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 have been restructured and translated into English (with some expanded descriptions and the inclusion of consolidated statements of shareholders’ equity) from the consolidated financial statements of the Company prepared in accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the Securities and Exchange Law. Some supplementary information included in the statutory Japanese language consolidated financial statements, but not required for fair presentation, is not presented in the accompanying consolidated financial statements.  The translation of the Japanese yen amounts into U.S. dollars are included solely for the convenience of readers outside Japan, using the prevailing exchange rate at March 31, 2003, which was ¥120.20 to U.S.$1. The convenience translations should not be construed as representations that the Japanese 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. The consolidated financial statements include the accounts of the Company and 66 subsidiaries in the year 2003 (67 in the year ended March 31, 2002 and 68 in the year ended March 31, 2001). In addition, 1 non-consolidated affiliate in the year 2003 (1 in the year ended March 31, 2002 and 2 in the year ended March 31, 2001) are accounted for by the equity method. Investments in insignificant non-consolidated subsidiaries and affiliates not accounted for under the equity method are carried at cost. The difference between the cost and underlying net equity of investments in subsidiaries and affiliated companies is allocated to identifiable assets based on fair value at the date of acquisition. The unallocat- ed residual value of the excess of the cost over the underlying net equity is recognized as consolidation adjustments and goodwill, and is amortized over a period of 5 years on the straight-line basis. However, consolidation adjustments that arose from making Subaru of Indiana Automotive, Inc. (SIA) a wholly owned subsidiary of the Company are amortized differently. The portion that clearly corresponds to fore- casted future losses will be amortized according to the generation of such losses, and the remaining portion of the consolidation adjustments will be amortized by the straight-line method over 5 years. All assets and liabilities of subsidiaries, which include not only the Company’s interest in the subsidiary but also the minority interest portion, are valued based on fair values at the date the Company acquires con- trol over the subsidiary. The investment cost of the Company is allocated to the identifiable assets and liabilities of the subsidiary; the unallocated cost is recorded as consolidated adjustments and goodwill. Fuji Heavy Industries Ltd. (the “Company”) and its consolidated domestic subsidiaries maintain their offi- cial accounting records in Japanese yen, and in accordance with the provisions set forth in Japan (“Japanese GAAP”). The accounts of overseas subsidiaries are based on their accounting records main- tained in conformity with generally accepted accounting principles and practices generally accepted in the respective countries of domicile. Certain accounting principles and practices generally accepted in Japan are different from International Accounting Standards and standards in other countries in certain respects as to application and disclosure requirements. Accordingly, the accompanying consolidated financial statements are intended for use by those who are informed about Japanese accounting princi- ples and practices. The accompanying consolidated financial statements include the accounts of the Company and its significant subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. The fiscal year-end of the consolidated domestic subsidiaries is the same as that of the parent company, while the fiscal year-end of the consolidated foreign subsidiaries is December 31. Although these foreign subsidiaries are included based on their fiscal year ended December 31, signifi- cant transactions that incurred between December 31 and March 31 are reflected in the consolidated financial statements. Consolidation 2. Summary of Significant Accounting Policies Annual Report 2003 31