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Annual Report 2006 | Year ended March 31, 2006

Table of contents

  • Page 1
    Annual Report 2006 | Year ended March 31, 2006

  • Page 2
    ...Metal Products Lifestyle-Related Products Recreation Others R&D and Intellectual Property Emphasis on Corporate Social Responsibility (CSR) in Management Board of Directors, Corporate Auditors and Executive Officers Financial Section History Network Investor Information Financial Highlights Yamaha...

  • Page 3
    ...and digital musical instruments and professional audio equipment. Yamaha boasts a broad, advanced technological base that supports sound/music-related businesses in areas ranging from home theater systems to LSI sound chips used in mobile phones. CREATING 'KANDO' TOGETHER Sound and music are set to...

  • Page 4
    04

  • Page 5
    ...the ultimate expression of sound, filled with fun, beauty and excitement. It transcends boundaries of nationality and ethnicity, gender and generation. Yamaha is proud to be a manufacturer of musical instruments that can connect people through the magnificence of sound. Yamaha Annual Report 2006 05

  • Page 6
    06

  • Page 7
    ... and melody are emotional manifestations of music brought to life through an instrument. And there is nothing more beautiful than the expression of motion that resonates from a musical instrument. The goal of Yamaha is to create the medium that touches the human spirit. Yamaha Annual Report 2006 07

  • Page 8
    08

  • Page 9
    The joy derived from hearing great music is something to be shared the world over. And outstanding audio technology is a must if the sound is to reach the audience in perfect form. Yamaha enables just that. When the crowd goes wild, so do we. Yamaha Annual Report 2006 09

  • Page 10
    10

  • Page 11
    Your living room is transformed into another world with the push of a button. Yamaha's state-of-the-art digital sound technologies recreate the emotion of a concert, the serenity of a night at the opera or the excitement of a baseball match. Sit back and enjoy. Yamaha Annual Report 2006 11

  • Page 12
    ... of sales and higher selling, general, and administrative expenses. • In the AV/IT segment, the new product Digital Sound ProjectorTM YSP was a hit with customers, but overall sales in this audio equipment business declined because of lackluster conditions in key markets for home theater systems...

  • Page 13
    ... launched small speaker systems with outstanding bass quality for mobile phones and digital audio players. As the leading maker of home theater audio systems, our goal is to respond to new growing markets as well as existing markets by offering consumers products with a superior sound. With regard...

  • Page 14
    ... to our Shareholders "Yamaha is a company that has sound and music at its core. We continue to work to expand our business over the long term by making the best use of this major asset." We plan to increase earnings quality in our core businesses, especially our musical instruments operations...

  • Page 15
    ... each Yamaha employee takes pride in the Yamaha brand and in supplying original products and services that bring inspiration to many. By doing so, we can continually build corporate value. I ask all shareholders for their continued support and understanding. June 2006 Piano production process at...

  • Page 16
    ...) â- Music schools, English language schools â- Content distribution services (MelocchaTM, UtacchaTM, etc.) AV/IT â- Audio products (AV amplifiers and receivers, speaker systems, Digital Sound ProjectorTM, etc.) â- Visual products (digital cinema projectors, etc.) â- Commercial network...

  • Page 17
    .../3 2005/3 2006/3 21,590 20,903 20,100 18,290 18,013 2002/3 2003/3 2004/3 2005/3 2006/3 (1,741) (1,110) (1,110) (2,253) (1,789) 3.4% 2002/3 2003/3 2004/3 2005/3 2006/3 18,339 20,956 26,061 23,557 24,671 2002/3 2003/3 2004/3 2005/3 2006/3 (389) 365 (211) 168 582 4.6% Yamaha Annual Report 2006 17

  • Page 18
    ... musical instruments, this segment includes the manufacture and sale of professional audio equipment, the operation of music schools and English language schools, and content distribution services such as polyphonic ringtones for mobile phones. Yamaha also sells a variety of music-related products...

  • Page 19
    ... of Japan, North America, and Europe. In addition, the ability to compare a variety of information online is driving major changes in purchasing patterns that, in turn, demand new distribution methods. Rather than using the traditional channels for musical instruments to sell electronic pianos, for...

  • Page 20
    ... new market by combining the best qualities of acoustic and digital instruments. In this sense, these products are the category that makes the most of Yamaha's technology and knowhow. The DisklavierTM Mark IV series of player pianos continues to sell well in the United States. But competition is set...

  • Page 21
    ...professional audio equipment business in North America, the leading market for such products. YCAS will work to reinforce Yamaha's sales network in North America by providing training and technical and engineering support for customers and Yamaha dealers. Manufacturing reforms and business structure...

  • Page 22
    ...exploits its technical expertise in music, sound, and networks to develop and supply high-quality products that meet customer expectations. Fiscal 2006 performance Shipments of the Company's newly launched YSP series of Digital Sound ProjectorTM were favorable. Overall sales of home theater systems...

  • Page 23
    ...high-quality sound of digital music in compressed formats. Yamaha is also upgrading other of its AV receivers by incorporating this function. In Japan, Yamaha launched its NX-A01 speaker in a joint campaign with a major mobile carrier. This compact cubic speaker features Yamaha Annual Report 2006 23...

  • Page 24
    ... promote the further integration of design, development, materials purchasing, manufacturing, sales, and customer service functions within the AV business. Using supply chain management (SCM) initiatives that forge more efficient linkages from planning to sales, Yamaha is focusing on cutting product...

  • Page 25
    ... as the industry standard for SMEs. Price-based competition in the market for VPN routers intensified during fiscal 2006 with the entry of new suppliers. Yamaha's strategy remains to develop this business steadily by introducing more high-value-added models featuring QoS* technologies to achieve...

  • Page 26
    ... business centered around LSI sound chips run by the Yamaha Semiconductor Division and its manufacturing subsidiary Yamaha Kagoshima Semiconductor Inc. It also includes the high-performance copper and nickel alloys and related processed parts supplied by Yamaha Metanix Corporation. Semiconductor...

  • Page 27
    ... area by promoting product development through active communication with and proposals to equipment makers. Yamaha continues to actively develop products for new applications to offset slower demand for LSI sound chips for mobile phones. Besides amusement equipment, Yamaha is targeting markets and...

  • Page 28
    ... of Operations Lifestyle-Related Products ENHANCING LIFESTYLES This segment of business utilizes core Yamaha Group technologies in artificial marble, piano coating and wood processing and presents system products to help implement a comfortable and joyful home life. Yamaha Livingtec Corporation is...

  • Page 29
    ... a business model that brings profits. This process of review included a thorough analysis of market trends, assessment of Yamaha resources and challenges, organizational changes, formulation of a new ground design of business and the resulting actions to strengthen corporate management foundations...

  • Page 30
    ...2005. Market trends and business strategy In recent years, a consumer spending slowdown in Japan has negatively impacted recreation operations. Exacerbated by lower skier numbers, resulting in lower sales, Yamaha adopted Japanese asset-impairment accounting standards in fiscal 2005, which helped to...

  • Page 31
    ... of the TsumagoiTM Music Garden, a facility used to train Yamaha music school teachers and university music students and for musical production auditions. Yamaha also has conference and corporate training facilities. Corporate bookings are up due to a recovery in companies' earnings. Attracting more...

  • Page 32
    ... Our others segment consists of golf products and wood components for automobile interiors from Yamaha Corporation and of factory automation (FA) equipment and metallic molds and components from Yamaha Fine Technologies Co., Ltd. Fiscal 2006 performance Segment sales rose 4.7% year on year, to...

  • Page 33
    ... flexible printed circuit industry. Such circuits are used in many digital consumer electronic products, including flat-screen televisions, mobile phones, digital cameras, and portable audio players. Strong demand in the automobile parts industry has also supported sales of other of the Company's FA...

  • Page 34
    ... value of the Company's intellectual property and other intangible assets. R&D organization R&D at Yamaha comprises three elements. First, technical divisions attached to each business segment work on product development. Design Studio London opened in December 2005 Design Studio London stimulates...

  • Page 35
    ...Division that promotes Yamaha's digital media business development strategy and the Productive Technology Business Development Division which aims to foster new commercial businesses founded on creative, highproductivity manufacturing. In addition, Yamaha conducts most of its product design in-house...

  • Page 36
    ... and Intellectual Property Intellectual Property Patents The graphs at right illustrate the number of Yamaha patent applications published in Japan and the number of patents owned at the end of March 2006 by Yamaha business segments. The musical instruments business accounts for over 40% of Yamaha...

  • Page 37
    ... in any intellectual property dispute with the potential to have a significant impact on the Company's business. Yamaha Patent Applications Published in Japan (Number of patents) 1,200 1,000 800 600 400 200 0 2001/3 2002/3 2003/3 2004/3 2005/3 2006/3 Others Lifestyle-Related Products Electronic...

  • Page 38
    ...its responsibilities as a corporate citizen to four key sets of stakeholders-customers, shareholders, those who work with Yamaha and society. This section provides an overview of CSR activities within the Yamaha Group. For more details, please refer to Yamaha's homepage. URL http://www.global.yamaha...

  • Page 39
    ... also to set standards of behavior in line with social norms, corporate ethics and internal regulations. A Compliance Guide has been created to define and explain operating rules. Yamaha also conducts compliance training to convey its stance on compliance to all employees. A Compliance Help Line has...

  • Page 40
    ... Division Companywide Special Promotion Committees Promotional Headquarters, Screening Committee Management Meeting 7 Directors Auditing Group Managers 5 Directors Executive Officers 13 persons Individual Business Divisions Guidance/advice Guidance/advice Staff Divisions Group Companies...

  • Page 41
    ...Zero Emissions of industrial waste Help prevent global warming Protect forests Labor Promote occupational health and safety Promote success of female employees IR Promote timely disclosure of relevant information Risk management Strengthen risk management responsiveness Yamaha Annual Report 2006 41

  • Page 42
    Emphasis on Corporate Social Responsibility (CSR) in Management Details of activities Promoting the success of female employees Yamaha introduced a Diversity Planning Department into its Human Resources Division in March 2006 aimed at further promoting the career success of female employees. In May...

  • Page 43
    ... Participation Concert and New Talents of the Piano. Yamaha Europe Scholarship Program The Yamaha Europe Scholarship Program has been set up to provide opportunities to youngsters in Europe to study music. During the year under review, a total of 492 applications were received from students of brass...

  • Page 44
    ... Hasegawa Director Chairman and Director of Yamaha Motor Co., Ltd. Yasushi Yahata Director Productive Technology Business Group Process Management Group Golf Products Division Hiroo Okabe Director Deputy Group Manager of Musical Instruments and Software Business General Manager, Piano Division 44

  • Page 45
    ... Doi President, Yamaha Corporation of America Kosuke Kamo General Manager, Legal & Intellectual Property Division Takuya Nakata General Manager, Pro Audio & Digital Musical Instruments Division Koji Niimi General Manager, Innovative Technology Group (June 27, 2006) Yamaha Annual Report 2006 45

  • Page 46
    ...Section Six-Year Summary Yamaha Corporation and Consolidated Subsidiaries March 31, 2006, 2005, 2004, 2003, 2002 and 2001 Millions of Yen 2006 For the year: ¥ Net sales Cost of sales Gross profit Selling, general and administrative expenses Operating income Income (loss) before income taxes and...

  • Page 47
    ... year-on-year basis in the musical instruments and lifestyle-related products businesses. But sales from electronic equipment and metal products fell sharply because of lower demand for the LSI sound chips used in mobile phones and as a result of continued price erosion. Sales also fell in the AV/IT...

  • Page 48
    ... Area (Millions of Yen) Sales by Geographical Area In Japan, sales of lifestyle-related products increased over the previous year, but sales of semiconductors fell sharply, particularly for the LSI sound chips used in mobile phones. Likewise, domestic demand for a new model of ElectoneTM, STAGEATM...

  • Page 49
    ... for the LSI sound chips used in mobile phones and by further price erosion. Profitability, meanwhile, was restored at the operating level to the lifestyle-related products segment. This was due to a combination of increased sales and reduced manufacturing and fixed costs. Depreciation expenses were...

  • Page 50
    ...effects of other currencies, the net effect on profits of foreign exchange rate fluctuations was a gain of ¥1.9 billion over fiscal 2005. The Company undertakes most of its hedging operations against currency risks in Japan. U.S. dollar-related currency fluctuation risks are hedged by marrying risk...

  • Page 51
    ... yen depreciation. The shareholders' equity ratio was 60.8% as of March 31, 2006, an increase of 6.4 percentage points over the 54.4% posted at the previous year-end. Return on equity (ROE) was 9.5%. 2002 2003 2004 2005 2006 0 (ROE) ROE Shareholdersí Equity Yamaha Annual Report 2006 51 9.5 316...

  • Page 52
    ... 2006 were roughly equal to the previous year's total. The musical instruments business increased its capital expenditures by ¥0.6 billion, or 5.0%, to ¥11.9 billion. This included heightened investment in molds for new products; 18,944 in the establishment of new Yamaha music schools in Japan...

  • Page 53
    ..., high-quality products and services; and emphasizing corporate social responsibility (CSR). In the musical instruments business, the Company will pursue growth in domestic and overseas markets by achieving higher sales of professional audio equipment and other highvalue-added products while aiming...

  • Page 54
    ... Balance Sheets Yamaha Corporation and Consolidated Subsidiaries At March 31, 2006 and 2005 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 55
    ... 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 12) Other...

  • Page 56
    ... of U.S. Dollars (Note 3) 2006 Net sales Cost of sales (Note 10) Gross profit Selling, general and administrative expenses (Note 10) Operating income Other income (expenses): Interest and dividend income Interest expense Sales rebates Loss on sale or disposal of property, net Equity in earnings of...

  • Page 57
    ... of Shareholders' Equity Yamaha Corporation and Consolidated Subsidiaries Years ended March 31, 2006 and 2005 Millions of Yen Thousands of U.S. Dollars (Note 3) 2006 Common stock: Balance at beginning of year (2006-206,524,626 shares; 2005-206,524,626 shares) Balance at end of year (2006 and...

  • Page 58
    ...short-term loans Proceeds from long-term debt Repayment of long-term debt 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...

  • Page 59
    .... The Company has established a policy for the recognition of an impairment loss if the market value at the year end has declined more than 30% and a recovery to fair value is not anticipated. Cost of securities sold is determined by the weighted-average method. Yamaha Annual Report 2006 59

  • Page 60
    ... 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 61
    ... close of such financial period. The accounts for that period do not, therefore, reflect such appropriations. On May 1, 2006 the new Corporation Law of Japan ("the Law"), which superseded the Commercial Code, went into effect. Under the Code, the Company was permitted to declare an annual dividend...

  • Page 62
    ... and 2005 consisted of the following: Thousands of U.S. Dollars Millions of Yen 2006 Loans from banks, due through 2008 at average rates of 2.2% and 2.6% for current and noncurrent portions, respectively Total long-term debt Less: Current portion ¥ 11,328 11,328 5,132 6,195 ¥ 2005 28,773 28,773...

  • Page 63
    ... at their the net realizable value based on a valuation under the current tax regulations unless other market-based evidence was available. Loss on impairment of fixed assets for the year ended March 31, 2006 was immaterial and has thus been omitted from disclosure. Yamaha Annual Report 2006 63

  • Page 64
    ... loss Unrealized loss on investment securities Accrued employees' bonuses Warranty reserve Retirement benefits Tax loss carryforward Other Valuation allowance Total deferred tax assets Deferred tax liabilities: Reserve for deferred gain on property Reserve for asset replacement Reserve for special...

  • Page 65
    ... tax-qualified pension plans and lump-sum payment plans which substantially cover all employees who are entitled upon retirement 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...

  • Page 66
    ... obligation and related pension assets Total The assumptions used in accounting for the above plans are as follows: 2006 Discount rate Expected rate of return on plan assets Amortization of past service cost Amortization of actuarial gain or loss 2.0% 4.0% 10 years (straight-line method) 10 years...

  • Page 67
    ... lease payments subsequent to March 31, 2006 for finance leases accounted for as operating leases are summarized as follows: Millions of Yen Thousands of U.S. Dollars Year ending March 31, 2007 2008 and thereafter Total ¥ ¥ 593 643 1,236 $ $ 5,048 5,474 10,522 Yamaha Annual Report 2006 67

  • Page 68
    ... of Yen Years ended March 31 Acquisition costs Accumulated depreciation Net book value ¥ ¥ 2006 5,887 4,333 1,554 ¥ ¥ 2005 6,242 4,231 2,011 $ $ 2006 50,115 36,886 13,229 Lease income and depreciation expenses relating to finance leases accounted for as operating leases amounted to ¥1,452...

  • Page 69
    ...costs: Stock Other Securities whose carrying value does not exceed their acquisition costs: Stock Other Total Acquisition costs Carrying value Unrealized gain (loss) ¥ 9,184 ¥ 20,671 ¥ 11,486 52 54 2 9,236 20,725 11,488 0 0 (0) - - - 0 0 (0) ¥ 9,237 ¥ 20,725 ¥ 11,488 Yamaha Annual Report...

  • Page 70
    ...municipal bonds Corporate bonds Other Total Due in one year or less Due after one year through five years ¥ ¥ 59 200 150 410 ¥ ¥ 399 439 1,599 2,439 19. SUPPLEMENTARY CASH FLOW INFORMATION The following table represents a reconciliation of cash and cash equivalents at March 31, 2006 and...

  • Page 71
    ... Yamaha Group, as a matter of principle, holds only derivative positions which meet the criteria for deferral hedge accounting. 21. SEGMENT INFORMATION The business and geographical segments and overseas sales of the Company and its consolidated subsidiaries for the years ended March 31, 2006 and...

  • Page 72
    ...on the application 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...

  • Page 73
    ...483 - 15.8% ¥ 49,971 - 9.4% ¥ 221,173 534,079 41.4% Note: The major nations or regions included in each geographical segment are as follows: (a) North America-U.S.A., Canada (b) Europe-Germany, England (c) Asia, Oceania and other areas-China, Singapore, Australia Yamaha Annual Report 2006 73

  • Page 74
    ...EVENT Appropriation of retained earnings The following appropriation of retained earnings, which has not been reflected in the accompanying consolidated financial statements for the year ended March 31, 2006, were approved at a general meeting of the shareholders of the Company held on June 27, 2006...

  • Page 75
    Yamaha Annual Report 2006 75

  • Page 76
    ... (currently Yamaha Corporation of America, California), is established Toba Hotel InternationalTM is opened Production of fiberreinforced-plastic bathtubs begins Production of wind instruments ("YTR-1" trumpet) begins Yamaha's first electric guitars ("SG" series) and drums are launched Yamaha Music...

  • Page 77
    ... 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 2006 Shipments of LSI sound chips for mobile phones...

  • Page 78
    ... America Yamaha Electronics Corporation, U.S.A. Yamaha Music Manufacturing, Inc. Yamaha Exporting, Inc. Yamaha Musical Products, Inc. Yamaha Artist Services Inc. Yamaha Music InterActive Inc. (Companies Accounted for Using the Equity Method: YMH Digital Music Publishing LLC) Yamaha Commercial Audio...

  • Page 79
    ...Subsidiaries 93 Number of Companies Accounted for by the Equity Method 3 Stock Exchange Listings Tokyo First Section, Code No. 7951 Administrator of Shareholders' Registry and its business office The Chuo Mitsui Trust and Banking Co., Ltd. Nagoya Branch Stock Transfer Agency Department Address: 3-15...

  • Page 80
    Public Relations Division URL: http://www.global.yamaha.com/ c1 2006/6 CM062 Printed in Japan using soy-based inks on recycled paper.