Q&As on the Presentation of Financial Statements for FY2005

A1 : We are working to increase operating income by expanding sales and improving the gross profit margin.

A2 : We saw a rather large imbalance between models that sold well and those that showed lackluster performance. We tried to reduce existing stocks in FY2005, but had to carry some inventories into the current fiscal year. In FY2006, however, we expect inventories to be at normal levels.

A3 : There were two reasons for the increase in FY2005. First, in some geographic areas sales rebates were formerly included in the cost of goods, but beginning with the fiscal year under review, these sales expenses were charged to advertising and promotional expenses. The second reason was the implementation of aggressive sales promotion. In FY2006, we are planning for advertising and promotional expenses at about the same level as in FY2005.

A4 : We do not release figures on the number of units sold or prices. Overall, however, the number of units sold increased slightly but prices declined, thus leading to a decline in sales and income. In FY2006, we are forecasting a further decline in sales prices, but we think the margin of decline will be smaller because of the introduction of higher value-added products. In addition, although we are working for an increase in the number of units sold, we are expecting a slight decline because of the impact of competition from software and other factors.

A5 : We are working to improve productivity by introducing the cell production method and taking steps to eliminate waste and production losses. We believe these efforts are meeting with success. Other activities to increase profitability include reducing material costs, standardization, and procuring parts in China.

A6 : We expect that the positive effects of our various activities on sales and income will emerge especially in the second half of FY2006.

A7 : We are expecting a comeback in the European market because of the introduction of new products in the digital keyboard business. Other positive factors include an expected improvement in professional audio equipment sales and the further development of our position in the eastern European markets. Also, we believe conditions in the European economies have bottomed out.

A8 : In the latter half of the fiscal year, prices showed a further significant downward adjustment in Europe and the United States. As the markets we expected to expand actually shrank, however, we were successful in expanding our market share in the United States in FY2005.

Our plans for FY2006 take into account positive expectations for market performance.

A9 : Although we are making progress bit by bit in introducing computer systems, we are about six months behind overall. In the cost reduction area, we have achieved the expected positive results in the electronic musical instruments field as a result of our Total Productive Maintenance (TPM) system and other factors. However, we are somewhat behind in the acoustics field, where adding more value in the production stages is the key to success.

A10 : We think we will be moving forward with the introduction of 128 polyphonic ring tone units, in tandem with the development schedules of mobile phone manufacturers, but we do not have a specific date at this time. We also believe that adoption by manufacturers of our new units that incorporate audio features will move forward gradually. On the other hand, we are somewhat behind schedule regarding our new image chips for the amusement LSI field.

A11 : We believe the total market will expand, but there is a possibility of competition from software. Also, Chinese manufacturers may enter the market. We think challenging conditions will continue.

A12 : Fixed costs, other than personnel expenditures, did not increase significantly in FY2005. In FY2006, we are not expecting much increase, either. In addition, we expect personnel costs to fall markedly as the number of personnel and the cost of retirement benefits decline.

A13 : During FY2005, 40 polyphonic tone units accounted for more than 50% and 64 polyphonic tone units accounted for about 30%. Going forward, we want to expand shipments of higher value-added products gradually, mainly to customers in Japan and Korea.

A14 : Because we reached the goal of our medium-term plan of eliminating interest-bearing debt two years ahead of schedule, we decided to increase cash dividends by ¥5 per share. Our basic policy is to pay stable dividends. At present, we have not set a target dividend payout ratio, but we want to maintain dividends at a stable level in the medium term, taking into account our growth and cash flow.

A15 : There are two principal reasons. First, the decline in net income resulting from the drop in profitability of semiconductor business is the same for both consolidated and parent company accounts, but the overall impact is greater for the parent company. In addition, the effect of the production adjustments in the musical instrument and AV/IT segments will particularly influence the parent company accounts.

A16 : If sales remain level for the year, profits will decline. We do not think we can necessarily say that because products with low margins will be the ones below target, that profits will be unchanged.

A17 : We must move steadily forward to improve the profitability of our manufacturing operations. This is especially important in the acoustics area. In addition, we are focusing on improving profitability in Japan. In our contents business activities, looking ahead, we want to generate a range of proposals for products and services that incorporate media, the Internet, and other fields.

A18 : Yamaha products have won a good reputation for the quality of their playability. Thus far, we have focused on this quality, but we also think design is an important attribute. Our approach will not be to sell everything by lowering prices. We will not develop products that have an adverse impact on the YAMAHA brand.

A19 : We do not think that sales performance in the April to June quarter will be worse than in the January to March quarter.