Q&As on the Presentation of Financial Statements for FY2005 Third Quarter

A1 : The weather was not the sole reason for the downward revisions. Unit price declines were also a factor. Customer numbers have not been recovering at golf course and ski facilities, and the segment is saddled with some structural problems. Amid these conditions, unfavorable weather further eroded profits. For example, the Haimurubushi resort operation was hindered by typhoons weekly in autumn and ski facilities opened behind schedule due to lack of snow. YAMAHA decided to apply the accounting for the impairment-of-asset method to evaluate the segment business from the basis of real profit/loss conditions instead of cash flow. In addition, the Company has switched to the declining balance method for depreciation and stands by its goal to turn profitable in the segment in FY2007, ending March 2007, when depreciation charges should decrease.

A2 : The supply chain management system is still not fully operable, and our bullish sales forecasts have also been a factor behind inventory growth.

A3 : The Company does not disclose specific estimates of sales volume or unit prices, but its forecast has been for higher sales volume year on year. Inventory adjustments began in the second quarter, which depressed sales volume 15% quarter on quarter in the second quarter. In the third quarter, sales volume recovered slightly from the second quarter. The Company expects sales volume to stay about flat in the fourth quarter. With regard to unit prices, mobile phone manufacturers face severe earnings conditions and have been putting on stronger pressure to reduce prices.

A4 : In our profit planning, we are forecasting a slight decline in volume for the fourth quarter. In addition, we are expecting lower unit prices and reduction in production levels due to inventory adjustments. Moreover, we plan to continue to emphasize more sophisticated features, including the development of 128 polyphonic ringtones. As singing ringtones (Chaku-Uta) come into wider use, we do not expect that use of melody ringtones (Chaku-Melo) will disappear. However, one issue is how much mobile phone manufacturers will be willing to spend on melody ringtones. Looking ahead, we believe that a range of variations will be necessary.

A5 : Operating income exceeded the target mainly because expenditures were delayed. The sales shortfall was largely attributable to slight weaknesses in the overall market in the United States and to undershooting sales targets in Japan. In the United States, Yamaha thinks a recovery is attainable in the fourth quarter, partially because new products have been well received at recent musical instrument trade shows. The Company had targeted operating income of ¥15.5 billion in the first fiscal year of the medium-term plan; however, operating income is likely to be held at ¥14.0 billion in FY2005 due to the late restructuring of manufacturing operations. The segment is recovering, as evidenced by organizational changes in the piano division.

A6 : Inventories have been trending higher on the whole. Looking ahead, the Company hopes to pare down inventories as it reduces production and books special sales.

A7 : We anticipate extraordinary losses totaling ¥1.0 billion in FY2005.

A8 : Conditions have not changed appreciably, and the business remains robust.

A9 : The benefits from withdrawal are difficult to estimate, but the Company expects operating income to turn positive in FY2006 and net income to move into the black in FY2007.

A10 : There will be differences depending on the product. Reducing inventories will require some time, and we believe some stocks will be carried into the next period.

A11 : For example, the Company has technological prowess in digital amplifiers and other areas for reducing energy consumption.