Analyst and Investor Briefing on the First Quarter of on the Fiscal Year Ending March 31, 2005 (April 1, 2004, to June 30, 2004) August 2, 2004 YAMAHA CORPORATION Overview of Performance in the First Quarter ¾Fiscal 2005 is the first year of Yamaha’s new medium-term management plan. In 1Q fiscal 2005, although net sales were slightly lower than projected, operating income was higher than expected, and the Company made a good start overall. T T T T Net sales, while ¥1.4 billion lower than initially projected, were ¥6.8 billion higher than in 1Q fiscal 2004. Sales of musical instruments, AV/IT products, and electronic equipment and metal products increased compared with 1Q fiscal 2004. However, sales in the lifestyle-related products and recreation businesses declined. Due to increased income from core musical instruments, AV/IT products, and electronic equipment and metal products, operating income compared with the initial projection and 1Q fiscal 2004 increased ¥3.1 billion and ¥3.2 billion, respectively. Due to the strong euro, Yamaha recorded ¥0.7 billion in gain on foreign exchange. The Company recorded an impairment loss of ¥32.5 billion owing to the accelerated application of impairment accounting standards for idle real estate assets and fixed assets in the recreation business In 1Q fiscal 2005, net loss amounted to ¥12.6 billion T At the end of 1Q fiscal 2005, inventory levels were ¥3.1 billion above the initial projection, although ¥9.2 billion below the 1Q fiscal 2004 level. Increased musical instrument inventories were a major factor. T Actual interest-bearing debt compared with 1Q fiscal 2004 and the initial projection decreased ¥27.7 billion and ¥8.1 billion, respectively. Performance in the First Quarter ¾Sales and income increased compared with 1Q fiscal 2004 ¾Lower sales and higher income than initially projected on May 7, 2004 (Billions of Yen) Net Sales Operating Income (Operating Income Ratio) Recurring Profit (Recurring Profit Ratio) Net Income (Net Income Ratio) Equity Method Income Change from same period of previous year Change from Initial Initial Projections projections FY2004 1Q FY2005 126.1 132.9 +5.4% 134.3 11.8 15.0 +27.1% 11.9 +26.1% 13.4 17.2 +28.4% 13.6 +26.5% 12.6 (12.6) (19.2) 2.4 2.8 2.1 118 135 119 124 110 132 109 132 110 127 110 127 1Q Currency Exchange Rate Net Sales Operating Income US$ EUR US$ EUR (1.0)% Net Sales by Business Segment in the First Quarter Billions of Yen Recreation & Others Electronic Equipment and Metal Products Lifestyle-Related Products 11.1 16.9 11.3 10.1 10.0 10.1 21.2 21.2 20.2 21.2 10.4 10.4 11.5 10.4 17.7 17.5 74.9 73.1 AV/IT 17.7 Musical Instruments 72.6 73.6 10.1 14.2 18.1 75.2 After translation adjustment = ¥(2.1) bn. Compared with Same Period of the Previous Year Figures in parentheses represent changes from same period of the previous year (Initial Projections After translation adjustment = ¥0.7 bn. Compared with the Initial Projections Figures in parentheses represent deviations from the initial projections Breakdown of Operating Income/Loss in the First Quarter Billions of Yen Gain on Foreign Exchange Decrease inIncrease in Manufactur- SG&A Increase ing Costs Expenses in Gross Profit FY2004 1Q Operating Income FY2005 1Q Operating Income Operating Income by Business Segment in the First Quarter Billions of Yen FY2004 FY2005 1Q) (1Q Increase/ (Decrease) Actual Currency Exchange Increase/ Impact (Decrease) Initial (May 7) Projections Musical Instruments 5.5 6.6 +1.1 +0.2 + 0.9 5.1 AV/IT 0.2 +1.6 +0.5 +1.1 0.4 Lifestyle-Related Products 0.4 1.8 (0.1) 0.5 Others 6.1 (0.4) 0 7.7 (0.8) (0.2) +1.6 (0.4) (0.2) (0.5) +1.6 TOTAL 11.8 15.0 +3.2 Electronic Equipment and Metal Products Recreation (0.5) 6.5 (0.7) (0.4) (0.2) +0.7 +2.5 0.1 11.9 *Operating income was ¥3.1 billion more than projected on May 7th. Of that, the influence of exchange gains in the first quarter was ¥0.5 billion (¥0.4 billion for musical instruments and ¥0.1 billion for AV/IT products) Thus, in real terms, operating income was ¥2.6 billion more than projected Forecasts of Business Performance in FY2005 (Full Year) ¾Consistent with the initial forecast, 2Q-4Q exchange rates are assumed to be $US = ¥110 and Euro = ¥127 Billions of Yen Interim Period FY2005 Initial Projections FY2005 (Projections) Full Year FY2004 (Previous Year) FY2005 (Initial Projections) FY2005 (Projections) FY2004 (Previous Year) Net Sales 273.0 273.5 266.2 553.0 554.5 539.5 Operating Income 23.0 25.5 26.4 37.5 45.1 (8.4%) (9.3%) (9.9%) (6.8%) 39.0 (7.0%) (8.4%) 25.5 28.0 29.7 41.0 (9.3%) (10.2%) (7.2%) (7.4%) 51.0 (Recurring Profit Ratio) (11.2%) 40.0 (9.5%) Net Income (10.0) (5.0) () 26.2 19.5 43.5 (9.8%) 16.0 (2.9%) (3.5%) (8.1%) 4.2 4.2 5.2 7.0 7.0 10.4 FY2004 FY2005 (Operating Income Ratio) Recurring Profit (Net Income Ratio) Equity Method Income Currency Exchange Rate () FY2005 FY2005 Initial Projections Projections (Previous Year FY2005 Initial Projections Projections FY2004 (Previous Year Net Sales US$ EUR 110 127 110 130 118 133 110 127 110 128 113 133 Operating Income US$ EUR 110 127 110 130 119 128 110 127 110 128 114 129 FY2005 (Full Year) Breakdown of Operating Income Billions of Yen Decrease in Manufacturing Costs 0.6 Decrease in Gross Profit Increase in SG&A Expenses (0.3) (1.3) Loss on Foreign Exchange (5.1) 45.1 39.0 FY2004 Operating Income FY2005 Operating Income (Projection) Musical Instruments 1Q Overview FY2005 Projections and Priority Policies • In fiscal 2005, sales of Electone™ and electronic instruments are expected to increase. Revised projections are ¥2.5 billion higher, at ¥304.0 billion • Increased sales and income compared with 1Q fiscal 2004 • Sales increased 3.6% in real terms compared with 1Q fiscal 2004 (Sales decreased 2.4% compared with the initial projection) • Sales were lower than expected in U.S. market; piano sales were particularly sluggish Sales in all other countries, including China, were consistent with the initial projection • Assured introduction of new products and expectation of expanded sales Disklavier Mark IV New CVP Series, PM 5D • The success of “STAGEA™” resulted in a doubling of Electone™ sales compared with 1Q fiscal 2004 • Recovery of U.S. market and continued stable growth in the European market • Inventories at the end of 1Q fiscal 2005 were higher than initially projected • In Japan, continue pursuing strategies for music school business and take measures to promote Electone™ sales beyond the second year • In the content business, “chaku-uta” sold well in Japan and other content businesses are being successfully developed for Taiwan, U.S., and Australian markets • Establish foundation in the Chinese market • Accelerate reformation of manufacturing system 72.6 73.6 74.9 Music schools, etc. 23.1 23.6 22.9 YAMAHA Musical instruments 49.5 Billions of Yen 293.4 304.0 301.5 90.2 88.7 88.8 203.2 215.3 212.7 Billions of Yen Sales 5.5 FY2004 50.0 6.6 FY2005 52.0 5.1 FY2005 Initial Projections Operating Income 10.5 FY2004 15.5 14.0 FY2005 FY2005 Projections Initial Projections AV/IT 1Q Overview FY2005 Projections and Priority Policies • In real terms, 1Q fiscal 2005 sales were consistent with the initial projections and 27.5% higher than in 1Q fiscal 2004. 1Q fiscal 2004 sales were sluggish due to the delay of product development • In fiscal 2005, sales of ¥86.0 billion are projected for fiscal 2005 (no change from initial projections) • Home theater business will continue to grow • Strong sales of AV products in North America Sales of on-line karaoke and routers remained favorable Develop products for use with flat-screen TVs in response to evolving demand Form alliances with other manufacturers and brands • Operating income increased dramatically compared with the initial projection and 1Q fiscal 2004 owing to a gain on foreign currency exchange and reduced costs Increase sales of high- and medium-end AV receivers and expand line of inexpensive system products Establish sales networks in China and South Korea • Inventories at the end of 1Q fiscal 2005 were consistent with the initial projection 14.2 Routers AV 17.7 17.7 1.7 1.8 16.0 15.9 • Strengthen router business Develop products compatible with VPN (Virtual Private Network) Billions of Yen 78.3 6.4 86.0 86.0 8.5 8.4 77.5 77.6 Billions of Yen 1.1 13.1 Sales 71.9 1.8 0.4 0.2 FY2004 FY2005 FY2005 Initial Projections 4.4 Operating Income FY2004 4.5 4.0 F2005 Projections FY2005 Initial Projections Electronic Equipment and Metal Products 1Q Overview FY2005 Projections • As expected, in 1Q fiscal 2005, sales of semiconductors and electronic metals were strong • The current outlook for sales for fiscal 2005 is consistent with the initial projection • Inventory adjustments of LSI sound chips for mobile phones will take place in 2Q fiscal 2005 in China • Sales of LSI sound chips for mobile phones continued to increase in China and South Korea • The market for electronic metals continued to expand, and rising bare metal prices drove up unit prices, resulting in higher than expected earnings Electronic Metals • In electronic metals, strong sales are expected due to favorable market conditions 3.3 Billions of Yen 3.7 3.6 12.9 13.8 12.8 Billions of Yen 64.0 63.7 63.2 Sales 17.5 13.3 Semiconductors 6.1 FY2004 7.7 FY2005 16.9 6.5 FY2005 Initial Projections Operating Income 30.0 FY2004 20.0 18.5 FY2005 Projections FY2005 Initial Projections Lifestyle-Related Products 1Q Overview FY2005 Projections and Priority Policies • In 1Q fiscal 2005, intensified competition caused sales to fall 7.6% compared with 1Q fiscal 2004 The segment also recorded an operating loss • Sales of mainstay system bathrooms were lower than projected despite a favorable response to new products released in February • The introduction of new kitchen products was delayed and sales remained stagnant Others 1.7 System Kitchens 4.0 3.5 5.6 5.4 Bathrooms 0.4 FY2004 1.5 (0.1) FY2005 1.6 • In fiscal 2005, sales are expected to be ¥44.0 billion, ¥2.0 billion less than originally projected. Our goal is to restore profitability despite sales declines and an increase in depreciation expenses due to capital investment • Sales are expected to improve due to the introduction of new system kitchens in autumn and additional bathroom products • Increase benefits of operational tie-up with Air Water Emoto Co., Ltd., and reinforce product development capabilities Billions of Yen 4.3 Sales 5.7 0.5 FY2005 Initial Projections Operating Income (Loss) 6.7 6.2 6.3 17.2 16.7 17.4 20.9 21.1 22.3 1.5 Billions of Yen 1.5 0.1 FY2004 FY2005 FY2005 Projections Initial Projections Recreation 1Q Overview FY2005 Projections and Priority Policies • Sales decreased due to a decline in the number of visitors to the “Kiroro” Resort • Sales and income targets have been revised downward • Sales from other facilities were in line with initial projections • Aim for improved profitability through enhanced operating efficiency and the development of policies to maintain the current number of customers • Decreased sales pushed the segment deeper into the red in 1Q fiscal 2005 • Impact of closure of “Sunza Villa” and “Kiroro” Golf Course decreased sales of approximately ¥0.2 billion compared with 1Q fiscal 2004 • In the second half of the term, improving the profitability of the “Kiroro” Resort is a major issue as it enters the busy season Billions of Yen 4.8 (0.4) FY2004 4.3 (0.8) FY2005 4.5 (0.7) FY2005 Initial Projections Sales Operating Income (Loss) Billions of Yen 20.1 (1.1) FY2004 20.0 (1.2) FY2005 Projections 20.5 ( 1.0) FY2005 Initial Projections Others 1Q Overview FY2005 Projections and Priority Policies • In 1Q fiscal 2005, sales of golf products and automobile interior wood components were even with or slightly above 1Q fiscal 2004 • Fiscal 2005 sales projection is ¥23.0 billion (no change from initial projection) • As projected, sales of magnesium parts for mobile phones declined by half • Overall, segment income decreased compared with the initial projection Billions of Yen Other Businesses of YFT 3.3 2.7 2.4 Golf Club 0.7 0.7 0.7 Automobile Interior Wood Components 2.3 2.4 2.4 0 FY2004 • Major issues are improving earning power by increasing manufacturing yields for magnesium parts used in mobile phones and reducing the cost of automobile interior wood components by using better manufacturing methods (0.2) FY2005 0.1 FY2005 Initial Projections 10.6 10.9 2.2 2.6 2.5 10.9 9.8 9.6 0.5 13.0 Sales Operating Income Billions of Yen (0.2) FY2004 0.1 FY2005 Projections FY2005 Initial Projections Inventories ¾ At the end of 1Q fiscal 2005, inventories increased compared with the initial projection. However, our goal is to shrink inventories by the end of fiscal 2005. Billions of Yen At the end of 1Q At the end of the Fiscal Year 88.5 79.3 76.2 72.1 70.4 68.1 26.0 25.0 1.2 8.6 25.4 23.5 2.2 8.4 1.4 8.2 2.1 6.4 1.7 6.4 45.1 42.2 39.6 37.5 36.5 36.5 FY2004 FY2005 FY2005 FY2004 FY2005 FY2005 (1Q) (1Q) Goods in 27.6 Process/ Materials Other Products 6.3 AV/IT Products 9.5 27.3 Musical Instruments (1Q) Initial Projections Projections Initial Projections Interest-Bearing Liabilities (Actual Balance) ¾ By the end of fiscal 2005, the actual balance of short- and long-term borrowings is expected to be ¥2.3 billion. 41.5 Billions of Yen Free Cash Flows 23.8 11.4 (2.4) (2.0) Interest-Bearing Liabilities Convertible bonds Long- and short-term borrowings, less cash and deposits Not included in above Balance of resort security deposits FY2003 (1Q-4Q) 46.0 24.3 FY2004 (1Q) FY2004 (2Q-4Q) FY2005 (2Q-4Q) (Projection 50.0 24.3 16.8 21.7 25.7 FY2003 36.8 FY2005 (1Q) 22.3 16.8 22.3 2.3 2.3 FY2004 (1Q) FY2004 FY2005 (1Q) FY2005 (Projection 36.5 30.8 29.9 27.9 Balance Sheet Summary ¾ In the 1Q of 2005, shareholder’s equity and total assets decreased due to the implementation of impairment accounting. (Billions of Yen) As of June 30, 2003 Cash and Bank Deposits Accounts and Notes Receivable Inventories Other Current Assets Fixed Assets Total Assets Accounts and Notes Payable Short-and Long-Term Borrowings Convertible Bonds Other Liabilities* Shareholders’ Equity Total Liabilities and Shareholders’ Equity 33.2 79.5 88.5 17.2 294.3 512.7 44.0 58.9 24.3 155.4 230.1 512.7 *Other liabilities include minority interests As of March 31, 2004 32.1 78.7 72.1 18.8 307.0 508.7 39.9 48.9 0 160.2 259.7 508.7 As of June 30, 2004 30.5 81.0 79.3 22.2 278.8 491.8 42.8 52.9 0 150.2 245.9 491.8 As of March 31, 2005 45.2 77.2 70.4 22.9 278.3 494.0 42.8 47.5 0 129.2 274.5 494.0 $SSHQGL[ YAMAHA Musical Instrument Sales in the Japanese Market In the 1Q of fiscal 2005, although piano sales declined due to slack demand, overall sales increased compared to 1Q fiscal 2004 thanks to the introduction of the “STAGEA™” Electone™. Electone™ sales are expected to increase through the end of fiscal 2005, resulting in increased segment sales compared with the previous fiscal year. (Billions of Yen 150 *Numbers in parentheses refer to the previous fiscal year 142.8 139.4 (98%) (1Q-3Q sales for 134.4 136.0 FY2002 and FY2003 were calculated using (96%) (101%) internal administrative figures.) Music schools, etc. 100 50 40.8 40.3 (99%) 39.7 (96%) (103%) 38.5 59.2 19.9 0 19.0 (95%) 18.1 17.6 (93%) (103%) 55.9 (94%) 56.0 Yamaha 51.7 musical (92%) (108%) instruments FY2002 FY2003 FY2004 FY2005 FY2002 FY2003 FY2004 FY2005 (Projections) 1Q Full Year YAMAHA Musical Instrument Sales in the U.S. Market In 1Q fiscal 2005, piano and electronic piano sales fell well short of expectations, reflecting inventory adjustments carried out by musical instrument retailers. Starting in 2Q fiscal 2005, sales are expected to recover due to the introduction of new player pianos and other new products. 600 563 Wholesale Amount Millions of Dollars 532 501 500 470 (106%) (106%) (107%) 400 300 200 100 93 103 96 95 (110%) (94%) (99%) 0 FY2002 FY2003 FY2004 FY2005 FY2002 FY2003 FY2004 FY2005 Projection 1Q Full Year YAMAHA Musical Instrument Sales in the German Market Consumption remained stagnant despite a partial economic recovery. Despite large shipments to dealers, retail sales were weak. Strong sales of new portable keyboards are expected. 250 Wholesale Amount Millions of EURO 190 200 194 (102%) 188 200 (106%) (97%) 150 100 45 50 45 (100%) 43 43 (97%) (99%) FY2004 FY2005 0 FY2002 FY2003 FY2002 FY2003 FY2004 FY2005 Projection 1Q Full Year YAMAHA Musical Instrument Sales in the U.K. Market Favorable piano sales were recorded thanks to price reductions and the launch of a program to sell wind instruments at schools. Retail sales of electronic instruments were sluggish but are expected to recover due to a stable supply of new products. 80 Wholesale Amount Millions of 65 63 60 (103%) 62 (102%) FY2002 FY2003 68 (104%) 40 20 11 12 11 (102%) (107%) FY2002 FY2003 FY2004 12 (101%) FY2005 0 FY2004 FY2005 Projection 1Q Full Year Scale of Global Market for Home Theater Products (Home theater systems + AV amplifiers/receivers) (Million Units) <Home theater systems > <AV amplifiers/receivers> 11.15 10.09 Others Japan 8.36 Europe 5.70 4.39 3.43 3.51 3.25 3.05 North America 2.97 Others Japan Europe North America 2001 2002 2003 2004 2005 (Projections) (Projections) 2001 2002 2003 2004 2005 (Projections) (Projections) YAMAHA’s AV Amplifier Market Share Japan AV amplifiers Home theater systems: Share of Total Sales Amount GfKJ 20% Share of Total Sales Amount GfKJ 40% 30% 10% 14 11 10 2002 2003 12 20% 31 33 2001 2002 39 36 10% 0% 0% 2001 2004 2003 (Jan-Jun) 2004 (Jan-Jun) AV receivers U.S. Share of Total Sales Amount INTELECT Home theater systems: 40% Share of Total Sales Amount INTELECT 10% 30% 20% 5% 7 5 6 7 10% 0% 0% 2001 2002 2003 2004 (Jan-May) 25 24 27 2001 2002 2003 33 2004 (Jan-May) Trends in the Global Market for Mobile Phones z z Unit sales of mobile phones will continue to increase (520 million units in 2003 600 million units in 2004) In the developed European and U.S. markets, demand for mobile-phone replacements with colored displays, camera and other highperformance functions expected to grow z Increased demand will fuel growth in the BRICs market z Despite market growth in China, retailers will make adjustments to reduce inventory levels z Nokia aims to regain lost market share by making dramatic price reductions (Million Units) 600.0 500.0 400.0 300.0 200.0 100.0 0.0 2000 2001 2002 2003 2004 (Projection) Source: Data Quest Non-Operating Income /Extraordinary Income (Loss) in the First Quarter FY2004 1Q FY2005 1Q (Initial Projections) FY2005 1Q (Billions of Yen) Non-Operating Income 2.4 Net financial income (loss) (0.1) Other (0.7) Total + 1.6 Equity method income 2.8 0.2 (0.8) + 2.2 2.1 0.4 (0.8) +1.7 ( 0.1) (32.3) (0. 7) ( 32.0) Extraordinary Income(Loss) Income from (loss on) disposal of fixed assets Other 0.1 Impairment Loss (32.5) Total + 0.1 Corporate Income Tax and Other Expenses Corporate income tax, etc. 0.7 Minority interests in 0.1 consolidated subsidiaries Total 0.8 Impairment Loss (32.0) . (32.4) (32.7) ( 2.7) 0.1 (2.6) 0.8 0.0 0.8 FY2005 Non-Operating Income /Extraordinary Income (Loss) FY2005 (Projections) FY2004 (Billions of Yen) Non-Operating Income Equity method income Net financial income(loss) Other Total Other Total 7.0 (0.4) (4.6) + 2.0 10.4 (1.0) (3.5) + 5.9 Extraordinary Income(Loss) Income from (loss on) disposal of fixed assets FY2005 (Initial Projections) (2.3) (1.2) (3.5) •Social insurance fees for previous years payable upon transition to comprehensive remuneration system (0.9) •Payment of European Commission fines (0.3) Corporate Income Tax and Other Expenses Corporate income tax, etc. 3.5 Minority interests in 0.5 consolidated subsidiaries Total 4.0 (0.7) (7.8) 7.0 (0.6) (3.9) (2.5) •Gain on return of substitutional portion of pension plan 19.5 •Gain on disposal of assets etc. 5.0 (0.5) (7.5) •Loss on impaired assets (32.5) (8.5) (8.0) 12.4 0.6 13.0 15.4 0.6 16.0 •Gain on return of substitutional portion of pension plan 19.5 •Gain on disposal of assets etc. 5.0 •Loss on impaired assets (32.0) In this report, the figures forecast for the Company’s future performance have been calculated on the basis of information currently available to YAMAHA and the YAMAHA Group. Forecasts are, therefore, subject to risks and uncertainties. Accordingly, our actual performance may differ greatly from our predictions depending on changes in our operating and economic environments, demand trends, and the value of key currencies, such as the U.S. dollar and the EURO.