vehicles. As a result of analyzing “Enjoyment and Peace of form of vehicles. As a result of analyzing “Enjoyment and Peace of Mind” based on this concept, we reacknowledged three Mind” based on this concept, we reacknowledged three meanings that should be expressed as a common theme meanings that should be expressed as a common theme throughout the new Subaru design and decided to evolve each throughout the new Subaru design and decided to evolve each The ﬁrst meaning is “functional value” in terms of “ﬁne The ﬁrst meaning is “functional value” in terms of “ﬁne visibility,” “comfortable interior space,” “load capacity” and “run visibility,” “comfortable interior space,” “load capacity” and “run through capability,” that had been a priority since the founding of through capability,” that had been a priority since the founding of Subaru. In addition to these factors, in recent years “Aerodynamic Subaru. In addition to these factors, in recent years “Aerodynamic performance,” have also become important factors. The second performance,” have also become important factors. The second meaning is “manufacturing spirit” in terms of “rational design meaning is “manufacturing spirit” in terms of “rational design concepts” and a “Challenging spirit” that have been passed down concepts” and a “Challenging spirit” that have been passed down over generations since the founding of Subaru as our DNA to want over generations since the founding of Subaru as our DNA to want to create new value. Then the third meaning is “emotional value” in to create new value. Then the third meaning is “emotional value” in terms of communicating the sophisticated “shape” borne out of terms of communicating the sophisticated “shape” borne out of necessity represented by the distinct front face that is identiﬁed as necessity represented by the distinct front face that is identiﬁed as and actively promote the design a new lifestyle that will make the and actively promote the design a new lifestyle that will make the area accordingly. area accordingly. 25 FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016Corporate Governance Our Basic Approach to Corporate Governance Company Organizational Bodies FHI works on the enhancement of corporate governance as one of the top priorities of management in order to gain the satisfaction and trust of all of our stakeholders by achieving sustainable growth and improving our corporate value in the medium and long term aiming to be “A Compelling Company with Strong Market Presence” based on the “Customers Come First” principle under the corporate philosophy outlined on the right. Corporate Philosophy 1. We strive to create advanced technology on an ongoing basis and provide consumers with distinctive products with the highest level of quality and customer satisfaction. 2. We aim to continuously promote harmony between people, society, and the environment while contributing to the prosperity of society. 3. We look to the future with a global perspective and aim to foster a vibrant, progressive company. (Established in November 1994) FHI has adopted a Board of Corporate Auditors system, and the Board of Directors and the Board of Corporate Auditors perform decision making, and oversight and auditing for the execution of important business operations. The Board of Directors is composed of eight directors, two of whom are highly independent outside directors to further strengthen governance. The Board of Corporate Auditors is composed of four corporate auditors, two of whom are outside corporate auditors to provide objective oversight of management. With regard to the system for the execution of business operations, important issues that require consultation with the Board of Directors are thoroughly discussed at the Executive Management Board Meeting, which deliberates on company-wide management strategy and the execution of key business operations. In addition to employing an executive ofﬁcer system, FHI has introduced an in-house company system for the Aerospace System of Corporate Governance General Meeting of Shareholders Election and dismissal Election and dismissal Election and dismissal Board of Corporate Auditors: 4 Reporting Corporate auditors: 2 Outside corporate auditors: 2 Reporting Auditing Information exchange with outside ofﬁcers Board of Directors: 8 Directors: 6 Outside directors: 2 Decision making Submission and reporting Collaboration Executive Nomination Meeting Executive Compensation Meeting Executive Nomination Meeting and Executive Compensation Meeting composition Representative director, director in charge of Secretarial Ofﬁce, outside directors s r o t i d u A g n i t n u o c c A Collaboration Internal Audit Department (Audit Department) Reporting Reporting President Executive Management Board Meeting CSR Committee Reporting Reporting Auditing Instructions and oversight Shared Corporate Operations Departments at HQ Subaru Automobiles Division Executive Meeting Aerospace Company Executive Meeting Industrial Products Company Executive Meeting Group companies Election and dismissal Submission and reporting of important matters Policy instructions Approval of plans, etc. Plan proposal reports, etc. i s t n e d s e r P e c V e t a r o p r o C i Auditing CSR Committee Quality Improvement Committee Central Safety and Health Committee Environmental Committee Compliance Committee Social Contribution Committee Corporate Governance Planning Committee etc. 26 d n a g n i k a m n o i s i c e D s n o i t c n u f t h g i s r e v o n o i t c n u f n o i t u c e x e s n o i t a r e p o s s e n i s u B and Industrial Products business divisions with the Automotive Business at its core with the aim of clarifying responsibility and speeding up execution of business operations. Development of Internal Control System FHI resolved its basic policy on the development of a system to ensure that the execution of the duties of the directors complies with laws and regulations and the Articles of Incorporation as well as the other systems stipulated by ordinance of Japan’s Ministry of Justice as necessary to ensure the proper operation of a stock company at a meeting of the Board of Directors in May 2006. Status of Development of Risk Management System At FHI, the Corporate Planning Department, which plays a central role in the common functions of each business, and other company-wide shared corporate operations departments maintain close links with each department and company to enhance risk management. In addition, the Audit Department performs planned audits of each department and Group company. important compliance FHI has also created and operates a system and organization to ensure compliance, which is the foundation of risk management, in order to assist with the development of the internal control system. First, we have established the Compliance Committee which deliberates, discusses, determines, exchanges information, and liaises on the implementation of company-wide compliance. In addition, we have assigned a compliance ofﬁcer and compliance staff for each department and company to organize a system that meticulously implements compliance at each workplace. We also systematically provide education and training for ofﬁcers and employees on a routine basis as well as raising awareness about compliance through such means as in-house publications as necessary. to promote issues Furthermore, in order to promote the implementation of compliance in the FHI Group, we conduct education and training and provide information through in-house publications for Group companies in addition to raising the effectiveness of these activities through the participation of Group companies in the FHI internal reporting system (Compliance Hotline.) FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016 Our Basic Approach to Corporate Governance Company Organizational Bodies Status of Internal Audits and Auditing by Corporate Auditors Executive Compensation and Industrial Products business divisions with the Automotive Business at its core with the aim of clarifying responsibility and Corporate Governance FHI works on the enhancement of corporate governance as one of FHI has adopted a Board of Corporate Auditors system, and the speeding up execution of business operations. the top priorities of management in order to gain the satisfaction and Board of Directors and the Board of Corporate Auditors perform trust of all of our stakeholders by achieving sustainable growth and decision making, and oversight and auditing for the execution of improving our corporate value in the medium and long term aiming important business operations. The Board of Directors is Development of Internal Control System to be “A Compelling Company with Strong Market Presence” based composed of eight directors, two of whom are highly independent FHI resolved its basic policy on the development of a system to on the “Customers Come First” principle under the corporate outside directors to further strengthen governance. The Board of ensure that the execution of the duties of the directors complies philosophy outlined on the right. Corporate Auditors is composed of four corporate auditors, two of with laws and regulations and the Articles of Incorporation as well Corporate Philosophy 1. We strive to create advanced technology on an ongoing basis and provide consumers with distinctive products with the highest level of quality and customer satisfaction. 2. We aim to continuously promote harmony between people, society, and the environment while contributing to the prosperity of society. progressive company. whom are outside corporate auditors to provide objective as the other systems stipulated by ordinance of Japan’s Ministry of oversight of management. Justice as necessary to ensure the proper operation of a stock With regard to the system for the execution of business company at a meeting of the Board of Directors in May 2006. operations, important issues that require consultation with the Board of Directors are thoroughly discussed at the Executive Management Board Meeting, which deliberates on company-wide Status of Development of Risk Management System 3. We look to the future with a global perspective and aim to foster a vibrant, management strategy and the execution of key business At FHI, the Corporate Planning Department, which plays a central role (Established in November 1994) operations. In addition to employing an executive ofﬁcer system, in the common functions of each business, and other company-wide FHI has introduced an in-house company system for the Aerospace shared corporate operations departments maintain close links with System of Corporate Governance General Meeting of Shareholders Election and dismissal Election and dismissal Election and dismissal Board of Corporate Auditors: 4 Board of Directors: 8 Reporting Corporate auditors: 2 Directors: 6 Outside corporate auditors: 2 Outside directors: 2 Reporting Decision making Submission and reporting Auditing Information exchange with outside ofﬁcers Collaboration Internal Audit Department (Audit Department) Collaboration Reporting Reporting President Executive Management Board Meeting Auditing Instructions and oversight CSR Committee Reporting Reporting Election and dismissal s r o t i d u A g n i t n u o c c A Shared Corporate Operations Departments at HQ Subaru Automobiles Division Executive Meeting Submission and reporting of important matters Auditing Aerospace Company Executive Meeting Industrial Products Company Executive Meeting Group companies Policy instructions Approval of plans, etc. Plan proposal reports, etc. s t n e d i s e r P e c i V e t a r o p r o C Executive Nomination Meeting Executive Compensation Meeting Executive Nomination Meeting and Executive Compensation Meeting composition Representative director, director in charge of Secretarial Ofﬁce, outside directors CSR Committee Quality Improvement Committee Central Safety and Health Committee Environmental Committee Compliance Committee Social Contribution Committee each department and company to enhance risk management. In addition, the Audit Department performs planned audits of each department and Group company. FHI has also created and operates a system and organization to ensure compliance, which is the foundation of risk management, in order to assist with the development of the internal control system. First, we have established the Compliance Committee which deliberates, discusses, determines, exchanges information, and liaises on important compliance issues to promote the implementation of company-wide compliance. In addition, we have assigned a compliance ofﬁcer and compliance staff for each department and company to organize a system that meticulously implements compliance at each workplace. We also systematically provide education and training for ofﬁcers and employees on a routine basis as well as raising awareness about compliance through such means as in-house publications as necessary. Furthermore, in order to promote the implementation of compliance in the FHI Group, we conduct education and training and provide information through in-house publications for Group companies in addition to raising the effectiveness of these d n a g n i k a m n o i s i c e D s n o i t c n u f t h g i s r e v o n o i t c n u f n o i t u c e x e s n o i t a r e p o s s e n i s u B Corporate Governance Planning Committee activities through the participation of Group companies in the FHI etc. internal reporting system (Compliance Hotline.) FHI’s standing corporate auditors (including the standing outside corporate auditors), attend meetings of the Board of Directors and other important meetings, visit work sites, investigate subsidiaries, hear opinions from the internal audit department, and audit the execution of duties by the directors and others based on the audit policy and audit plan established by the Board of Corporate Auditors. The non-standing outside corporate auditors attend meetings of the Board of Directors and other important meetings, hear opinions from the internal audit department and the standing corporate auditors, and audit the execution of duties by the directors and others based on the audit policy and audit plan established by the Board of Corporate Auditors. FHI has established the Audit Department as an internal auditing organization to implement planned audits of the execution of business operations in each in-house department as well as Group companies inside and outside Japan. At the beginning of the ﬁscal year, the department coordinates its internal audit plan for the ﬁscal year with the Board of Corporate Auditors’ policy in advance. The Audit Department reports the results of all internal audits to the corporate auditors and reports on the status of internal audit activities and exchanges opinions with them on a monthly basis to achieve collaboration. The Audit Department also endeavors to strengthen the auditing function in conjunction with audits by the Accounting Auditor. By a resolution passed at the June 2016 General Meeting of Shareholders, the total amount of annual compensation for directors was set within 1.2 billion yen (including 200 million yen for outside directors), while the total amount for corporate auditors was set within 100 million yen by a resolution passed at the June 2006 General Meeting of Shareholders. Furthermore, by decision of the Board of Directors, the basic compensation for directors is to include a ﬁxed amount (determined based on the director’s rank, with additional considerations including the business environment, etc.) and a performance-based amount (determined based on the ﬁscal year’s consolidated ordinary proﬁt, with additional considerations including contribution to personnel development, the business environment, etc.). Compensation amounts for the ﬁscal year under review are shown below. Outside directors do not receive performance-based compensation. Classification Number Directors (excluding outside directors) Corporate auditors (excluding outside corporate auditors) Outside executive officers 7 3 5 Total compensation (millions of yen) Basic compensation Fixed amount Performance- based amount 234 282 516 27 62 − − 27 62 Evaluation of Internal Control System for Financial Reporting Total 15 322 282 604 An evaluation of the internal control system related to ﬁnancial reporting in connection with the internal control reporting system based on Japan’s Financial Instruments and Exchange Act is conducted using the ﬁnal date of the ﬁscal year of the consolidated ﬁnancial statements as the reference date. The evaluation conforms to the standards for evaluation of internal control related to ﬁnancial reporting that are generally accepted to be fair and reasonable. The President & Chief Executive Ofﬁcer (CEO) and the Chief Financial Ofﬁcer (CFO) evaluated the status of the development of the internal control system related to ﬁnancial reporting as of March 31, 2016 and afﬁrmed that it has been established properly and functions effectively and issued an internal control report audited by the Accounting Auditors to that effect. *The above table includes one director and two auditors who resigned before the last day of the fiscal year under review. At the end of the fiscal year under review, there were 8 directors (including 2 outside directors) and 4 auditors (including 3 outside auditors). Complying with the Corporate Governance Code FHI’s policies call for compliance with the provisions of the Tokyo Stock Exchange’s Corporate Governance Code. Cognizant of these provisions, FHI formulated Corporate Governance Guidelines on November 5, 2015. These Guidelines, disclosed on our website, are intended to clarify our fundamental approach to corporate governance, in addition to our framework and management policies. FHI’s corporate governance pages: https://fhi.co.jp/english/csr/mecenat/governance.html https://fhi.co.jp/english/envi/csr/csr/governance/governance.html 27 Analysis and Evaluation of the Board of Directors’ Effectiveness Following the Corporate Governance Guidelines, we implemented analysis and evaluation of our Board of Directors’ effectiveness in FY 2016. Analysis and Evaluation Method • Implementation period: March 2016 • Respondents: Directors and corporate auditors (12 in total, including outside directors) • Overview: We carried out self-evaluations using a questionnaire that utilized expertise from a third-party organization. An overview of the analysis results is as follows. - The Board of Directors has an appropriate size and sufﬁcient diversity for debate. The number, content, and amount of deliberation on proposals brought forth based on the Board of Directors’ Proposal Criteria are appropriate and the Board’s debate is open and unencumbered. - Board of Directors members understand the specialized expertise of each member, respect fellow members, and strive to understand, rather than exclude, opinions and values that do not agree with their own. - The support framework for outside executive ofﬁcers as well as external communication may need further improvement. From the above, the effectiveness of FHI’s Board of Directors was evaluated positively for FY 2016. In terms of both its decision-making and oversight of business execution, the Board as a whole fulﬁlls the roles and responsibilities set out in the Corporate Governance Code. On the other hand, there were also constructive opinions expressing expectations for enhanced provision of information and explanations from the Company to outside executive ofﬁcers, in addition to improved IR activity reports and more active strategic debate. Consequently, we have decided to digest the results of this survey and strive to continually improve corporate value, while boosting our support of outside executive ofﬁcers to a new level. This will include more promptly distributing material used for proposals taken up by the Board of Directors, enhancing pre-brieﬁngs for outside executive ofﬁcers, working to share information and provide feedback on IR activities to a greater extent than we have to date, and increasing opportunities for Board members (including outside executive ofﬁcers) to exchange opinions and information on FHI’s business strategies and management challenges. FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016 Board Directors / Executive Officers 28 FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016Board Directors / Executive Officers Directors of the Board Yasuyuki Yoshinaga 1 Representative Director of the Board President & CEO April 1977 Joined the Company April 2005 Corporate Vice President, Senior General Manager of Strategy Development Division, and General Manager of Corporate Planning Department June 2006 Corporate Vice President and Chief General Manager of Strategy Development Division April 2007 Corporate Vice President, Chief General Manager of Subaru Japan Sales & Marketing Division, and General Manager of Sales Promotion Department June 2007 Corporate Senior Vice President and Chief General Manager of Subaru Japan Sales & Marketing Division June 2009 Director of the Board and Corporate Executive Vice President June 2011 Representative Director of the Board, President and CEO 2 Jun Kondo Representative Director of the Board Deputy President April 1976 Joined the Company June 2003 Corporate Vice President, Chief General Manager of Subaru Manufacturing Division, and Chief General Manager of Gunma Plant May 2004 Corporate Vice President, Chief General Manager of Subaru Cost Planning & Management Division, and General Manager of Cost Planning Department June 2004 Corporate Senior Vice President and Chief General Manager of Subaru Cost Planning & Management Division June 2006 Corporate Senior Vice President, Chief General Manager of Subaru Cost Planning & Management Division, and Senior General Manager of Subaru Purchasing Division April 2007 Corporate Senior Vice President, Chief General Manager of Strategy Development Division, and Chief General Manager of Subaru Cost Planning & Management Division June 2008 Director of the Board and Corporate Executive Vice President June 2011 Representative Director of the Board and Deputy President 3 Naoto Muto Director of the Board Corporate Executive Vice President April 1977 Joined the Company April 2005 Corporate Vice President, Senior General Manager of Subaru Product & Portfolio Planning Division, and General Manager of Subaru Product & Portfolio Planning Division June 2006 Corporate Vice President and Chief General Manager of Subaru Product & Portfolio Planning Division June 2007 Corporate Senior Vice President and Chief General Manager of Subaru Product & Portfolio Planning Division April 2009 Corporate Senior Vice President and Chief General Manager of Subaru Purchasing Division June 2010 Corporate Executive Vice President and Chief General Manager of Subaru Purchasing Division June 2011 Director of the Board and Corporate Executive Vice President 4 Mitsuru Takahashi Director of the Board Corporate Executive Vice President April 1978 Joined the Company June 2006 Corporate Vice President and General Manager of Finance & Accounting Department April 2009 Corporate Senior Vice President, CFO, and General Manager of Finance & Accounting Department April 2010 Corporate Senior Vice President, CFO, General Manager of Finance & Accounting Department, and President of Eco Technologies Company June 2010 Corporate Executive Vice President, CFO, General Manager of Finance & Accounting Department, and. President of Eco Technologies Company April 2011 Corporate Executive Vice President, CFO, and President of Eco Technologies Company June 2012 Director of the Board, Corporate Executive Vice President, CFO, and President Executive Officers Outside Executive Officers The Company has appointed Yoshinori Komamura and Shigehiro Aoyama to the position of outside director. Possessing considerable experience as executives and a high degree of expertise in the area of CSR, we are confident that Mr. Komamura and Mr. Aoyama will offer sound advice to the Board of Directors and other bodies and ensure the independent monitoring of the Company’s management. Outside corporate auditors are deemed to have sufficient ability to appropriately carry out their professional duties. Shinichi Mita possesses experience and knowledge related to management from being an executive in the manufacturing industry. In particular, he has broad knowledge of corporate accounting and finance. Yasuyuki Abe possesses experience and knowledge related to management from being an executive of a general trading company and has a wealth of experience and broad knowledge as a corporate manager. FHI appoints outside directors and outside corporate auditors based on criteria for the independence of its outside executive officers. 5 Takeshi Tachimori Director of the Board Corporate Executive Vice President April 1977 Joined the Company June 2006 Corporate Vice President and Senior General Manager of Subaru Product & Portfolio Planning Division April 2009 Corporate Vice President, Chief General Manager of Subaru Product & Portfolio Planning Division, and President of Subaru Tecnica International Inc. April 2010 Corporate Senior Vice President and Chief General Manager of Subaru Product & Portfolio Planning Division April 2011 Corporate Senior Vice President and Chairman, President & CEO of Subaru of America, Inc. June 2011 Corporate Senior Vice President; Chairman, President & CEO of Subaru of America, Inc.; and Chief General Manager of Subaru Overseas Sales & Marketing Division 1 April 2013 Corporate Executive Vice President, Chairman & CEO of Subaru of America, Inc., and Chief General Manager of Subaru Overseas Sales & Marketing Division 1 June 2013 Director of the Board and Corporate Executive Vice President 6 Masahiro Kasai Director of the Board Corporate Executive Vice President April 1978 Joined the Company June 2007 Corporate Vice President and President & CEO of Subaru of Indiana Automotive, Inc. April 2009 Corporate Vice President, Chief General Manager of Subaru Manufacturing Division, and Chief General Manager of Gunma Plant April 2010 Corporate Senior Vice President, Chief General Manager of Subaru Manufacturing Division, and Chief General Manager of Gunma Plant April 2014 Corporate Executive Vice President and Chief General Manager of Subaru Purchasing Division June 2015 Director of the Board and Corporate Executive Vice President Yoshinori Komamura Outside Director June 2015 Outside Director 7 Shigehiro Aoyama Outside Director June 2016 Outside Director 8 7 5 3 1 6 2 8 4 29 Corporate Executive Vice President Hisashi Nagano Nobuhiko Murakami Tomomi Nakamura Kazuo Hosoya Masaki Okawara Corporate Senior Vice President Yasuo Kosakai Yasunobu Nogai Satoshi Maeda Toshiaki Okada Tetsuo Onuki Yoichi Katou Katsuyuki Mizuma Corporate Vice President Masami Iida Hiromi Tsutsumi Shoichiro Tozuka Toshiaki Tamegai Hiroki Kurihara Masayuki Uchida Takuji Dai Fumiaki Hayata Atsushi Osaki Tatsuro Kobayashi Auditors Standing Corporate Auditor Akira Mabuchi Shuzo Haimoto Corporate Auditor Shinichi Mita Yasuyuki Abe FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016Consolidated Ten-Year Financial Summary FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES Years ended March 31 (Millions of yen) (Thousands of U.S. dollars1) Consolidated Automobile Sales by Region (Number of units) Consolidated Automobile Sales (Number of units) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2016 For the year: Net sales Cost of sales Gross profit Selling, general and administrative expenses Operating income (loss) Income (loss) before income taxes and minority interests Net income (loss) attributable to owners of parent Comprehensive income At year-end: Net assets Shareholders’ equity Total assets Ratio of shareholders’ equity to total assets (%) Per share: (in yen and U.S. dollars) Net income (loss): Basic Diluted Net assets Other information: Depreciation/amortization Capital expenditures (addition to fixed assets) Research and development expenses Number of shares issued (thousands of shares)2 Number of shareholders2 Number of employees2 Parent only Consolidated ¥ 1,494,817 1,142,674 352,143 304,237 47,906 45,589 31,899 — ¥ 1,572,346 1,217,662 354,684 309,004 45,680 31,906 18,481 — ¥ 1,445,790 1,164,564 281,226 287,029 (5,803) (21,517) (69,933) — ¥ 1,428,690 1,152,763 275,927 248,577 27,350 (443) (16,450) (13,416) ¥ 1,580,563 1,241,427 339,136 255,001 84,135 63,214 50,326 34,900 ¥ 1,517,105 1,222,419 294,686 250,727 43,959 52,879 38,453 44,474 ¥ 1,912,968 1,501,809 411,159 290,748 120,411 93,082 119,588 152,009 ¥ 2,408,129 1,728,271 679,858 353,369 326,489 328,865 206,616 210,757 ¥ 2,877,913 2,017,490 860,423 437,378 423,045 392,206 261,873 309,271 ¥ 3,232,258 2,187,136 1,045,122 479,533 565,589 619,003 436,654 405,703 ¥ 495,703 494,004 1,316,041 37.5% ¥ 494,423 493,397 1,296,388 38.1% ¥ 394,719 393,946 1,165,431 33.8% ¥ 381,893 380,587 1,231,367 30.9% ¥ 413,963 412,661 1,188,324 34.7% ¥ 451,607 450,302 1,352,532 33.3% ¥ 596,813 595,365 1,577,454 37.7% ¥ 770,071 765,544 1,888,363 40.5% ¥ 1,030,719 1,022,417 2,199,714 46.5% ¥ 1,349,411 1,343,732 2,592,410 51.8% ¥ ¥ 44.46 44.44 687.81 81,454 126,329 50,709 782,865 42,920 11,752 25,598 ¥ ¥ 25.73 25.73 687.02 87,164 118,869 52,020 782,865 44,484 11,909 26,404 ¥ ¥ (91.97) — 505.59 74,036 95,153 42,831 782,865 40,839 12,137 27,659 ¥ ¥ (21.11) — 488.58 65,785 89,077 37,175 782,865 39,223 12,483 27,586 ¥ ¥ 64.56 — 528.88 56,062 67,378 42,907 782,865 34,240 12,429 27,296 ¥ ¥ 49.27 — 576.97 58,611 67,035 48,115 782,865 33,139 12,359 27,123 ¥ ¥ 153.23 — 762.87 61,544 94,986 49,141 782,865 28,890 12,717 27,509 ¥ ¥ 264.76 — 980.98 61,486 98,537 60,092 782,865 51,386 13,034 28,545 ¥ ¥ 335.57 — 1,310.15 71,821 135,346 83,535 782,865 70,942 13,883 29,774 ¥ ¥ 559.54 — 1,721.90 72,938 168,338 102,373 782,865 79,594 14,234 31,151 $ 28,682,740 19,408,430 9,274,310 4,255,329 5,018,981 5,492,972 3,874,825 3,600,169 $11,974,541 11,924,146 23,004,792 $ $ 4.97 — 15.28 647,245 1,493,815 908,448 United States Canada Russia Europe Australia Japan China 1,000,000 Others 957,865 910,695 825,098 724,466 639,862 0 2012 2013 2014 2015 2016 Overseas units by region: Consolidated Automobile Sales by Model (Number of units) Impreza Tribeca Others Forester Exiga Minicars Levorg SUBARU BRZ 957,865 910,695 Overseas total Overseas units by model: 825,098 724,466 639,862 Domestic units: Legacy Impreza Forester Levorg WRX Exiga OEM Others SUBARU BRZ Passenger cars Minicars Domestic total U.S. Canada Russia Europe Australia China Others Legacy Impreza Forester Levorg WRX Tribeca OEM Others SUBARU BRZ Overseas total Grand total 2012 22,812 29,122 13,803 0 0 8,020 249 5,844 303 80,153 92,189 172,342 280,356 28,239 15,860 39,075 36,928 48,323 18,739 467,520 210,194 90,149 157,833 0 0 5,702 38 3,372 232 467,520 639,862 2013 24,207 53,250 18,044 0 0 7,392 6,711 2,778 368 112,750 50,372 163,122 357,569 32,644 14,719 46,382 38,120 50,185 21,725 561,344 207,460 190,864 147,679 0 0 4,243 10,100 591 407 561,344 724,466 2014 18,961 61,071 36,572 0 0 3,853 3,380 1,857 453 126,147 55,454 181,601 441,799 36,013 15,314 31,756 39,515 44,807 34,293 643,497 182,712 210,828 231,173 0 0 2,561 15,822 256 145 643,497 825,098 2015 13,845 39,462 21,103 40,559 7,514 1,937 1,890 1,127 439 127,876 34,876 162,752 527,630 42,439 11,559 35,730 38,889 53,821 37,875 747,943 235,791 196,403 269,649 0 37,982 64 7,914 135 5 747,943 910,695 2016 11,358 39,794 22,044 23,555 6,956 4,498 1,995 884 502 111,586 33,702 145,288 582,674 47,579 5,723 41,778 44,611 44,388 45,824 812,577 286,979 217,272 250,072 7,713 43,120 34 7,387 0 0 812,577 957,865 800,000 600,000 400,000 200,000 Legacy WRX OEM 1,000,000 800,000 600,000 400,000 200,000 1. U.S. dollar figures have been translated from yen, for convenience only, at the rate of ¥112.69 to US$1.00, the approximate rate of exchange at March 31, 2016. 2. As of March 31 30 0 2012 2013 2014 2015 2016 FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016Five-Year Automobile Sales Years ended March 31 (Millions of yen) (Thousands of U.S. dollars1) Consolidated Automobile Sales by Region (Number of units) Consolidated Automobile Sales (Number of units) Japan China United States Others 1,000,000 Canada Russia Europe Australia 957,865 910,695 825,098 724,466 639,862 800,000 600,000 400,000 200,000 0 2012 2013 2014 2015 2016 Consolidated Automobile Sales by Model (Number of units) Impreza Tribeca Others Forester Exiga Minicars Levorg SUBARU BRZ 957,865 910,695 825,098 724,466 639,862 Legacy WRX OEM 1,000,000 800,000 600,000 400,000 200,000 1. U.S. dollar figures have been translated from yen, for convenience only, at the rate of ¥112.69 to US$1.00, the approximate rate of exchange at March 31, 2016. 0 2012 2013 2014 2015 2016 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2016 For the year: Net sales Cost of sales Gross profit Selling, general and administrative expenses Operating income (loss) Income (loss) before income taxes and minority interests Net income (loss) attributable to owners of parent Comprehensive income ¥ 1,494,817 ¥ 1,572,346 ¥ 1,445,790 ¥ 1,428,690 ¥ 1,580,563 ¥ 1,517,105 ¥ 1,912,968 ¥ 2,408,129 ¥ 2,877,913 ¥ 3,232,258 $ 28,682,740 1,142,674 1,217,662 1,164,564 1,152,763 1,241,427 1,222,419 1,501,809 1,728,271 2,017,490 352,143 304,237 47,906 45,589 31,899 — 354,684 309,004 45,680 31,906 18,481 — 281,226 287,029 (5,803) (21,517) (69,933) — 275,927 248,577 27,350 (443) (16,450) (13,416) 339,136 255,001 84,135 63,214 50,326 34,900 294,686 250,727 43,959 52,879 38,453 44,474 411,159 290,748 120,411 93,082 119,588 152,009 679,858 353,369 326,489 328,865 206,616 210,757 860,423 437,378 423,045 392,206 261,873 309,271 2,187,136 1,045,122 479,533 565,589 619,003 436,654 405,703 19,408,430 9,274,310 4,255,329 5,018,981 5,492,972 3,874,825 3,600,169 At year-end: Net assets Shareholders’ equity Total assets ¥ 495,703 ¥ 494,423 ¥ 394,719 ¥ 381,893 ¥ 413,963 ¥ 451,607 ¥ 596,813 ¥ 770,071 ¥ 1,030,719 ¥ 1,349,411 $11,974,541 Ratio of shareholders’ equity to total assets (%) 37.5% 38.1% 33.8% 30.9% 34.7% 33.3% 37.7% 40.5% 494,004 493,397 393,946 380,587 412,661 450,302 595,365 765,544 1,316,041 1,296,388 1,165,431 1,231,367 1,188,324 1,352,532 1,577,454 1,888,363 1,022,417 2,199,714 46.5% 1,343,732 2,592,410 51.8% 11,924,146 23,004,792 Per share: (in yen and U.S. dollars) Net income (loss): Basic Diluted Net assets Other information: Depreciation/amortization Capital expenditures (addition to fixed assets) Research and development expenses Number of shares issued (thousands of shares)2 Number of shareholders2 Number of employees2 Parent only Consolidated 2. As of March 31 ¥ ¥ ¥ (91.97) ¥ (21.11) ¥ 64.56 ¥ 49.27 ¥ 153.23 ¥ 264.76 ¥ 335.57 ¥ 559.54 $ — 505.59 — 488.58 — 528.88 — 576.97 — 762.87 — — — 980.98 1,310.15 1,721.90 44.46 44.44 687.81 25.73 25.73 687.02 ¥ 81,454 ¥ 87,164 ¥ ¥ ¥ ¥ ¥ ¥ ¥ 71,821 ¥ 72,938 $ 647,245 126,329 50,709 782,865 42,920 11,752 25,598 118,869 52,020 782,865 44,484 11,909 26,404 74,036 95,153 42,831 782,865 40,839 12,137 27,659 65,785 89,077 37,175 782,865 39,223 12,483 27,586 56,062 67,378 42,907 782,865 34,240 12,429 27,296 58,611 67,035 48,115 782,865 33,139 12,359 27,123 61,544 94,986 49,141 782,865 28,890 12,717 27,509 61,486 98,537 60,092 782,865 51,386 13,034 28,545 135,346 83,535 782,865 70,942 13,883 29,774 168,338 102,373 782,865 79,594 14,234 31,151 4.97 — 15.28 1,493,815 908,448 Domestic units: Legacy Impreza Forester Levorg WRX Exiga SUBARU BRZ OEM Others Passenger cars Minicars Domestic total Overseas units by region: U.S. Canada Russia Europe Australia China Others Overseas total Overseas units by model: Legacy Impreza Forester Levorg WRX Tribeca SUBARU BRZ OEM Others Overseas total Grand total 31 2012 22,812 29,122 13,803 0 0 8,020 249 5,844 303 80,153 92,189 172,342 280,356 28,239 15,860 39,075 36,928 48,323 18,739 467,520 210,194 90,149 157,833 0 0 5,702 38 3,372 232 467,520 639,862 2013 24,207 53,250 18,044 0 0 7,392 6,711 2,778 368 112,750 50,372 163,122 357,569 32,644 14,719 46,382 38,120 50,185 21,725 561,344 207,460 190,864 147,679 0 0 4,243 10,100 591 407 561,344 724,466 2014 18,961 61,071 36,572 0 0 3,853 3,380 1,857 453 126,147 55,454 181,601 441,799 36,013 15,314 31,756 39,515 44,807 34,293 643,497 182,712 210,828 231,173 0 0 2,561 15,822 256 145 643,497 825,098 2015 13,845 39,462 21,103 40,559 7,514 1,937 1,890 1,127 439 127,876 34,876 162,752 527,630 42,439 11,559 35,730 38,889 53,821 37,875 747,943 235,791 196,403 269,649 0 37,982 64 7,914 135 5 747,943 910,695 2016 11,358 39,794 22,044 23,555 6,956 4,498 1,995 884 502 111,586 33,702 145,288 582,674 47,579 5,723 41,778 44,611 44,388 45,824 812,577 286,979 217,272 250,072 7,713 43,120 34 7,387 0 0 812,577 957,865 FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016Five-Year Automobile Sales Years ended March 31 Non-consolidated Automobile Sales (Number of units) Non-consolidated Domestic Automobile Sales by Model (Number of units) Years ended March 31 Domestic units: Legacy Impreza Forester Levorg WRX Exiga SUBARU BRZ OEM Passenger cars Minicars Domestic total Export units: Legacy Impreza Forester Levorg WRX Tribeca Exiga SUBARU BRZ OEM Export total U.S. retail sales1 Legacy Impreza Forester WRX Tribeca SUBARU BRZ U.S. total CKD overseas (SIA portion) SIA production units Legacy Tribeca 2012 23,968 30,566 13,990 0 0 8,477 585 5,993 83,579 96,457 180,036 48,304 100,350 162,199 0 0 331 232 211 3,372 314,999 146,806 41,196 76,196 0 2,791 0 266,989 175,256 175,256 164,968 5,661 2013 25,424 54,306 18,951 0 0 7,845 6,850 2,953 116,329 50,381 166,710 30,559 198,232 142,745 0 0 222 407 11,542 316 384,023 164,680 89,195 76,347 0 2,075 4,144 336,441 185,757 183,729 177,471 3,713 2014 19,272 62,519 37,124 0 0 3,869 3,334 1,944 128,062 57,779 185,841 22,817 206,022 247,362 0 7,644 0 145 15,118 86 499,194 160,340 130,567 123,591 0 1,598 8,587 424,683 165,554 159,266 161,204 2,307 1. U.S. Retail Sales are the aggregate figures for the calendar year from January through December. 2015 14,734 40,277 21,569 41,832 7,991 2,016 1,941 1,224 131,584 35,563 167,147 34,344 199,770 265,072 0 37,865 0 5 8,418 135 545,609 191,060 128,952 159,953 25,492 732 7,504 513,693 222,513 218,565 206,681 0 32 2016 11,665 41,137 22,631 24,014 7,181 4,797 2,070 904 114,399 35,642 150,041 50,353 218,866 249,202 7,880 43,177 0 0 7,005 0 576,483 212,741 155,712 175,192 33,734 0 5,296 582,675 242,424 237,060 235,979 0 Impreza SUBARU BRZ 180,036 Forester OEM 185,841 Levorg Minicars WRX 166,710 167,147 150,041 Legacy Exiga 200,000 150,000 100,000 50,000 0 2012 2013 2014 2015 2016 Non-consolidated Automobile Export Units by Model (Number of units) Years ended March 31 Impreza Tribeca CKD Overseas Forester Exiga Levorg SUBARU BRZ 576,483 545,609 499,194 384,023 314,999 Legacy WRX OEM 600,000 450,000 300,000 150,000 175,256 185,757 165,554 222,513 242,424 0 2012 2013 2014 2015 2016 FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016Non-consolidated Automobile Sales (Number of units) Non-consolidated Domestic Automobile Sales by Model (Number of units) Domestic units: Legacy Impreza Forester Levorg WRX Exiga SUBARU BRZ OEM Passenger cars Minicars Domestic total Export units: Legacy Impreza Forester Levorg WRX Tribeca Exiga SUBARU BRZ OEM Export total U.S. retail sales1 Legacy Impreza Forester WRX Tribeca SUBARU BRZ U.S. total CKD overseas (SIA portion) SIA production units Legacy Tribeca 2012 23,968 30,566 13,990 0 0 8,477 585 5,993 83,579 96,457 180,036 48,304 100,350 162,199 0 0 331 232 211 3,372 314,999 146,806 41,196 76,196 2,791 0 0 266,989 175,256 175,256 164,968 5,661 2013 25,424 54,306 18,951 0 0 7,845 6,850 2,953 116,329 50,381 166,710 30,559 198,232 142,745 0 0 222 407 11,542 316 384,023 164,680 89,195 76,347 0 2,075 4,144 336,441 185,757 183,729 177,471 3,713 2014 19,272 62,519 37,124 0 0 3,869 3,334 1,944 128,062 57,779 185,841 22,817 206,022 247,362 7,644 0 0 145 15,118 86 499,194 160,340 130,567 123,591 0 1,598 8,587 424,683 165,554 159,266 161,204 2,307 2015 14,734 40,277 21,569 41,832 7,991 2,016 1,941 1,224 131,584 35,563 167,147 34,344 199,770 265,072 37,865 0 0 5 8,418 135 545,609 191,060 128,952 159,953 25,492 732 7,504 513,693 222,513 218,565 206,681 0 2016 11,665 41,137 22,631 24,014 7,181 4,797 2,070 904 114,399 35,642 150,041 50,353 218,866 249,202 7,880 43,177 0 0 0 7,005 576,483 212,741 155,712 175,192 33,734 0 5,296 582,675 242,424 237,060 235,979 0 Years ended March 31 Legacy Exiga 200,000 180,036 Impreza SUBARU BRZ Forester OEM 185,841 Levorg Minicars WRX 166,710 167,147 150,041 150,000 100,000 50,000 Legacy WRX OEM 600,000 450,000 300,000 0 2012 2013 2014 2015 2016 Non-consolidated Automobile Export Units by Model (Number of units) Years ended March 31 Impreza Tribeca CKD Overseas Forester Exiga Levorg SUBARU BRZ 576,483 545,609 499,194 384,023 314,999 150,000 175,256 185,757 165,554 222,513 242,424 1. U.S. Retail Sales are the aggregate figures for the calendar year from January through December. 0 2012 2013 2014 2015 2016 Management’s Discussion and Analysis of Results of Operations and Financial Position The Fuji Heavy Industries Ltd. Group The Fuji Heavy Industries Ltd. Group (“the Group”) is engaged in activities conducted under four business divisions: Automobiles (which accounts for over 90% of consolidated net sales), Aerospace, Industrial Products, and Other. On a consolidated settlement of accounts basis, FHI (“the Company”) and 77 subsidiaries, as well as 2 equity-method affiliated companies, were included in the scope of the Group’s consolidation as of March 31, 2016, the end of the fiscal year under review (April 1, 2015 – March 31, 2016 (“the fiscal year”)). Overview Business Environment During the period, the domestic economy in Japan continued to slowly recover, and, although weakness was seen in the growth of emerging markets, there was evidence of slight recovery in the global economy as a whole, focused mainly on developed nations. At the same time, the trend of economic conditions has become more opaque from the impact of the yen continuing to strengthen—while the dollar has weakened—from January of this year, and from fluctuations in capital markets. In our mid-term management vision, “Prominence 2020,” the Group has announced its goal to be “a high-quality company that is not big in size but has distinctive strength” in 2020. In working to achieve this goal, we have been focusing on two initiatives: “enhancing the Subaru brand” with the aim of value- added management, and “building a strong business structure” that increases our resilience to changes in the business environment and helps to ensure sustained growth. In the fiscal year under review, despite not introducing any new models, strong sales continued in many markets, especially in the U.S., our most important market. We were able to generate steady results, including posting historic highs for Subaru unit sales. Performance Review In light of the above factors, the Group recorded increases in income and profit, as well as our highest historical levels of consolidated net sales and all income categories for the fourth consecutive fiscal year. Net sales amounted to 3,232.3 billion yen, up 354.3 billion yen (12.3%) year on year, owing to such factors as higher unit sales for automobiles and impacts from favorable exchange rates. Accompanying the increase in net sales was strong income, with operating income 33.7% higher year on year and fiscal year net income attributable to owners of parent up 66.7% year on year. Cost of Sales, Expenses and Operating Income Operating Income Operating income came to 565.6 billion yen, an increase of 142.5 billion yen, or 33.7%, year on year. Our operating margin, at 17.5% (up 2.8 points year on year), stands at a high level within the automotive industry. Foreign exchange gains of 108.4 billion yen due to exchange rates moving in the direction of a weaker yen were a strong supporting factor. However, we were able to cover a 57.8 billion yen increase in 33 Net Sales (Billions of yen) Years ended March 31 4,000 3,000 2,000 1,000 0 3,232.3 2,877.9 2,408.1 1,913.0 1,517.1 2012 2013 2014 2015 2016 Operating Income (Loss) & Net income (loss) attributable to owners of parent (Billions of yen) Years ended March 31 Operating Income (Loss) Net income (loss) attributable to owners of parent 600 450 300 150 0 565.6 423.0 436.7 326.5 206.6 261.9 120.4 119.6 44.0 38.5 2012 2013 2014 2015 2016 FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016 Management’s Discussion and Analysis of Results of Operations and Financial Position various overhead costs and R&D expenses with profit excluding the boost from exchange rates, including an improved sales mix that added 58.8 billion yen and cost reductions that added 33.1 billion yen. As a result, we were able to grow income. Income before Income Taxes and Minority Interests, and Net Income Income before income taxes and minority interests rose 226.8 billion yen, or 57.8%, compared with the previous fiscal year, to 619.0 billion yen. This included a one-time profit of 48.2 billion yen gained from the lawsuit to recover initial investments related to the AH-64D helicopter for the Ministry of Defense. Fiscal year net income attributable to owners of parent after total income taxes, plus net gain (loss) for the fiscal year attributable to non-controlling shareholders, rose 174.8 billion yen, or 66.7%, compared with the previous fiscal year, to 436.7 billion yen. Segment Information Automobiles Division Net sales for this division stood at 3,039.4 billion yen, an increase of 340.5 billion yen, or 12.6%, year on year. Segment income also increased 142.7 billion yen, or 35.6%, year on year to 543.6 billion yen. Consolidated global unit sales inside and outside Japan reached a new high for the fourth year in a row, growing 47,000 units (5.2%) year on year to 958,000 units. Domestic Market Automobile demand lagged in the domestic market. Passenger vehicle unit sales for the fiscal year under review were on a par with the previous fiscal year, while mini car unit sales decreased 16.6% year on year. In this environment, the Group’s unit sales in Japan dipped 17,000 units year on year (10.7%) to 145,000 units. Despite strong unit sales of some models, including the Impreza, Forester, and Crossover 7, there were lower unit sales for the one-year post- launch Levorg and Legacy. Passenger vehicle unit sales fell by 16,000 units, or 12.7%, year on year, to 112,000 units. Additionally, mini car unit sales, with the Stella showing sluggish sales a year after its launch date, fell 1,000 units (3.4%) year on year to 34,000 units. Overseas Market Overseas unit sales amounted to 813,000 units, an increase of 65,000 units, or 8.6%, year on year. Outback maintained strong results throughout the fiscal year, while Crosstrek (called Subaru XV outside North America) continued to sell well in North America. Furthermore, increased unit sales were contributed by Levorg, which started shipping in Europe from the second half of the fiscal year. By region, units sold in North America increased 60,000 units, or 10.6%, year on year to 630,000 units. In Europe and Russia, sales volume was relatively unchanged at 48,000 units. China saw a decrease of 9,000 units, or 17.5%, to 44,000 units, while unit sales in Australia increased 6.000 units, or 14.7%, to 45,000 units, with other regions up 8,000 units, or 21.0%, to 46,000 units. Sales in North America posted a record high for the seventh fiscal year in a row. 34 Analysis of Increases and Decreases in Operating Income (Consolidated, Three-Year YoY Comparison) (Billions of yen) 70.3 12.4 103.7 326.5 -66.6 -23.2 423.0 Operating income FYE March 2014 Gain on currency exchange 108.4 423.0 Improvement of mixture and others sales volume & 58.8 Cost reduction SG&A expenses and others 33.1 R&D expenses Operating income FYE March 2015 565.6 -39.0 -18.8 Cost reduction SG&A expenses and others R&D expenses Operating income FYE March 2016 Gain on currency exchange 99.9 Improvement of mixture and others sales volume & 32.0 Operating income FYE March 2015 565.6 -168.6 420.0 -91.3 -17.6 Operating income FYE March 2016 Improvement of mixture and others sales volume & Cost reduction Gain on currency exchange SG&A expenses and others R&D expenses Operating income FYE March 2017 (plan)* *Figures in projections for FYE March 2017 were announced May 12, 2016, then revised August 3, 2016. For details, please see the Company website (http://www.fhi.co.jp/english/ir/index.html). FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016 Management’s Discussion and Analysis of Results of Operations and Financial Position Aerospace Division Net sales for this division stood at 152.8 billion yen, an increase of 10.0 billion yen, or 7.0%, year on year. Segment income decreased 0.7 billion yen, or 3.8%, year on year to 18.2 billion yen. Lower sales of the T-5 training aircraft and aerial simulation targets to the Ministry of Defense led net sales to trail that of the previous fiscal year, while sales to the commercial sector increased over the previous fiscal year thanks to net sales-boosting factors such as the exchange rate and a surge in production of the Boeing 777, among others. Industrial Products Division Net sales for this division came to 32.6 billion yen, an increase of 3.5 billion yen, or 12.2%, year on year. Segment income decreased 0.7 billion yen, or 89.5%, year on year to 0.1 billion yen. Although sales grew for leisure-related engines in North America, an expense of 0.9 billion to handle functional issues with these products weighed income down. Other Division Net sales for this division stood at 7.5 billion yen, an increase of 0.4 billion yen, or 5.2%, year on year. Segment income also increased 1.0 billion yen, or 53.6%, year on year to 2.9 billion yen. with the previous fiscal year-end. Of this total, current assets stood at 1,784.1 billion yen, up 310.8 billion yen, while total property, plant and equipment rose 81.9 billion yen to 808.3 billion yen, both compared to the previous fiscal year-end. Current assets rose due to increases in funds in hand plus securities by 334.6 billion yen, which includes cash and deposits, while property, Net Sales by Segment (Billions of yen) Years ended March 31 Operating Income by Segment (Billions of yen) Years ended March 31 Automobiles Aerospace Industrial Products Other Automobiles Aerospace Industrial Products Other Corporate and Elimination 4,000 3,000 2,000 1,000 3,232.3 2,877.9 2,408.1 1,913.0 1,517.1 565.6 423.0 326.5 600 450 300 150 120.4 44.0 0 2012 2013 2014 2015 2016 0 2012 2013 2014 2015 2016 Net Sales by Segment (Billions of yen) Operating Income by Segment (Billions of yen) 2012 2013 2014 2015 2016 Automobiles 1,389.1 1,779.0 2,246.6 2,699.0 3,039.4 80.3 33.6 14.2 89.1 30.1 14.7 124.4 142.8 152.8 29.8 7.3 29.0 7.1 32.6 7.5 1,517.1 1,913.0 2,408.1 2,877.9 3,232.3 Total 35 Automobiles Aerospace Industrial Products Other Corporate and Elimination 2012 39.4 2.9 0.5 1.0 0.2 44.0 2013 111.0 6.8 0.6 1.6 0.4 120.4 2014 309.0 14.1 0.6 2.1 0.6 326.5 2015 400.9 18.9 0.8 1.9 0.6 423.0 2016 543.6 18.2 0.1 2.9 0.8 565.6 Liquidity and Financing Financial Position Total assets as of March 31, 2016 stood at 2,592.4 billion yen, an increase of 392.7 billion yen compared Aerospace Industrial Products Other Total FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016 Management’s Discussion and Analysis of Results of Operations and Financial Position plant and equipment rose due to an increase of 57.9 billion yen in noncurrent assets. Total liabilities were up 74.0 billion yen year on year, to 1,243.0 billion yen. The main factors behind this increase were a 25.9 billion yen rise in accounts payable with accounts payable-trade and electronically recorded monetary obligations, and a rise in income taxes payable of 45.3 billion yen. Note that the fiscal year-end balance of interest- bearing debt decreased 41.2 billion yen to 170.0 billion yen. The debt/equity ratio (interest-bearing debt over shareholders’ equity) remained at a safe level of 0.13. Net assets totaled 1,349.4 billion yen, up 318.7 billion yen compared with the end of the previous fiscal year. This was primarily due to an increase in retained earnings of 351.6 billion yen, reflecting the recording of net income in the fiscal year under review. The increase in retained earnings boosted the shareholders’ equity ratio to 51.8%, a 5.3-point increase year on year. Cash Flows In the fiscal year under review, net cash provided by operating activities was 614.3 billion yen, compared with 311.5 billion yen in the previous fiscal year. Income before income taxes and minority interests stood at 619.0 billion yen, received liability compensation at 48.2 billion yen, and total income taxes paid at 144.4 billion yen. Net cash used in investing activities was 255.7 billion yen in the fiscal year under review compared with 172.8 billion yen used in the previous fiscal year. Expenditures (net) due to acquisition of noncurrent assets were 125.8 billion yen, while expenditures (net) due to acquisition of investment securities were 21.8 billion yen. As a result, free cash flow amounted to 358.6 billion yen, compared to 138.8 billion yen provided in the previous fiscal year. Net cash used in financing activities totaled 126.2 billion yen in FYE March 2016, compared with 110.5 billion yen in the preceding fiscal year. Expenditures (net) for the repayment of long-term borrowings were 33.0 billion yen and 84.9 billion yen was spent for dividend payments. Accounting for the aforementioned activities and the effect of translation adjustments, cash and cash equivalents as of the end of the fiscal year under review stood at 829.5 billion yen. Research and Development Expenses During the fiscal year under review, R&D expenses increased 18.9 billion yen, or 22.6%, year on year to 102.4 billion yen. Of that amount, 99.3 billion yen was related to the Automobiles Division. Our vehicle R&D was dedicated to advancing product development to exceed customer expectations for “enjoyment and peace of mind” through our "six initiatives to enhance the Subaru brand." Additionally, in our “eight initiatives for building a strong business structure,” we strived to reduce costs and train our human resources in order to strengthen our capacity for innovation. Our next-generation platform, called the “Subaru Global Platform,” which we unveiled in March 36 Total Assets, Shareholders’ Equity & Ratio of Shareholders’ Equity to Total Assets Years ended March 31 Total Assets Ratio of Shareholders’ Equity to Total Assets Shareholders’ Equity (Billions of yen) 3,000 2,000 1,000 2,592.4 2,199.7 51.8% 1,888.4 1,577.5 1,352.5 40.5% 37.7% 33.3% 46.5% 1,030.7 1,349.4 770.1 596.8 451.6 (%) 75.0 50.0 25.0 0 2012 2013 2014 2015 2016 0 Interest-Bearing Debt Balance & D/E Ratio (Billions of yen) Years ended March 31 Interest-Bearing Debt Balance (Billions of yen) 400 341.0 0.76 307.2 D/E Ratio (Times) 1.00 300 200 100 0 269.7 0.75 0.52 211.2 170.0 0.50 0.35 0.21 0.25 0.13 2012 2013 2014 2015 2016 0 FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016 Management’s Discussion and Analysis of Results of Operations and Financial Position 2016, is fundamental Subaru technology for unifying development of all of our models under a single platform design. Starting with the new Impreza model launching in 2016, we will gradually incorporate the platform in all new models that we bring to market. With regard to safety, we are pushing the evolution of driving support systems, including EyeSight, striving to create Automated follow-up on congrested expressways in 2017 and Automated driving included lane changes on expressways in 2020. In terms of environmental initiatives, our product development includes a new downsizing turbo engine, as well as plug-in hybrid and electric vehicles to comply with ZEV (Zero Emission Vehicle) regulations* in California, U.S.A. Furthermore, we are proceeding with the development of a three row crossover planned for launch in North America in 2018. In order to further accelerate this development of future products, we plan to boost R&D spending by 17.6 billion yen, or 17.2%, over the fiscal year under review, to 120.0 billion yen in FYE March 2017. *Regulations requiring automobile makers to have zero emission vehicles comprise a certain proportion of their number of vehicles sold. Capital Expenditures and Depreciation Capital expenditures rose 25.0 billion yen, or 22.6%, compared with the previous fiscal year, to 135.7 billion yen. The main expenditure was investing in facilities related to production, R&D, and sales in the Automobiles Division. In this Division, 48.5 billion yen was spent primarily on building out production capacity accompanying the increase in vehicle sales, building production facilities for new models, building R&D facilities, and expanding and enhancing our sales network. In addition, 51.7 billion yen was spent at Subaru of Indiana Automotive, Inc. (SIA), our production base in the U.S., primarily on production facilities for production capacity expansion. Depreciation increased 0.2 billion yen, or 0.3%, year on year, to 65.0 billion yen. For FYE March 2017, capital expenditures are projected to increase by 24.3 billion yen, or 17.9%, year on year, to 160 billion yen and depreciation is scheduled to rise 15 billion yen, or 23.1%, year on year, to 80 billion yen. Basic Policy Regarding the Distribution of Profits FHI views the interest of shareholders as a critical task for management. Based on maintaining continual dividend payments, we apply a results-linked approach that takes into consideration such factors as earnings, investment plans, and operating conditions. The dividend each fiscal year is determined based on a 20-40% consolidated dividend payout ratio and takes a variety of conditions into consideration. In light of these conditions, FHI distributed a total dividend of 144 yen per share in the fiscal year under review, a 76-yen increase over the previous fiscal year. Retained earnings are allocated toward bolstering our financial position and investing in future growth and progress, including strengthening our production and sales frameworks and funding R&D so that we can continue to create compelling products. In FYE March 2017, we plan to follow our current trend and pay a dividend of 144 yen per share (72-yen half-year and 37 Cash Flows from Operating Activities & Cash Flows from Investing Activities (Billions of yen) Years ended March 31 Cash Flows from Operating Activities Cash Flows from Investing Activities 700 350 0 313.0 311.5 166.7 -71.4 -33.9 -172.8 54.9 -26.6 -350 2012 2013 2014 2015 Free Cash Flow (Billions of yen) Years ended March 31 614.3 -255.7 2016 358.6 279.1 138.8 95.3 28.3 2012 2013 2014 2015 2016 400 300 200 100 0 FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016 Management’s Discussion and Analysis of Results of Operations and Financial Position Research and Development Expenses (Billions of yen) Years ended March 31 120 90 60 30 0 102.4 83.5 60.1 48.1 49.1 2012 2013 2014 2015 2016 Capital Expenditures, Depreciation Expenses (Billions of yen) Years ended March 31 Capital Expenditures Depreciation Expenses 150 120 90 60 30 0 135.7 110.7 70.2 68.5 64.8 65.0 54.3 53.7 55.9 54.9 2012 2013 2014 2015 2016 year-end dividends). Additionally, the Board of Directors approved a 15-million share (or 48.0 billion yen) maximum common share buyback aimed at boosting capital efficiency and value for shareholders. We plan to retire all of the shares bought back. The buyback period lasts until September 30, 2016. Outlook Outlook for Our Mid-term Management Vision The Group has been striving to become, by the year 2020, the type of company outlined in our mid-term management vision “Prominence 2020,” which we announced in 2014. This ideal that we hope to achieve, and the direction of initiatives towards it, remain unchanged. Now two years after formulating this vision, however, our progress and our operating environment have exceeded our initial estimates and continue to change. Accordingly, we have revised and updated our unit sales and production plans in order to further accelerate our initiatives for “enhancing the Subaru brand.” First, with regard to unit sales, we made an upward revision to our 2020 consolidated global sales unit forecast. After our review of markets, including the on-going sales strength in the North American market and the continued challenges of the Japanese market, we now expect unit sales to top 1,200 thousand units, as opposed to the original target north of 1,100 thousand units. Along with revising unit sales upward, we re-assessed production plans and raised output targets 38 from “1,050 thousand units in FY 2021” to “1,040 thousand units at the end of 2016 and 1,130 thousand units in FY 2019.”* This will facilitate early steps to relieve continuing supply shortfalls in the U.S. At the same time, we formulated a new Three- Year Profit Plan for FYE March 2017–FYE March 2019. We assumed an exchange rate of 100 yen/US$, targeting 3-year total net sales of 9,800 billion yen, operating income of 1,100 billion yen, R&D expenses of 360.0 billion yen, and capital expenditures of 470.0 billion yen. While expanding investment for growth, we aim to establish a highly profitable business model that maintains a profit margin at the 11% level, even with an exchange rate of 100 yen/US$. *Production capacity at normal operation levels. Output at full operation, including over- time and weekend production, would be 1,276 thousand units. Results for FYE March 2017 As for consolidated unit sales for FYE March 2017, we forecast an increase in units sold in the continually favorable North American market, adding 92,000 units (9.6%) year on year, to reach 1,050 thousand units and exceed for the first time one million Subarus sold. For consolidated performance, we forecast lower income and profit based on an expected stronger yen at average annual exchange rates of 105 yen/US$ (previously 121 yen/US$) and 120 yen/€1 (previously 133 yen/€1). For net sales, we forecast a decline to 3,170.0 billion yen, down 62.3 billion yen (1.9%) from the fiscal year under review, representing a decrease of 338.1 billion yen on currency exchange, despite a 270.1 billion yen improvement in sales mix resulting FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016 Management’s Discussion and Analysis of Results of Operations and Financial Position from increasing unit sales and other factors. For operating income, despite income gains from improved sales mix and cost reductions, we expect a decrease of 145.6 billion yen, or 25.7%, year on year to 420.0 billion yen, due to 168.6 billion yen from currency fluctuations and 108.9 billion yen from expected increases in R&D and SG&A expenses. We also forecast 293.0 billion yen, down 143.7 billion yen (32.9%) year on year, in fiscal year net income attributable to owners of parent. Forecast for Consolidated Results (Billions of yen) Years ended March 31 2016 2017 (plan) Change Net sales Japan Overseas Operating income Ordinary Income Income before income taxes and minority interest Net income attributable to owners of parent Exchange rate (in yen) ¥/$ ¥/€ 3,232.3 3,170.0 605.4 610.3 2,626.9 2,559.7 -62.3 4.9 -67.2 -145.6 -157.0 -206.0 -143.7 420.0 420.0 413.0 293.0 105 120 -16 -13 565.6 577.0 619.0 436.7 121 133 *Figures in projections for FYE March 2017 were announced May 12, 2016, then revised August 3, 2016. For details, please see the Company website (http://www.fhi.co.jp/english/ir/index.html). Forecast for Global Automobile Sales (Thousand units) Years ended March 31 Japan: Passenger cars Minicars Subtotal Overseas: United States Canada Russia Europe Australia China Other Subtotal Total 2016 2017 (plan) Change 111.6 33.7 145.3 119.0 37.3 156.3 582.7 643.1 47.6 5.7 41.8 44.6 44.4 45.8 52.6 9.6 40.1 48.2 48.5 51.2 812.6 957.9 893.4 1,049.70 7.5 3.6 11.0 60.4 5.0 3.9 -1.7 3.6 4.1 5.4 80.8 91.8 39 Business Risks Operational and other risks that could significantly influence the decisions of investors and impact the Company’s financial status are set out below. Based on information available to the Group as of the end of the consolidated fiscal year under review, the enumerated risks include forward-looking statements, but do not encompass every possible risk posed to the Group. As such, there are other risk factors which could influence investors and their decisions. (1) Economic Trends Economic trends in countries and regions that comprise important markets for the Group could potentially impact the Group’s business performance. In Japan and North America, key markets for the Group, economic recession, decreasing demand or increasing price competition could undermine the sales and profitability of the Group’s products and services. (2) Currency Exchange Rate Fluctuations The Group’s ratio of overseas net sales stood at 81.3%. The Group’s consolidated financial statements, which are presented in Japanese yen, are affected by translation of overseas net sales, operating income and assets from local currencies, particularly U.S. dollars, into yen. Accordingly, in the event that discrepancies arise between projected exchange rates in full-year forecasts and actual rates at the time of account settlement, the Group’s business performance and financial position may be adversely affected when the yen appreciates or positively affected when the yen depreciates. FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016 Management’s Discussion and Analysis of Results of Operations and Financial Position The Company uses forward exchange rate contracts and other circumstance-appropriate risk hedges to minimize the Group’s sensitivity to such currency exchange risks. However, the effect of severe fluctuations in currency exchange rates at the end of the fiscal year could result in a loss on valuation of derivatives and have a major impact on non-operating expenses. (3) Dependence on Certain Businesses The Group is mainly comprised of the Automobiles, Industrial Products and Aerospace business segments. However, the Automobiles business segment accounts for the overwhelming majority of the Group’s business operations. Accordingly, in the event that automobile-related demand, market conditions, price competition with other automakers, or other factors exceed projected levels, the entire Group’s overall business performance and financial position could be significantly affected. (4) Changes in Market Appraisal The Group develops, manufactures and releases new products based on appropriate timing and pricing in line with product planning that reflects market demand and customer needs. Such actions are the most important factors in maintaining stable increases in Group business performance. In the event that market appraisals of new model vehicles and other new products do not meet sales plan expectations or that the obsolescence rate of current products exceeds forecasts, the Group’s business performance and financial position could be significantly affected. (5) Dependence on Specific Suppliers, Raw Materials, and Components The Group procures raw materials, components and other items from numerous suppliers. However, there are cases in which the Group relies on certain items and/or a limited number of suppliers. Due to tightening supply and demand or other factors, the inability to procure supplies in a manner that ensures stable costs, delivery dates and quality could seriously impact the Group’s business performance and financial position. (8) Retirement Benefits and Retirement Benefit Obligations The Group’s employee retirement benefit costs and obligations are calculated based on the following assumptions: retirement benefit obligation discount rates and the expected long-term rate of return on pension assets, both of which are established based on mathematical calculations. However, in the event that actual performance differs from the assumptions, the Group’s business performance and financial position could be affected over the long term. (6) Protection of Intellectual Property The Group works to protect its intellectual property through the use of patents, designs, and trademarks in such areas as technologies and expertise that ensure product differentiation. However, the Group could experience a decrease in sales or the need for litigation procedures in cases where a third party makes unauthorized use of the Group’s intellectual property to manufacture similar products, as well as in specific regions where intellectual property right protection is limited. Such factors could impact the Group’s profitability. (7) Product Defects The Group places the highest priority on the safety of the products it develops, manufactures and sells. However, completely avoiding defects and recalls, etc. regarding all products and services is impossible. The substantial cost, damage to our brand image, etc. associated with a major recall could significantly affect the Group’s business performance and financial position. 40 (9) Environmental and Other Legal Regulations The Group is subject to various domestic and overseas legal regulations in relation to such areas as exhaust emissions, energy conservation, noise, recycling, the level of pollutants emitted from manufacturing facilities, and safety of automobiles and other products. The Group’s business performance and financial position could be affected by an increase in costs due to future regulatory changes. (10) The Impact of Natural Disasters, War, Terror, Strikes and Other Events The occurrence of natural disasters such as major earthquakes, typhoons, etc., and diseases, wars, terrorist attacks or other events, could impede the Group’s business activities as well as delay or suspend raw material/component purchases, production, product sales/transport, and the provision of services. The Group’s business performance and financial position could be affected in the event that such delays or suspensions are prolonged. FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016 Corporate Data (as of March 31, 2016) Stock Information (as of March 31, 2016) Company Name Fuji Heavy Industries Ltd. Established July 15, 1953 Paid-in Capital ¥153,795 million Number of Employees 14,234 (consolidated: 31,151) Website Address http://www.fhi.co.jp/english/ir/ Head Office Ebisu Subaru Bldg., 1-20-8, Ebisu, Shibuya-ku, Tokyo 150-8554, Japan Phone & Fax: +81-3-6447-8000 Investor Relations Office Ebisu Subaru Bldg., 1-20-8, Ebisu, Shibuya-ku, Tokyo 150-8554, Japan Phone: +81-3-6447-8878 Fax: +81-3-6447-8107 Domestic Manufacturing Divisions Gunma Manufacturing Division (Automobiles Division) Utsunomiya Manufacturing Division (Aerospace Division) Saitama Manufacturing Division (Industrial Products Division) Common Stock Authorized 1,500,000,000 shares Common Stock Issued 782,865,873 shares Number of Shareholders 85,200 Stock Exchange Listing Tokyo Stock Exchange Transfer Agent Mizuho Trust & Banking Co., Ltd. 2-1, Yaesu 1-chome, Chuo-ku, Tokyo 103-0028, Japan Major Shareholders Name Toyota Motor Corporation The Master Trust Bank of Japan, Ltd. (Trust account) Japan Trustee Services Bank, Ltd. (Trust account) Mizuho Bank, Ltd. Suzuki Motor Corporation Sompo Japan Nipponkoa Insurance Inc. Tokio Marine & Nichido Fire Insurance Co., Ltd. FHI's Client Stock Ownership MIZUHO SECURITIES ASIA LIMITED-CLIENT A/C 69250601 Nippon Life Insurance Company Number of Shares Held (in thousands) Percentage of Total Shares 129,000 16.48 44,889 42,809 16,078 13,690 12,157 10,295 10,069 9,902 9,513 5.73 5.47 2.05 1.75 1.55 1.32 1.29 1.26 1.22 Principal Consolidated Subsidiaries and Affiliates Quarterly Common Stock Price Range (Tokyo Stock Exchange) (Yen) Company Name Percentage of Voting Rights Japan Fuji Machinery Co., Ltd. Ichitan Co., Ltd. Kiryu Industrial Co., Ltd. 100.0% 100.0% 100.0% Main Business Activities Manufacture and sales of automobile parts and industrial product parts Manufacture and sales of forged automobile / industrial product parts Manufacture of Subaru specially equipped automobiles and distribution of Subaru automobile parts Subaru Tecnica International Inc. 100.0% Management of SUBARU Motorsport Activities, Development and manufacture of competition parts, tuning parts and accessories for SUBARU cars Subaru Kohsan Co., Ltd. Subaru Finance Co., Ltd. Yusoki Kogyo K.K. TOKYO SUBARU INC. Overseas Subaru of America, Inc. Fuji Heavy Industries U.S.A., Inc. Subaru of Indiana Automotive, Inc. Subaru Canada, Inc. Subaru Europe N.V./S.A. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Leasing of real estate, shopping mall management and travel agency operations Lease & credit facilities provider for Subaru automobiles, financing for FHI subsidized companies, lease for various facility equipment, rolling stock & FHI made garbage trucks and sales of insurance Manufacture and sales for aircraft parts Distribution, sales and services of Subaru automobiles (including 32 other dealerships) Distribution and sales of Subaru automobiles and parts Engineering research of Subaru automobiles in North America Market Manufacture of Subaru automobiles and contracted manufacture of Toyota automobiles Distribution and sales of Subaru automobiles and parts Distribution, sales and marketing of Subaru automobiles and parts 6,000 5,000 4,000 3,000 2,000 1,000 0 1Q 2Q 3Q 4Q 2012 1Q 2Q 3Q 4Q 2013 1Q 2Q 3Q 4Q 2014 1Q 2Q 3Q 4Q 2015 1Q 2Q 3Q 4Q 2016 High Low 697 402 1,609 545 3,015 1,330 4,617 2,380 5,223 3,411 41 FUJI HEAVY INDUSTRIES LTD.ANNUAL REPORT 2016Fuji Heavy Industries Ltd. Ebisu Subaru Bldg., 1-20-8, Ebisu, Shibuya-ku, Tokyo 150-8554 Phone: +81-3-6447-8000 Fax: +81-3-6447-8184 http://www.fhi.co.jp/english/ir/ Consolidated Balance Sheets FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES As of March 31, 2016 and 2015 112.69 ASSETS Current assets: Cash and deposits (Note 4 and 5) Notes and accounts receivable-trade (Note 5) Lease investment assets (Note 5 and 17) Short-term investment securities (Notes 4, 5 and 6) Merchandise and finished goods Work in process Raw materials and supplies Deferred tax assets (Note 12) Short-term loans receivable (Note 5) Other current assets Allowance for doubtful accounts Total assets Property, plant and equipment (Notes 7 and 9) Accumulated depreciation Accumulated impairment loss Total property, plant and equipment Investments and other assets: Intangible assets Investment securities (Note 5 and 6) Investments in non-consolidated subsidiaries and affiliated companies Net defined benefit assets(Note 11) Deferred tax assets (Note 12) Other assets Allowance for doubtful accounts Total investments and other assets Total assets LIABILITIES AND NET ASSETS Current liabilities: Notes and accounts payable-trade (Note 5) Electronically recorded obligations-operating (Note 5) Short-term loans payable (Note 5 and 7) Current portion of long-term debts (Note 5 and 7) Accrued expenses (Note 5) Provision for bonuses Provision for product warranties Accrued income taxes (Note 5 and 12) Other current liabilities (Note 5, 7 and 12) Total current liabilities Long-term liabilities: Long-term debts (Note 5 and 7) Net defined benefit liability(Note 11) Deferred tax liabilities (Note 12) Other long-term liabilities (Note 7) Total long-term liabilities Contingent liabilities (Note 19) Net assets: (Note 13) Shareholders' equity: Capital stock Authorized— 1,500,000,000 shares 782,865,873 shares Issued — Capital surplus Retained earnings Less－treasury stock, at cost, 2016— 2015— Total shareholders’ equity 2,487,843 shares 2,483,395 shares Accumulated other comprehensive income: Valuation difference on available-for-sale securities Foreign currency translation adjustment Remeasurements of defined benefit plans Remeasurements of other postretirement benefits Total accumulated other comprehensive income Non-controlling interests Total net assets Total liabilities and net assets The accompanying notes are an integral part of these balance sheets. Millions of yen 2016 2015 Thousands of U.S. dollars (Note 1) 2016 ¥507,553 140,319 21,532 500,572 192,705 50,666 34,996 90,893 151,973 93,509 (625) 1,784,093 1,485,530 (886,905) (25,992) 572,633 20,989 106,987 5,415 1,774 16,339 87,607 (3,427) 235,684 ¥2,592,410 ¥228,821 164,540 24,098 444,737 203,347 52,734 39,569 78,789 157,070 80,796 (1,233) 1,473,268 $4,503,976 1,245,177 191,073 4,442,027 1,710,045 449,605 310,551 806,576 1,348,593 829,790 (5,546) 15,831,866 1,423,977 (882,752) (26,528) 514,697 13,182,447 (7,870,308) (230,650) 5,081,489 16,850 104,157 10,678 3,659 13,113 96,371 (33,079) 211,749 186,254 949,392 48,052 15,742 144,991 777,416 (30,411) 2,091,437 ¥2,199,714 $23,004,792 Millions of yen 2016 2015 Thousands of U.S. dollars (Note 1) 2016 ¥326,625 91,476 33,252 43,692 132,759 23,554 51,251 100,272 156,614 959,495 93,030 18,586 18,769 153,119 283,504 ¥317,801 74,420 41,443 44,329 126,007 21,668 49,708 54,987 142,693 873,056 $2,898,438 811,749 295,075 387,719 1,178,090 209,016 454,796 889,804 1,389,777 8,514,464 125,420 17,963 13,996 138,560 295,939 825,539 164,930 166,554 1,358,763 2,515,787 153,795 160,071 1,049,016 (1,402) 153,795 160,071 697,414 (1,382) 1,364,762 1,420,454 9,308,865 (12,441) 1,361,480 1,009,898 12,081,640 11,344 (13,415) (12,808) (2,869) 17,986 10,025 (11,616) (3,876) 100,666 (119,043) (113,657) (25,459) (17,748) 5,679 1,349,411 12,519 8,302 1,030,719 (157,494) 50,395 11,974,541 ¥2,592,410 ¥2,199,714 $23,004,792 Consolidated Statements of Income FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES Years ended March 31, 2016 and 2015 Net sales (Note 2) Cost of sales (Note 14) Gross profit Selling, general and administrative expenses (Note 2 and 15) Operating income (loss) Other income (expenses): Interest and dividend income Interest expenses Equity in earnings of affiliates Foreign exchange gains (losses) Gain (loss) on valuation of derivatives Gain (loss) on sales and retirement of noncurrent assets Gain (loss) on sales of investment securities (Note 6) Loss on valuation of investment securities (Note 6) Loss on reduction of non-current assets Reversal of allowance for doubtful accounts Depreciation Impairment loss (Note 9) State subsidy Other, net Income before income taxes Income taxes (Note 12): Current Deferred Net income Net income (loss) attributable to non-controlling Interests Net income attributable to owners of the parent Per share data (Note 2) : Net income (loss) —Basic —Diluted * Net assets Cash dividends (Note 13) The accompanying notes are an integral part of these statements. 112.69 Millions of yen 2015 ¥2,877,913 2,017,490 860,423 437,378 423,045 Thousands of U.S. dollars (Note 1) 2016 $28,682,740 19,408,430 9,274,310 4,255,329 5,018,981 4,127 (2,903) 499 (24,277) (2,003) (3,305) 953 - - - (985) (38) - (2,907) (30,839) 392,206 133,256 (6,199) 127,057 265,149 3,276 ¥261,873 46,056 (22,176) 6,558 (18,245) 87,701 (40,199) 21,564 - - - (8,705) (98) 26,613 169,891 473,991 5,492,972 1,696,406 (75,641) 1,620,765 3,872,207 (2,618) $3,874,825 2016 ¥3,232,258 2,187,136 1,045,122 479,533 565,589 5,190 (2,499) 739 (2,056) 9,883 (4,530) 2,430 (5,387) (1,660) 30,152 (981) (11) 2,999 19,145 53,414 619,003 191,168 (8,524) 182,644 436,359 (295) ¥436,654 Yen U.S. dollars ¥559.54 - 1,721.90 144.00 ¥335.57 - 1,310.15 68.00 $4.97 - 15.28 1.28 *For the year ended March 31, 2016 and 2015 diluted information is not presented because potentially dilutive securities do not exist. Consolidated Statements of Comprehensive Income FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES Years ended March 31, 2016 and 2015 Net Income Other comprehensive income (Note 3) Valuation difference on available-for-sale securities Foreign currency translation adjustment Remeasurements of defined benefit plans Remeasurements of other postretirement benefits of foreign consolidated subsidiaries Share of other comprehensive income (loss) of associates accounted for using equity m Total other comprehensive income Comprehensive income Comprehensive income (loss) attributable to: Owners of the parent Non-controlling interests 2016 ¥436,359 (6,642) (23,777) (1,192) 1,007 (52) (30,656) Millions of yen 2015 ¥265,149 7,357 37,321 2,270 (2,957) 131 44,122 Thousands of U.S. dollars (Note 1) 2016 $3,872,207 (58,940) (210,995) (10,578) 8,936 (461) (272,038) 405,703 309,271 3,600,169 406,387 (684) 305,229 4,042 3,606,238 (6,070) Consolidated Statements of Changes in Net Assets FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES As of March 31, 2016 and 2015 112.69 Shareholders' equity 　Capital stock 　　Balance at the beginning of current period 　　Balance at the end of current period 　Capital surplus 　　　Balance at the beginning of current period 　　　Changes of items during the period 　　　Disposal of treasury stock 　　　Total changes of items during the period 　　Balance at the end of current period 　Retained earnings 　　Balance at the beginning of current period 　　　Cumulative effects of changes in accounting policies 　　　Restated balance 　　Changes of items during the period 　　　Dividends from surplus 　　　Net income attributable to owners of the parent 　　　Disposal of treasury stock 　　　Other 　　　Total changes of items during the period 　　Balance at the end of current period 　Treasury stock 　　Balance at the beginning of current period 　　Changes of items during the period 　　　Purchase of treasury stock 　　　Disposal of treasury stock 　　　 Other 　　　Total changes of items during the period 　　Balance at the end of current period 　Total shareholders' equity 　　　Balance at the beginning of current period 　　　Cumulative effects of changes in accounting policies 　　　Restated balance 　　　Changes of items during the period 　　　Dividends from surplus 　　　　Net income attributable to owners of the parent 　　　Purchase of treasury stock 　　　Disposal of treasury stock 　　　 Other 　　　Total changes of items during the period 　　Balance at the end of current period Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 ¥153,795 153,795 ¥153,795 153,795 $1,364,762 1,364,762 160,071 160,071 1,420,454 0 0 160,071 697,414 - 697,414 (85,105) 436,654 (1) 54 351,602 1,049,016 (1,382) (20) 0 - (20) (1,402) 1,009,898 - 1,009,898 (85,105) 436,654 (20) (1) 54 351,582 ¥1,361,480 0 0 160,071 483,910 1,385 485,295 (49,970) 261,873 - 216 212,119 697,414 (1,395) (22) - 35 13 (1,382) 796,381 1,385 797,766 (49,970) 261,873 (22) - 251 212,132 ¥1,009,898 0 0 1,420,454 6,188,783 - 6,188,783 (755,213) 3,874,825 - 479 3,120,082 9,308,865 (12,264) (177) 0 - (177) (12,441) 8,961,736 - 8,961,736 (755,213) 3,874,825 (177) (9) 479 3,119,904 $12,081,640 Accumulated other comprehensive income 　Valuation difference on available-for-sale securities 　 Balance at the beginning of current period 　　Changes of items during the period 　　　Net changes of items other than shareholders' equity 　　　Total changes of items during the period 　　Balance at the end of current period 　Foreign currency translation adjustment 　　Balance at the beginning of current period 　　Changes of items during the period 　　　Net changes of items other than shareholders' equity 　　　Total changes of items during the period 　　Balance at the end of current period 　 Remeasurements of defined benefit plans 　　Balance at the beginning of current period 　　Changes of items during the period 　　　Net changes of items other than shareholders' equity 　　　Total changes of items during the period Balance at the end of current period 　Remeasurements of other postretirement benefits of foreign consolidated subsidiaries 　　 Balance at the beginning of current period 　　Changes of items during the period 　　　Net changes of items other than shareholders' equity 　　　Total changes of items during the period Balance at the end of current period 　Total accumulated other comprehensive income 　　 Balance at the beginning of current period 　　Changes of items during the period 　　　Net changes of items other than shareholders' equity 　　　Total changes of items during the period 　　Balance at the end of current period Non-controlling interests 　Balance at the beginning of current period 　 Changes of items during the period 　　　　Net changes of items other than shareholders' equity 　　Total changes of items during the period 　Balance at the end of current period Total net assets 　Balance at the beginning of current period Cumulative effects of changes in accounting policies 　 Restated balance 　 Changes of items during the period 　　Dividends from surplus 　　Net income attributable to owners of the parent 　　Purchase of treasury stock 　 Disposal of treasury stock 　　Other 　　Net changes of items other than shareholders' equity 　　Total changes of items during the period 　Balance at the end of current period The accompanying notes are an integral part of these statements. Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 ¥17,986 ¥10,629 $159,606 (6,642) (6,642) 11,344 10,025 (23,440) (23,440) (13,415) 7,357 7,357 17,986 (58,940) (58,940) 100,666 (26,661) 88,961 36,686 36,686 10,025 (208,004) (208,004) (119,043) (11,616) (13,886) (103,079) (1,192) (1,192) (12,808) (3,876) 1,007 1,007 (2,869) 12,519 (30,267) (30,267) (17,748) 8,302 (2,623) (2,623) 5,679 1,030,719 - 1,030,719 (85,105) 436,654 (20) (1) 54 (32,890) 318,692 ¥1,349,411 2,270 2,270 (11,616) (10,578) (10,578) (113,657) (919) (34,395) (2,957) (2,957) (3,876) 8,936 8,936 (25,459) (30,837) 111,092 43,356 43,356 12,519 4,527 3,775 3,775 8,302 770,071 1,385 771,456 (49,970) 261,873 (22) - 251 47,131 259,263 ¥1,030,719 (268,586) (268,586) (157,494) 73,671 (23,276) (23,276) 50,395 9,146,499 - 9,146,499 (755,213) 3,874,825 (177) (9) 479 (291,863) 2,828,042 $11,974,541 Consolidated Statements of Cash Flows FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES As of March 31, 2016 and 2015 Net cash provided by (used in) operating activities 　Income (loss) before income taxes 　Depreciation and amortization 　Increase (decrease) in allowance for doubtful accounts 　Interest and dividends income 　Interest expenses 　Loss (gain) on sales and retirement of noncurrent assets 　Loss (gain) on sales and valuation of investment securities 　Decrease (increase) in operating loans receivable 　Decrease (increase) in notes and accounts receivable-trade 　Decrease (increase) in inventories 　Increase (decrease) in notes and accounts payable-trade 　Other extraordinary income 　Other, net Sub total 　Interest and dividends income received 　Interest expenses paid 　Proceeds from compensation for damage 　Income taxes paid Net cash provided by (used in) operating activities Net cash provided by (used in) investing activities Net decrease (increase) in time deposits Purchase of short-term investment securities Proceeds from sales of short-term investment securities Purchase of non-current assets Proceeds from sales of non-current assets Purchase of investment securities Proceeds from sales of investment securities Payments of loans receivable Collection of loans receivable 　　 Other, net Net cash provided by (used in) investing activities Net cash provided by (used in) financing activities 　 Net increase (decrease) in short-term loans payable 　Proceeds from long-term loans payable 　 Repayments of long-term loans payable 　Redemption of bonds 　Cash dividends paid 　Other, net Net cash provided by (used in) financing activities Effect of exchange rate change on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Increase (decrease) in cash and cash equivalents resulting from change of scope of consolidation Cash and cash equivalents at end of period The accompanying notes are an integral part of these statements. 112.69 Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 ¥619,003 72,938 (30,260) (5,190) 2,499 4,530 2,957 (6,540) 22,791 (1,342) 30,082 (19,656) 15,538 707,350 5,668 (2,528) 48,184 (144,418) 614,256 (101,631) (48,845) 47,032 (126,732) 975 (47,005) 25,240 (106,117) 108,636 (7,229) (255,676) (7,822) 11,760 (44,797) - (84,938) (393) (126,190) (14,887) 217,503 ¥392,206 71,821 (146) (4,127) 2,903 3,305 (953) (23,112) 19,283 (27,180) 38,223 (833) 31,753 503,143 4,361 (2,839) 0 (193,122) 311,543 (11,944) (43,424) 17,905 (115,173) 1,540 (47,031) 26,364 (104,891) 108,065 (4,191) (172,780) (18,811) 6,190 (42,858) (4,060) (49,887) (1,120) (110,546) 25,998 54,215 $5,492,972 647,245 (268,524) (46,056) 22,176 40,199 26,240 (58,035) 202,245 (11,909) 266,945 (174,425) 137,883 6,276,954 50,297 (22,433) 427,580 (1,281,551) 5,450,847 (901,864) (433,446) 417,357 (1,124,607) 8,652 (417,118) 223,977 (941,672) 964,025 (64,149) (2,268,844) (69,412) 104,357 (397,524) - (753,731) (3,487) (1,119,798) (132,106) 1,930,100 612,085 557,870 5,431,582 (127) ¥829,461 - ¥612,085 (1,127) $7,360,556 Notes to Consolidated Financial Statements FUJI HEAVY INDUSTRIES LTD. AND CONSOLIDATED SUBSIDIARIES 1. Basis of Presentation of the Financial Statements The accompanying consolidated financial statements of Fuji Heavy Industries Ltd. (the "Company") have been prepared in accordance with the provisions set forth in the Financial Instruments and Exchange Law and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan ("Japanese GAAP"), which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards. The accompanying consolidated financial statements have been restructured and translated into English from the consolidated financial statements of the Company prepared in accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance, as required by the Financial Instruments and Exchange Law. Certain supplementary information included in the statutory Japanese-language consolidated financial statements, but not considered necessary for fair presentation, is not presented in the accompanying consolidated financial statements. The translations of the Japanese yen amounts into U.S. dollars in the accompanying consolidated financial statements are included solely for the convenience of readers outside Japan, using the prevailing exchange rate at March 31, 2016, which was ¥112.69 to U.S.$1. The convenience translation should not be construed as a representation that the Japanese yen amounts have been, could have been, or could in the future be converted into U.S. dollars at this or any other rate of exchange. 2. Summary of Significant Accounting Policies [1] The Scope of Consolidation and Application of the Equity Method The accompanying consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. The fiscal year-end of consolidated subsidiaries is the same as that of the parent company, except for 4 consolidated foreign subsidiaries in fiscal year 2016 and 5 consolidated foreign subsidiaries in fiscal year 2015, respectively, the fiscal year-end of those subsidiaries is December 31. The operating results of those subsidiaries that have different fiscal year-end are consolidated by using the financial statements as of each subsidiary’s respective fiscal year-end, the necessary adjustments being made in consolidation if there are any significant transactions between January 1 and March 31. The consolidated financial statements include the accounts of the Company and 77 subsidiaries in fiscal year 2016 and 77 subsidiaries in fiscal year 2015, respectively. In addition, 1 non-consolidated subsidiary and 1 affiliated company were accounted for by the equity method in fiscal 2016; 1 non-consolidated subsidiary and 1 affiliated company were accounted for by the equity method in fiscal 2015, respectively. Investments in insignificant non-consolidated subsidiary and affiliated companies not accounted for by the equity method are carried at cost. The difference between the cost and the underlying net equity of investments in subsidiaries and affiliated companies is allocated to identifiable assets based on their fair value at the date of acquisition. The unallocated residual value of the excess of the cost over the fair value of the underlying net assets is recognized as goodwill and amortized over a period of five years on a straight-line basis. All assets and liabilities of subsidiaries, which include not only the Company’s interest in the subsidiaries but also the non-controlling interest portion, are valued based on their fair value at the time the Company first consolidates the subsidiary. [2] Short-Term Investment Securities and Investment Securities Under the Japanese accounting standards for financial instruments, available-for-sale securities for which fair 1 values are available are stated at their fair value as of the balance sheet dates with unrealized holding gains and losses included as a separate component of net assets until realized, while securities for which fair values are not readily available are stated at cost, as determined by the moving-average method, after taking into consideration devaluation, if any, for permanent impairment. Held-to-maturity debt securities are stated using the amortized cost method. [3] Inventories Inventories for regular sales are stated at cost, determined mainly by the moving-average cost method. (Book value on the balance sheet is measured based on the lower of cost or market value.) [4] Property, Plant and Equipment (Excluding Leased Assets) Property, plant and equipment are stated at cost. Significant renewals and additions are capitalized; ordinary maintenance, ordinary repairs, minor renewals and minor improvements are charged to the consolidated statements of income as incurred. Depreciation of the property, plant and equipment of the Company and its consolidated domestic subsidiaries is principally calculated by the declining-balance method, except for those buildings (excluding building improvements) acquired on or after April 1, 1998, for which the straight-line method is applied. Depreciation of the property, plant and equipment of consolidated foreign subsidiaries is calculated by the straight-line method over the estimated useful lives of the assets. Estimated useful lives for depreciable assets are as follows: Buildings and structures: 7–50 years Machinery, equipment and vehicles: 2–20years [5] Intangible Assets (Excluding Leased Assets) Computer software used internally by the Company and its consolidated subsidiaries is amortized by the straight-line method over the relevant economic useful lives of 3 or 5 years. [6] Leased Assets For leased assets under finance lease transactions in which the ownership is transferred to the lessee: The leased assets are depreciated by the same method as used for other property, plant and equipment. For leased assets under finance lease transactions in which the ownership is not transferred to the lessee: The leased assets are depreciated by the straight-line method over the leased period and the residual value is zero. [7] Allowance for Doubtful Accounts Allowance for doubtful accounts is provided based on the amount calculated from the historical ratio of bad debt for ordinary receivables, and estimated amounts of uncollectible accounts for specific overdue receivables. [8] Provision for Bonuses Employees' bonuses are recognized as expenses for the period in which those are incurred. [9] Provision for Product Warranties The Company and its consolidated subsidiaries provide for accrued warranty claims on products sold based on their past experiences of warranty services and estimated future warranty costs, which are included in "Accrued expenses" in the accompanying consolidated balance sheets. [10] Provision for Loss on Construction Contracts 2 The provision for losses on uncompleted construction of contracts in the Aerospace segment is provided when substantial losses on the contracts are anticipated at the fiscal year-end for the next fiscal year and beyond and such losses can be reasonably estimated. [11] Accounting method for Retirement Benefits Net defined benefit liability (assets) for employees is provided based on the estimated amounts of projected pension and severance obligation and the fair value of plan assets at the end of the fiscal year. In determining retirement benefit obligations, the straight-line basis is used for attributing expected benefit to periods. Unrecognized prior service cost is being amortized on the straight-line method over a period (10-19 years) that is shorter than the average remaining service period of the eligible employees. Unrecognized net actuarial gain or loss is amortized from the following fiscal year on the straight-line method over a period (primarily 16 years for fiscal years 2016 and 2015) that is shorter than the average remaining service period of the eligible employees. Directors and statutory auditors of the Company and its consolidated domestic subsidiaries are entitled to receive a lump-sum payment at the time of severance or retirement, subject to shareholder approval. The liabilities for such benefits, which are determined based on the Company’s and its consolidated subsidiaries’ internal rules, are included in "Other long-term liabilities" in the accompanying consolidated balance sheets. [12] Translation of Foreign Currency-Denominated Accounts Under the Japanese accounting standards for foreign currency translation, monetary assets and liabilities denominated in foreign currencies are translated into Japanese yen at the exchange rates prevailing at each balance sheet date with the resulting gain or loss included currently in the statement of income. The assets and liabilities of foreign subsidiaries and affiliated companies are translated into Japanese yen at the exchange rates in effect at the balance sheet dates of the foreign subsidiaries and affiliated companies, except for common stock and capital surplus, which are translated at historical rates. Revenue and expense accounts are translated at the average exchange rates during the respective years. The resulting foreign currency translation adjustments are included in "Foreign currency translation adjustments" and "Non-controlling interest" in the net assets section of the accompanying consolidated balance sheets. [13] Revenue Recognition The percentage-of-completion method is applied to revenue from construction contracts of Aerospace division productions where certain elements are determinable with certainty at the end of fiscal year. (The percentage of completion is estimated using the proportion-of-cost method). The completed-contract method is applied to other works. [14] Accounting for Lease Transactions Sales and corresponding cost of sales under finance lease transactions conducted by certain domestic consolidated subsidiaries are recognized on the effective date of each lease contract. [15] Derivative Financial Instruments and Hedge Accounting The Japanese accounting standards for financial instruments require that the Company and its consolidated domestic subsidiaries state derivative financial instruments at their fair value and recognize changes in the fair value as a gain or loss, unless such derivative financial instruments are used for hedging purposes. For interest rate swap contracts used as a hedge that meet certain hedging criteria, the net amount to be paid or received under the interest rate swap contract is added to or deducted from the interest on the assets or liabilities for which the swap contract is executed. Derivative financial instruments qualifying as a hedge, along with the underlying transactions, assets and liabilities are as follows: 3 Financial Instrument Interest swaps Transactions, assets and liabilities Borrowings The risk exposures to movements in interest rates are hedged according to the Company’s and its consolidated subsidiaries’ risk management policy. An evaluation of hedge effectiveness is not considered necessary as the terms and notional amounts of these hedging instruments are the same as those of the underlying transactions, assets and liabilities, and therefore they are presumed to be highly effective in offsetting the effect of movements in interest rates at their inception as well as during their terms. [16] Goodwill Goodwill is principally amortized by the straight-line method over 5 years. [17] Cash and Cash Equivalents Cash and cash equivalents include all highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and have negligible risk of changes in value due to their short maturities. [18] Income Taxes The provision for income taxes is computed based on the pretax income for financial reporting purposes. Deferred tax assets and liabilities are recognized for expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. A valuation allowance is recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. [19] Research and Development Expenses Research and development costs are expensed as incurred and amounted to ¥102,373 million (US$ 908,448 thousand) and ¥83,535 million for fiscal years 2016 and 2015, respectively. [20] Net Income per Share Basic net income per share (EPS) is computed based on the average number of shares of common stock outstanding during each year. Diluted EPS assumes the potential dilution that occurs if all the convertible securities are converted or other contracts to issue common stock are exercised to the extent that they are not anti-dilutive. [21] Reclassification Certain reclassifications have been made in the consolidated financial statements for the year ended March 31, 2015 to conform to the presentation for the year ended March 31, 2016.” [22] Changes in Accounting Policy The Accounting Standard for Business Combinations (ASBJ Statement No.21, September 13, 2013) and Consolidated Financial Statements (ASBJ Statement No.22, September 13, 2013) and Business Divestitures (ASBJ Statement No.7, September 13, 2013) were applied from the period of the first quarter of fiscal year 2016. The presentation method of net income was changed and the reference to "minority interests" was changed to "non-controlling interests". To conform to these changes in presentation, the quarterly consolidated financial statements and consolidated financial statements in the previous fiscal year have been reclassified. [23] Changes in Presentation (Consolidated Statements of Income) 4 Consolidated Statements of Income for the fiscal year ended March 31,2016 include the following reclassification. "Real estate rent" which was presented as a separate account in the prior fiscal year, has been included in “Other” in the current fiscal year due to its decreased financial materiality. To reflect this change, ¥532 million of “real estate rent” separately stated under “Other income(expense)” in the prior fiscal year has been reclassified into “Other” in the consolidated statements of income for the prior fiscal year provided herein. 5 3. Other comprehensive income Amounts reclassified to net income (loss) in fiscal 2016 and 2015, which were recognized in other comprehensive income in the current or previous periods and tax effects for each component of other comprehensive income were as follows: Millions of yen 2016 2015 Thousands of U.S. dollars 2016 Valuation difference on available-for-sale securities Increase(decrease) during the year Reclassification adjustments Sub-total, before tax Tax (expense) or benefit Sub-total, net of tax Foreign currency translation adjustment Increase during the year Reclassification adjustments Sub-total, before tax Tax (expense) or benefit Balance at end of year, net of tax Remeasurements of defined benefit plans Increase(decrease) during the year Reclassification adjustments Sub-total, before tax Tax (expense) or benefit Balance at end of year, net of tax Remeasurements of other postretirement benefits of foreign consolidated subsidiaries Increase(decrease) during the year Reclassification adjustments Sub-total, before tax Tax (expense) or benefit Balance at end of year, net of tax Share of other comprehensive income of associates accounted for using equity method Increase during the year Total other comprehensive income (¥8,513) (2,288) (10,801) 4,159 (6,642) - (23,670) (107) (23,777) - (23,777) - (3,648) 2,406 (1,242) 50 (1,192) - 1,548 - 1,548 (541) 1,007 ¥10,660 (953) 9,707 (2,350) 7,357 - 37,321 - 37,321 - 37,321 - 1,246 3,035 4,281 (2,011) 2,270 - (4,642) - (4,642) 1,685 (2,957) ($75,544) (20,303) (95,847) 36,907 (58,940) - (210,045) (950) (210,995) - (210,995) - (32,372) 21,351 (11,021) 444 (10,578) - 13,737 - 13,737 (4,801) 8,936 (52) (¥30,656) 131 ¥44,122 (461) ($270,396) 6 4. Additional Cash Flow Information Cash and cash equivalents as of March 31, 2016 and 2015, consisted of the following: Millions of yen Cash and deposits Short-term investment securities Short-term loans receivable Sub-total Less maturity over three months Short-term investment securities excluding cash equivalents Short-term loans receivable excluding repurchase agreement Cash and cash equivalents 2016 ¥507,553 500,572 151,973 1,160,098 (126,107) (52,557) 2015 ¥228,821 444,737 157,070 830,628 (25,911) (45,562) Thousands of U.S. dollars 2016 $4,503,976 4,442,027 1,348,593 10,294,596 (1,119,061) (466,386) (151,973) (147,070) (1,348,593) ¥829,461 ¥612,085 $7,360,556 7 5. Financial Instruments (1) Summary of Financial Instruments Status [1] Action Policy with Regard to Financial Instruments With regard to planned capital expenditure to support Fuji Heavy Industries Ltd., its consolidated subsidiaries and affiliated companies (the "FHI Group") in their main operations of automobile manufacturing and sales, the FHI Group finances mainly from bank loans and the issue of corporate bonds. Temporary surpluses are invested in highly secure financial assets. Bank loans and liquidation of accounts receivable are utilized to provide short-term working capital. It is the FHI Group's policy to use derivatives as a way to avoid the risks stated below and not to conduct speculative transactions. [2] Details of Financial Instruments and Respective Risks Notes and accounts receivable-trade and Lease investment assets are subject to customer credit risks. In addition, operating receivables denominated in foreign currencies due to globalized business of the FHI Group are subject to the risk of changes in foreign exchange rates. As a general rule, however, forward foreign exchange contracts are utilized to hedge the foreign exchange rate risk, considering the net amount of operating receivables denominated in foreign currencies that exceed foreign currency denominated operating liabilities. Available-for-sale securities and investment securities are mainly stocks associated with business and capital alliances with principal business partners, and are subject to risk of market price fluctuation. Majority of payables included in Notes and accounts payable-trade and Electronically recorded obligations-operating are due within one year. A certain portion of such liabilities involve foreign currency denominated transactions associated with the import of raw materials and is subject to exchange rate fluctuation risk, although it is consistently less than accounts receivable balance denominated in the same foreign currency. Funds financed by bank loans and corporate bonds are primarily used for capital expenditure, whose repayment or redemption dates will come within 7 years after March 31, 2016 at the latest. A certain portion of those liabilities may have variable interest rates and are subject to the risk of changes in interest rates, although such risk is mitigated using derivative transactions (interest rate swap transactions). Derivative transactions include foreign exchange forward contracts to hedge against exchange rate fluctuations associated with trade accounts receivables and liabilities denominated in foreign currencies, and interest rate swap contracts to hedge against the risk of change in interest rates on bank loans. With regard to hedging instruments and hedged items, hedge policy, the method of evaluation of hedge effectiveness and other related items, please refer to "2-[15] Derivative Financial Instruments and Hedge Activities". [3] Risk Management System with Regard to Financial Instruments (a) Credit Risk management (Risks Associated with Business Partner’s Breach of Contract) The Company and its consolidated subsidiaries have credit control function and regularly monitor the financial status of key customers with regard to accounts receivables and lease investment assets. In addition to keeping track of payment due dates and balances of each customer, such credit control function identifies and mitigates the potential risk of uncollectibility due to deterioration in financial status or other factors of customers. (b) Market Risk Management (Risks Associated with Fluctuations in Foreign Exchange and Interest Rates) With regard to operating assets and liabilities denominated in foreign currencies, as a general rule, the Company uses foreign exchange forward contracts to hedge against risks of exchange rate fluctuation on a monthly basis by each currency. Depending on the status of exchange rates, foreign exchange forward contracts with no longer than six months term are used to hedge against the risk of exchange rate fluctuation to the extent that net position of accounts receivable and accounts payable dominated in foreign currency is exposed. In addition, the Company and certain consolidated subsidiaries use interest rate swap transactions to mitigate the risk of fluctuation in interest rates on bank loans and corporate bonds. 8 The Company also regularly monitors the market values of investments included in Short-term investment securities and Investment securities as well as the financial conditions of issuers (business partner companies), and continuously reviews its investment portfolio taking into consideration its relationships with respective business partner companies. Basic policies with regard to derivative transactions are approved by the Executive Management Board. Finance & Accounting Department engages in derivative transactions in line with the applicable the Company’s rule. The results of these transactions are reported to the Finance Officer every time the transactions are conducted. (c) Liquidity Risk Management (Risk of Becoming Unable to Make Payments by the Due Date) The Company secures liquidity at a level sufficient to satisfy its current needs with commitment lines contracted with major banks in combination with keeping cash and cash equivalents balance at a certain level. [4] Supplemental Explanation of Items with Regard to Fair Value of Financial Instruments Fair value of financial instruments includes quoted prices of financial instruments in the market and, in the event market prices are not available, prices that are calculated based on the underlying assumptions under the appropriate valuation model. Because the factors incorporated into the valuation model are subject to change, calculated fair value may differ. The values of derivative transactions contracts stated in "(2) Items with Regard to Fair Value of Financial Instruments" do not by themselves indicate the market risk associated with the respective derivative transactions. 9 (2) Items with Regard to Fair Value of Financial Instruments The consolidated balance sheet amounts, the fair value and difference as of March 31, 2016 and 2015 were as follows: The items whose fair values were extremely difficult to measure were not included in the table below (refer to Note [2] ). As of March 31, 2016 Cash and deposits Notes and accounts receivable-trade Allowance for doubtful accounts (*1) Lease investment assets Allowance for doubtful accounts (*1) Short-term loans receivable Allowance for doubtful accounts (*1) Short-term investment securities, Investment securities and Other securities Total Assets Notes and accounts payable-trade Electronically recorded obligations-operating Short-term loans payable Current portion of long-term loans payable Current portion of bonds Accrued income taxes Accrued expenses Bonds payable Long-term loans payable Total Liabilities Derivative transactions (*2) hedge accounting is not applied hedge accounting is applied Consolidated balance sheet amounts ¥507,553 140,319 (105) 140,214 21,532 (53) 21,479 151,973 (294) 151,679 118,565 939,490 326,625 91,476 33,252 33,692 10,000 100,272 132,759 - 93,030 821,106 7,159 ¥- Millions of yen Fair Value Difference ¥507,553 140,214 ¥- - 23,095 1,616 155,038 3,359 118,565 944,465 326,625 91,476 33,252 33,807 10,011 100,272 132,759 - 93,673 821,875 7,159 ¥- - 4,975 - - - (115) (11) - - - (643) (769) - ¥- 10 As of March 31, 2016 Cash and deposits Notes and accounts receivable-trade Allowance for doubtful accounts (*1) Lease investment assets Allowance for doubtful accounts (*1) Short-term loans receivable Allowance for doubtful accounts (*1) Short-term investment securities, Investment securities and Other securities Total Assets Notes and accounts payable-trade Electronically recorded obligations-operating Short-term loans payable Current portion of long-term loans payable Current portion of bonds Accrued income taxes Accrued expenses Bonds payable Long-term loans payable Total Liabilities Derivative transactions (*2) hedge accounting is not applied hedge accounting is applied Consolidated balance sheet amounts $4,503,976 1,245,177 (932) 1,244,245 191,073 (470) 190,603 1,375,792 (2,609) 1,345,985 1,052,134 8,336,942 2,898,438 811,749 295,075 298,980 88,739 889,804 1,178,090 - 825,539 7,286,414 Thousands of U.S. dollars Fair Value Difference $4,503,976 1,244,245 $- - 204,943 14,340 1,375,792 29,807 1,052,134 8,381,090 2,898,438 811,749 295,075 300,000 88,837 889,804 1,178,090 - 831,245 7,293,238 - 44,147 - - - (1,020) (98) - - - (5,706) (6,824) - $- 63,528 $- 63,528 $- *1. Allowance for doubtful accounts corresponding to Notes and accounts receivable-trade, Lease investment assets and Short-term loans receivable is deducted. *2. Indicated are the net amounts of assets and liabilities results from derivative transactions, with the total net liabilities indicated in ( ). 11 As of March 31, 2015 Cash and deposits Notes and accounts receivable-trade Allowance for doubtful accounts (*1) Lease investment assets Allowance for doubtful accounts (*1) Short-term loans receivable Allowance for doubtful accounts (*1) Short-term investment securities, Investment securities and Other securities Total Assets Notes and accounts payable-trade Electronically recorded obligations-operating Short-term loans payable Current portion of long-term loans payable Current portion of bonds Accrued income taxes Accrued expenses Bonds payable Long-term loans payable Total Liabilities Derivative transactions (*2) hedge accounting is not applied hedge accounting is applied Consolidated balance sheet amounts ¥228,821 164,540 (640) 163,900 24,098 (66) 24,032 157,070 (341) 156,729 118,702 692,184 317,801 74,420 41,443 44,329 - 54,987 126,007 10,000 115,420 784,407 (2,725) ¥- Millions of yen Fair Value Difference ¥228,821 163,900 ¥- - 28,794 4,762 158,313 1,584 118,702 698,530 317,801 74,420 41,443 44,441 - 54,987 126,007 10,059 116,074 785,232 (2,725) ¥- - 6,346 - - - (112) - - - (59) (654) (825) - ¥- *1. Allowance for doubtful accounts corresponding to Notes and accounts receivable-trade, Lease investment assets and Short-term loans receivable is deducted. *2. Indicated are the net amounts of assets and liabilities results from derivative transactions, with the total net liabilities indicated in ( ). [1] The calculation methods of financial instrument fair value together with securities and derivative transactions Assets Cash and deposits and Notes and accounts receivable-trade Because these are settled in the short-term, the fair value is mostly the same as the book value and as such the book value is deemed as fair value. Lease investment assets and Short-term loans receivable Fair value is the present value calculated by discounting relevant cash flows by each category of the assets and timing of cash flow, where discount rates were adopted taking into consideration the period until maturity and credit risks. In addition, the estimated residual value is included in the 12 balance of Lease investment assets. Short-term investment securities and investment securities Fair value is determined by the stock exchange price, while bonds are determined by the stock exchange price or by quotations received from financial institutions. Please refer to the note entitled "5.Short-term investment securities and investment securities" regarding to respective objectives for holding securities. Liabilities Notes and accounts payable-trade, Short-term loans payable, Accrued income taxes and Accrued expenses Because these are settled in the short-term, the fair value is mostly the same as the book value and as such the book value is deemed as fair value. Current portion of long-term loans payable and Long-term loans payable Fair value is measured based on the present value that is calculated as discounted cash flow of the total amount of principal and interest, where the interest would be set, if the Company concluded a brand new loan agreement with the same condition at the date of measurement. Current portion of bonds and Bonds payable The fair value of bonds issued by the Company is based on market prices if available. For bonds with no available market price, fair value is calculated using the present value that is calculated as discounted cash flow of the total amount of principal and interest by, where discount rates are adopted taking into consideration the remaining redemption period and credit risks. Derivative transactions Fair value of interest rate swap that meets certain hedging criteria is included in the fair value of long-term debt as a hedged item. [2] Financial instruments which fair value is extremely difficult to measure Consolidated balance sheet amount as of March 31, 2016 and 2015: Other securities (available-for-sale securities) 2016 ¥2,817 Millions of yen 2015 ¥7,401 Thousands of U.S. dollars 2016 $24,998 Stocks of non-consolidated subsidiary and affiliated companies Certificate of deposit Commercial paper Money management fund Unlisted stocks (excluding over-the-counter stocks) Medium Term Note Other 1,330,198 1,535,150 1,199,033 8,661 266,217 $27 These have no available market prices and are expected to entail excessive costs in the estimation of future cash flows. Consequently, estimating their fair value is recognized as extremely difficult and they are not included in "Short-term investment securities, Investment securities and Other securities". 140,000 144,982 114,192 1,015 30,000 ¥3 149,900 172,996 135,119 976 30,000 ¥3 13 [3] Scheduled redemption of monetary assets and securities with maturity As of March 31, 2016: Cash and deposits Notes and accounts receivable-trade Lease investment assets Short-term loans receivable Short-term investment securities, Investment securities and Other securities Government and municipal bonds Corporate bonds Other As of March 31, 2016: Cash and deposits Notes and accounts receivable-trade Lease investment assets Short-term loans receivable Short-term investment securities, Investment securities and Other securities Government and municipal bonds Corporate bonds Other As of March 31, 2015: Cash and deposits Notes and accounts receivable-trade Lease investment assets Short-term loans receivable Short-term investment securities, Investment securities and Other securities Government and municipal bonds Corporate bonds Other Within 1 Year ¥507,553 130,484 6,555 48,205 1 to 5 Years ¥- 8,142 14,896 101,691 Millions of yen 5 to 10 Years ¥- 1,693 81 2,077 Over 10 years ¥- - - - 8,595 3,440 ¥353,419 19,447 19,623 ¥1,006 2,585 3,317 ¥1,056 4,106 4,299 ¥4,189 Within 1 Year $4,503,976 1,157,902 58,168 427,766 Thousands of U.S. dollars Over 10 years $- - - - 5 to 10 Years $- 15,024 719 18,431 1 to 5 Years $- 72,251 132,186 902,396 76,271 30,526 $3,136,206 172,571 174,133 $8,927 22,939 29,435 $9,371 36,436 38,149 $37,173 Within 1 Year ¥228,821 158,147 7,002 58,335 11,186 3,930 ¥345,429 1 to 5 Years ¥- 6,393 16,864 96,412 14,963 17,001 ¥1,571 Millions of yen Over 10 years ¥- - - - 5 to 10 Years ¥- - 232 2,323 2,226 2,762 ¥829 3,838 2,392 ¥4,437 14 [4] Amount of repayment for long-term debt and other interest-bearing debt As of March 31, 2016: Short-term loans payable Bonds payable Long-term loans payable As of March 31, 2016: Short-term loans payable Bonds payable Long-term loans payable As of March 31, 2015: Short-term loans payable Bonds payable Long-term loans payable Within 1 Year ¥33,252 10,000 ¥33,692 1 to 5 Years - - ¥90,918 Millions of yen Over 10 years ¥- - ¥- 5 to 10 Years - - ¥2,112 Within 1 Year $295,075 88,739 $298,980 1 to 5 Years $- - $806,797 Thousands of U.S. dollars Over 10 years $- - $- 5 to 10 Years $- - $18,742 Within 1 Year ¥41,443 - ¥44,329 1 to 5 Years ¥- 10,000 ¥113,022 Millions of yen Over 10 years ¥- - ¥- 5 to 10 Years ¥- - ¥2,398 6. Short-Term Investment Securities and Investment Securities Information on the value of short-term investment securities and investment securities as of March 31, 2016 and 2015 was as follows: (1) Other securities (available-for-sale securities): As of March 31, 2016: Book value exceeding acquisition cost: Equity securities Debt securities Government and municipal bonds Corporate bonds Other Sub-total Book value not exceeding acquisition cost: Equity securities Debt securities Government and municipal bonds Corporate bonds Other Other Sub-total Total Book value Acquisition cost Millions of yen Difference ¥39,363 ¥22,386 ¥16,977 28,450 21,151 5,307 94,271 7,020 6,282 9,527 - 1,465 24,294 ¥118,565 15 28,019 20,835 5,229 76,469 8,100 6,336 9,670 - 1,504 25,610 ¥102,079 431 316 78 17,802 (1,080) (54) (143) - (39) (1,316) ¥16,486 As of March 31, 2016: Book value exceeding acquisition cost: Equity securities Debt securities Government and municipal bonds Corporate bonds Other Sub-total Book value not exceeding acquisition cost: Equity securities Debt securities Government and municipal bonds Corporate bonds Other Other Sub-total Total As of March 31, 2015: Book value exceeding acquisition cost: Equity securities Debt securities Government and municipal bonds Corporate bonds Other Sub-total Book value not exceeding acquisition cost: Equity securities Debt securities Government and municipal bonds Corporate bonds Other Other Sub-total Total Book value Acquisition cost Difference Thousands of U.S. dollars $349,303 $198,651 $150,652 252,463 187,692 47,094 836,552 248,638 184,888 46,402 678,578 3,825 2,804 692 157,973 62,295 71,879 (9,584) 55,746 84,542 - 13,000 215,583 $1,052,134 56,225 85,811 - 13,346 227,261 $905,839 (479) (1,269) - (346) (11,678) $146,295 Book value Acquisition cost Millions of yen Difference ¥50,341 ¥24,170 ¥26,171 20,471 21,067 6,013 71,721 2,918 11,479 4,768 - 1,165 20,330 ¥92,051 331 299 126 26,927 (140) (68) (49) - (19) (276) ¥26,651 20,802 21,366 6,139 98,648 2,778 11,411 4,719 - 1,146 20,054 ¥118,702 16 (2) Other securities (available-for-sale securities) sold during fiscal years 2016 and 2015: For the year ended March 31, 2016: Equity securities Debt securities Government and municipal bonds Corporate bonds Other Other Total For the year ended March 31, 2016: Equity securities Debt securities Government and municipal bonds Corporate bonds Other Other Total For the year ended March 31, 2015: Sales amount Total gains Total losses Millions of yen ¥4,190 ¥2,571 27,456 38,575 2,051 - ¥72,272 115 43 3 - ¥2,732 ¥99 143 43 17 - ¥302 Sales amount Total gains Total losses Thousands of U.S. dollars $37,182 $22,815 243,642 342,311 18,200 - $641,335 1,020 382 27 - $24,243 $879 1,269 382 151 - $2,680 Sales amount Total gains Total losses Millions of yen Equity securities Debt securities Government and municipal bonds Corporate bonds Other Other Total ¥3,300 ¥741 32,673 6,626 1,529 119 ¥44,247 190 116 5 - ¥1,052 ¥12 50 17 20 - ¥99 17 7. Short-Term Loans Payable and Long-Term Debts Short-term loans payable as of March 31, 2016 and 2015, consisted of the following: Millions of yen 2015 Thousands of U.S. dollars 2016 2016 Bank loans with average interest rate of 1.48% and 1.49% per annum as of March 31, 2016 and 2015, respectively ¥33,252 ¥41,443 $295,075 Unsecured 0.71% bonds due June 13, 2016 ¥10,000 - $88,739 Long-term debts as of March 31, 2016 and 2015 consisted of the following: Loans principally from banks and insurance companies due through 2025 with average interest rate of 0.7% and 0.82% per annum as of March 31, 2016 and 2015, respectively Unsecured 0.71% bonds due June 13, 2016 Subtotal Less-Portion due within one year Millions of yen 2015 Thousands of U.S. dollars 2016 2016 ¥126,722 ¥159,749 $1,124,519 - 126,722 (33,692) 10,000 169,749 (44,329) - 1,124,519 (298,979) Total ¥93,030 ¥125,420 $825,539 Annual maturities of long-term loans payable and bonds payable as of March 31, 2016 were as follows: 2017 2018 2019 2020 2021 2022 and thereafter Total Millions of yen ¥33,692 42,856 41,228 6,312 522 2,112 ¥126,722 Thousands of U.S. dollars $298,980 380,300 365,853 56,012 4,632 18,742 $1,124,519 18 Lease obligations as of March 31, 2016 and 2015 consisted of the following: Lease obligations due within one year as of March 31, 2016 Lease obligations due after one year as of March 31, 2016 Total Millions of yen 2015 ¥1,016 1,065 ¥2,081 2016 ¥861 1,254 ¥2,115 Thousands of U.S.dollars 2016 $7,640 11,128 $18,768 Annual maturities of lease obligations as of March 31, 2016 were as follows: 2017 2018 2019 2020 2021 2022 and thereafter Total Millions of yen ¥861 1077 85 48 31 13 ¥2,115 Thousands of U.S. dollars $7,640 9,557 754 426 275 115 $18,768 The following assets as of March 31, 2016 and 2015 were pledged as collateral for certain loans: Property, plant and equipment Total Millions of yen 2015 ¥35,435 ¥35,435 Thousands of U.S. dollars 2016 $326,551 $326,551 2016 ¥36,799 ¥36,799 To raise working capital efficiently, the FHI Group has entered into the commitment-line contracts. The maximum amount that can be made available under these contracts is ¥125,904 million (US$1,117,260 thousand) as of March 31, 2016. At the end of the fiscal year under review, there were no borrowings under the commitment line. 19 8. Derivative transactions In the normal course of business, the Company and its consolidated subsidiaries employ derivative financial instruments, including foreign exchange forward contracts, foreign currency options and interest rate swaps, to manage their exposures to fluctuations in foreign currency exchange rates and interest rates. The Company and its consolidated subsidiaries do not use derivatives for speculative or trading purposes. The fair value information of derivative financial instruments as of March 31, 2016 and 2015 was as follows: Derivative transactions to which hedge accounting is not applied (1) Foreign currency contracts: As of March 31, 2016 Notional Amount Millions of yen Valuation gain (loss) Fair value Thousands of U.S. dollars Valuation Fair value gain (loss) Notional Amount Foreign exchange forward contracts: Sell- U.S. dollar Euro Canadian dollar As of March 31, 2015 ¥287,156 3,254 22,516 ¥7,975 (44) (772) ¥7,975 $2,548,194 28,876 199,805 (44) (772) $70,769 (390) (6,851) $70,769 (390) (6,851) Foreign exchange forward contracts: Sell- U.S. dollar Euro Canadian dollar Notional Amount Fair value Millions of yen Valuation gain (loss) ¥313,502 4,488 23,102 (¥2,955) 55 175 (¥2,955) 55 175 Note: The method to determine the fair value is based on quotations obtained from financial institutions. Derivative transactions to which hedge accounting is applied (1) Interest rate contracts: Accounting treatment: Exception processing of interest rate swap Hedge item: Long-term loans payable As of March 31, 2016 Interest rate swap contracts: Receive floating rate pay fixed rate Millions of yen Thousands of U.S. dollars Notional Amount Over 1 year Fair value Notional Amount Over 1 year Fair value ¥3,000 ¥1,000 ¥- $26,622 $8,874 $- 20 As of March 31, 2015 Interest rate swap contracts: Receive floating rate pay fixed rate Millions of yen Notional Amount Over 1 year Fair value ¥10,105 ¥3,000 (*) Note *Fair value of interest rate swap that meets certain hedging criteria is included in the fair value of long-term debt as a hedged item. 9. Property, Plant and Equipment Property, plant and equipment as of March 31, 2016 and 2015 are summarized as follows: Buildings and structures Machinery, equipment and vehicles Vehicles and equipment on operating leases, net Other Subtotal Accumulated depreciation Accumulated impairment loss Land Construction in progress Total 2016 ¥381,255 540,376 11,221 312,028 1,244,880 (886,905) (25,992) 193,698 46,951 ¥572,632 Millions of yen 2015 ¥348,685 526,302 13,181 318,806 1,206,974 (882,752) (26,528) 188,392 28,611 ¥514,697 Thousands of U.S. dollars 2016 $3,383,219 4,795,244 99,574 2,768,906 11,046,943 (7,870,308) (230,650) 1,718,857 416,639 $5,081,480 10. Unexecuted Balance of Overdraft Facilities and Lending Commitments The unexecuted balance of overdraft facilities and lending commitments at a consolidated subsidiary (Subaru Finance Co., Ltd.) as of March 31, 2016 and 2015 was as follows: Total overdraft facilities and lending commitments Less amounts currently executed Unexecuted balance Millions of yen 2015 ¥4,800 497 ¥4,303 Thousands of U.S. dollars 2016 $42,595 7,108 $35,487 2016 ¥4,800 801 ¥3,999 A portion of the overdraft facilities and lending commitments above is subject to credit considerations as documented in the customer contracts. Therefore, the total balance above is not always available. 21 11. Pension and Severance Plans The Company and its consolidated domestic subsidiaries have lump-sum retirement payment plans, contributory defined benefit employees’ welfare pension funds, defined benefit pension plan, and certain domestic subsidiaries have defined contribution pension plans. In addition, in certain occasions, additional retirement payments are made to employees for their retirement. Consolidated foreign subsidiaries primarily have defined contribution plans. As of March 31, 2016, the Company and 53 of its consolidated domestic subsidiaries, which add up to a total of 54 companies, have lump-sum retirement payment plans. Within the FHI Group, there are also 24 defined contribution plans, and 5 defined benefits pension plans. In addition, there are 5 single-employer employees’ welfare pension funds subject to the provisions of Article 33 of "Accounting Standard for Retirement Benefits." Certain insignificant consolidated subsidiaries calculated their pension liability using the simplified method. Under the simplified method, an accrued pension and net defined benefit liability is provided at the amount that would have been payable had all the employees voluntarily retired at the end of the fiscal year, less an amount to be covered from the plan assets, while the Company and significant subsidiaries provide an accrued pension and net defined benefit liability based on the estimated amount of pension and severance obligation (projected benefit obligations), less the fair value of plan assets at the end of the fiscal year under the actuarial method. Defined benefit pension plans (including the multi-employer pension plan of contributory defined benefit employees’ welfare pension funds settled as defined benefit pension plan.) Movement in retirement benefit obligation, except plans applied simplified method Balance at the beginning of the period Cumulative effects of changes in accounting policies Restated balance a. Service cost b. Interest cost c. Actuarial loss (gain) d. Benefits paid e. Amortization of prior service cost f. Other Balance at the end of the period 2016 ¥107,397 - 107,397 6,115 1,161 7,769 (5,791) 152 (472) ¥116,331 Movements in plan assets, except plans applied simplified method Balance at the beginning of the period a. Expected return on plan assets b. Actuarial loss (gain) c. Contributions paid by the employer d. Benefits paid Balance at the end of the period 2016 ¥99,140 1,836 4,254 4,288 (3,601) ¥105,917 22 Millions of yen 2015 ¥102,819 (2,481) 100,338 5,508 1,397 4,520 (4,366) - - ¥107,397 Millions of yen 2015 ¥87,069 1,913 4,961 8,330 (3,133) ¥99,140 Thousands of U.S. dollars 2016 $953,030 - 953,030 54,264 10,303 68,941 (51,389) (1,349) 4,188 $1,032,310 Thousands of U.S. dollars 2016 $879,759 16,292 37,750 38,051 (31,955) $939,897 Movement in net defined benefit liability in the plans applying the simplified method Balance at the beginning of the period a. Increase due to the change of scope of consolidation b. Retirement benefit cost c. Benefits paid d. Contributions paid by the employer Balance at the end of the period 2016 ¥6,072 - 722 (357) (39) ¥6,398 Millions of yen 2015 ¥5,880 - 730 (482) (29) ¥6,072 Thousands of U.S. dollars 2016 $53,882 - 6,407 (3,168) (346) $56,775 Reconciliation from retirement benefit obligations and plan assets to net defined benefit liability (asset), include plans applied simplified method a. Funded retirement benefit obligations b. Plan assets Sub total c. Unfunded retirement benefit obligations a+b+c. Total Net liability (asset) for retirement benefits d. Net defined benefit liability e. Net defined benefit asset d+e. Total Net liability (asset) for retirement benefits Retirement benefit costs a. Service cost b. Interest cost c. Expected return on plan assets d. Net actuarial loss amortization e. Past service costs amortization f. Additional retirement payments g. Retirement benefit cost of the plan applying the simplified method h. Other Total retirement benefit costs for the fiscal year ended 2016 ¥106,762 (106,162) 600 16,212 Millions of yen 2015 ¥97,944 (99,346) (1,402) 15,706 Thousands of U.S. dollars 2016 $947,396 (942,071) 5,324 143,864 16,812 14,304 149,188 18,586 (1,774) ¥16,812 17,963 (3,659) ¥14,304 164,930 (15,742) $149,188 Millions of yen 2015 ¥5,508 1,397 (1,913) 2,377 58 379 703 Thousands of U.S. dollars 2016 ¥54,264 10,303 (16,292) 20,818 532 1,908 6,407 - ¥8,509 195 $78,135 2016 ¥6,115 1,161 (1,836) 2,346 60 215 722 22 ¥8,805 23 Adjustments for retirement benefit (before tax effect) a. Past service costs b. Actuarial gains and losses Total 2016 (¥92) (1,150) (¥1,242) Millions of yen 2015 ¥249 4,032 ¥4,281 Accumulated adjustments for retirement benefit (before tax effect) Thousands of U.S. dollars 2016 $816 (10,205) (¥11,021) Thousands of U.S. dollars 2016 $2,183 2016 ¥246 Millions of yen 2015 ¥154 17,963 16,813 159,402 ¥18,209 ¥16,967 $161,585 2016 49% 13% 28% 10% 100% Percentage 2015 51% 14% 25% 10% 100% a. Past service costs that are yet to be recognized b. Actuarial gains and losses that are yet to be recognized Total Plan assets Plan assets comprise: a.Bonds b.Equity securities c.Cash and deposit d.Other Total Long-term expected rate of return Current and target asset allocations, historical and expected returns on various categories of plan assets have been considered in determining the long-term expected rate of return. Actuarial assumptions The principal actuarial assumptions 2016 2015 a. Attribution of expected benefit obligation Benefit formula method b. Discount rate c. Long-term expected rate of return d. Amortization of actuarial gain/loss Primarily 0.6% Primarily 2.1% Primarily 16 years (amortized by the straight-line method starting from the following fiscal year, over a period shorter than the average remaining service periods of the eligible employees) 10 to 19 years Benefit formula method 0.8%–1.4% 1.4%–3.5% Primarily 16 years (amortized by the straight-line method starting from the following fiscal year, over a period shorter than the average remaining service periods of the eligible employees) 10 to 19 years e. Amortization of past service cost 24 Defined contribution pension plan The amount required to contibute to defined contribution plans was 4,844 million (US$42,953 thousand) and 4,414milllion for fiscal years 2016 and 2015 respectively which included the multi-employer pension plan of contributory defined benefit employees’ welfare pension funds settled as defined contribution plans. Certain information concerning the multi-employer pension plan, which requires contributions that are expensed as they become due as pension and severance costs, was as follows: (1) Overall funded status of the multi-employer pension plan (mainly as of March 31, 2016 and 2015) Plan assets Projected benefit obligation Funded status 2016 ¥49,530 58,015 (¥8,485) Millions of yen 2015 ¥83,089 94,207 (¥11,118) Thousands of U.S. dollars 2016 $439,524 514,819 ($75,295) (2) Contributions by the Company and its consolidated domestic subsidiaries as a percentage of total contributions to the multi-employer pension plan for fiscal years 2016 and 2015 respectively: 6% Other than the above, ¥26,943 million (US$239,090 thousand) and ¥27,203 million of postretirement benefit plan obligation for fiscal years 2016 and 2015 respectively is included in "Other" of accrued expense and long-term liabilities in some American subsidiaries. 12. Income Taxes The Company and its consolidated subsidiaries were subject to a number of taxes based on income, which in the aggregate resulted in a normal statutory income tax rate of approximately 32.9% and 35.4% for fiscal years 2016 and 2015, respectively. A reconciliation of the statutory income tax rates in Japan to the Company’s effective income tax rates for fiscal years 2016 and 2015 were as follows: Statutory income tax rate in Japan Increase (reduction) in taxes resulting from: Adjustment of deferred tax assets in the end of fiscal year 2016 by change of the tax rate Deduction of research and development expense Entertainment expenses not qualifying for deduction Changes in valuation allowance and tax benefits realized from loss carry forwards Adjustment to past corporate income taxes payable and corporate income taxes refundable Equity in earnings of affiliates Difference of applicable tax rate in subsidiaries Other Effective income tax rate 2016 32.9% 2015 35.4% 0.5% (3.1)% 0.1% (1.7)% 0.0% 0.0% 0.6% 0.2% 29.5% 0.7% (3.6)% 0.1% (0.5)% 0.2% 0.1% (0.3)% 0.3% 32.4% 25 Significant components of the deferred tax assets and liabilities as of March 31, 2016 and 2015, were as follows: Deferred tax assets: Accrued expenses Provision for product warranties Net defined benefit liability Depreciation and amortization expenses Long-term accounts payable-other Provision for bonuses Unrealized profit on inventories Loss on valuation of inventories Net operating loss carryforwards Other Total deferred tax assets Valuation allowance Total deferred tax assets, net of valuation allowance Deferred tax liabilities: Valuation difference on available-for-sale securities Depreciation and amortization expenses Reserve for reduction entry Net defined benefit asset Other Total deferred tax liabilities Net deferred tax assets Millions of yen 2015 Thousands of U.S. dollars 2016 ¥18,569 17,549 13,534 10,938 10,919 7,241 25,954 2,079 860 31,253 138,896 (20,018) 118,878 (8,668) (11,246) (2,072) (1,006) (17,980) (40,972) ¥77,906 $252,258 153,731 125,770 93,655 94,001 66,164 216,976 28,663 - 222,637 1,253,856 (77,327) 1,176,529 (37,980) (125,717) (16,523) (8,572) (202,724) (391,517) $785,012 2016 ¥28,427 17,324 14,173 10,554 10,593 7,456 24,451 3,230 - 25,089 141,297 (8,714) 132,583 (4,280) (14,167) (1,862) (966) (22,845) (44,120) ¥88,463 The net deferred tax assets are included in the following line items in the accompanying consolidated balance sheets. Current assets—Deferred tax assets Investments and other assets—Deferred tax assets Current liabilities—Deferred tax liabilities (Other current liabilities) Long-term liabilities—Deferred tax liabilities Total net deferred tax assets Millions of yen 2015 ¥78,789 13,113 Thousands of U.S. dollars 2016 $806,576 144,991 - (13,996) ¥77,906 - (166,554) $785,012 2016 ¥90,893 16,339 - (18,769) ¥88,463 26 (Adjustment of deferred tax assets and liabilities for enacted changes in tax laws and rates) (Fiscal 2015) On March 31, 2015, amendments to the Japanese tax regulations were enacted into law. Based on the amendments, the statutory income tax rates utilized for the measurement of deferred tax assets and liabilities expected to be settled or realized from April 1, 2015 to March 31, 2016 and on or after April 1, 2016 are changed from 35.4% for the fiscal year ended March 31, 2015 to 32.9% and 32.1%, respectively, as of March 31, 2015. Due to these changes in statutory income tax rates, net deferred tax assets (after deducting the deferred tax liabilities) decreased by ¥2,375 million (US$19,747 thousand) as of March 31, 2015, deferred income tax expense recognized for the fiscal year ended March 31, 2015 increased by ¥2,826 million (US$23,497 thousand), evaluation differences of other securities increased by ¥765 million (US$6,361 thousand) and accumulated adjustments for employee retirement benefits increased by ¥529 million (US$4,398 thousand). (Fiscal 2016) On March 29 2016, amendments to the Japanese tax regulations were enacted into law. Based on the amendments, the statutory income tax rates utilized for the measurement of deferred tax assets and liabilities expected to be settled or realized from April 1, 2016 to March 31, 2017 and on or after April 1, 2017 are changed from 32.1% for the fiscal year ended March 31, 2016 to 30.7% and 30.5%, respectively, as of March 31, 2016. Due to these changes in statutory income tax rates, net deferred tax assets (after deducting the deferred tax liabilities) decreased by ¥2,983 million (US$26,471 thousand) as of March 31, 2016, deferred income tax expense recognized for the fiscal year ended March 31, 2016 increased by ¥2,916 million (US$25,876 thousand), evaluation differences of other securities increased by ¥224 million (US$1,988 thousand) and accumulated adjustments for employee retirement benefits increased by ¥291 million (US$2,582 thousand) 13. Net Assets Under Japanese laws and regulations, the entire amount paid for new shares is required to be designated as common stock. However, a company may, by a resolution of its Board of Directors, designate an amount not exceeding one half of the price of the new shares as additional paid-in capital, which is included in capital surplus. Under the Japanese Companies Act (“the Act”), in cases where a dividend distribution of surplus is made, the smaller of an amount equal to 10% of the dividend or the excess, if any, of 25% of common stock over the total of additional paid-in capital and legal earnings reserve must be set aside as additional paid-in capital or legal earnings reserve. Legal earnings reserve is included in retained earnings in the accompanying consolidated balance sheets. Under the Act, both legal earnings reserve and additional paid-in capital used to eliminate or reduce a deficit generally require a resolution of the shareholders’ meeting. Additional paid-in capital and legal earnings reserve may not be distributed as dividends. Under the Act, all additional paid-in capital and all legal earnings reserve may be transferred to other capital surplus and retained earnings, respectively, which are potentially available for dividends. The maximum amount that the Company can distribute as dividends is calculated based on the non-consolidated financial statements of the Company in accordance with the Act. At the annual shareholders’ meeting held on June 28, 2016, the shareholders approved cash dividends amounting to ¥56,216 million (US$498,855 thousand). Such appropriations have not been accrued in the consolidated financial statements as of March 31, 2016. Such appropriations are recognized in the period in which they are approved by the shareholders. 27 14. Presentation of inventories and provision for loss on construction contracts ¥Minus 644 million (US$ Minus 5,715 thousand) and ¥ 988million as "Provision for loss on construction contracts" is included in "Cost of sales" for fiscal years 2016 and 2015, respectively. 15. Selling, General and Administrative Expenses Selling, general and administrative expenses for fiscal years 2016 and 2015 consisted of the following: Freightage and packing expenses Advertising expenses Sales incentives Salaries and bonuses Research and development expenses Other Total 2016 ¥27,023 87,666 98,505 54,008 101,499 110,832 ¥479,533 Millions of yen 2015 ¥34,856 81,538 82,597 49,894 83,104 105,389 ¥437,378 Thousands of U.S. dollars 2016 $239,799 777,939 874,124 479,262 900,692 983,512 $4,255,329 16. Extraordinary income (Fiscal 2016) Reversal of allowance for doubtful accounts Reversal of allowance for doubtful account includes ¥29,624 million (US$262,880 thousands) of the allowance for receivables of the initial investment fees associated with the AH-64D combat helicopter for the Japan Ministry of Defense was released because the lawsuit against the Government of Japan over the claims of the initial investment fees was concluded. Other extraordinary income Other extraordinary income includes 18,561 million yen (US$164,708 thousand) of interest receivable recognized due to the conclusion of the lawsuit against the Government of Japan over the claims of the initial investment fees associated with the AH-64D combat helicopter for the Japan Ministry of Defense. 17. Finance Leases As allowed under the Japanese accounting standards, the Company and its consolidated subsidiaries in Japan account for finance leases. Information as Lessor (1) The details of lease investment assets as of March 31, 2016 and 2015 were as follows: Obligation of lease fee receivable Estimated residual value Interest expense portion Lease investment assets Millions of yen 2015 ¥28,762 342 (5,006) ¥24,098 Thousands of U.S. dollars 2016 $228,201 3,221 (40,350) $191,073 2016 ¥25,716 363 (4,547) ¥21,532 (2) Lease revenue related to lease investment assets Amounts of collections on lease receivable after the fiscal year ended March 31, 2016 and 2015, were as 28 follows: Within 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Over 5 years Millions of yen 2015 ¥8,399 7,065 5,949 4,273 2,793 ¥283 Thousands of U.S. dollars 2016 $69,909 60,378 47,688 32,878 16,426 $923 2016 ¥7,878 6,804 5,374 3,705 1,851 ¥104 29 18. Operating Lease Information as Lessee The future minimum lease/rent payments, excluding the portion of interest thereon, as of March 31, 2016 and 2015, were as follows: Operating leases: Due within one year Due after one year Total Millions of yen 2015 Thousands of U.S. dollars 2016 ¥2,439 14,030 ¥16,469 $26,063 182,536 $208,599 2016 ¥2,937 20,570 ¥23,507 Information as Lessor The future minimum lease/rent payments receivable, excluding the portion of interest thereon, as of March 31, 2016 and 2015, were as follows: Operating leases: Due within one year Due after one year Total 19. Contingent Liabilities Contingent liabilities as of March 31, 2016 and 2015, were as follows: Millions of yen 2015 Thousands of U.S. dollars 2016 ¥190 92 ¥282 $1,402 657 $2,059 2016 ¥158 74 ¥232 Thousands of Millions of yen U.S. dollars 2016 2015 2016 As guarantor of third-party indebtedness from financial institutions ¥44,059 ¥45,214 $390,975 Expenses with regard to the modified agreement contents between the U.S. subsidiary of Takata Co., Ltd. and NHTSA (The National Highway Traffic and Safety Administration of the United States) dated May 4, 2016, Notification “Extended schedule of the recalls of airbag inflators manufactured by Takata Co., Ltd.” released by MLIT (The Ministry of Land, Infrastructure, Transport and Tourism of Japan) dated May 27, 2016, and recalls in the other regions including China and Australia required by the U.S. and Japanese authorities are not accrued in the consolidated financial statements for the fiscal year ended March 31, 2016, since the amounts of these expenses can not be estimated reasonably at present. Expenses with regard to recall of airbag inflators manufactured by Takata Co., Ltd. which can be reasonably estimated were accrued in the consolidated financial statements for the fiscal year ended March 31, 2016. FHI group notified the regulators to take corresponding actions in North American Market on May 25, 2016 and decided to do it in Japan and the other regions including China and Australia by the end of June 2016, that cover a part of contingent liabilities mentioned above. See Note24 “Subsequent events” for more detail. 20. The Amount of Discount of Export Bill 30 The amount of discount of export bill as of March 31, 2016 and 2015, were as follows: The amount of discount of export bill Thousands of Millions of yen U.S. dollars 2016 2015 2016 ¥1,718 ¥2,928 $15,245 21. Transfer of Financial Assets to Special Purpose Company The balance of financial assets transferred to special purpose company as of March 31, 2016 and 2015, were as follows: Balance of financial assets transferred to special purpose company(loan receivable of Automobiles and accounts receivable-trade of Aerospace) Thousands of Millions of yen U.S. dollars 2016 2015 2016 ¥4,508 ¥5,037 $40,004 22. Segment Information (1)General information about reportable segments The business segments the Company reports are the business units for which the Company is able to obtain respective financial information separately in order for the Board of Directors to conduct periodic investigation to determine distribution of management resources and evaluate their business result. The Company places Automobile at the center of the whole businesses, and introduces an internal company system into Aerospace and Industrial products divisions. This framework makes clearer the responsibility of each division and accelerates business execution. The Company manages the subsidiaries on the basis of this classification. Therefore, the business segments consist of Automobile, Aerospace, Industrial products, and Other which does not belong to any division. Automobile segment manufactures and sells vehicles and related products. Aerospace segment manufactures aircrafts, parts of space-related devices. Industrial products segment manufactures and sells Robin engines and related products. (2)Calculation method of sales, profit or loss, assets, liabilities and other items by reportable segments Accounting method for reportable segments is almost the same as "2. Summary of Significant Accounting Policies". Segment income are calculated based on operating income. Net sales - Inter-segment are calculated based on current market prices. 31 (3)Information on sales, income, assets and other items by reportable segments for the fiscal years ended March 31, 2016 and 2015 was summarized as follows Net Sales: Automobiles Outside customers Inter-segment Sub-total Aerospace Outside customers Inter-segment Sub-total Industrial products Outside customers Inter-segment Sub-total Other (*1) Outside customers Inter-segment Sub-total Total Adjustment (*2) Consolidated total (*3) Segment income: Automobiles Aerospace Industrial products Other (*1) Total Adjustment (*2) Consolidated total (*3) Millions of yen 2015 2016 Thousands of U.S. dollars 2016 ¥3,039,424 4,752 3,044,176 ¥2,698,974 4,236 2,703,210 $26,971,550 42,169 27,013,719 152,786 - 152,786 32,570 185 32,755 7,478 17,889 25,367 3,255,084 (22,826) ¥3,232,258 142,801 - 142,801 29,029 207 29,236 7,109 15,744 22,853 2,898,100 (20,187) ¥2,877,913 Millions of yen 2015 2016 ¥543,609 18,201 82 2,894 564,786 803 ¥565,589 ¥400,874 18,912 779 1,884 422,449 596 ¥423,045 1,355,808 - 1,355,808 289,023 1642 290,665 66,359 158,745 225,104 28,885,296 (202,556) $28,682,740 Thousands of U.S. dollars 2016 $4,823,933 161,514 728 25,681 5,011,856 7,126 $5,018,981 32 Segment assets: Automobiles Aerospace Industrial products Other (*1) Total Adjustment (*2) Consolidated total (*3) Other Items: Depreciation and amortization: Automobiles Aerospace Industrial products Other (*1) Total Adjustment (*2) Consolidated total (*3) Investment to equity-method affiliates: Automobiles Aerospace Industrial products Other (*1) Total Adjustment (*2) Consolidated total (*3) Increase of property, plant and equipment and intangible fixed assets: Automobiles Aerospace Industrial products Other (*1) Total Adjustment (*2) Consolidated total (*3) Millions of yen 2015 2016 ¥2,298,942 220,786 35,961 61,445 2,617,134 (24,724) ¥2,592,410 ¥1,944,178 186,292 32,926 59,735 2,223,131 (23,417) ¥2,199,714 Millions of yen 2015 2016 Thousands of U.S. dollars 2016 $20,400,586 1,959,233 319,114 545,257 23,224,190 (219,398) $23,004,792 Thousands of U.S. dollars 2016 $596,584 32,549 4,499 13,613 647,245 - $647,245 $6,309 - 6,815 - 13,125 - $13,125 ¥65,342 4,583 429 1,467 71,821 - ¥71,821 ¥589 - 775 - 1,364 - ¥1,364 ¥122,689 4,509 985 7,163 135,346 - ¥135,346 $1,420,250 61,248 6,442 5,875 1,493,815 - $1,493,815 ¥67,229 3,668 507 1,534 72,938 - ¥72,938 ¥711 - 768 - 1,479 - ¥1,479 ¥160,048 6,902 726 662 168,338 - ¥168,338 Note: *1. "Other" means the category which is not included into any reportable segments. It consists of garbage collection vehicles, specialized vehicles, real estate lease, etc. *2. Adjustment of segment income refers to elimination of intersegment transaction. *3.Segment income is adjusted on operating income on the consolidated statements of income. 33 Related Information (1)Products and services information Products and services information is not shown since the same information is in the segment information. (2)Information about geographic areas [1]Sales for the fiscal years ended March 31, 2016 and 2015 was summarized as follows: Sales: (*1) Japan North America [United States] (*2) Europe Asia Other Consolidated total Millions of yen 2015 2016 ¥605,401 2,104,498 [1,972,797] 126,201 237,297 158,861 ¥3,232,258 ¥652,894 1,730,947 [1,607,897] 123,250 238,749 132,073 ¥2,877,913 Thousands of U.S. dollars 2016 $5,372,269 18,675,109 [17,506,407] 1,119,895 2,105,750 1,409,717 $28,682,740 Note: *1 Sales is categorized by country or area which is based on customer location. *2 Sales of the United States is included in North America area. [2]Property, plant and equipment for the fiscal years ended March 31, 2016 and 2015 was summarized as follows: Property, plant and equipment: (*1) Japan North America [United States] (*2) Europe Asia Other Consolidated total Millions of yen 2015 2016 Thousands of U.S. dollars 2016 ¥440,019 131,654 [130,978] 462 - 498 ¥572,633 ¥412,623 101,042 [100,274] 481 - 551 ¥514,697 $3,904,685 1,168,285 [1,162,286] 4,100 - 4,419 $5,081,489 Note: *1 Property, plant and equipment is categorized by country or area according to geographic adjacent level. *2 Property, plant and equipment of the United States is included in North America area. [3]Major customers Information Information about major customers is not shown because outside sales for major customers accounted for less 10% of operating revenue on the consolidated statements of income for the fiscal years ended March 31, 2016 and 2015. 34 Information on Impairment Loss in Fixed Assets by Reportable segments Impairment loss in fixed assets by reportable segments for the fiscal years ended March 31, 2016 and 2015 was summarized as follows: Impairment loss in fixed assets: Automobiles Aerospace Industrial products Other Total Adjustment Total Millions of yen 2015 2016 Thousands of U.S. dollars 2016 ¥11 - - 11 - - ¥11 ¥38 - - - 38 - ¥38 $98 - - 98 - - $98 Information on Amortization of Goodwill and Unamortized Balance by Reportable segments Information on amortization of goodwill and unamortized balance by reportable segments for the fiscal years ended March 31, 2016 and 2015 was summarized as follows: Goodwill Millions of yen 2015 Thousands of U.S. dollars 2016 ¥266 - - - 266 - ¥266 ¥2,472 - - - 2,472 - ¥2,472 $2,139 - - 2,139 - - $2,139 $18,546 - - 18,546 - - $18,546 2016 ¥241 - - 241 - - ¥241 ¥2,090 - - 2,090 - - ¥2,090 Amount written off of current period: Automobiles Aerospace Industrial products Other Total Corporate and elimination Total Balance at the end of current period: Automobiles Aerospace Industrial products Other Total Corporate and elimination Total Information on Negative Goodwill by Reportable segments No items to be reported. 35 23. Fair Value of Investment and Rental Property The Company and certain consolidated subsidiaries own rental office buildings and rental commercial facilities with the objective of generating rental income in Saitama prefecture and other locations. Certain domestic rental office buildings in Japan are classified as properties that include portions used as investment and rental property, because part of them are used by the Company and certain consolidated subsidiaries. The consolidated balance sheet amounts, principal changes during fiscal 2016 and 2015, fair value at the end of fiscal 2016 and 2015 were as follows: As of March 31, 2016 beginning balance Consolidated balance sheet amounts Increase(dec rease) during the year ending balance Millions of yen Fair value as the end of the fiscal year Investment and rental property Properties that include portions used as investment and rental property As of March 31, 2016 ¥29,248 (¥5) ¥29,243 ¥40,173 ¥15,228 (¥733) ¥14,495 ¥22,775 Thousands of U.S. dollars beginning balance Consolidated balance sheet amounts Increase(dec rease) during the year ending balance Fair value as the end of the fiscal year Investment and rental property Properties that include portions used as investment and rental property As of March 31, 2015 $259,544 ($44) $259,500 $356,491 $135,132 ($6,505) $128,627 $202,103 beginning balance Consolidated balance sheet amounts Increase(dec rease) during the year ending balance Millions of yen Fair value as the end of the fiscal year Investment and rental property Properties that include portions used as investment and rental property ¥30,343 (¥1,095) ¥29,248 ¥37,704 ¥9,206 ¥6,022 ¥15,228 ¥19,537 Note 1. The amounts of consolidated balance sheet excludes accumulated depreciation and accumulated impairment loss from acquisition costs. 2. Among changes in the amount of investment, rental property and properties that include portions used as investment and rental property during the fiscal 2016, principal increases were properties acquisitions etc, which amounted to ¥622 million (US$5,520 thousand), and principal decreases were depreciation, which amounted to ¥1,264 million (US$11,217 thousand), loss on sales and retirement, which amounted to ¥265 million (US$2,352 thousand). Among changes in the amount of investment, rental property and properties that include portions used as investment and rental property during the fiscal 2015, principal increases were properties acquisitions etc, which amounted to ¥7,263 million, and principal decreases were depreciation, which amounted to ¥1,009 million, loss on sales and retirement, which amounted to ¥1,408 million. 36 3. Fair value of a part of main investment and rental property is the amount estimated by based value of real-estate appraiser, and fair value of a part of other investment and rental property is the amount estimated by the Company based principally on land assessment value. Profit and loss in fiscal 2016 and 2015 concerning investment and rental property and properties that include portions used as investment and rental property were as follows: As of March 31, 2016 Investment and rental property Properties that include portions used as investment and rental property As of March 31, 2016 Investment and rental property Properties that include portions used as investment and rental property As of March 31, 2015 Investment and rental property Properties that include portions used as investment and rental property Rental income Rental expenses Change Millions of yen Other profit and loss ¥3,862 ¥2,344 ¥1,518 (¥262) ¥855 ¥1,077 (¥222) ¥- Thousands of U.S. dollars Rental income Rental expenses Change Other profit and loss $34,271 $20,800 $13,471 ($2,325) $7,587 $9,557 ($1,970) $- Rental income Rental expenses Change Millions of yen Other profit and loss ¥3,868 ¥2,167 ¥1,701 (¥418) ¥394 ¥1,265 (¥871) ¥- Note:1. Rental income (from the properties that include portions used as investment and rental property) does not include the portion that the Company or certain subsidiaries use as the provision of services and business administration purposes. Rental expenses, however, include all portions of the expenses (costs related to depreciation, repairs, insurance and taxes). 2. Other profit and loss include in gain on sale and impairment loss. 24.Subsequent Events (Quality-related expense (recalls)) On May 25, 2016, FHI group applied for a recall in North American Market in accordance with the modified agreement contents with the U.S. subsidiary of Takata Co., Ltd. and NHTSA (The National Highway Traffic and Safety Administration of the United States) dated May 4, 2016. The estimated amount of expenses related to the recall is ¥18,700 million, and will be booked in the consolidated financial statements for the fiscal year ending March 31, 2017. In addition, FHI group decided to take actions by the end of June in Japanese Market to respond the Notification “Extended schedule of the recall of airbag inflators manufactured by Takata Co., Ltd.” released by MLIT (Ministry of Land, Infrastructure, Transport and Tourism of Japan) dated May 27, 2016 and in other 37 regions including China and Australia in light of actions taken in North American Market and Japanese Market. The estimated amount of expenses related to the recall is ¥11,800 million, and will be booked in the consolidated financial statements for the fiscal ending March 31, 2017. . (The acquisition of the treasury stock) Fuji Heavy Industries Ltd. (FHI) resolved at its Board of Directors meeting held on May 12, 2016 to repurchase of its own shares pursuant to the provisions of Article 156 of the Companies Act that are applied by the reading of terms under the provisions of Article 165, Paragraph 3 of that Act. 1 Reason for the repurchase of its own shares FHI will repurchase its own shares to improve shareholder value and capital efficiency. 2 Details of the repurchase (1) Class of shares to be repurchased: Common stock issued by FHI (2) Total number of shares to be repurchased: Up to 15,000,000 shares Proportion of the total number of shares issued and outstanding, excluding treasury stock: 1.92% (3) Total value of shares to be repurchased: Up to 48.0 billion yen (4) Period of repurchase: From May 13 to September 30, 2016 (5) Other: Shares repurchased are planned to be cancelled 25.Other No items to be reported. 38

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