To the Stakeholders of Fuji Heavy Industries Ltd. other chooses products based on more practical criteria. For that reason, each corporation must decide whether its strategy will be to compete on the basis of price or on the basis of value. The choice for Subaru is clear. Its only answer is to focus its core competencies on the requirements of well-defined market segments and offer more and more outstanding products.  The introduction of the new Legacy models is the starting point for the new FHI, and they will serve as the global center- piece of our product portfolio. Advancing toward this turning point, we have implemented the following initiatives to consoli- date our corporate position.  The central focus of our product development activities is the reform of our design capabilities. While continuing to enhance our core technologies, including the horizontally-opposed (“boxer”) engine, the key to building brand equity will be to lay claim to world-class design. It is expected that such a compre- hensive transformation in automobile design will require from three to five years. The approach encompasses more than just “improvements” and must come from a commitment to fundamentally re-think Subaru’s design culture from its very foundations. One aspect of this initiative will include reassessing our design vision from a new perspective through a global infusion of new blood.  In production activities, we must go beyond reducing the cost of parts and components and work to boost cost- competitiveness by examining the processes giving rise to the composition of costs. Beginning with upstream design and development, we will then examine the downstream processes of sales and service, before continuing on to joint back-office divisions. To undertake this in-depth analysis of costs, we insti- tuted our Cost Structure Revolution-1 (CSR-1) program in the fall of 2002. As a result of these CSR-1 activities, we were able to report an increase in operating income of ¥5.5 billion and a gain in net income of ¥9.4 billion.  In May 2003, to increase the competitiveness of our minicars, we made further progress toward rationalization by combining our passenger vehicle and commercial vehicle production lines. In our sales activities, we began to refurbish our dealer show- rooms in 2001 and had completed approximately half of them by the end of fiscal 2003. Along with these programs, we have implemented education programs for sales personnel and are working to enhance the quality of service. We also introduced the Partner 21 system to provide integrated assistance to our sales dealers such as new car sales, after services. In addition to these measures to consolidate our corporate foundation, we have introduced our new Legacy flagship models and are aiming to build brand equity through the synergies among these various initiatives.  As we move along with the implementation of FDR-1, two important themes are reforming our corporate culture and the motivation and awareness of each staff member. As seems to be common in organizations that reach a certain scale, individual units of the FHI organization thus far have tended to pursue what seems optimal for them, and we have sometimes not paid enough attention to what is optimal for the Company as a whole. To overcome this, we have formed the Subaru Strategy Development Division to take the initiative in implementing struc- tural management reforms on a cross-divisional basis. This new unit has begun to make priority allocations of corporate resources based on the principles of selection and concentration.  As a result, we have begun to transform our corporate culture in areas where individual organizational units tended to set their including amortization of consolidation adjustment of ¥6.7 billion How FDR-1 Is Transforming Our Corporate Culture 4 FUJI HEAVY INDUSTRIES LTD. We will not change our final target. Performance Overview (Billions of yen) How We Ar Changing Plan of FDR-1 FY2003 FY2004 FY2007 Automotive Sales Volume  (thousand units) 575 615 760 Net Sales 1,390.0 1,420.0 1,840.0 Operating Income 62.0 51.0 110.0 Net Income 24.0 23.0 57.0 Depreciation 49.0 52.0 68.0 Capital Investment 79.0 99.0 59.0 R&D Expenses 65.0 65.0 69.0 Interest Bearing Debt 400.0 430.0 380.0 Exchange Rate (¥/$) 125 115 115 Actual Results Forecast for of FY2003 FY2004 FY2007 Automotive Sales Volume  (thousand units) 555 575 760 Net Sales 1,372.3 1,450.0 1,840.0 Operating Income 67.5 68.7 110.0 Net Income 33.4 35.0 57.0 Depreciation 48.8 54.0 68.0 Capital Investment 64.6 97.0 59.0 R&D Expenses 60.1 63.0 69.0 Interest Bearing Debt 389.1 400.0 380.0 Exchange Rate (¥/$) 123 118 115