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Share the Soul of Sound
Annual Report 2005 Year ended March 31, 2005

Table of contents

  • Page 1
    Share the Soul of Sound Annual Report 2005 Year ended March 31, 2005

  • Page 2
    ... Company Segments at a Glance Review of Operations Musical Instruments AV/IT Lifestyle-Related Products Electronic Equipment and Metal Products Recreation Others Emphasis on CSR in Management Social Contribution Activities Environmental Activities Research & Development and Intellectual Property...

  • Page 3
    ...studio equipment and home theater sound systems. The company continues to develop the Yamaha brand by positioning itself as a sound professional. Although the style of our business will evolve with the times, we will never lose sight of the fact that sound and music are an integral part of the human...

  • Page 4
    02 Yamaha Annual Report 2005

  • Page 5
    ..., gender and generation. Yamaha is proud to be a manufacturer of musical instruments that make sounds capable of connecting people and bringing them together. Just as one performer inspires many, Yamaha aspires to be one company bringing the joy of music to humanity. Yamaha Annual Report 2005 03

  • Page 6
    04 Yamaha Annual Report 2005

  • Page 7
    Share the Soul of Sound with millions of professionals. Professional music production demands the equipment to reproduce accurately what professionals hear and feel. Yamaha builds a profound knowledge of sound and music into digital technologies that push the production envelope. The music created ...

  • Page 8
    ... everywhere. Your living room is transformed into another world with the push of a button. Yamaha home theater sound systems create a virtual reality, taking your TV, DVD or video viewing experience to an entirely new level of enjoyment. Be moved, without moving. 06 Yamaha Annual Report 2005

  • Page 9
    Yamaha Annual Report 2005 07

  • Page 10
    ... Sound with millions of movers. The ring of a phone is an invitation to communicate, to feel, to share. Sound from a mobile creates a real connection to others. Yamaha squeezes this emotion plus all of its digital expertise into tiny sound chips now integral to many mobile handsets. The Yamaha brand...

  • Page 11
    Financial Highlights Yamaha Corporation and Consolidated Subsidiaries March 31, 2005 and 2004 Millions of Yen Thousands of U.S. Dollars 2005 For the year: Net sales Operating income Net income At year-end: Total assets Total shareholders' equity ¥ 534,079 35,695 19,697 2004 ¥ 539,506 45,056 ...

  • Page 12
    ... musical instrument business by stimulating the Japanese market using new approaches. Besides opening new-concept music schools, we also invested in sales bases and developed business models aimed at attracting customers. Overseas, we reinforced our marketing capability in China. On the production...

  • Page 13
    ...: musical instruments, AV/IT, lifestyle-related products, electronic equipment and metal products, recreation and others. Of these, the electronic components business has been the main profit driver for the Yamaha Group in recent years, notably due to the success of LSI sound chips for mobile phones...

  • Page 14
    ...reproduce highly realistic sound environments. Using sound-field measurement data for world-famous theaters, concert halls and other musical venues, we have developed a Cinema DSPTM custom LSI sound chip that can accurately reproduce live acoustics. Yamaha is now the leading supplier of home theater...

  • Page 15
    .... Children can become familiar with the Yamaha brand at a young age through our music schools. Our full line-up of musical instruments and high-quality audio systems help reassure customers that we are experts in music and musical instruments. We must continue to develop new products and services...

  • Page 16
    ...rooms (AVITECSTM) â- Music schools, English schools â- Content distribution service â- Audio products (AV amplifiers and receivers, speaker systems, etc.) â- Visual products (digital cinema projectors, etc.) â- Network karaoke â- Routers AV/IT Lifestyle-Related Products â- System bathrooms...

  • Page 17
    ... Sales Net Sales (Millions of yen) Operating Income (Loss) (Millions of yen) 284,901 286,920 292,647 293,430 302,617 12,290 10,480 14,183 56.7% 4,738 9,792 2001/3 2002/3 2003/3 2004/3 2005/3 2001/3 2002/3 2003/3 2004/3 2005/3 100,197 95,214 83,670 78,257 77,720 3,904 3,037 3,250...

  • Page 18
    ... of music schools and English language schools, and content distribution services such as ringtone melodies for mobile phones. Yamaha also sells a variety of music-related products sourced from other manufacturers and accessories. Musical instruments fall into three main categories: acoustic (pianos...

  • Page 19
    ... the Yamaha brand with a reputation for quality and reliability. Although demand for large keyed instruments such as pianos and electronic organs continues to decline in Japan and overall musical instrument demand is flat in North America and Europe, global demand is expanding due to growth markets...

  • Page 20
    ...and digital instruments World-class digital sound generating technology enables Yamaha's home keyboards to produce highly realistic sounds close to those of original acoustic instruments. Yamaha's music production equipment like synthesizers are also a mainstay of live musical performances and music...

  • Page 21
    ... that allows a complete song to be downloaded. These sites' originality and technical excellence continue to build sales revenues from mobile download services. Future development includes exploiting Yamaha's strengths to create opportunities linked to media and networked musical instruments. Note...

  • Page 22
    ... (including amplifiers, receivers, speaker systems and digital cinema projectors), commercial network karaoke equipment and routers. AV equipment is the main driver of segment earnings. The strategic focus is home theater systems, reflecting Yamaha's core competences in music and sound. Fiscal...

  • Page 23
    ...their living room. This DSP (Digital Sound Field Processing) technology creates a grippingly realistic audio experience. Yamaha AV receivers fitted with Cinema DSPTM technology have received critical acclaim, and Yamaha leads the home theater market in the US, Japan and Europe. Penetration rates for...

  • Page 24
    ... the management of core business processes from design, development and purchasing to production, sales and customer service. Strict supply-chain management spanning manufacturing bases in Japan, Malaysia, China and Indonesia also ensures Yamaha stays competitive in world markets. Commercial network...

  • Page 25
    ... on markets outside Japan. Technical glossary: * VPN (Virtual Private Network): Addition of authentication, encryption and other security technologies turns a public network such as the Internet into a network for virtually private use. Flagship digital home theater system Yamaha Annual Report...

  • Page 26
    Review of Operations Lifestyle-Related Products sound lifestyles Business outline Yamaha applies wood-processing expertise and coating technologies developed from piano manufacturing operations along with unique chemical-processing and original equipment-developing-technologies to the creation of ...

  • Page 27
    ... management team at Yamaha Livingtec as part of a series of drastic reforms. The immediate goal is to make the Yamaha range more price-competitive by adding 20% to the value added through a combination of reduced production costs and enhanced productivity. Over the longer term, the company plans...

  • Page 28
    ... nickel alloys and the related processed parts business run by Yamaha Metanix Corporation. Semiconductor products find applications in many areas ranging from mobile phones, communications equipment, amplifiers in home theater systems and amusement equipment. High performance alloys and components...

  • Page 29
    Cinema DSPTM circuit board Sound chip for mobile phones of the contents of amusement equipment. Yamaha has developed products specifically for this market, with considerable success. Another segment with significant business potential is automobiles, where electronic devices with sound- and image-...

  • Page 30
    .... Lower visitor numbers resulted in a 9.0% year-onyear fall in segment sales to ¥18,290 million. The segment recorded an operating loss of ¥2,253 million, compared with an operating loss of ¥1,110 million in fiscal 2004. Yamaha absorbed consolidated subsidiary Kiroro Development Corporation into...

  • Page 31
    ... as a venue for group tours and company training courses on weekdays and for individual customers on weekends and holidays to maximize facility utilization. Attracting more corporate business is a good prospect due to the resort's excellent transport links and high-level meeting and communications...

  • Page 32
    ... up the game. In a highly competitive sector, Yamaha is developing its next generation of clubs prior to the introduction of new rules limiting club-head resistance in 2008. Yamaha aims to build its brand and expand its business in this area by strengthening the product lineup. Automobile interior...

  • Page 33
    ... technologies and by seeking to reduce production costs. At the same time, Yamaha is looking to expand design consulting and support services in the field. Metallic molds and components, FA equipment Yamaha has developed a design and production system for metallic molds based on solid 3D models and...

  • Page 34
    ... local and global culture. Brand Slogan CREATING 'KANDO' TOGETHER Strengthening corporate governance Stronger corporate governance is a key management objective at Yamaha. The company believes that an honest commitment to fulfilling corporate economic, environmental and social responsibilities is...

  • Page 35
    ... of personnel development programs for nurturing future candidates for management positions. The chart below illustrates corporate governance structures and internal control systems at Yamaha. Risk management systems Since different parts of the organization are typically involved in dealing with...

  • Page 36
    Social Contribution Activities The Yamaha Group is not merely about supplying products and services based on sound and music. The company also aims to make a meaningful social contribution, in the process creating multiple points of contact and establishing various forums for dialog with many people...

  • Page 37
    ... Charity Program in U.S. Yamaha Corporation of America (YCA) runs a philanthropic program called Yamaha Cares that provides educational and welfare services to communities across the U.S. In the year ended March 2005, Yamaha Cares provided funds to pay the fall semester fees for a 7-year-old child...

  • Page 38
    ... conservation of resources are key issues in the development of Yamaha Group products. In the year ended March 2005, Yamaha introduced six models of digital amplifier that feature significantly lower power consumption. Yamaha also launched highly efficient products designed to use less than 0.1W of...

  • Page 39
    .... Photovoltaic power generating system at Yamaha's head office Wastewater treatment system Clean-up campaign at Lake Hamana Environmental communications and social contribution activities Yamaha Group companies disclose a variety of environment-related information and share this data with local...

  • Page 40
    ... Core technological expertise and innovative product design are key intellectual properties in Yamaha. The next stage in the evolution of the Yamaha brand is to develop sound-related technologies to support network-based sound lifestyles and to develop materials and devices dealing with human senses...

  • Page 41
    ... Products Lifestyle-Related Products AV/IT Musical Instruments Japan U.S. Other Intellectual property risk At the time of publication of this report, the Yamaha Group was not involved in any intellectual property dispute with the potential to have a significant impact on the company's business...

  • Page 42
    ... Business Division, Digital Media Business Development Division and Technology Planning Division Tsuneo Kuroe Managing Director In charge of human resources: Corporate Planning Division, Personnel Division and Information Systems Division Toru Hasegawa Director Chairman and Director of Yamaha...

  • Page 43
    ... Umemura General Manager, Musical Instruments Group Executive Officers Katsuhiro Tokuda General Manager, Pro Audio & Digital Musical Instruments Division Kosuke Kamo General Manager, Legal & Intellectual Property Division Hajime Hayashida General Manager, HG Piano Development Division Koji Niimi...

  • Page 44
    ... equipment and metal products business amid lower prices for LSI sound chips for mobile phones. Sales also declined in the lifestyle-related products, recreation, and others segment such as automobile interior wood components, and metallic molds and components. Although profits received a boost from...

  • Page 45
    Six-Year Summary Yamaha Corporation and Consolidated Subsidiaries March 31, 2005, 2004, 2003, 2002, 2001 and 2000 Millions of Yen 2005 For the year: ¥ Net sales Cost of sales Gross profit Selling, general and administrative expenses Operating income Income (loss) before income taxes and minority...

  • Page 46
    ... sales of guitars declined due to a slump in the Japanese market. Numbers of infant and child pupils enrolled at Yamaha music schools leveled out, and music schools for adults registered a steady increase in student numbers. Ringtone melody services for mobile phones generated higher sales revenue...

  • Page 47
    ... in home theater systems caused by fierce competition were partially offset by currency gains and lower manufacturing costs. Price competition mainly in the mass market was also severe in the lifestyle-related products segment, leading to a fall in gross profit margins. Combined with lower sales...

  • Page 48
    ...significant year-on-year drop in operating income in the lifestyle-related products segment, which recorded a small operating loss. In the electronic equipment and metal products segment, price erosion also affected LSI sound chips for mobile phones. Lower gross margins led to a year-on-year drop of...

  • Page 49
    ... effect of foreign exchange rate movements on profits in year-on-year terms was a gain of ¥1.4 billion. The Company undertakes hedging operations against currency risks in Japan. U.S. dollarrelated currency fluctuation risks are hedged by marrying risk associated with dollar receipts from exports...

  • Page 50
    ....8 billion from the previous year. Cash used in financing activities in the previous year totaled ¥50.1 billion, reflecting such factors as the redemption of convertible bonds, repayments of long- and short-term debt and the payment of KiroroTM member deposits due to the ROE Shareholders' Equity...

  • Page 51
    ....0 billion. The ratio of R&D spending to sales was 4.3%, roughly the same level as in the previous year. Most of this spending was semiconductor businesses. R&D budgets also funded programs to develop basic technologies related to sound (speakers, sound field control, voice synthesis, DSP, etc.) and...

  • Page 52
    ... Balance Sheets Yamaha Corporation and Consolidated Subsidiaries At March 31, 2005 and 2004 Millions of Yen Thousands of U.S. Dollars (Note 3) ASSETS Current assets: Cash and bank deposits (Note 19) Marketable securities (Notes 6 and 18) Notes and accounts receivable - trade Less: Allowance...

  • Page 53
    Millions of Yen Thousands of U.S. Dollars (Note 3) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term loans (Note 6) Current portion of long-term debt (Note 6) Notes and accounts payable - trade Accrued expenses Income taxes payable Advances received Deferred income taxes (Note ...

  • Page 54
    Consolidated Statements of Income Yamaha Corporation and Consolidated Subsidiaries Years ended March 31, 2005 and 2004 Millions of Yen Thousands of U.S. Dollars (Note 3) 2005 Net sales Cost of sales (Note 10) Gross profit Selling, general and administrative expenses (Note 10) Operating income ...

  • Page 55
    ...' Equity Yamaha Corporation and Consolidated Subsidiaries Years ended March 31, 2005 and 2004 Millions of Yen Thousands of U.S. Dollars (Note 3) 2005 Common stock: Balance at beginning of year (2005-206,524,626 shares; and 2004-206,523,263 shares) Add: Conversion of convertible bonds Balance at...

  • Page 56
    ...debt Repayment of long-term debt Redemption of convertible bonds Cash dividends paid Resort membership deposits received Refund of resort membership deposits Cash dividends paid to minority shareholders Other, net Net cash used in financing activities Effect of exchange rate changes on cash and cash...

  • Page 57
    ... at the lower of cost or market, cost being determined by the last-in, first-out method. Inventories of the Company's overseas consolidated subsidiaries are stated principally at the lower of cost or market, cost being determined by the moving average method. Yamaha Annual Report 2005 55

  • Page 58
    ... Warranty reserve A warranty reserve is provided to cover the cost of customers' claims relating to after-sales service and repairs. The amount of this reserve is estimated based on a percentage of the amount or volume of sales and after considering the historical experience with repairs of products...

  • Page 59
    ... based on the official standard notice prices. It was conducted in accordance with the relevant regulations of the Corporation Tax Law of Japan with certain adjustments as deemed necessary. (o) Appropriation of retained earnings Under the Commercial Code of Japan (the "Code"), the appropriation of...

  • Page 60
    ... consisted of the following: Thousands of U.S. Dollars Millions of Yen 2005 Loans from banks, due through 2008 at average rates of 1.1% and 1.9% for current and noncurrent portions, respectively Total long-term debt Less: Current portion and convertible bonds scheduled for redemption ¥ 28,773 28...

  • Page 61
    ... market value ¥ 2005 (15,042) ¥ 2004 (13,834) 2005 $ (140,069) 9. IMPAIRMENT LOSS ON FIXED ASSETS The following table summarizes the impairment loss on fixed assets for the year ended March 31, 2005: Millions of Yen Thousands of U.S. Dollars Group of Fixed Assets Assets in recreation business...

  • Page 62
    ... and 2004 were as follows: Thousands of U.S. Dollars Millions of Yen Years ended March 31 Additional lump-sum early retirement incentive program payments Loss on revaluation of investments in unconsolidated subsidiaries and affiliates Loss on revaluation of investment securities Structural reform...

  • Page 63
    ... substantially cover all employees who are entitled to lump-sum or annuity payments, the amounts of which are determined by reference to their basic rate of pay, length of service, and the conditions under which termination occurs. Certain employees may be entitled to additional special retirement...

  • Page 64
    ... dilutive potential of common shares to be issued upon the conversion of convertible bonds. Net assets per share are based on the net assets available for distribution to the shareholders and the number of shares of common stock outstanding at each balance sheet date. 62 Yamaha Annual Report 2005

  • Page 65
    ... lease payments subsequent to March 31, 2005 for finance leases accounted for as operating leases are summarized as follows: Thousands of U.S. Dollars Year ending March 31, 2006 2007 and thereafter Total Millions of Yen ¥ ¥ 653 855 1,508 $ $ 6,081 7,962 14,042 Yamaha Annual Report 2005...

  • Page 66
    ... accumulated depreciation and the net book value of leased assets relating to finance leases accounted for as operating leases at March 31, 2005 and 2004: Millions of Yen Thousands of U.S. Dollars Years ended March 31 Acquisition costs Accumulated depreciation Net book value ¥ ¥ 2005 6,242 4,231...

  • Page 67
    ... 100 299 296 399 396 ¥ 3,000 ¥ 3,020 ¥ (b) Other securities with determinable market value Millions of Yen Thousands of U.S. Dollars Year ended March 31, 2005 Securities whose carrying value exceeds their acquisition costs: Stock Bonds Other Securities whose carrying value does not exceed their...

  • Page 68
    ... 31, 2005 and 2004: Millions of Yen Thousands of U.S. Dollars 2005 Cash and bank deposits Time deposits with a maturity of more than three months Cash and cash equivalents ¥ ¥ 51,205 (812) 50,393 ¥ ¥ 2004 32,053 (808) 31,245 2005 $ 476,813 (7,561) $ 469,252 66 Yamaha Annual Report 2005

  • Page 69
    ... exchange rates, but does not enter into such transactions for speculative or trading purposes. The Yamaha Group may, from time to time, enter into foreign forward exchange agreements in order to manage certain risks arising from adverse fluctuation in foreign exchange transactions. The Yamaha Group...

  • Page 70
    ... or nature of each product in the market. (2) Major products in each business segment: Business segment Musical instruments AV/IT Lifestyle-related products Electronic equipment and metal products Recreation Others Major products & services Pianos, digital musical instruments, wind instruments...

  • Page 71
    ...4,707,859 Millions of Yen Asia, Oceania and other areas Eliminations or unallocated amounts Year ended March 31, 2004 I. Sales and operating income Sales to external customers Intersegment sales or transfers Total sales Operating expenses Operating income Total assets Japan North America Europe...

  • Page 72
    ...: (a) North America-U.S.A., Canada (b) Europe-Germany, England (c) Asia, Oceania and other areas-Singapore, Australia 22. SUBSEQUENT ... shareholders of the Company held on June 24, 2005: Thousands of U.S. Dollars Millions of Yen Cash dividends ¥ 2,579 $ 24,015 70 Yamaha Annual Report 2005

  • Page 73
    Yamaha Annual Report 2005 71

  • Page 74
    ... carbon composite golf clubs ClavinovaTM, an electronic piano, is launched "CFIII" concert grand piano debuts "DX7" and "DX9" digital synthesizers are launched Production of custommade LSIs begins LSI chips for FM sound sources and for image processing are developed Yamaha Music Australia Pty., Ltd...

  • Page 75
    ...Yamaha Musical Products Indonesia (East Java Province) is established PT. Yamaha Music Manufacturing Asia (Indonesia) is established Yamaha Business Support Corporation is established Silent CelloTM is launched 1999 2000 2001 2002 2003 2004 2005 Shipments of LSI sound chips for mobile phones...

  • Page 76
    ... Winds Corporation Yamaha Hall Co., Ltd. Yamaha Piano Service Co., Ltd.* Seikindo Music Co., Ltd.* AV/IT D.S. Corporation Yamaha Electronics Marketing Corporation Lifestyle-Related Products Yamaha Livingtec Corporation Yamaha Living Products Corporation Joywell Home Corporation* Electronic Equipment...

  • Page 77
    ... Subsidiaries 86 Number of Companies Accounted for by the Equity Method 2 Stock Exchange Listings Tokyo First Section, Code No. 7951 Depositary for American Depositary Receipts Deutsche Bank Trust Company Americas Ratio: 1 ADR = 1 share of common stock Type: Level 1 with sponsor bank Symbol: YAMCY...

  • Page 78
    Public Relations Division URL: http://www.global.yamaha.com/ 2005/6 CM052 Printed in Japan using soy-based inks on recycled paper.