Q&As on the Presentation of Financial Statements for FY2007.3

A1 : In FY2007.3, sales were below the previous year. Factors accounting for this include the burden of inventories in the distribution chain at the beginning of the fiscal year, which led to a slowdown in shipments; the delayed recovery of market conditions, principally for pianos; and lackluster conditions in the electronic piano market. In FY2008.3, orders received at the U.S. musical instruments trade show in January 2007 were fairly good and the outlook among musical instrument retailers for the year was generally positive. Therefore, we are looking for an improvement in market conditions. In addition, sales performance from February through April has been on a recovery trend.

A2 : In FY2007.3, sales of the others segment as a whole were above the previous fiscal year, but the manufacturing yields of interior wood components for installation in new automobiles deteriorated more than expected, and this hindered the segment’s performance, resulting in operating income below target. In FY2008.3, we expect sales of automobile interior wood components to decline as we standardize the production of these components and as sales of magnesium case for mobile phones, which had held firm through April, slow down somewhat going forward. Therefore, we are forecasting a decline in sales of the others segment as a whole. On the other hand as a result of an improvement in manufacturing yields, principally in interior wood components for automobiles, we are looking for an increase in income over the previous fiscal year.

A3 : When we decide whether to continue or to exit a business, we use two criteria. Our recent decision on restructuring of certain operations was based on these criteria. First, when a business reports a loss for two consecutive periods, we put the issue of whether or not to continue the business on the table. We then ask whether the business in question is a core activity and whether there are technological or skill-related synergies with core businesses. When our electronic metal products business began operations, it engaged in making metal frames for pianos and cylinders used in engines for Yamaha Motor Co., Ltd., and thus it had synergies with other businesses. However, at present conditions have changed. Moreover, we are now entering a new “leadless” era when demand for lead frames will weaken, but growth is expected in the market for connectors used in automobiles. Our decision this time was to develop this business together with Dowa Holding Co., Ltd., a company strong in this area, and thus take the development of the business to the next level.

A4 : Among the two resort facilities we retained, “Tsumagoi” has a concert venue and facilities for music instruction and training Yamaha music school teachers. We therefore saw merits in continuing to operate “Tsumagoi” because of synergies with our musical instrument and music entertainment businesses. In addition, we decided to retain the other facility, “Katsuragi Golf Club-Kitanomaru,” because it is a highly regarded and established recreation spot in Shizuoka, where head office locates.

A5 : Inventories rose slightly as we prepared to meet sales requirements in the AV product business in April and May, and, in the musical instruments business, moved production schedules forward accompanying the closure of our U.S. plant. Overall, inventories were at aproximately the levels we had intended.

A6 : As a result of the sale of recreation facilities, Yamaha on a non-consolidated basis reported a loss carried forward for tax reporting purposes. As a result of the loss carried forward, Yamaha was not able to take certain deductions for tax purposes and could not report ¥3.4 billion in deferred tax assets related to unrealized gains on inventory assets.

A7 : Since Yamaha will still have losses carried forward in FY2009.3, the impact of the loss carryforward will continue for three years, through FY2010.3.

A8 : Demand for digital amplifiers for use in mobile phones, flat-panel TVs, and other applications is expanding, leading to growth in sales. In addition, many of our leading customers have indicated they are conducting technical evaluations of our silicon microphones aimed at installing these in their products. They are moving forward actively with the work needed to confirm the performance and reliability of these silicon microphones.

A9 : We believe we will continue to report losses in the recreation business in FY2008.3 because of the costs related to the transfer of the facilities and expenses incurred by administrative staff division. However, the profitability of the remaining two facilities is beginning to get on track, and we are working to report profits in FY2009.3 and subsequent periods.

A10 : Accompanying changes in the system for depreciation, we will report an increase of ¥2.3 billion in depreciation for FY2008.3. In the musical instruments segment, the increase in depreciation will amount to ¥1.1 billion (with increases in other segments of ¥0.2 billion for AV/IT, ¥0.7 billion for semiconductors, ¥0.2 billion for lifestyle-related products, and ¥0.1 billion for others). Therefore, the actual increase in income, excluding the foreign exchange gains, will be ¥3.1 billion.

A11 : The principal growth items are pianos, portable keyboards, professional audio equipment, and wind instruments. The expansion in sales is contributing to growth in income.

A12 : In addition to reductions in the cost of sales, changes in the product sales mix are contributing to the decline in losses. We intend to continue to make improvements in profitability going forward.

A13 : First, profitability in the automobile interior wood components business did not improve as planned. Another factor was the change in method of depreciation of metallic molds equipment.

A14 : We would like to see somewhat more improvement in income in the musical instruments segment, but we also want to allocate our expenses aggressively to up-front investments that will contribute to sales expansion later on. Under our plans for FY2008.3, gross profit is expected to rise ¥4.3 billion and selling, general and administration expenses to increase ¥2.3 billion.

A15 : The new medium-term business plan that we announced recently was based on a large-scale concept that Shuji Ito, provided as the president at that time. The detailed plan was prepared by the three managing directors, Mitsuru Umemura, Hirokazu Kato, and Tsuneo Kuroe, under the leadership of incoming president Mitsuru Umemura. Therefore M. Umemura, as the new president, will have primary responsibility for the new medium-term business plan and S. Ito will provide his support. As we work to make way for the next generation of top management, it will be essential to have clear lines of leadership and authority. Accordingly, under the new management structure, only M. Umemura will hold the position of representative director.