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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Nippon Tel.& T. | LSE:NPN | London | Ordinary Share | JP3735400008 | NPV |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 3,910.3704 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
RNS Number:2644O Nippon Telegraph and Telephone Corp 30 June 2005 Part 2 NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Accumulated other comprehensive income (loss)- An analysis of the changes for the years ended March 31, 2003, 2004 and 2005 in accumulated other comprehensive income (loss) is shown below: 2003 2004 2005 2005 Millions of yen Millions of U.S. dollars Unrealized gain (loss) on securities: At beginning of year Y 20,707 Y (2,413 ) Y 32,699 $ 306 Change during the year (23,120 ) 35,112 38,715 362 At end of year Y (2,413 ) Y 32,699 Y 71,414 $ 668 Unrealized gain (loss) on derivative instruments: At beginning of year Y (9,717 ) Y 776 Y 2,087 $ 19 Cumulative effect of an accounting change Change during the year (*1) 10,493 1,311 (3,970 ) (37 ) At end of year Y 776 Y 2,087 Y (1,883 ) $ (18 ) Foreign currency translation adjustments: At beginning of year Y 90,836 Y 80,402 Y 64,028 $ 598 Change during the year (10,434 ) (16,374 ) (23,960 ) (224 ) At end of year Y 80,402 Y 64,028 Y 40,068 $ 374 Minimum pension liability adjustments: At beginning of year Y (25,852 ) Y (295,848 ) Y (71,685 ) $ (670 ) Change during the year (269,996 ) 224,163 25,152 235 At end of year Y (295,848 ) Y (71,685 ) Y (46,533 ) $ (435 ) Total accumulated other comprehensive income (loss): At beginning of year Y 75,974 Y (217,083 ) Y 27,129 $ 253 Cumulative effect of an accounting change Change during the year (293,057 ) 244,212 35,937 336 At end of year Y (217,083 ) Y 27,129 Y 63,066 $ 589 -------- (*1) This means net change in unrealized gain (loss) on derivative instruments (net of tax) and is as follows: 2004 2005 2005 Millions of yen Millions of U.S. dollars Unrealized gain arising during the period Y 6,873 Y (347 ) $ (3 ) Less-Reclassification adjustment for gain included in net income (5,562 ) (3,623 ) (34 ) Net change in unrealized gain (loss) on derivative instruments Y 1,311 Y (3,970 ) $ (37 ) F-47 -------------------------------------------------------------------------------- NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Tax effects allocated to each component of other comprehensive income (loss) for the years ended March 31, 2003, 2004 and 2005 are shown below: Pre-tax Tax Net-of-tax amount expense / amount (benefit) Millions of yen For the year ended March 31, 2003: Unrealized gain (loss) on securities Y (40,651 ) Y 17,531 Y (23,120 ) Unrealized gain (loss) on derivative instruments 17,228 (6,735 ) 10,493 Foreign currency translation adjustments (35,649 ) 25,215 (10,434 ) Minimum pension liability adjustment (464,631 ) 194,635 (269,996 ) Other comprehensive income (loss) Y (523,703 ) Y 230,646 Y (293,057 ) For the year ended March 31, 2004: Unrealized gain (loss) on securities Y 60,938 Y (25,826 ) Y 35,112 Unrealized gain (loss) on derivative instruments 2,190 (879 ) 1,311 Foreign currency translation adjustments (43,307 ) 26,933 (16,374 ) Minimum pension liability adjustment 387,798 (163,635 ) 224,163 Other comprehensive income (loss) Y 407,619 Y (163,407 ) Y 244,212 For the year ended March 31, 2005: Unrealized gain (loss) on securities Y 66,630 Y (27,915 ) Y 38,715 Unrealized gain (loss) on derivative instruments (6,736 ) 2,766 (3,970 ) Foreign currency translation adjustments (47,260 ) 23,300 (23,960 ) Minimum pension liability adjustment 43,405 (18,253 ) 25,152 Other comprehensive income (loss) Y 56,039 Y (20,102 ) Y 35,937 Pre-tax Tax Net-of-tax amount expense/ amount (benefit) Millions of U.S. dollars For the year ended March 31, 2005: Unrealized gain (loss) on securities $ 623 $ (261 ) $ 362 Unrealized gain (loss) on derivative instruments (63 ) 26 (37 ) Foreign currency translation adjustments (442 ) 218 (224 ) Minimum pension liability adjustment 406 (171 ) 235 Other comprehensive income (loss) $ 524 $ (188 ) $ 336 17. Business segment and geographic area: The operating segments reported below are those for which segment-specific financial information is available. NTT Group's management uses this financial information to make decisions on the allocation of management resources and to evaluate business performance. The regional communications services segment principally comprises revenues from fixed voice related services, IP/packet communications services, sales of telecommunications equipment, and other operating revenues. F-48 -------------------------------------------------------------------------------- NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The long distance communications and international services segment principally comprises revenues from fixed voice related services, IP/packet communications services, sales of telecommunications equipment, and other operating revenues. The wireless services segment principally comprises revenues from mobile voice related services, IP/packet communications services, sales of telecommunications equipment, and other operating revenues. The data communications services segment principally comprises revenues from system integration services. The other services segment principally comprises operating revenues from such activities as building maintenance, real estate rental, systems development, leasing, and research and development. F-49 -------------------------------------------------------------------------------- NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Business segments- Sales and operating revenue: 2003 2004 2005 2005 Millions of yen Millions of U.S. dollars Sales and operating revenue: Regional communications services Customers Y 4,125,055 Y 4,061,919 Y 3,937,789 $ 36,802 Intersegment 717,848 673,741 651,772 6,091 Total 4,842,903 4,735,660 4,589,561 42,893 Long distance communications and international services Customers 1,068,659 1,057,373 1,045,218 9,768 Intersegment 164,502 132,088 119,580 1,118 Total 1,233,161 1,189,461 1,164,798 10,886 Wireless services Customers 4,780,418 5,022,576 4,821,941 45,065 Intersegment 28,670 25,489 22,669 212 Total 4,809,088 5,048,065 4,844,610 45,277 Data communications services Customers 690,167 697,821 721,816 6,746 Intersegment 141,942 128,127 110,804 1,036 Total 832,109 825,948 832,620 7,782 Other Customers 258,847 255,848 279,104 2,608 Intersegment 1,058,356 988,718 946,619 8,847 Total 1,317,203 1,244,566 1,225,723 11,455 Elimination (2,111,318 ) (1,948,163 ) (1,851,444 ) (17,303 ) Consolidated total Y 10,923,146 Y 11,095,537 Y 10,805,868 $ 100,990 F-50 -------------------------------------------------------------------------------- NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Segment profit or loss: 2003 2004 2005 2005 Millions of yen Millions of U.S. dollars Operating income (loss): Regional communications services Y 169,429 Y 248,395 Y 246,759 $ 2,306 Long distance communications and international 49,338 90,524 62,329 582 services Wireless services 1,056,719 1,102,918 784,166 7,329 Data communications services 58,785 38,317 36,894 345 Other 1,394 29,115 37,554 351 Total 1,335,665 1,509,269 1,167,702 10,913 Elimination 27,892 51,052 43,499 407 Consolidated operating income 1,363,557 1,560,321 1,211,201 11,320 Other income 263,820 130,940 636,171 5,945 Other expenses 222,352 163,913 124,060 1,159 Consolidated income (loss) before income taxes Y 1,405,025 Y 1,527,348 Y 1,723,312 $ 16,106 Equity in earnings (losses) of affiliated companies: Regional communications services Y (93 ) Y 19 Y 66 $ 1 Long distance communications and international (1,982 ) 469 2,170 20 services Wireless services (324,241 ) (21,960 ) (12,886 ) (121 ) Data communications services (839 ) (53 ) 203 2 Other (2,381 ) 1,202 1,462 14 Consolidated total Y (329,536 ) Y (20,323 ) Y (8,985 ) $ (84 ) Assets: 2003 2004 2005 2005 Millions of yen Millions of U.S. dollars Total Assets: Regional communications services Y 9,652,161 Y 9,093,204 Y 8,717,070 $ 81,468 Long distance communications and international 1,633,808 1,542,258 1,581,936 14,784 services Wireless services 6,058,007 6,347,807 6,254,719 58,455 Data communications services 1,183,354 1,189,030 1,187,798 11,101 Other 10,842,737 10,398,513 10,230,533 95,613 Total 29,370,067 28,570,812 27,972,056 261,421 Elimination (9,586,467 ) (9,135,939 ) (8,873,472 ) (82,930 ) Consolidated total Y 19,783,600 Y 19,434,873 Y 19,098,584 $ 178,491 F-51 -------------------------------------------------------------------------------- NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) -------- (Note) The amount of goodwill related to long distance communications and international services is included in the long distance communications and international services segment and the amount of goodwill related to wireless services is included in the wireless services segment. (See Note 10) Other significant items: 2003 2004 2005 2005 Millions of yen Millions of U.S. dollars Depreciation and amortization: Regional communications services Y 1,095,229 Y 1,014,847 Y 976,092 $ 9,122 Long distance communications and international services 161,973 145,263 137,444 1,285 Wireless services 749,197 720,997 735,423 6,873 Data communications services 158,207 164,639 159,874 1,494 Other 219,954 155,145 126,764 1,185 Total 2,384,560 2,200,891 2,135,597 19,959 Elimination (6,796 ) (3,833 ) 6,123 57 Consolidated total Y 2,377,764 Y 2,197,058 Y 2,141,720 $ 20,016 Capital investments for segment assets: Regional communications services Y 730,264 Y 813,212 Y 830,859 $ 7,765 Long distance communications and international services 119,451 136,181 149,476 1,397 Wireless services 853,956 805,482 861,517 8,051 Data communications services 171,017 148,923 110,821 1,036 Other 102,927 109,800 104,728 979 Consolidated total Y 1,977,615 Y 2,013,598 Y 2,057,401 $ 19,228 The capital investments in the above table represent the additions to fixed assets of each segment. Transfers between reportable businesses are made at arms-length prices. Operating income is sales and operating revenue less costs and operating expenses. Geographic information is not presented due to immateriality of revenue attributable to international customers. There have been no sales and operating revenue from transactions with a single external customer amounting to 10% or more of NTT's revenues for the years ended March 31, 2003, 2004 and 2005. 18. Leases: NTT Group leases certain office space, employees' residential facilities and other assets, recorded as capital lease or operating lease. F-52 -------------------------------------------------------------------------------- NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Capital Lease-Lessee Leases qualifying as capital leases at March 31, 2004 and 2005 were as follows: Class of property 2004 2005 2005 ----------- Millions of yen Millions of U.S. dollars Buildings Y 252,761 Y 180,256 $ 1,685 Machinery, vessels and tools 273,731 230,025 2,150 Accumulated depreciation (313,021 ) (270,154 ) (2,525 ) Total Y 213,471 Y 140,127 $ 1,310 Future minimum lease payments by year under capital leases together with the present value of the net minimum lease payments at March 31, 2005 are as follows: Year ending March 31 Millions Millions -------------- of of yen U.S. dollars 2006 Y 26,508 $ 248 2007 114,807 1,073 2008 20,232 189 2009 7,826 73 2010 16,812 157 Thereafter 119,607 1,117 Total minimum lease payments 305,792 2,857 Less-Amount representing interest (103,796 ) (970 ) Present value of net minimum lease payments 201,996 1,887 Less-Current obligation (14,151 ) (132 ) Long-term capital lease obligations Y 187,845 $ 1,755 Operating Lease-Lessee Rental expenses under operating leases for land, buildings and equipment for the years ended March 31, 2003, 2004 and 2005 were Y178,642 million, Y166,252 million and Y179,447 million ($1,677 million), respectively. Minimum future rental payments under operating leases that have initial or remaining non-cancellable lease terms in excess of one year at March 31, 2005 are as follows: Year ending March 31 Millions Millions -------------- of of yen U.S. dollars 2006 Y 3,818 $ 36 2007 3,635 34 2008 3,408 32 2009 3,325 31 2010 1,424 13 Thereafter 18,509 173 Total Y 34,119 $ 319 F-53 -------------------------------------------------------------------------------- NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Direct Financing Lease-Lessor Certain consolidated subsidiaries undertake direct financing lease operations. Direct financing leases consist of full-payout leases relating to various equipment, including office equipment, medical equipment, transport equipment and other equipment. The excess of aggregate lease rentals plus the estimated residual value over the cost of the leased equipment constitutes the unearned lease income to be taken into income over the lease term. The estimated residual values represent estimated proceeds from the disposition of equipment at the time the lease is terminated. Amortization of unearned lease income is computed using the interest method. Direct financing lease receivables at March 31, 2004 and 2005 were as follows: 2004 2005 2005 Millions of yen Millions of U.S. dollars Total minimum lease payments receivable Y 453,341 Y 475,562 $ 4,444 Unearned income (21,022 ) (19,908 ) (186 ) Estimated residual values 6,625 8,658 81 438,944 464,312 4,339 Less-Allowance for doubtful accounts (4,767 ) (4,493 ) (42 ) 434,177 459,819 4,297 Less-Current portion (119,516 ) (121,488 ) (1,135 ) Long-term direct financing lease receivables Y 314,661 Y 338,331 $ 3,162 Allowance for doubtful accounts is based upon past loss experience and an estimation of mortgaged asset values. At March 31, 2005, the contractual maturities of minimum lease payments of the investment in direct financing leases are as follows: Year ending March 31 Millions Millions -------------- of of yen U.S. dollars 2006 Y 147,872 $ 1,382 2007 118,626 1,108 2008 90,873 849 2009 62,672 586 2010 35,205 329 Thereafter 20,314 190 Total Y 475,562 $ 4,444 Operating Lease-Lessor Certain consolidated subsidiaries also provide operating leases. Investments in operating leases at March 31, 2004 and 2005 were as follows: Class of property 2004 2005 2005 ----------- Millions of yen Millions of U.S. dollars Machinery, vessels and tools Y 17,898 Y 23,886 $ 223 Accumulated depreciation (14,690 ) (20,470 ) (191 ) Total Y 3,208 Y 3,416 $ 32 F-54 -------------------------------------------------------------------------------- NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Minimum future rentals under non-cancellable operating leases at March 31, 2005 are as follows: Year ending March 31 Millions Millions -------------- of yen of U.S. dollars 2006 Y 2,258 $ 21 2007 1,061 10 2008 110 1 2009 28 0 2010 2 0 Thereafter - - Total Y 3,459 $ 32 19. Research and development expenses and advertising costs: Research and development expenses- Research and development expenses are charged to income as incurred and such amounts charged to income for the years ended March 31, 2003, 2004 and 2005 were Y395,966 million, Y354,862 million and Y318,074 million ($2,973 million), respectively. Advertising costs- Advertising costs are expensed as incurred. Advertising costs were Y115,057 million, Y119,628 million and Y122,994 million ($1,149 million), which are included in the selling, general and administrative expenses in the consolidated statements of income, for the years ended March 31, 2003, 2004 and 2005, respectively. 20. Subsidiary stock transactions: In May 2002, NTT DoCoMo entered into memoranda of understanding with its eight regional subsidiaries which provide that the eight regional subsidiaries shall become wholly owned subsidiaries of NTT DoCoMo by way of share exchanges. In connection therewith, NTT DoCoMo purchased 870,000 of its own shares at the amount of Y234,462 million, and NTT sold 551,000 shares of NTT DoCoMo to NTT DoCoMo at that time based on its holding ratio. In November 2002, the share exchanges were carried out based on share exchange ratios determined using the valuation of both NTT DoCoMo's and its subsidiaries' common shares. As a result, NTT's holdings in NTT DoCoMo decreased by 1.1% to 63.0% and profit from share sales of Y138,718 million was recorded in the year ended March 31, 2003. The share exchanges were also accounted for using the purchase method in accordance with SFAS 141. The differences between the acquisition costs and the increase in the net assets of the eight subsidiaries were first assigned to the recognized assets acquired and liabilities assumed based on estimated fair value at the date of the share exchanges. The remainder was recorded as goodwill, amounting to Y127,884 million on the consolidated balance sheet as of March 31, 2003. In September 2003, NTT DoCoMo repurchased a total of 716,558 shares for Y194,904 million under its share repurchase program. NTT sold 698,000 shares, resulting in a decrease in interest in NTT DoCoMo from 63.0% to 62.5%. The resulting decrease in interest amounting to Y49,269 million was recorded as "Additional paid-in capital" on the balance sheet as of March 31, 2004 in accordance with NTT's revised accounting policy with respect to change in interest transactions as of April 1, 2003. From November 2003 to March 2004, NTT DoCoMo repurchased a total of 859,658 shares for Y199,998 million under its share repurchase program. As a result of the repurchase, NTT's interest in NTT DoCoMo increased from 62.5% to 63.6%. The increase in interest resulted in goodwill amounting to Y85,541 million being recorded on the balance sheet as of March 31, 2004. F-55 -------------------------------------------------------------------------------- NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) In May 2004, NTT DoCoMo repurchased 43,000 shares of its common stock for Y8,447 million ($79 million) in the stock market. As a result of the repurchase, NTT's interest in NTT DoCoMo increased by 0.1% from 63.6% to 63.7%. The resulting increase in interest amounting to Y3,289 million ($31 million) was recorded as goodwill on the balance sheet as of March 31, 2005. In August 2004, NTT DoCoMo repurchased 1,815,526 shares of its common stock for Y332,241 million ($3,105 million) and NTT sold 1,748,000 shares to NTT DoCoMo at that time. As a result, NTT's interest in NTT DoCoMo decreased by 1.3% from 63.7% to 62.4%. The resulting decrease in interest amounting to Y59,295 million ($554 million) was recorded as "Additional paid-in capital" on the balance sheet as of March 31, 2005. From November 2004 to March 2005, NTT DoCoMo repurchased a total of 465,627 shares for Y84,558 million ($790 million) under its share repurchase program. As a result of the repurchase, NTT's interest in NTT DoCoMo increased from 62.4% to 63.0%. The increase in interest resulted in goodwill amounting to Y29,368 million ($274 million) being recorded on the balance sheet as of March 31, 2005. From May to June 2005, subsequent to the year ended March 31, 2005, NTT DoCoMo repurchased 102,383 shares of its common stock for Y16,916 million ($158 million) in the stock market and NTT sold no shares to NTT DoCoMo at that time. As a result of the repurchase, NTT's interest in NTT DoCoMo increased from 63.0% to 63.2%. The resulting increase in interest will be recorded as goodwill on the balance sheet as of March 31, 2006. NTT URBAN DEVELOPMENT CORPORATION ("NTT UD"), a consolidated subsidiary of NTT, made an initial public offering in conjunction with its Tokyo Stock Exchange listing on November 4, 2004. In connection with the offering, NTT sold 83,277 shares (including 17,277 over-allotment shares) of NTT UD for proceeds of Y 35,676 million ($333 million), and a gain of Y26,984 million ($252 million) from the share sale was recognized as other income. Concurrently, NTT UD issued 132,000 new shares and received total proceeds of Y56,549 million ($528 million). The resulting decrease in interest amounting to Y17,022 million ($159 million) was recorded as "Additional paid-in capital" on the balance sheet as of March 31, 2005. As a result of these transactions, NTT's interest in NTT UD decreased from 100% to 67.3%. 21. Foreign exchange gain and loss: Foreign exchange results (mainly arising from foreign currency borrowings) for the years ended March 31, 2003, 2004 and 2005 were a loss of Y961 million and gains of Y1,052 million and of Y212 million ($2 million), respectively. 22. Financial instruments: Derivative instruments, hedging activities- In the normal course of business, NTT Group has certain financial instruments including long-term debt and other financial assets and liabilities incurred. Such financial instruments are exposed to the market risk of interest rate changes and foreign currency fluctuations. In applying a consistent risk management strategy for the purpose of reducing such risk, NTT Group uses derivative financial instruments, such as forward exchange contracts, interest rate swap agreements, currency swap agreements and interest rate option contracts. NTT Group does not use derivative financial instruments for trading or speculative purposes. F-56 -------------------------------------------------------------------------------- NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Foreign Currency Exchange Rate Risk Management- NTT Group from time to time enters into forward foreign exchange contracts and currency swap agreements to hedge the risk of fluctuations in foreign currency exchange rates associated with long-term debt issued by NTT Group denominated in foreign currencies. Such contracts and agreements have the same maturity as the underlying debt. Interest Rate Risk Management- NTT Group's exposure to market risk for changes in interest rates relates principally to its debt obligations. NTT Group has long-term debt primarily with fixed rates. Interest rate swap agreements are entered into from time to time to convert floating rate underlying debt or assets into fixed rate debt or assets, or vice versa. Interest rate option contracts are entered into from time to time to hedge the risk of a rise in the interest rate of underlying debt. These instruments are executed with creditworthy financial institutions. Fair Value Hedge- The derivatives designated as fair value hedges include interest rate swap agreements that are used for reducing the risk arising from the changes in the fair value of fixed rate debt. As discussed in Note 11, NTT Group issues a variety of long-term debt bearing several types of interest and denominated in several currencies. NTT Group has a strategy to fix the anticipated cash flow related to those debts. From time to time, however, NTT Group enters into pay floating receive fixed rate swaps, to protect the fair value of certain debts in asset liability management. Both the derivatives designated as fair value hedge and hedged items are reflected at fair value in the consolidated balance sheet. Changes in the fair value of the derivatives that are highly effective as, and that are designated and qualified as fair value hedges, along with changes in the fair value of the hedged items that are attributable to the hedged risk, are recognized as "Other, net" in the consolidated statements of income. The amount of ineffectiveness of these fair value hedges, which were reflected in earnings, was not material for the year ended March 31, 2005. In addition, there were no amounts excluded from the assessment of hedge effectiveness of fair value hedges. Cash Flow Hedge- The derivatives designated as cash flow hedges include forward exchange contracts, currency swap agreements and interest rate swap agreements. As discussed in Note 11, NTT Group has foreign currency exposures related to its long-term debt denominated in other than yen. In accordance with NTT Group's strategy, NTT Group fixes the anticipated cash flows of paying interest and principal amounts by entering into foreign currency contracts and foreign currency swaps, to ensure its cash flows are fixed in yen. This ensures that NTT Group is not exposed to fluctuations of foreign exchange rates. Also, as discussed in Note 11, NTT Group has floating rate debt exposures related to its long-term debt. In accordance with NTT Group strategy, NTT Group fixes the anticipated cash flows of interest payment by entering into pay fixed receive floating rate swaps. This ensures that NTT Group is not exposed to fluctuations of interest rates. Changes in the fair value of derivatives that are highly effective as, and that are designated and qualified as cash flow hedges are recorded in other comprehensive income (loss), until changes in cash flows from the hedged transactions are recognized as "Other, net" in the consolidated statements of income. For the year ended March 31, 2005, these cash flow hedges were effective and the amount that representing hedges' ineffectiveness was not material. In addition, there were no material amounts excluded from the assessment of hedge effectiveness of cash flow hedges. As of March 31, 2005, approximately Y4,809 million ($45 million) of deferred net gains on derivative instruments accumulated in other comprehensive income (loss) are expected to be reclassified as earnings during the next twelve months when the related interest expense is recognized. F-57 -------------------------------------------------------------------------------- NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Fair value of financial instruments- The table that follows provides the estimated fair value of financial instruments. Assets and liabilities that are reflected in the accompanying financial statements at fair value are not included in the table; such as cash and cash equivalents, notes and accounts receivable, trade, short-term borrowings, accounts payable, trade, accrued payroll. 2004 2005 2005 Carrying Fair value Carrying Fair value Carrying Fair amounts amounts amounts value Millions of yen Millions of U.S. dollars Long-term debt including current Y 5,633,566 Y 5,765,681 Y 5,102,949 Y 5,159,172 $ 47,691 $ 48,217 portion Forward exchange contracts (572) (572) (208) (208) (2) (2) Interest rate and currency swap (14,709 ) (14,709 ) (5,272 ) (5,272 ) (49 ) (49) agreements The fair value of long-term debt, including the current portion, is estimated based on the discounted amounts of future cash flows using NTT Group's current incremental rates of borrowings for similar liabilities. The fair value of forward exchange contracts, interest rate swap and currency swap agreements are estimated based on the discounted amounts of future cash flows which NTT group will receive or pay, assuming that NTT group terminates the contracts and agreements at March 31, 2005. The table below shows the notional principal amounts of those derivative financial instruments at March 31, 2004 and 2005: 2004 2005 2005 Millions of yen Millions of U.S. dollars Forward exchange contracts Y 14,285 Y 10,827 $ 101 Interest rate and currency swap agreements 583,085 678,388 6,340 Concentrations of credit risk- NTT Group does not have any significant concentration of business transacted with an individual counter-party or groups of counter-parties that could, if suddenly eliminated, severely impact its operations at March 31, 2005. F-58 -------------------------------------------------------------------------------- NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 23. Commitments and contingent liabilities: The aggregate amount of payments for commitments outstanding at March 31, 2005, including commitments for purchase of property, plant and equipment and other assets is as follows: Year ending March 31 Millions Millions -------------- of of yen U.S. dollars 2006 Y 282,329 $ 2,639 2007 11,329 106 2008 4,455 42 2009 2,517 23 2010 1,859 17 Thereafter 1,627 15 Total Y 304,116 $ 2,842 Contingent liabilities at March 31, 2005 for loans guaranteed amounted to Y 30,277 million ($283 million). The principal component of this total at March 31, 2005 was a Y19,734 million ($184 million) guarantee for borrowings by Cosmos Post and Telecommunications International Leasing Co., Ltd, an affiliate. At March 31, 2005, NTT Group had no material litigation or claims outstanding, pending or threatened against it, which would have a material adverse effect on NTT's consolidated financial position or results of operations. 24. Subsequent events: On March 29, 2005, the board of directors resolved that NTT may raise up to Y150 billion by issuing bonds or incurring long-term borrowings during the period from April 1 to June 30, 2005. Based on this resolution, NTT issued bonds as follows: Nippon Telegraph and Telephone Swiss Franc denominated straight bonds Date of issue June 27, 2005 Issue amount SFr 250 million (Y 21,708 million) Issue price 100.377% Interest rate 1.875% Date of maturity June 27, 2012 Use of proceeds Capital investments On April 27, 2005, NTT DoCoMo entered into an agreement with Sumitomo Mitsui Card Company, Limited ("Sumitomo Mitsui Card"), Sumitomo Mitsui Financial Group, Inc. and Sumitomo Mitsui Banking Corporation that NTT DoCoMo and these companies would jointly promote the new credit transaction services which use the "Mobile Wallet" phones and NTT DoCoMo would form a capital alliance with Sumitomo Mitsui Card. Based on the agreement, NTT DoCoMo plans to acquire 34% of Sumitomo Mitsui Card's common shares for approximately Y98 billion, including new shares to be issued by Sumitomo Mitsui Card. F-59 -------------------------------------------------------------------------------- NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS YEAR ENDED MARCH 31 Balance Additions Deductions Balance at charged (*1) at beginning to end of of costs and period period expenses Millions of yen Year ended March 31, 2003: Allowance for doubtful accounts Y 43,005 Y 30,349 Y (31,373 ) Y 41,981 Year ended March 31, 2004: Allowance for doubtful accounts Y 41,981 Y 22,318 Y (23,982 ) Y 40,317 Year ended March 31, 2005: Allowance for doubtful accounts Y 40,317 Y 21,922 Y (26,327 ) Y 35,912 Balance Additions Deductions Balance at charged (*1) at beginning to end of of costs and period period expenses Millions of U.S. dollars Year ended March 31, 2005: Allowance for doubtful accounts $ 377 $ 205 $ (246 ) $ 336 - ---------- *1: Amounts written off. Balance Additions Deductions Balance at at beginning end of of period period Millions of yen Year ended March 31, 2003: Valuation allowance-Deferred tax assets Y 19,887 Y 45,907 Y (2,278 ) Y 63,516 Year ended March 31, 2004: Valuation allowance-Deferred tax assets Y 63,516 Y 21,305 Y (23,868 ) Y 60,953 Year ended March 31, 2005: Valuation allowance-Deferred tax assets Y 60,953 Y 35,745 Y (9,080 ) Y 87,618 Balance Additions Deductions Balance at at beginning end of of period period Millions of U.S. dollars Year ended March 31, 2005: Valuation allowance-Deferred tax assets $ 570 $ 334 $ (85 ) $ 819 F-60 This information is provided by RNS The company news service from the London Stock Exchange END MSCIIFIARTIIVIE
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