Q&As on the Presentation of Financial Statements for the Third Quarter of FY2009.3, Ended December 31, 2008

A1 : During the third quarter, sales were lower than we had assumed at the time of our previous announcement. Accompanying this drop in sales, gross profit declined, but we reported a ¥600 million gain due to foreign currency factors and benefited from a reduction of ¥1.9 billion in operating costs.

Within this total, we reported operating income for the musical instrument segment of ¥8.5 billion versus the forecast announced last time of ¥6.3 billion. Gross profit declined ¥300 million as a result of the decrease in sales, but we reported a ¥700 million gain due to foreign currency factors and cut selling, general and administrative (SG&A) expenses by ¥1.8 billion.

The reduction in SG&A costs was implemented by setting guidelines for cutting all types of expenditures and gave directions for cost-cutting to all departments and Group companies. As a result of the effects of Groupwide efforts to cut costs, we are anticipating that expenses for the fourth quarter will be about ¥2.6 billion lower than our previously issued forecast.

A2 : We reduced the production of musical instruments in the third quarter by ¥700 million more than we had assumed in the previous plan, and in the fourth quarter, we are scheduling a cutback in production, principally for pianos, of ¥2.1 billion (8% against the previous plan).

In the AV equipment business, in the third quarter, production levels were virtually on schedule as we had assumed in the previous plan. In the fourth quarter, we are scheduling a cutback in production of ¥2.0 billion (31%).

Also, in the semiconductor business, we will cut production by ¥1.6 billion (30%) in the fourth quarter, and, in the automobile interior wood components and magnesium parts businesses in total, we are scheduling a cutback of ¥2.0 billion (51%).

Overall, we are planning to reduce production for the fourth quarter by ¥8.8 billion (17%), compared with the level we assumed previously.

This alone will not be sufficient to return inventories to appropriate levels, but we are anticipating a significant reduction in inventories.

In the piano business, along with cutbacks in production in China and Indonesia, we are planning to reduce production in Japan, and, between November 2008 and the end of February 2009, in Japan, we are suspending production at our grand piano plant for 23 days and at our upright piano plant for 15 days. We believe we can adjust inventories of electronic musical instruments and AV equipment relatively easily by cutting production at our plants in Indonesia, China, and Malaysia through adjustments in personnel inputs.

A3 : We are concerned about actual sales falling below our plans for the fourth quarter in North America. During the third quarter, the decline in sales expanded because dealers were financially constrained and restrained their procurement purchases and because we accepted some returns of pianos. We are expecting positive effects in the fourth quarter from the introduction of new products and have, therefore, formulated a somewhat aggressive plan.

A4 : At this time, our judgment is that inventories held by retail stores are not rising. In North America, dealers are under financial constraints and are cautious about their inventory levels. Under these circumstances, they are not in a position to hold excessive levels of inventories.

A5 : In addition to the effects of the cost reductions now in progress, we believe that the positive effects of the decline in raw material prices and our negotiations to lower costs will emerge during the coming fiscal year. In addition, we will pass previous cost increases on to product prices, principally in the musical instruments business, to absorb the negative effects of the strengthening of the yen.

A6 : Yes, that is correct. We do not have a shift-work system at our piano plants. We can cut production by stopping the production lines.

A7 : This fiscal year, as we approach the end of the year, we will cut inventories, but it will be difficult to lower the level of inventories below that at the end of the previous fiscal year.

Next fiscal year, we believe we will have to lower the annual volume of production somewhat. Instead of stopping production lines, as much as possible, we will maintain an even level of production by reducing the level of daily unit output.

A8 : We have implemented prices increases for some musical instruments, particularly acoustic instruments. At present, there have not been any negative reactions from the market, and, going forward, we plan to pass on increases in our costs in a timely way.

A9 : We are assuming it will be in the usual range from 30% to 40%.

A10 : The Korean won, Australian dollar, Canadian dollar, and the currencies of certain other countries have weakened against the yen, and the impact of these currency movements is becoming apparent. We have taken account of these trends in our plan for the period.

A11 : The structure of demand in the United States differs from that of Europe. The ratio of high-priced grand pianos is high in the United States and is correlated with the number of housing starts. In Europe, upright pianos account for about 80% of pianos sold. The situation differs from country to country in Europe, but in Germany, which is a major market in the region, demand remains firm. In addition, pianos made in Indonesia are showing robust sales.

On the other hand, market conditions in Italy, Spain, Greece, and certain other countries are becoming more difficult. There are also signs of a slight slowdown in demand in Eastern Europe. At present, there is a trend toward an overall slowdown in sales. We believe we will have to keep close watch on trends going forward.