Presentation of Interim Financial Statements for Fiscal 2003 November 18, 2002 YAMAHA CORPORATION Performance Outline (Billions of Yen) First Half of FY2002 First Half of FY2003 248.7 7.7 253.7 13.1 3.1% 5.2% 7.5 14.2 3.0% 5.6% 7.2 10.0 2.9% 4.0% EPS (Yen) 35.0 ROE (%) Net Sales Operating Income Operating Income Ratio (%) Recurring Profit Recurring Profit Ratio (%) Net Income Net Income Ratio (%) Dividends per Share (Yen) Increase/ (Decrease) Initial Projection (announced on Sept. 19, 2002) 5.0 255.0 5.4 12.0 6.7 12.0 2.8 8.5 48.9 — 41.2 3.7 4.9 — — 4.00 5.00 — 4.00 2 Currency Exchange Rate Net Sales US$ EUR Others Total Profit US$ EUR Others Total (Billions of Yen) First Half of FY2002 First Half of FY2003 ¥122 ¥108 ¥123 ¥117 + ¥0.4 + ¥2.1 + ¥1.2 + ¥3.7 ¥122 ¥106 ¥122 ¥115 + ¥0.1 + ¥2.4 + ¥0.3 + ¥2.8 Impact 3 Net Sales by Business Segment (Billions of Yen) 248.7 253.7 (+2.0 %) 250.0 (+0.5%) Recreation and Others Electronic Equipment and Metal Products Lifestyle-Related Products 20.4 18.4 23.8 (+1.0%) (+35.3%) (-0.8%) AV/IT 41.5 20.6 24.9 23.6 38.5 (-7.2%) 20.6 24.9 23.6 37.4 (-9.9%) 144.6 146.2 (+1.1%) 143.5 (-0.8%) First Half of FY2002 First Half of FY2003 Musical Instruments First Half of FY2003 After translation adjustments * Figures in parentheses represent changes from the previous period. 4 Breakdown of Operating Income/Loss Decrease in Manufacturing Costs Increase in Net Sales [+1.3] Gain on Foreign Exchange 1.0 2.7 (Billions of Yen) 0.4 (1.5) Decrease in SG&A Expenses Pension Obligations 2.8 13.1 7.7 Operating Income for the First Half of FY2002 Operating Income for the First Half of FY2003 5 Operating Income by Business Segment (Billions of Yen) Actual First Half First Half Increase/ Currency Exchange Increase/ (Decrease) of FY2002 of FY2003 Impact (Decrease) Musical Instruments 3.8 6.0 2.2 1.9 0.3 AV/IT 1.2 1.0 (0.2) 0.9 (1.1) Lifestyle-Related Products 1.0 0.5 (0.5) (0.5) Electronic Equipment and Metal Products 2.6 5.9 3.3 3.3 Recreation (0.8) (0.8) 0.0 0.0 Others (0.1) 0.5 0.6 0.6 TOTAL 7.7 13.1 5.4 2.8 2.6 6 Financial Summary for the Interim Period Ended September 30, 2002 - Net sales and operating income increased compared with the previous interim term. (1) Improved profitability in musical instruments business a) Raised operating income to net sales while making steady progress in reducing inventories. First Half of FY2002 2.6% First Half of FY2003 4.1% b) Net sales increased in the U.S. and European musical instrument markets, offsetting decreases in Japan and Asian-Pacific region. (2) Sales and operating income for the semiconductor business, mainly sound chips for mobile phones, increased substantially compared with previous interim term. - Inventories decreased ¥13.8 billion compared with the previous interim term. First Half of FY2002 ¥104.5 billion First Half of FY2003 ¥90.7 billion 7 <Musical Instruments> Improvements in Profitability Operating Income Operating Income to Net Sales Inventories (Finished Products) 4.1 (%) Inventories Turnover (Months) 2.23 1.91 2.6 (Billions of Yen) Operating Income 6.0 Inventories (Billions of Yen) 53.7 46.6 3.8 First Half of FY2002 First Half of FY2003 First Half of FY2002 First Half of FY2003 8 <Semiconductors> Increase in Net Sales and Operating Income Net Sales Operating Income (Billions of Yen) 130% 180% First Half of FY2002 First Half of FY2003 First Half of FY2002 First Half of FY2003 9 Progress in Reduction of Inventories 2.52 Months 2.20 Inventories at the end of the Term Average Net Sales per Month 92.2 2.14 104.5 29.6 90.7 (Billions of Yen) 29.1 5.2 26.8 Goods in Process/ Materials 7.9 11.1 16.0 4.8 12.5 Other Products 44.1 First Half of FY2001 53.7 First Half of FY2002 46.6 First Half of FY2003 AV/IT Products Musical Instruments 10 Operating Environment in the Second Half of FY2003 Musical Instruments - Continuing stagnation in Japanese market - Uncertainties regarding future U.S. economy at year-end - Growth in Chinese market expected AV/IT - Competition in home theater market should increase - Change in CD-R/RW market structure Lifestyle-Related Products - Further decline in the number of owner-occupied housing starts Semiconductors - Mobile phones with polyphony sound chips becoming standard in and outside Japan Electronic Metals - Rapid recovery of electronic metals market will lead to adjustment period toward year-end Recreation - Continuing slide in prices in resort market 11 Forecasts of Results for FY2003 (Billions of Yen) FY2002 Results FY2003 Forecasts Increase/ (Decrease) Ratio 1st Half 2nd Half Full Year 1st Half 2nd Half Full Year 248.7 255.7 253.7 276.3 Operating Income 7.7 3.3 504.4 11.0 13.1 11.4 530.0 24.5 Recurring Profit 7.5 0.1 14.2 10.8 Net Income 7.2 (17.5) [(2.0)%] 10.0 8.5 [3.5%] — EPS (Yen) — — (49.7) — — 89.7 — ROE (%) — — (5.2) — — 8.9 — 4.00 4.00 8.00 5.00 5.00 10.00 — Net Sales Dividends per Share (Yen) [2.1%] 7.6 [1.5%] (10.3) [4.6%] 25.0 [4.7%] 18.5 5.1% 122.7% 228.9% 12 Currency Exchange Rate Net Net Sales Sales US$ EUR Others FY2002 Results FY2003 Forecasts 1st Half 2nd Half Full Year 1st Half 2nd Half Full Year ¥122 ¥128 ¥125 ¥123 ¥120 ¥121 - ¥2.8 ¥108 ¥113 ¥110 ¥117 ¥115 ¥116 + ¥2.6 Impact + ¥0.8 — Total Profit Profit (Billions of Yen) + ¥0.6 US$ ¥122 ¥127 ¥124 ¥122 ¥120 ¥121 + ¥0.1 EUR ¥106 ¥108 ¥107 ¥115 ¥115 ¥115 + ¥3.7 Others Total — + ¥0.4 + ¥4.2 13 Forecasts of Net Sales by Business Segment (Billions of Yen) 504.4 Recreation and Others Electronic Equipment and Metal Products Lifestyle-Related Products AV/IT Musical Instruments 530.0 (+5.1%) (+4.8%) 529.4 (+5.0%) 40.0 36.6 45.7 41.9 52.7 46.6 (+44.0%) (+2.0%) 41.9 52.7 46.6 95.2 91.3 (-4.1%) 91.1 (-4.3%) 286.9 297.5 (+3.7%) 297.1 (+3.6%) FY2002 FY2003 (Forecast) FY2003 After translation adjustments * Figures in parentheses represent changes from the previous period. 14 Forecasts of Breakdown of Operating Income/Loss Decrease in Manufacturing Costs (Billions of Yen) Pension Obligations (3.0) 9.1 Gain on Foreign Exchange Increase in Sales 3.2 24.5 4.2 11.0 Operating Income for FY2002 Operating Income for FY2003 15 Forecasts of Operating Income by Business Segment (Billions of Yen) FY2002 Results FY2003 Forecasts Currency Actual Increase/ Exchange Increase/ (Decrease) Impact (Decrease) Musical Instruments 4.7 9.8 5.1 2.5 2.6 AV/IT 3.0 3.5 0.5 1.7 (1.2) Lifestyle-Related Products 1.0 0.9 (0.1) (0.1) Electronic Equipment and Metal Products 4.4 10.7 6.3 6.3 Recreation (1.7) (0.8) 0.9 0.9 Others (0.4) 0.4 0.8 0.8 TOTAL 11.0 24.5 13.5 4.2 9.3 16 Inventories 2.26 Months 2.01 1.76 1.81 Inventories at the end of the Term Average Net Sales per Month 77.4 27.3 4.1 9.1 36.9 FY2000 97.7 (Billions of Yen) 84.3 33.8 27.9 6.5 12.9 3.7 8.6 80.0 29.7 4.8 6.9 44.5 44.1 38.6 FY2001 FY2002 FY2003 Goods in Process/ Materials Other Products AV/IT Products Musical Instruments (Forecast) 17 Free Cash Flow (Billions of Yen) 23.4 18.6 5.5 FY2001 FY2000 FY2002 FY2003 (Forecast) (14.5) 18 Interest-Bearing Liabilities Interest-Bearing Liabilities (Billions of Yen) 70.4 62.7 Employee Savings 8.3 Convertible Bonds 24.3 Long-Term Debt (Excluding Cash and Deposits 30.1 FY2000 24.3 (54.4) 46.1 FY2001 55.1 52.9 24.3 24.3 30.8 28.6 FY2002 FY2003 (Forecast) 38.1 36.9 Resort Deposits 41.1 40.3 19 Priority Policies for the Second Half of FY2003 (1) Enhance profitability in Core Business segment and implement measures for future growth Musical Instruments - Structure operating bases in promising Chinese market - Restore Japanese market by developing adult-oriented business - Cultivate music production market - Make arrangements for overseas development of ringer melody distribution service AV/IT - Further execute ‘#1 in home theaters’ strategy and enhance profitability - Prepare for revitalization of IT business - Prepare for smooth operation start in the Chinese manufacturing base Semiconductors - Expand mobile phone sound chip business 20 Priority Policies for the Second Half of FY2003 (2) Enhance profitability in Lifestyle-Related and Leisure segment Secure stable growth and enhance profitability in Electronic Parts and Materials Business segment using our innovative technologies - Accelerate growth and enhance profitability in Mg-molded parts business - Improve manufacturing output of invar materials Establish compliance management Continue aggressive implementation of environmental initiatives 21 Chinese Market Policies Promote unified marketing system through the newly established holding company Yamaha Music & Electronics (China) Co., Ltd. Yamaha Music & Electronics (China) Co., Ltd. Beijing Tianjin Trends in Market for Musical Instruments in China (Billions of Yen) Operation begins in April 2003 100 66 60 53 Shanghai Xiaoshan Guangzhou YAMAHA’s Share Sales base Manufacturing base 20% 11% 11% 12% 2000 2001 2002 2005 22 Stimulate Japanese Market Targeting Adults ~ Developing market targeting adults in response to decline in younger students ~ Expand business base of music schools for adults < Three-year plan > Number of Students (Thousands) - Increase number of schools for adults only currently 52 100 - Increase number of adult students - Popular music schools - Programs for adults only (Piano, Electronic keyboard) - Music schools for adults 170 96 Double the number of students First Half of FY2003 In three years (Plan) Support adults’ musical activities by providing places where they can practice and perform music Develop musical instruments especially for adults 23 Cultivate Music Production Market Net Sales (Billions of Yen) Synthesizers PAs 24.3 Recent introduction of new products 31.5 < Digital Mixers, etc. > 27.4 26.2 AW16G AW2816 AW4416 PM1D DM2000 2000 2001 < Synthesizers > FY2000 FY2001 FY2002 FY2003 (Forecast) O2R96 2002 Motif S-90 Strengthen sales organization in U.S. and Europe U.S. Europe - Commercial Audio System Division commenced operations with double the number of staff (April 2002) - New organization in preparation 24 Aggressive Development of Overseas Ringer Melody Distribution Service No. of Subscribers for Ringer Melody Distribution Service Priority Policies Japan: Promote development of unique and differentiated products in content business (Music Box Site, Otohon Site) Overseas: Expand number of contracts with communication service companies (Thousands) 200 Japan Overseas 100 100 100 Overseas Development China: Taiwan: e-Dongcity TCC, KGT, TAT, CHT Hong Kong: Hutchison Spain: Germany: Holland: Bergium: 3,700 50 Markets we have entered and their communication service companies 3,400 Telefonica E-Plus KPN BASE Markets under development Singapore, France, Italy, England, U.S.A. 3,250 2,900 900 1,600 As of Sept. As of Sept. As of Sept. 30, 2000 30, 2001 30, 2002 As of Mar. As of Mar. As of Mar. 31, 2003 31, 2001 31, 2002 (Forecast) 25 Promoting ‘#1 in Home Theaters’ Strategy - Expand market boundaries by developing new distribution channels (visual distribution channel, hyper/super channel) in response to new demands - Retrieve top share in medium/high-class (over $700) AV receivers and amplifiers > Market share in U.S.: currently 31% target 35% - Continue promoting visual products > To establish Yamaha’s brand in video projectors, double exhibition areas to 800 stores - Expand sales network in China > Yamaha Electronics (Suzhou) Co., Ltd., starts operation in March 2003 > Build sales network in eastern area Net Sales 37.5 30.2 23.3 43.6 40.5 (Billions of Yen) 33.1 2nd Half 1st Half FY2001 FY2002 FY2003 (Forecast) 26 Preparation for Revitalization of IT Business CDR-RW - Provide differentiated products - Develop DVD+RW products for PCs Routers - Strengthen total solution business targeting SOHO and small and mediumsized companies Net Sales 19.2 1st Half 20.2 2nd Half 11.3 (Billions of Yen) 13.2 9.2 5.4 FY2001 FY2002 FY2003 (Forecast) 27 Expansion of Semiconductors Centered on Mobile Phone Sound Chips Priority Policies - Expansion of mobile phone sound chips business > Maintain current level of market share in Japan > Further expand in China and South Korea and enter U.S. and Europe > Raise supply of products (Billions of Yen) Net Sales 16.8 13.9 1st Half 12.9 12.8 18.5 11.7 2nd Half FY2001 FY2002 FY2003 (Forecast) 28 Trends in Global Mobile Phone Market No. of Annual Mobile Phones Sales 500 (Millions) - Signs of secondary growth with annual sales of almost 400 million - Promote sales with introduction of new services at mobile phone retailers and high-quality functions - Chinese market shows remarkable growth 400 300 200 100 1998 1999 2000 2001 2002 2003 (Forecast) Source: Nikkei Market Access (August 2002) http://ma.nikkeibp.co.jp 29 Mobile Phone Chips Market Conditions No. of Annual Sales Mobile (Millions of Phones Held mobile phones) Market Conditions (Millions) Japan 70 40 - Mobile phone market is saturated - Most mobile phones have over 32-note polyphony sound chips South Korea 30 15 - Mobile phone market is saturated - Most mobile phones has sound chips China U.S. & Europe 200 500 100 - Rapid progress in development of local mobile phone makers - Shifting from monophony to polyphony 200 - Increase in sales due to replacement with units featuring high-quality functions - Shift to polyphony expected to begin soon 30 Strength in Yamaha’s Sound Chips Success in providing SMAF solutions in JAPAN - Package providing sound chip, SMAF, authoring tool, and content was favored by telecommunication companies and mobile phone makers FM sound chips highly praised - FM sound chips allow a versatility of voice with higher frequency tones, and are favored for their quality Favorable results in Japan encourage South Korean retailers - Adopted for use in export models by Korean retailers, increasing possibility of global expansion Have a jump start on competitors in Taiwan and China Sales promotion in Europe and U.S. 31 Metal Products Business Priority Policies - By improving manufacturing output, gain profit in invar materials business - Maintain sound supply of lead frame materials Net Sales Operating Income 17.2 11.9 9.2 (Billions of Yen) 2nd Half 1st Half FY2003 (Forecast) FY2002 (0.9) (1.1) 6.6 8.0 0.3 (0.6) (0.3) (2.0) 5.3 FY2002 FY2003 (Forecast) 32 Lifestyle-Related Business Priority Policies - Lower the break-even point for income through cost reduction in product development, distribution and assembly. - Smooth take off of business alliance. Net Sales 45.7 21.9 Operating Income 46.6 23.0 2nd Half 1st Half (Billions of Yen) 1.0 0 0.9 0.4 23.8 23.6 1.0 0.5 FY2002 FY2003 (Forecast) FY2002 FY2003 (Forecast) - Housing starts (April - August) decreased 1.6% from the previous period. - Of which, houses owned and houses for installment sale decreased 4.0%. 33 Entered Business Alliance in Lifestyle-Related Business ~ Tie-Up with Air Water Living Inc. ~ Goal - Strengthen system bathrooms business and organization to respond to growing demand in the home refurbishing area by synergistically combining both companies’ strengths Outline - Business tie-up for manufacturing, sales, distribution and assembly of system bathrooms for home use (Product consolidation, development and reorganization to be completed within 3 years) a) Consolidate mid- to high-end system bathroom products for houses and refurbishing products for apartments b) Improve production efficiencies by specifying each plants’ role and integrating manufacturing bases c) Reduce distribution costs by co-managing the depot (relay consolidating stations) d) Strengthen sales activities by co-utilizing Yamaha’s showroom functions and Air Water Living’s assembly functions. Effect - Reduce costs by ¥1 billion altogether for the two companies (FY2006) 34 Recreation Business Priority Policies - Use management subsidiaries to increase profitability and improve cash flow status - Maintain customer visitation rate of two million visits per year (Billions of Yen) Net Sales 21.6 10.8 Operating Income 21.6 11.3 2nd Half 1st Half FY2002 (0.8) (0.9) 10.8 FY2002 10.3 FY2003 (Forecast) FY2003 (Forecast) (0.8) 0 (0.8) (1.7) 35 Others Priority Policies - Strengthen system for increasing the production of Mg-molded parts for mobile phones and ensure profit - In interior automotive components and fittings, reduce manufacturing costs and expand customer base. Net Sales 18.4 8.8 Operating Income 20.3 (Billions of Yen) 2nd Half 1st Half 0.4 10.0 0.5 (0.4) (0.1) 9.6 10.3 (0.3) (0.1) FY2003 (Forecast) FY2002 FY2002 FY2003 (Forecast) 36 Compliance Management Implemented compliance management system that promotes aggressive measures that promote adherence to corporate ethics and the law, to ensure that YAMAHA fulfills commitment to stakeholders as stated in its conduct guidelines. Establishment of Compliance Standards - Established Group Management Policy outlining the system - Rearranged Group Management Regulations and other regulations - Established Group Compliance Guidelines Organize for Promoting Compliance - Established Compliance Committee - Appointed compliance officers - Introduction of compliance hotline 37 Environment Activities 1. ISO 14001 Certification Objective - To promote YAMAHA Group’s environmental activities - To implement an environmental management system throughout the Group Acquisition Status - YAMAHA CORPORATION already obtained in March 2001 - Plans to obtain at all its domestic and overseas business units by March 2003 (Currently 23 units have been certified and 5 units are working toward acquisition) 2. Green Procurement Objective - To provide environment-friendly products, we will cooperate with suppliers to procure safer raw materials to facilitate the manufacture of products containing fewer hazardous materials. Green Procurement Standard - Regulate 31 chemical substances, including heavy metals Recent Activities - On June 2002, held a meeting with 200 suppliers requesting cooperation in green procurement 38 Supplementary Materials 39 Net Sales by Region (Billions of Yen) 248.7 253.7 (+2.0%) 250.0 21.3 35.6 (-9.4%) (+5.0%) 20.5 32.9 (-12.8 %) Europe 23.5 33.9 North America 43.0 44.6 (+3.7%) 44.4 (+3.3%) 148.3 152.2 (+2.7%) 152.2 First Half of FY2002 First Half of FY2003 Other Regions (+0.5%) (-2.9%) Japan First Half of FY2003 After translation adjustments * Figures in parentheses represent changes from the previous period. 40 Operating Income by Region (Billions of Yen) Currency First Half First Half Increase/ Exchange (Decrease) of FY2002 of FY2003 Impact Actual Increase/ (Decrease) Japan 7.1 11.3 4.2 2.7 1.5 North America 1.3 2.1 0.8 0.0 0.8 (0.3) 1.0 1.3 0.1 1.2 1.9 1.4 (0.5) (0.5) (2.3) (2.7) (0.4) (0.4) 7.7 13.1 Europe Other Regions Elimination TOTAL 5.4 2.8 2.6 41 Non-Operating Income/Expenses (Billions of Yen) First Half First Half Increase/ of FY2002 of FY2003 (Decrease) Equity in Earnings of Unconsolidated Subsidiaries and Affiliates 2.3 3.5 1.2 Financial Gains/Losses (1.0) (0.7) 0.3 Other Non-Operating Income/Expenses (1.5) (1.7) (0.2) TOTAL (0.2) 1.1 1.3 42 Other Profit / Losses (Billions of Yen) First Half First Half Increase/ of FY2002 of FY2003 (Decrease) Gains/Losses on Sale of Fixed Assets (0.4) (0.5) (0.1) Gains/Losses on Sale of Investment Securities 1.2 (1.6) (2.8) Others (0.1) 0.1 0.2 TOTAL 0.7 (2.0) (2.7) 43 Forecasts of Net Sales by Region (Billions of Yen) 504.4 (+5.1%) 529.4 (+0.8%) (+0.6%) (+5.8%) (+5.0%) 73.4 47.9 82.8 (+12.8%) 47.8 79.5 93.5 96.1 (+2.8%) 98.9 290.0 303.2 (+4.6%) 303.2 FY2002 FY2003 FY2003 (Forecast) After translation adjustments Other region 47.5 Europe North America Japan 530.0 * Figures in parentheses represent changes from the previous period. (+8.3%) 44 Forecasts of Operating Income by Region (Billions of Yen) FY2002 Results FY2003 Forecasts Currency Increase/ Exchange (Decrease) Impact Actual Increase/ (Decrease) Japan 3.2 13.6 10.4 4.1 6.3 North America 3.4 4.8 1.4 0.0 1.4 Europe 0.6 2.4 1.8 0.1 1.7 Other Regions 3.7 3.7 0.0 0.0 Elimination 0.1 (0.1) (0.1) TOTAL 11.0 24.5 13.5 4.2 9.3 45 Number of Employees 23,020* 23,560** 21,599 22,277 9,034 9,952 11,174 11,620 12,565 12,325 11,846 11,940 As of March 31, 2000 As of March 31, 2001 As of March 31, 2002 As of March 31, 2003 (Forecast) * Including 1,027 employees added due to expanded scope of consolidation. ** Including 145 employees added due to expanded scope of consolidation. Overseas Japan 46 Capital Investments/ Depreciation and Amortization (Billions of Yen) 28.6 Capital Investments 18.5 14.8 17.3 16.6 18.7 18.0 18.7 Depreciation and Amortization FY2000 FY2001 FY2002 FY2003 (Forecast) 47 R&D Expenses (Billions of Yen) 22.5 21.2 22.5 23.0 6.2 Electronic Equipment, etc. AV/IT 6.9 5.0 5.9 5.0 5.0 5.1 5.3 10.6 11.2 11.5 11.5 FY2000 FY2001 FY2002 FY2003 Musical Instruments (Forecast) 48 Balance Sheets (Billions of Yen) Cash and Bank Deposits Accounts and Notes Receivable Inventories Other Current Assets Fixed Assets Total Assets Accounts and Notes Payable Short and Long Term Loans Convertible Bonds Other Liabilities Total Liabilities Total Liabilities and Shareholders’ Equity As of Sept. 30, 2001 As of March 31, 2002 As of Sept. 30, 2002 As of March 31, 2003 (Forecast) 38.2 79.6 104.5 15.7 282.8 520.8 42.1 95.4 24.3 163.9 195.1 520.8 41.1 71.8 84.3 13.9 298.6 509.7 36.9 71.8 24.3 174.7 202.0 509.7 40.3 81.4 90.7 15.3 296.1 523.8 42.5 85.5 24.3 165.5 206.0 523.8 40.0 75.7 80.0 15.2 299.4 510.3 37.0 68.6 24.3 167.0 213.4 510.3 49 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. 50 51