Report of Foreign Issuer (6-k)

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR

15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of August, 2017

Commission File Number: 001-31221

Total number of pages: 18

 

 

NTT DOCOMO, INC.

(Translation of registrant’s name into English)

 

 

Sanno Park Tower 11-1, Nagata-cho 2-chome

Chiyoda-ku, Tokyo 100-6150

Japan

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F    ☒                     Form 40-F   ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

 

 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

				NTT DOCOMO, INC.
Date: August 2, 2017				By:		/S/ KEISUKE YOSHIZAWA
						Keisuke Yoshizawa
						Managing Director, Investor Relations Department

Information furnished in this form:

 

1.	Report filed on August 2, 2017 with the Director of the Kanto Local Finance Bureau of Japan pursuant to the Financial Instruments and Exchange Act of Japan

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Table of Contents

NTT DOCOMO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

MARCH 31, 2017 and JUNE 30, 2017

 

		Millions of yen
		March 31, 2017				June 30, 2017
ASSETS
Current assets:
Cash and cash equivalents		¥	289,610			¥	326,346
Short-term investments			301,070				200,731
Accounts receivable			239,137				158,813
Receivables held for sale			936,748				905,845
Credit card receivables			347,557				368,910
Other receivables			398,842				407,112
Allowance for doubtful accounts			(19,517	)			(20,607	)
Inventories			153,388				179,951
Deferred tax assets			81,025				—
Prepaid expenses and other current assets			108,412				141,797
Total current assets			2,836,272				2,668,898
Property, plant and equipment:
Wireless telecommunications equipment			5,084,923				5,098,419
Buildings and structures			906,177				909,530
Tools, furniture and fixtures			441,513				444,249
Land			198,980				199,004
Construction in progress			204,413				216,982
Accumulated depreciation and amortization			(4,295,111	)			(4,328,252	)
Total property, plant and equipment, net			2,540,895				2,539,932
Non-current investments and other assets:
Investments in affiliates			373,758				375,556
Marketable securities and other investments			198,650				200,350
Intangible assets, net			608,776				602,700
Goodwill			230,971				229,905
Other assets			434,312				421,404
Deferred tax assets			229,440				307,506
Total non-current investments and other assets			2,075,907				2,137,421
Total assets		¥	7,453,074			¥	7,346,251
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt		¥	60,217			¥	140,170
Short-term borrowings			1,623				1,689
Accounts payable, trade			853,538				698,444
Accrued payroll			59,187				47,376
Accrued income taxes			105,997				79,380
Other current liabilities			194,494				240,272
Total current liabilities			1,275,056				1,207,331
Long-term liabilities:
Long-term debt (exclusive of current portion)			160,040				80,000
Accrued liabilities for point programs			94,639				81,944
Liability for employees’ retirement benefits			193,985				195,357
Other long-term liabilities			145,266				153,443
Total long-term liabilities			593,930				510,744
Total liabilities			1,868,986				1,718,075
Redeemable noncontrolling interests			22,942				23,145
Equity:
NTT DOCOMO, INC. shareholders’ equity
Common stock			949,680				949,680
Additional paid-in capital			326,621				326,621
Retained earnings			4,656,139				4,697,895
Accumulated other comprehensive income (loss)			24,631				26,609
Treasury stock			(426,442	)			(426,442	)
Total NTT DOCOMO, INC. shareholders’ equity			5,530,629				5,574,363
Noncontrolling interests			30,517				30,668
Total equity			5,561,146				5,605,031
Commitments and contingencies
Total liabilities and equity		¥	7,453,074			¥	7,346,251

See accompanying notes to consolidated financial statements (unaudited).

 

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Table of Contents

NTT DOCOMO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

THREE MONTHS ENDED JUNE 30, 2016 and 2017

Consolidated Statements of Income

 

		Millions of yen
		Three Months Ended June 30, 2016				Three Months Ended June 30, 2017
Operating revenues:
Telecommunications services		¥	729,708			¥	774,912
Equipment sales			165,753				150,600
Other operating revenues			213,209				211,184
Total operating revenues			1,108,670				1,136,696
Operating expenses:
Cost of services (exclusive of items shown separately below)			304,479				321,220
Cost of equipment sold (exclusive of items shown separately below)			154,977				162,543
Depreciation and amortization			109,715				119,029
Selling, general and administrative			240,208				255,605
Total operating expenses			809,379				858,397
Operating income			299,291				278,299
Other income (expense):
Interest expense			(240	)			(98	)
Interest income			155				193
Other, net			(3,914	)			3,452
Total other income (expense)			(3,999	)			3,547
Income before income taxes and equity in net income (losses) of affiliates			295,292				281,846
Income taxes:
Current			69,256				85,579
Deferred			20,392				(937	)
Total income taxes			89,648				84,642
Income before equity in net income (losses) of affiliates			205,644				197,204
Equity in net income (losses) of affiliates (including impairment charges of investments in affiliates)			992				(6,662	)
Net income			206,636				190,542
Less: Net (income) loss attributable to noncontrolling interests			218				(603	)
Net income attributable to NTT DOCOMO, INC.		¥	206,854			¥	189,939
Per share data
Weighted average common shares outstanding — Basic and Diluted			3,754,094,845				3,704,585,533
Basic and Diluted earnings per share attributable to NTT DOCOMO, INC.		¥	55.10			¥	51.27
Consolidated Statements of Comprehensive Income
		Millions of yen
		Three Months Ended June 30, 2016				Three Months Ended June 30, 2017
Net income		¥	206,636			¥	190,542
Other comprehensive income (loss):
Unrealized holding gains (losses) on available-for-sale securities, net of applicable taxes			(11,821	)			2,794
Unrealized gains (losses) on cash flow hedges, net of applicable taxes			(72	)			(25	)
Foreign currency translation adjustment, net of applicable taxes			(8,105	)			(1,258	)
Pension liability adjustment, net of applicable taxes			141				436
Total other comprehensive income (loss)			(19,857	)			1,947
Comprehensive income			186,779				192,489
Less: Comprehensive (income) loss attributable to noncontrolling interests			423				(572	)
Comprehensive income attributable to NTT DOCOMO, INC.		¥	187,202			¥	191,917

See accompanying notes to consolidated financial statements (unaudited).

 

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NTT DOCOMO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

THREE MONTHS ENDED JUNE 30, 2016 and 2017

 

		Millions of yen
		Three Months Ended June 30, 2016				Three Months Ended June 30, 2017
Cash flows from operating activities:
Net income		¥	206,636			¥	190,542
Adjustments to reconcile net income to net cash provided by operating activities–
Depreciation and amortization			109,715				119,029
Deferred taxes			20,392				(937	)
Loss on sale or disposal of property, plant and equipment			3,963				7,609
Inventory write-downs			4,076				1,877
Impairment loss on marketable securities and other investments			853				238
Equity in net (income) losses of affiliates (including impairment charges of investments in affiliates)			(992	)			6,662
Dividends from affiliates			4,837				6,318
Changes in assets and liabilities:
(Increase) / decrease in accounts receivable			78,707				80,089
(Increase) / decrease in receivables held for sale			15,988				30,903
(Increase) / decrease in credit card receivables			(10,778	)			(10,638	)
(Increase) / decrease in other receivables			(3,384	)			(8,308	)
Increase / (decrease) in allowance for doubtful accounts			1,756				1,003
(Increase) / decrease in inventories			(21,333	)			(28,488	)
(Increase) / decrease in prepaid expenses and other current assets			(17,549	)			(33,683	)
(Increase) / decrease in non-current receivables held for sale			21,618				18,263
Increase / (decrease) in accounts payable, trade			(90,114	)			(88,143	)
Increase / (decrease) in accrued income taxes			(98,738	)			(26,608	)
Increase / (decrease) in other current liabilities			32,519				48,888
Increase / (decrease) in accrued liabilities for point programs			(7,527	)			(12,695	)
Increase / (decrease) in liability for employees’ retirement benefits			1,905				1,375
Increase / (decrease) in other long-term liabilities			3,782				9,719
Other, net			(12,538	)			(11,828	)
Net cash provided by operating activities			243,794				301,187
Cash flows from investing activities:
Purchases of property, plant and equipment			(125,769	)			(128,136	)
Purchases of intangible and other assets			(78,535	)			(67,142	)
Purchases of non-current investments			(743	)			(9,705	)
Proceeds from sale of non-current investments			1,611				550
Purchases of short-term investments			(5,428	)			(60,344	)
Redemption of short-term investments			5,546				40,509
Short-term bailment for consumption to a related party			—				(140,000	)
Proceeds from redemption of short-term bailment for consumption to a related party			—				260,000
Other, net			(5,480	)			(10,783	)
Net cash used in investing activities			(208,798	)			(115,051	)
Cash flows from financing activities:
Proceeds from short-term borrowings			5,754				6,691
Repayment of short-term borrowings			(5,754	)			(6,621	)
Principal payments under capital lease obligations			(311	)			(282	)
Payments to acquire treasury stock			(54,641	)			—
Dividends paid			(130,524	)			(146,607	)
Cash distributions to noncontrolling interests			(3,500	)			(18	)
Other, net			(990	)			(2,340	)
Net cash provided by (used in) financing activities			(189,966	)			(149,177	)
Effect of exchange rate changes on cash and cash equivalents			(884	)			(223	)
Net increase (decrease) in cash and cash equivalents			(155,854	)			36,736
Cash and cash equivalents as of beginning of period			354,437				289,610
Cash and cash equivalents as of end of period		¥	198,583			¥	326,346
Supplemental disclosures of cash flow information:
Cash received during the period for:
Income tax refunds		¥	3			¥	14
Cash paid during the period for:
Interest, net of amount capitalized			213				311
Income taxes			167,075				109,244

See accompanying notes to consolidated financial statements (unaudited).

 

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NTT DOCOMO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of presentation:

The accompanying quarterly consolidated financial statements of NTT DOCOMO, INC. and its subsidiaries (“DOCOMO”) were prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Certain disclosures required by U.S. GAAP have been omitted. Since DOCOMO’s American Depositary Shares were listed on the New York Stock Exchange in March 2002, DOCOMO has prepared its consolidated financial statements pursuant to the terminology, forms and preparation methods required in order to issue American Depositary Shares, which are registered with the Securities and Exchange Commission of the United States of America.

2. Summary of significant accounting and reporting policies:

(a) Adoption of new accounting standards

Balance sheet classification of deferred taxes —

Effective April 1, 2017, DOCOMO adopted prospectively Accounting Standards Update (“ASU”) 2015-17 “Balance Sheet Classification of Deferred Taxes.” This ASU requires that all deferred tax liabilities and assets be classified as noncurrent on the consolidated balance sheet.

(b) Recently issued accounting standards

Revenue from Contracts with Customers —

On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09 “Revenue from Contracts with Customers (Topic 606),” which requires an entity to recognize the amount to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective.

The FASB also issued ASU 2016-08 “Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” ASU 2016-10 “Identifying Performance Obligations and Licensing,” ASU 2016-12 “Narrow-Scope Improvements and Practical Expedients,” ASU 2016-20 “Technical Corrections and Improvements to Topic 606,” and ASU 2017-05 “Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” in March, April, May and December 2016, and February 2017, respectively, to partially amend ASU 2014-09.

On August 12, 2015, the FASB issued ASU 2015-14 “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” and deferred the effective date of the ASU by one year. Consequently, the standard is expected to take effect for DOCOMO on April 1, 2018 and early adoption with original effective date for periods beginning April 1, 2017 is permitted.

 

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NTT DOCOMO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

 

The two permitted transition methods under the new standard are the full retrospective method, or the modified retrospective method. Under the full retrospective method, all periods presented will be updated upon adoption to conform to the new standard and a cumulative adjustment for effects on periods prior to the reporting period will be recorded to retained earnings at the beginning of the initial reporting period. Under the modified retrospective approach, the current reporting period will be updated to conform to the new standard and a cumulative adjustment for effects of applying the new standard to periods prior to the reporting period that includes the date of initial application is recorded to retained earnings as of the date of initial application, and also incremental disclosures related to the amount affected by the application of this new standard are required. DOCOMO has not decided on a transition method and are currently evaluating the impact of the new standard on DOCOMO’s consolidated financial statements and related disclosures. The impact on revenue resulting from the application of the new standard will be subject to assessments that are dependent on many variables, including, but not limited to, the terms, the transaction prices including discounts and the mixture of the goods and services of DOCOMO’s contractual arrangements. While DOCOMO is continuing to assess all potential impacts resulting from the application of the new standard, DOCOMO believes that the most significant impacts may include the following items:

 

•

The standard requires the recognition of incremental costs of obtaining and direct costs of fulfilling contracts with customers as assets. Accordingly, DOCOMO expects that part of the sales commissions and other charges that have previously been treated as expenses will be recognized as additional assets, which will be amortized over the estimated average period of the subscription for each service.

 

•

The standard requires that if customers are granted by an entity the option to acquire additional goods or services at a discount by a contract agreed between the customer and the entity, the entity shall identify this option as a separate performance obligation upon granting such option as a part of the consideration of the transaction being recognized as contract liabilities, and recognize revenue when the additional good or service is transferred at a discount to the customer or when such option expires. Accordingly, DOCOMO expects that in relation to “docomo POINTs” and “d POINTs” which have traditionally been recorded as accrued liabilities, DOCOMO will recognize a part of the considerations for the transaction of mobile communications and other services as contract liabilities at the time when the points are granted, and recognize revenue when the points are used for the additional good or service at a discount or when the points expire.

DOCOMO has established a team to implement the introduction of the new standard. DOCOMO is in the process of implementing changes to DOCOMO’s systems and setting up reporting processes and internal controls for the adoption of the new revenue recognition standard.

 

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NTT DOCOMO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

 

Recognition and Measurement of Financial Assets and Financial Liabilities —

On January 5, 2016, the FASB issued ASU 2016-01 “Recognition and Measurement of Financial Assets and Financial Liabilities,” which makes targeted improvements to the accounting for, and presentation and disclosure of, financial instruments. ASU 2016-01 requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. ASU 2016-01 does not affect the accounting for investments that would otherwise be consolidated or accounted for under the equity method. The new standard also affects the recognition of changes in fair value of financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. The new standard is effective for DOCOMO on April 1, 2018. DOCOMO is currently evaluating the effect of adopting the ASU.

Lease —

On February 25, 2016, the FASB issued ASU 2016-02 “Lease,” which requires all lessees to recognize the right-of-use asset and lease liability, principally. The new standard is effective for DOCOMO on April 1, 2019. DOCOMO is currently evaluating the effect of adopting the ASU.

Simplifying the Test for Goodwill Impairment —

On January 26, 2017, the FASB issued ASU 2017-04 “Simplifying the Test for Goodwill Impairment,” which eliminates Step 2 from the goodwill impairment test. Instead, the amendments in this update require that an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The amendments in this update are effective for DOCOMO on April 1, 2020. Early adoption of the standard for goodwill impairment tests with measurement dates after January 1, 2017 would also be permitted. DOCOMO is currently evaluating the effect of adopting the ASU.

 

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NTT DOCOMO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

 

3. Equity:

(a) Dividends

The Companies Act of Japan (the “Companies Act”) provides that (i) dividends of earnings require approval at a general meeting of shareholders, (ii) interim cash dividends can be distributed upon the approval of the Board of Directors, if the articles of incorporation provide for such interim cash dividends and (iii) an amount equal to 10% of the decrease in retained earnings, as a result of a dividend payment, shall be contributed to a legal reserve that can be funded up to an amount equal to 25% of capital stock. The legal reserve is available for distribution upon approval of the shareholders.

In the general meeting of shareholders held on June 20, 2017, the shareholders approved cash dividends of ¥148,183 million or ¥40 per share, payable to shareholders of record as of March 31, 2017, which were declared by the Board of Directors on April 27, 2017. The source of such dividends was “Retained earnings.” NTT DOCOMO, INC. started paying the dividends on June 21, 2017.

(b) Issued shares and treasury stock

With regard to the acquisition of treasury stock, the Companies Act provides that (i) it can be executed according to a resolution of the general meeting of shareholders, and (ii) the acquisition of treasury stock through open market transactions can be done according to a resolution of the Board of Directors, if the articles of incorporation contain such a provision. In accordance with (ii) above, a provision in NTT DOCOMO, INC.’s articles of incorporation stipulates that NTT DOCOMO, INC. may repurchase treasury stock through open market transactions, by a resolution of the Board of Directors, for the purpose of improving capital efficiency and implementing flexible capital policies in accordance with the business environment.

 

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NTT DOCOMO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

 

The changes in the number of issued shares and treasury stock were as follows. NTT DOCOMO, INC. has not issued shares other than shares of its common stock.

 

		Number of issued shares				Number of treasury stock
As of March 31, 2016			3,958,543,000				197,926,250
Acquisition of treasury stock based on the resolution of the Board of Directors			—				20,088,600
As of June 30, 2016			3,958,543,000				218,014,850
Acquisition of treasury stock based on the resolution of the Board of Directors			—				35,942,400
Acquisition of treasury stock through purchase of less-than-one-unit shares			—				217
Retirement of treasury stock			(58,980,000	)			(58,980,000	)
As of March 31, 2017			3,899,563,000				194,977,467
As of June 30, 2017			3,899,563,000				194,977,467

On April 28, 2016, the Board of Directors resolved that NTT DOCOMO, INC. may acquire up to 99,132,938 outstanding shares of its common stock by way of the Tokyo Stock Exchange Trading Network Off-Auction Own Share Repurchase Trading System (“ToSTNeT-3”) and market purchases in accordance with the discretionary dealing contract, at an amount in total not exceeding ¥192,514 million from May 2, 2016 through December 31, 2016.

Based on this resolution, NTT DOCOMO, INC. repurchased 9,021,000 shares of its common stock at ¥24,433 million using the ToSTNeT-3 on May 18, 2016, and also repurchased 47,010,000 shares of its common stock for a total purchase price of ¥125,174 million by way of market purchases in accordance with the discretionary dealing contract as of December 31, 2016.

NTT DOCOMO, INC. also carried out compulsory acquisition of less-than-one-unit shares upon request for the fiscal year ended March 31, 2017.

On March 24, 2017, the Board of Directors resolved that NTT DOCOMO, INC. would retire 58,980,000 shares held as treasury stock on March 31, 2017 and the share retirement on March 31, 2017 resulted in decreases of “Retained earnings” by ¥128,997 million.

The aggregate number and price of shares repurchased for the three months ended June 30, 2016 and 2017 were as follows:

 

		Share/Millions of yen
		Three months ended June  30, 2016				Three months ended June  30, 2017
Aggregate number of shares repurchased			20,088,600				—
Aggregate price of shares repurchased		¥	54,641			¥	—

 

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NTT DOCOMO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

 

(c) Accumulated other comprehensive income (loss)

Changes in accumulated other comprehensive income (loss) —

Changes in accumulated other comprehensive income (loss), net of applicable taxes, for the three months ended June 30, 2016 and 2017 were as follows:

 

		Millions of yen
		Three months ended June 30, 2016
		Unrealized holding gains (losses) on available-for-sale securities				Unrealized gains (losses) on cash flow hedges				Foreign currency translation adjustment				Pension liability adjustment				Total
Balance as of March 31, 2016		¥	61,624			¥	(218	)		¥	6,281			¥	(52,799	)		¥	14,888
Other comprehensive income (loss) before reclassifications			(10,839	)			(84	)			(8,105	)			(443	)			(19,471	)
Amounts reclassified from accumulated other comprehensive income (loss)			(982	)			12				—				584				(386	)
Other comprehensive income (loss)			(11,821	)			(72	)			(8,105	)			141				(19,857	)
Less: other comprehensive (income) loss attributable to noncontrolling interests			3				—				202				—				205
Balance as of June 30, 2016		¥	49,806			¥	(290	)		¥	(1,622	)		¥	(52,658	)		¥	(4,764	)
		Millions of yen
		Three months ended June 30, 2017
		Unrealized holding gains (losses) on available-for-sale securities				Unrealized gains (losses) on cash flow hedges				Foreign currency translation adjustment				Pension liability adjustment				Total
Balance as of March 31, 2017		¥	73,363			¥	(133	)		¥	(6,509	)		¥	(42,090	)		¥	24,631
Other comprehensive income (loss) before reclassifications			2,628				(37	)			(8,522	)			(37	)			(5,968	)
Amounts reclassified from accumulated other comprehensive income (loss)			166				12				7,264				473				7,915
Other comprehensive income (loss)			2,794				(25	)			(1,258	)			436				1,947
Less: other comprehensive (income) loss attributable to noncontrolling interests			(0	)			—				31				—				31
Balance as of June 30, 2017		¥	76,157			¥	(158	)		¥	(7,736	)		¥	(41,654	)		¥	26,609

 

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NTT DOCOMO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

 

Reclassifications out of accumulated other comprehensive income (loss) to net income —

Amounts reclassified out of accumulated other comprehensive income (loss) to net income and affected line items in the consolidated statements of income for the three months ended June 30, 2016 and 2017 were as follows:

 

		Millions of yen
		Amounts reclassified out of accumulated other comprehensive income (loss) (*1)
		Three months ended June 30, 2016				Three months ended June 30, 2017				Affected line items in the  consolidated             statements of income
Unrealized holding gains (losses) on available-for-sale securities		¥	1,373			¥	(237	)		“Other, net” of “Other income (expense)”
			60				—			“Equity in net income (losses) of affiliates”
			1,433				(237	)		Pre-tax amount
			(451	)			71			Tax benefit (expense)
			982				(166	)		Net-of-tax amount
Unrealized gains (losses) on cash flow hedges			(17	)			(17	)		“Equity in net income (losses) of affiliates”
			(17	)			(17	)		Pre-tax amount
			5				5			Tax benefit (expense)
			(12	)			(12	)		Net-of-tax amount
Foreign currency translation adjustment			—				(10,926	)		“Equity in net income (losses) of affiliates”
			—				(10,926	)		Pre-tax amount
			—				3,662			Tax benefit (expense)
			—				(7,264	)		Net-of-tax amount
Pension liability adjustment			(852	)			(690	)		(*2)
			(852	)			(690	)		Pre-tax amount
			268				217			Tax benefit (expense)
			(584	)			(473	)		Net-of-tax amount
Total reclassified amounts		¥	386			¥	(7,915	)		Net-of-tax amount

 

(*1)	Amounts in parentheses indicate decreased effects on net income.

(*2)	Amounts reclassified out of pension liability adjustment are included in the computation of net periodic pension cost.

 

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4. Segment information:

DOCOMO’s chief operating decision maker (the “CODM”) is its Board of Directors. The CODM evaluates the performance and makes resource allocations of its segments based on the information provided by DOCOMO’s internal management reports.

DOCOMO has three operating segments, which consist of telecommunications business, smart life business and other businesses.

The telecommunications business includes mobile phone services (LTE(Xi) services and FOMA services), optical-fiber broadband services, satellite mobile communications services, international services and the equipment sales related to these services. The smart life business includes video and music distribution, electronic books and other services offered through DOCOMO’s “dmarket” portal, as well as finance/payment services, shopping services and various other services to support our customers’ daily lives. The other businesses primarily include “Mobile Device Protection Service,” as well as the development, sales and maintenance of IT systems.

Accounting policies used to determine segment operating revenues and operating income (loss) are consistent with those used to prepare the consolidated financial statements in accordance with U.S. GAAP.

 

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Segment operating revenues:

 

		Millions of yen
		Three months ended June  30, 2016				Three months ended June  30, 2017
Telecommunications business-
External customers		¥	894,659			¥	924,034
Intersegment			265				282
Subtotal			894,924				924,316
Smart life business-
External customers			122,161				109,360
Intersegment			3,088				4,179
Subtotal			125,249				113,539
Other businesses-
External customers			91,850				103,302
Intersegment			2,961				3,259
Subtotal			94,811				106,561
Segment total			1,114,984				1,144,416
Elimination			(6,314	)			(7,720	)
Consolidated		¥	1,108,670			¥	1,136,696
Segment operating income (loss):
		Millions of yen
		Three months ended June 30, 2016				Three months ended June 30, 2017
Telecommunications business		¥	270,410			¥	241,418
Smart life business			17,203				16,666
Other businesses			11,678				20,215
Consolidated		¥	299,291			¥	278,299

Segment operating income (loss) is segment operating revenues less segment operating expenses.

DOCOMO does not disclose geographical information because the amounts of operating revenues generated outside Japan are immaterial.

 

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5. Contingencies:

(a) Litigation

DOCOMO is involved in litigation and claims arising in the ordinary course of business. DOCOMO believes that none of the litigation or claims outstanding, pending or threatened against DOCOMO would have a materially adverse effect on DOCOMO’s results of operations, financial position or cash flows.

(b) Guarantees

DOCOMO enters into agreements in the normal course of business that provide guarantees for counterparties. These counterparties include subscribers, related parties, foreign wireless telecommunications service providers and other business partners.

DOCOMO provides subscribers with guarantees for product defects of cellular phone handsets sold by DOCOMO, but DOCOMO is provided with similar guarantees by the handset vendors and no liabilities were recognized for these guarantees.

Though the guarantees or indemnifications provided in transactions other than those with the subscribers are different in each contract, the likelihood of almost all of the performance of these guarantees or indemnifications are remote and amount of payments DOCOMO could be claimed for is not specified in almost all of the contracts. Historically, DOCOMO has not made any significant guarantee or indemnification payments under such agreements. DOCOMO estimates the fair value of the obligations related to these agreements is not significant. Accordingly, no liabilities were recognized for these obligations.

 

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6. Fair value measurements:

Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” U.S. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value according to observability. The inputs are described as follows:

Level 1—quoted prices in active markets for identical assets or liabilities

Level 2—inputs other than quoted prices included within Level 1 that are observable for the asset or liability

Level 3—unobservable inputs for the asset or liability

DOCOMO also distinguishes assets and liabilities measured at fair value every period on a recurring basis from those measured on a nonrecurring basis in certain circumstances.

(a) Assets and liabilities measured at fair value on a recurring basis

DOCOMO’s assets and liabilities measured at fair value on a recurring basis include available-for-sale securities and derivatives.

DOCOMO’s assets and liabilities that were measured at fair value on a recurring basis at March 31, 2017 and June 30, 2017 were as follows:

 

		Millions of yen
		March 31, 2017
		Total				Level 1				Level 2				Level 3
Assets:
Available-for-sale securities
Equity securities (domestic)		¥	83,974			¥	83,974			¥	—			¥	—
Equity securities (foreign)			95,680				95,680				—				—
Debt securities (foreign)			5				5				—				—
Total available-for-sale securities			179,659				179,659				—				—
Derivatives
Foreign exchange forward contracts			0				—				0				—
Total derivatives			0				—				0				—
Total		¥	179,659			¥	179,659			¥	0			¥	—
Liabilities:
Derivatives
Foreign currency option contracts		¥	1,336			¥	—			¥	1,336			¥	—
Foreign exchange forward contracts			11				—				11				—
Total derivatives			1,347				—				1,347				—
Total		¥	1,347			¥	—			¥	1,347			¥	—

There were no transfers between Level 1 and Level 2.

 

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		Millions of yen
		June 30, 2017
		Total				Level 1				Level 2				Level 3
Assets:
Available-for-sale securities
Equity securities (domestic)		¥	84,045			¥	84,045			¥	—			¥	—
Equity securities (foreign)			96,737				96,737				—				—
Debt securities (foreign)			5				5				—				—
Total available-for-sale securities			180,787				180,787				—				—
Derivatives
Foreign exchange forward contracts			0				—				0				—
Total derivatives			0				—				0				—
Total		¥	180,787			¥	180,787			¥	0			¥	—
Liabilities:
Derivatives
Foreign currency option contracts		¥	1,074			¥	—			¥	1,074			¥	—
Foreign exchange forward contracts			0				—				0				—
Total derivatives			1,074				—				1,074				—
Total		¥	1,074			¥	—			¥	1,074			¥	—

There were no transfers between Level 1 and Level 2.

Available-for-sale securities

Available-for-sale securities include marketable equity securities and debt securities, which are valued using quoted prices in active markets for identical assets. Therefore, these securities are classified as Level 1.

Derivatives

Derivative instruments are foreign currency option contracts and foreign exchange forward contracts, which are valued based on observable market data. Therefore, these derivatives are classified as Level 2.

 

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(b) Assets and liabilities measured at fair value on a nonrecurring basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis in certain circumstances.

DOCOMO may be required to measure fair value of receivables held for sale, long-lived assets, equity securities whose fair values are not readily determinable, and other assets or liabilities on a nonrecurring basis.

DOCOMO’s assets that were measured at fair value on a nonrecurring basis for the three months ended June 30, 2016 and 2017 were as follows:

 

		Millions of yen
		Three months ended June 30, 2016
		Total				Level 1				Level 2				Level 3				Gains (losses) (before  taxes)
Assets:
Receivables held for sale		¥	461,912			¥	—			¥	461,912			¥	—			¥	(6,297	)
		Millions of yen
		Three months ended June 30, 2017
		Total				Level 1				Level 2				Level 3				Gains (losses) (before taxes)
Assets:
Receivables held for sale		¥	459,274			¥	—			¥	459,274			¥	—			¥	(5,526	)

Receivables held for sale

Receivables held for sale are measured at the lower of cost or fair value.

Receivables held for sale are classified as Level 2. DOCOMO measures the fair value of the receivables held for sale by discounting, at LIBOR-based discount rates, estimated future cash flows while taking into account factors such as default probabilities and loss severity of similar trade receivables.

 

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7. Subsequent event:

There were no significant subsequent events to be disclosed.

 

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