Q&As on the Presentation of Performance Results for the Fiscal Year Ended March 31, 2009 (FY2009.3)

A1 : We think that the price increases will be accepted relatively easily for those products where we have a high market share. However, for those items that have become commoditized, such as digital pianos, portable keyboards, and certain other products, increasing our prices will lead to a decline in the number of units sold.

Therefore, when we raise prices, we are paying close attention to such factors as the features and markets for the products in question, competitive conditions, and other circumstances and are making decisions on whether to raise prices and the margins of increase on a product-by-product basis.

However, even if the unit volume of sales declines somewhat, we believe the important point is to maintain the level of sales in monetary terms by raising prices.

A2 : The principal reasons are, first, that sales of the AV/IT segment are seasonal to begin with, and, second, we are scheduling a significant number of new product launches in the third quarter of FY2010.3.

A3 : In the semiconductor business, although sales of LSI sound chips for mobile phones are continuing to decline, we believe that sales of digital amplifiers, which incorporate semiconductors, will rise. Through the end of the first half of the FY2010.3, inventories of mobile phones held in retail stores will adjust and the level of Yamaha’s LSI sound chip inventories will also decline. In the second half of the fiscal year, we are, therefore, expecting an increase in sales.

Accordingly, during the second half of the fiscal year, the utilization rate of plant facilities will increase, thus leading to an increase in income.

A4 : We have put our businesses that are experiencing difficulty in generating income “on the table,” so to speak, and are discussing what to do with them going forward. Within the context of these discussions, we have made a number of decisions, as we announced on March 19, and, looking ahead, we will continue to discuss the directions we will be moving in these businesses.

In our next medium-term management plan also, we will not make any changes in our policy directions set forth under our current “YGP2010” management plan and will, therefore, continue to focus on growth business within our “Sound Company” domain, which includes mainly sound- and music-related businesses.

However, we would like to pursue activities in peripheral domains, where some additional “buds” and promising business areas lie.

A5 : In FY2009.3, the piano market in North America is expected to have posted a decline of 14% compared with the previous fiscal year, and the outlook we are assuming in FY2010.3 is for a leveling off of sales, at best.

During FY2009.3, demand for grand pianos experienced a major decline, and Yamaha’s sales also declined, but we are expecting recovery during FY2010.3. However, we believe that total sales, including upright pianos, will be at about the level in FY2009.3, at best.

In Europe, although conditions held firm in the principal market of Germany, overall sales are expected to have been relatively weak, reflecting economic conditions. In China, we are forecasting continuing growth.

A6 : To respond to the sudden decline in sales in FY2009.3, we reduced output by suspending work on our production lines from December 2008 through February 2009. In FY2010.3, we will adjust inventories by reducing daily production.

A7 : We have not made any changes in the overall framework for integration, but plan to move the timing for integration forward from the previously scheduled summer of 2010. However, since unit sales of pianos manufactured in Japan are declining, we believe it will be necessary to make adjustments in the number of personnel compared with the initial plans.

A8 : We think there is room to further increase our market share in the PA equipment area going forward. We are aiming for growth in sales by combining speakers and analog amplifiers of other companies with Yamaha’s digital mixers to take full advantage of our digital network capabilities and strengths.

Therefore, there are also possibilities for M&A deals. The acquisition of NEXO is a specific example.

A9 : The increase in income due to price rises during the January-March quarter of FY2009.3 was ¥1.6 billion, compared with the same quarter of the previous fiscal year. Since this price increase will have a positive impact throughout FY2010.3, this implies a plus impact of about ¥6.5 billion on income for the full year. In addition, if we include the effects of price increases made in April 2009 and thereafter, we are anticipating a rise in income of ¥8.8 billion.

A10 : We are expecting an increase in sales of musical instruments in FY2010.3 of ¥10.8 billion in comparison with FY2009.3, after excluding any effects of foreign currency fluctuations. Of this total gain in sales, ¥5.1 billion will be due to the consolidation of additional subsidiaries. Therefore, the real gain is expected to be ¥5.7 billion. However, this latter figure takes account of ¥8.8 billion due to the effect of price increases. Therefore, on a unit sales basis, we are looking for a decline of ¥3.1 billion. In addition, we are planning to make substantial cutbacks in inventories and are planning to implement reductions in production levels. As a result, we are anticipating a ¥6.7 billion decrease in income.

A11 : During the first, second, and third quarters, we have to take account of foreign currency factors as well as inventory adjustment; so, we have adopted a conservative stance in our planning. On the other hand, in the fourth quarter, we are factoring in declines in raw material prices and higher production levels than in FY2009.3, and these calculations result in higher profit plans.

A12 : In the near term, our objective is to avoid reporting losses for two consecutive fiscal years. Accordingly, we have put our unprofitable businesses “on the table” for review as mentioned previously.

The musical instruments businesses are basically niche markets, and we believe they have the potential of generating high margins.

We want to aim for high, double-digit operating income margins on sales in the musical instrument business in the medium term, but in view of the current business environment, we would like to work to steadily increase income.

A13 : One of our judgment criteria is whether the businesses in question can offer products and services that only Yamaha offers and is capable of offering. Even in our recreation and golf products businesses, provided these activities contribute to building the Yamaha brand, we believe they will be positively evaluated by the market.

Another judgment criterion is whether the businesses can generate profits. In businesses where turning a profit is difficult, we will take appropriate action. We make our judgments based on these two perspectives.

A14 : The total of ¥18.6 billion in asset impairment losses was broken down as follows: Impairment losses on securities and noncurrent assets (property, plant and equipment) amounting to ¥15.3 billion (shown in the consolidated statements of income as “impairment losses”) and impairment losses on capital investment in unconsolidated subsidiaries and affiliates of ¥3.3 billion (shown in the consolidated statements of income as “loss on valuation of capital investment in subsidiaries and affiliates.”

Included among impairment losses on securities and noncurrent assets (property, plant and equipment) were losses of ¥3.0 billion on the value of land (which is not a depreciable asset) and losses of ¥3.3 billion on capital investment in unconsolidated subsidiaries and affiliates, neither of which will contribute to improvement in profitability from FY2009.3 onward. Therefore, we view the positive impact on profitability in FY2010.3 as ¥3.2 billion, compared with the difference of ¥12.3 billion.

A15 : A fluctuation of ¥1 in the yen/U.S. dollar exchange rate causes a change of ¥0.79 billion in sales, and a fluctuation of ¥1 in the yen/euro exchange rate results in a change of ¥0.48 billion. At the operating income level, a ¥1 fluctuation in the yen/euro exchange rate causes a change of ¥0.37 billion, but fluctuations in the yen/U.S. dollar rate are virtually neutral.

We believe the best way to deal with foreign currency fluctuations is to develop products that are cost-competitive.

A16 : Yamaha’s conferencing systems have superior echo-cancelling features and sound quality in comparison with those previously offered on the market, but it is difficult to expand sales through such functionality alone. In view of these circumstances, Yamaha will seek not only to appeal to customers through sound quality but also by proposing file- and image-handling capabilities, while focusing on the Japanese and Chinese markets.