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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 |
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RNS Number:7753V
Nippon Telegraph and Telephone Corp
16 December 2005
INTERIM RESULTS:
Attached is the registrant's unaudited semi-annual consolidated financial
information, prepared on the basis of accounting principles generally accepted
in the United States.
This interim information corresponds to a significant part of the registrant's
semi-annual report which the registrant filed on December 16, 2005 with the
Ministry of Finance of Japan and each stock exchange in Japan on which
securities of the registrant are listed. This semi-annual report was filed
pursuant to the Securities and Exchange Law of Japan and includes, inter alia,
consolidated financial information of the registrant for the first half of the
fiscal year ending March 31, 2006. Most of the contents of the report have
already been reported by the registrant in its press release dated November 9,
2005.
We have made forward-looking statements, all of which are subject to risks and
uncertainties. These forward-looking statements contain information concerning
possible or assumed business performance or achievement.
No assurance can be given that the actual results will not vary significantly
from projected results.
The attached financial information is a translation of the Japanese original.
The Japanese original is authoritative.
--------------------------------------------------------------------------------
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Millions of yen Millions
of
U.S.
dollars
(Note 2)
March 31, September 30, September
2005 30,
2005 ------------- 2005
------------- ----------
ASSETS
Current assets:
Cash and cash equivalents Y 1,381,959 Y 1,138,281 $ 10,073
Short-term investments 264,455 313,124 2,771
Notes and accounts receivable, trade 1,846,176 1,613,175 14,276
Allowance for doubtful accounts (35,912 ) (37,561 ) (332 )
Inventories 284,826 342,196 3,028
Prepaid expenses and other current assets 453,173 414,311 3,666
Deferred income taxes 321,936 266,295 2,357
- ----------- - - ----------- - - -------- -
Total current assets 4,516,613 4,049,821 35,839
- ----------- - - ----------- - - -------- -
Property, plant and equipment (Notes 1 and 3):
Telecommunications equipment 13,945,449 14,208,168 125,736
Telecommunications service lines 12,865,704 12,989,043 114,947
Buildings and structures 5,602,881 5,632,761 49,848
Machinery, vessels and tools 1,918,728 1,935,152 17,125
Land 837,103 846,711 7,493
Construction in progress 258,455 348,443 3,084
- ----------- - - ----------- - - -------- -
35,428,320 35,960,278 318,233
Accumulated depreciation (24,947,768 ) (25,501,395 ) (225,676 )
- ----------- - - ----------- - - -------- -
10,480,552 10,458,883 92,557
- ----------- - - ----------- - - -------- -
Investments and other assets:
Investments in affiliated companies (Notes 1, 4 and 11) 178,033 241,689 2,139
Marketable securities and other investments (Note 5) 438,159 466,270 4,126
Goodwill (Note 9) 320,536 333,033 2,947
Other intangibles, net 1,329,631 1,322,392 11,703
Other assets 707,543 702,146 6,214
Deferred income taxes 1,127,517 1,075,485 9,517
- ----------- - - ----------- - - -------- -
4,101,419 4,141,015 36,646
- ----------- - - ----------- - - -------- -
Y 19,098,584 Y 18,649,719 $ 165,042
- ----------- - - ----------- - - -------- -
The accompanying notes are an integral part of these statements.
-1-
--------------------------------------------------------------------------------
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Millions of yen Millions
of
U.S.
dollars
(Note 2)
March 31, September September
2005 30, 30,
------------
2005 2005
------------ ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings Y 422,886 Y 564,722 $ 4,998
Current portion of long-term debt 779,198 976,305 8,640
Accounts payable, trade 1,465,229 1,030,244 9,117
Accrued payroll 493,935 384,255 3,401
Accrued interest 18,200 13,486 119
Accrued taxes on income 115,084 200,342 1,773
Accrued consumption tax 16,034 33,565 297
Advances received 67,389 81,750 723
Other 301,624 393,944 3,486
- ---------- - - ---------- - - -------- -
Total current liabilities 3,679,579 3,678,613 32,554
- ---------- - - ---------- - - -------- -
Long-term liabilities:
Long-term debt 4,323,751 4,087,072 36,169
Obligations under capital leases 187,845 113,833 1,007
Liabilities for employees' severance payments 1,861,073 1,860,718 16,467
Other 548,464 531,004 4,699
- ---------- - - ---------- - - -------- -
6,921,133 6,592,627 58,342
- ---------- - - ---------- - - -------- -
Minority interest in consolidated subsidiaries 1,729,269 1,792,472 15,863
- ---------- - - ---------- - - -------- -
Shareholders' equity:
Common stock, no par value -
Authorized - 61,929,209 shares Issued -
15,741,209 shares at March 31 and September 30, 2005 937,950 937,950 8,300
Additional paid-in capital (Note 9) 2,799,828 2,841,100 25,142
Retained earnings 3,334,866 3,620,780 32,042
Accumulated other comprehensive income (loss) 63,066 92,947 823
Treasury stock, at cost - 801,451 shares at March 31, 2005 and (367,107 ) (906,770 ) (8,024 )
1,918,768 shares at September 30, 2005
- ---------- - - ---------- - - -------- -
6,768,603 6,586,007 58,283
- ---------- - - ---------- - - -------- -
Contingent liabilities (Note 11)
Y 19,098,584 Y 18,649,719 $ 165,042
- ---------- - - ---------- - - -------- -
Yen U.S.
dollars
(Note 2)
March 31, September September
2005 30, 30,
------------
2005 2005
------------ ----------
Per share of common stock:
Net assets Y 453,059.74 Y 476,472.06 $ 4,216.57
- ---------- - - ---------- - - -------- -
The accompanying notes are an integral part of these statements.
-2-
--------------------------------------------------------------------------------
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
SIX-MONTH PERIOD ENDED SEPTEMBER 30
Millions of yen Millions
of
U.S.
dollars
(Note 2)
2004 2005 2005
------------ ------------ --------
Operating revenues:
Fixed voice related services Y 1,800,977 Y 1,701,200 $ 15,055
Mobile voice related services 1,614,945 1,580,627 13,988
IP/packet communications services 876,012 947,472 8,384
Sale of telecommunications equipment 353,824 283,721 2,511
System integration 388,101 402,884 3,565
Other 287,760 315,579 2,793
- ---------- - - ---------- - - ------ -
5,321,619 5,231,483 46,296
- ---------- - - ---------- - - ------ -
Operating expenses (Note 8):
Cost of services (exclusive of items shown separately below) 1,092,651 1,063,389 9,411
Cost of equipment sold (exclusive of items shown separately below) 622,036 573,731 5,077
Cost of system integration (exclusive of items shown separately 241,327 247,553 2,191
below)
Depreciation and amortization 1,052,720 1,023,598 9,059
Impairment loss (Note 3) - 3,434 30
Selling, general and administrative expenses 1,525,058 1,556,395 13,773
- ---------- - - ---------- - - ------ -
4,533,792 4,468,100 39,541
- ---------- - - ---------- - - ------ -
Operating income 787,827 763,383 6,755
- ---------- - - ---------- - - ------ -
Other income (expenses):
Interest and amortization of bond discounts and issue costs (48,889 ) (37,829 ) (335 )
Interest income 12,535 15,822 140
Gains on sales of investments in affiliated company (Note 4) - 61,962 549
Others, net 22,687 30,304 268
- ---------- - - ---------- - - ------ -
(13,667 ) 70,259 622
- ---------- - - ---------- - - ------ -
Income (loss) before income taxes 774,160 833,642 7,377
- ---------- - - ---------- - - ------ -
Income tax expense (benefit):
Current 201,507 197,480 1,747
Deferred 102,561 137,371 1,216
- ---------- - - ---------- - - ------ -
304,068 334,851 2,963
- ---------- - - ---------- - - ------ -
Income (loss) before minority interest and equity in earnings 470,092 498,791 4,414
(losses) of
affiliated companies
Minority interest in consolidated subsidiaries (128,011 ) (148,338 ) (1,313 )
Equity in earnings (losses) of affiliated companies (Note 4) 2,473 (19,720 ) (174 )
- ---------- - - ---------- - - ------ -
Net income (loss) Y 344,554 Y 330,733 $ 2,927
- ---------- - - ---------- - - ------ -
Shares or yen U.S.
dollars
(Note 2)
2004 2005 2005
------------ ------------ --------
Per share of common stock:
Weighted average number of shares outstanding 15,740,969 14,805,270
Net income (loss) Y 21,889.00 Y 22,338.87 $ 197.69
Cash dividends Y 3,000.00 Y 3,000.00 $ 26.55
- ---------- - - ---------- - - ------ -
The accompanying notes are an integral part of these statements.
-3-
--------------------------------------------------------------------------------
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
SIX-MONTH PERIOD ENDED SEPTEMBER 30
Millions of yen Millions
of
U.S.
dollars
(Note 2)
2004 2005 2005
----------- ----------- --------
Common stock:
At beginning of period Y 937,950 Y 937,950 $ 8,300
- --------- - - --------- - - ------ -
At end of period 937,950 937,950 8,300
- --------- - - --------- - - ------ -
Additional paid-in capital:
At beginning of period 2,722,092 2,799,828 24,777
Increase in interest of investee (Note 9) 59,295 41,272 365
- --------- - - --------- - - ------ -
At end of period 2,781,387 2,841,100 25,142
- --------- - - --------- - - ------ -
Retained earnings:
At beginning of period 2,710,805 3,334,866 29,512
Appropriations -
Cash dividends (39,354 ) (44,819 ) (397 )
Net income (loss) 344,554 330,733 2,927
Other 452 - -
- --------- - - --------- - - ------ -
At end of period 3,016,457 3,620,780 32,042
- --------- - - --------- - - ------ -
Accumulated other comprehensive income (loss):
At beginning of period 27,129 63,066 558
Other comprehensive income (loss) 31,802 29,881 265
- --------- - - --------- - - ------ -
At end of period 58,931 92,947 823
- --------- - - --------- - - ------ -
Treasury stock, at cost:
At beginning of period (4 ) (367,107 ) (3,248 )
Net change in treasury stock (271 ) (539,663 ) (4,776 )
- --------- - - --------- - - ------ -
At end of period (275 ) (906,770 ) (8,024 )
- --------- - - --------- - - ------ -
Shareholders' equity at end of period Y 6,794,450 Y 6,586,007 $ 58,283
- --------- - - --------- - - ------ -
Summary of total comprehensive income (loss):
Net income (loss) Y 344,554 Y 330,733 $ 2,927
Other comprehensive income (loss) 31,802 29,881 265
- --------- - - --------- - - ------ -
Comprehensive income (loss) Y 376,356 Y 360,614 $ 3,192
- --------- - - --------- - - ------ -
The accompanying notes are an integral part of these statements.
-4-
--------------------------------------------------------------------------------
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX-MONTH PERIOD ENDED SEPTEMBER 30
Millions of yen Millions
of
U.S.
dollars
(Note 2)
2004 2005 2005
------------ ------------ ---------
Cash flows from operating activities:
Net income (loss) Y 344,554 Y 330,733 $ 2,927
Adjustments to reconcile net income (loss) to net cash provided by
operating activities -
Depreciation and amortization 1,052,720 1,023,598 9,059
Impairment loss (Note 3) - 3,434 30
Deferred taxes 102,561 137,371 1,216
Minority interest in consolidated subsidiaries 128,011 148,338 1,313
Loss on disposal of property, plant and equipment 72,167 42,817 379
Gains on sales of investments in affiliated company (Note 4) - (61,962 ) (549 )
Equity in (earnings) losses of affiliated companies (Note 4) (2,473 ) 19,720 174
(Increase) decrease in notes and accounts receivable, trade 187,401 238,197 2,108
(Increase) decrease in inventories (67,751 ) (57,288 ) (507 )
(Increase) decrease in other current assets (24,609 ) 37,894 335
Increase (decrease) in accounts payable, trade and accrued payroll (398,277 ) (398,689 ) (3,528 )
Increase (decrease) in accrued consumption tax (22,994 ) 17,391 154
Increase (decrease) in accrued interest (2,577 ) (4,997 ) (44 )
Increase (decrease) in advances received 9,492 13,880 123
Increase (decrease) in accrued taxes on income (107,823 ) 85,222 754
Increase (decrease) in other current liabilities 39,930 55,555 492
Increase (decrease) in liabilities for employees' severance payments, 9,434 1,517 13
net of deferred pension costs
Increase (decrease) in other long-term liabilities (22,069 ) (13,644 ) (121 )
Other (26,187 ) (19,557 ) (173 )
- ---------- - - ---------- - - ------- -
Net cash provided by operating activities 1,271,510 1,599,530 14,155
- ---------- - - ---------- - - ------- -
Cash flows from investing activities:
Payments for property, plant and equipment (873,972 ) (909,901 ) (8,052 )
Proceeds from sale of property, plant and equipment 25,046 12,823 113
Payments for purchase of non-curent investments (5,587 ) (114,940 ) (1,017 )
Proceeds from sale of non-current investments (Note 9) 32,937 38,130 337
Payments for purchase of short-term investments - (250,344 ) (2,215 )
Proceeds from redemption of short-term investments - 201,065 1,779
Acquisition of intangible and other assets (213,039 ) (187,508 ) (1,659 )
- ---------- - - ---------- - - ------- -
Net cash used in investing activities Y (1,034,615 ) Y (1,210,675 ) $ (10,714 )
- ---------- - - ---------- - - ------- -
The accompanying notes are an integral part of these statements.
-5-
--------------------------------------------------------------------------------
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX-MONTH PERIOD ENDED SEPTEMBER 30
Millions of yen Millions
of
U.S.
dollars
(Note 2)
2004 2005 2005
----------- ----------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt Y 195,200 Y 194,416 $ 1,721
Payments for settlement of long-term debt (342,805 ) (249,382 ) (2,207 )
Dividends paid (39,354 ) (44,819 ) (397 )
Payments to acquire treasury stock (271 ) (539,663 ) (4,776 )
Payments for acquisition of subsidiary stocks from minority shareholders (20,804 ) (22,321 ) (197 )
(Note 9)
Net increase (decrease) in short-term borrowings and other (14,757 ) 23,872 211
- --------- - - --------- - - ------ -
Net cash provided by (used in) financing activities (222,791 ) (637,897 ) (5,645 )
- --------- - - --------- - - ------ -
Effect of exchange rate changes on cash and cash equivalents 2,433 5,364 47
- --------- - - --------- - - ------ -
Net increase (decrease) in cash and cash equivalents 16,537 (243,678 ) (2,157 )
Cash and cash equivalents at beginning of period 1,431,421 1,381,959 12,230
- --------- - - --------- - - ------ -
Cash and cash equivalents at end of period Y 1,447,958 Y 1,138,281 $ 10,073
- --------- - - --------- - - ------ -
Cash paid during the period for:
Interest Y 50,955 Y 42,078 $ 372
- --------- - - --------- - - ------ -
Income taxes, net Y 294,200 Y 29,193 $ 258
- --------- - - --------- - - ------ -
Noncash investing and financing activities:
Acquisition of shares from sale of an investment Y 16,711 - -
- --------- - - --------- - - ------ -
Capital lease obligations incurred during the period Y 9,011 Y 7,469 $ 66
- --------- - - --------- - - ------ -
The accompanying notes are an integral part of these statements.
-6-
--------------------------------------------------------------------------------
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Summary of significant accounting policies:
As permitted by Section 81 of "Regulation Concerning the Terminology, Forms and
Preparation Methods of Semi-annual Consolidated Financial Statements" (Japanese
Ministry of Finance Ordinance No. 24, 1999), the accompanying consolidated
balance sheets at March 31 and September 30, 2005 and the consolidated
statements of income, shareholders' equity and cash flows for the six months
ended September 30, 2004 and 2005 of Nippon Telegraph and Telephone Corporation
("NTT") and its subsidiaries ("NTT Group") have been prepared in accordance with
accounting principles generally accepted in the United States of America.
(1) Application of New Accounting Standards
Accounting for Conditional Asset Retirement Obligations
Effective April 1, 2005, NTT Group adopted the Financial Accounting Standards
Board ("FASB") Interpretation No. 47 ("FIN 47") "Accounting for Conditional
Asset Retirement Obligations - an interpretation of FASB Statement No. 143." FIN
47 provides guidance relating to the identification of and financial reporting
for legal obligations to perform an asset retirement activity. The
Interpretation requires recognition of a liability for the fair value of a
conditional asset retirement obligation when incurred if the liability's fair
value can be reasonably estimated. The adoption of FIN 47 did not have an impact
on the results of operations or the financial position of NTT Group.
(2) Principal Accounting Policies
Basis of consolidation and accounting for investments in affiliated companies -
The consolidated financial statements include the accounts of NTT, those of its
majority-owned subsidiaries, and variable interest entities ("VIEs") that have
been consolidated in accordance with the FASB revised Interpretation No. 46 ("
FIN 46R"), "Consolidation of Variable Interest Entities." All significant
intercompany transactions and accounts are eliminated in consolidation.
The half-year periods of certain foreign subsidiaries end on June 30 and any
significant subsequent transactions for the period from July 1 to September 30
are reflected in the results of operations of NTT Group.
-7-
--------------------------------------------------------------------------------
Investments in affiliated companies where NTT Group owns an aggregate of 20 to
50 percent, and/or if NTT exercises significant influence over the affiliated
companies, are stated at cost plus equity in undistributed earnings. Investments
with less than 20% ownership interest in various private companies whereby NTT
does not have significant influence are recorded using the cost method of
accounting.
Under Accounting Principles Board ("APB") Opinion No. 18, "The Equity Method of
Accounting for Investments in Common Stock," NTT evaluates its investments in
affiliates for impairment due to declines in value considered to be other than
temporary. In performing its evaluations, NTT utilizes various information, as
available, including cash flow projections, independent valuations and, if
applicable, stock price analysis. In the event of a determination that a decline
in value is other than temporary, a charge to earnings is recorded for the loss
and a new cost basis in the investment is established.
When subsidiaries or affiliated companies issue shares to third parties at
amounts in excess of or less than NTT's average carrying value or similar
transactions which result in a change in interest, the resulting change in
interest is recorded in equity.
Use of estimates -
The preparation of NTT's consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the consolidated financial
statements and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
Revenue recognition -
Revenues arising from fixed voice related services, mobile voice related
services, IP/packet communications services and other services are recognized at
the time these services are provided to customers. With regard to revenues from
mobile voice related services and IP/packet communications services, monthly
rate plans for cellular (FOMA and mova) services generally include a certain
amount of allowances (free minutes and/or packets), and the used amount of the
allowances is subtracted from total usage in calculating the airtime revenue
from a subscriber for the month. In November 2003, NTT Group introduced a
billing arrangement, called "Nikagetsu Kurikoshi" (two-month carry over), in
which the unused allowances are automatically carried over up to the following
two months. NTT Group also introduced a new arrangement which enables the unused
allowances offered in and after December 2004 that have been carried over for
two months to be automatically used to cover the airtime and/or packet fees
exceeding the allowances of the other lines in the "Family Discount" group, a
discounted billing arrangement for families with two to ten subscriptions. With
the introduction of these new billing arrangements, NTT Group has deferred
revenues based on the portion of unused allowances that are estimated to be
utilized prior to expiration. As NTT Group does not have sufficient empirical
evidence to reasonably estimate such amounts, NTT Group currently deducts and
defers all amounts allocated to unused allowances from revenues. The deferred
revenues are recognized as revenues as the subscribers make calls or data
communications, similar to the way airtime revenues are recognized, or as
allowance expire.
-8-
--------------------------------------------------------------------------------
Within revenues from mobile voice related services, non-recurring upfront fees,
such as activation fees, are deferred and recognized as revenues over the
estimated average period of the customers for each service. The related direct
costs are also deferred only to the extent of the related upfront fee amount and
are amortized over the same periods.
Sales of telecommunications equipment less certain amounts of agency commissions
are recognized as income upon delivery of the equipment primarily to agent
resellers in accordance with Emerging Issues Task Force Issue No. 01-09, "
Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor's Products)," which NTT Group adopted effective April 1,
2002. The transactions are considered to have occurred when the agent resellers
have taken the title to the product, and the risk and rewards of ownership have
been substantially transferred.
Revenues from system integration are recognized upon completion of each project.
In connection with revenues from system integration projects, provision for
estimated losses, if any, is made in the period in which the loss first becomes
probable and reasonably quantifiable.
Cash, cash equivalents and short-term investments -
Cash in excess of daily requirements is invested in time deposits, marketable
bonds of the Japanese Government, commercial paper and certificates of deposit
purchased under agreements to resell. Those with original maturities of three
months or less are classified as "Cash and cash equivalents" in the consolidated
balance sheets. Those with original maturities of longer than three months and
remaining maturities of 12 months or less at the end of the period are
classified as "Short-term investments" in the consolidated balance sheets.
Foreign currency translation -
All asset and liability accounts of foreign subsidiaries and affiliates are
translated into Japanese yen at appropriate current rates at the end of the
period, and all income and expense accounts are translated at rates that
approximate those rates prevailing at the time of transactions. The resulting
translation adjustments are accumulated as a component of accumulated other
comprehensive income (loss).
Foreign currency receivables and payables are translated at appropriate current
rates at the end of the period and the resulting translation gains or losses are
taken into income currently.
NTT Group transacts limited business in foreign currencies. The effect of
exchange rate fluctuations from the initial transaction date to the settlement
date is recorded as "Other, net" in the consolidated statements of income.
-9-
--------------------------------------------------------------------------------
Marketable securities -
Unrealized gains and losses on equity securities designated as
available-for-sale, whose fair values are readily determinable, are reported as
a component of accumulated other comprehensive income (loss), net of taxes.
Equity securities, whose fair values are not readily determinable, are carried
at cost. NTT Group periodically reviews the carrying amounts of its marketable
securities for impairments that are other than temporary. If this evaluation
indicates there is an impairment that is other than temporary, the security is
written down to its estimated fair value. Debt securities designated as
held-to-maturity are carried at amortized cost and are reduced to net realizable
value for declines in market value unless such declines are deemed to be
temporary. Realized gains and losses, which are determined on the average cost
method, are reflected in income.
Inventories -
Inventories consist of telecommunication equipment to be sold, projects in
progress and materials and supplies. Telecommunication equipment to be sold and
materials are stated at cost, not in excess of market value with cost being
determined on a first-in first-out basis. Projects in progress, which mainly
relate to software production based on contracts with customers, are stated at
the lower of cost or estimated realizable value. Supplies are valued at cost,
not in excess of market value with cost being determined by the average cost
method or by the specific identification method.
Property, plant and equipment and depreciation -
Property, plant and equipment are stated at cost. Depreciation is computed
principally using a declining-balance method at rates based on estimated useful
lives of the assets with the exception of buildings for which the straight-line
method is generally used. With minor exceptions, the estimated useful lives of
depreciable properties are as follows:
Digital switch equipment 6 years
Cables 10 to 13 years
Tubes and tunnels 27 years
Reinforced concrete buildings 38 to 50 years
Machinery, vessels and tools 2 to 20 years
Maintenance and repairs, including minor renewals and betterments, are charged
to income as incurred.
-10-
--------------------------------------------------------------------------------
Capitalized interest -
Interest is capitalized where it relates to the construction of property, plant
and equipment over the period of construction. NTT Group also capitalizes
interest associated with the development of internal-use software. NTT Group
amortizes such capitalized interest over the estimated useful lives of the
related assets.
Accounting for impairment of long-lived assets -
Long-lived assets, including property, plant and equipment, software and certain
other intangible asset with finite useful lives are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable, in accordance with Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets." If the total of the expected future undiscounted cash flows
is less than the carrying amount of the asset, a loss is recognized for the
difference between the fair value and carrying value of the asset.
Goodwill and other intangible assets -
Goodwill is the excess of the acquisition cost of businesses over the fair value
of the identifiable net assets acquired. NTT Group applies the provisions of
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets," under which goodwill is not amortized, but tested for
impairment on an annual basis and when indicators of impairment are present.
Other intangible assets primarily consist of computer software and the right to
use utility facilities. NTT Group capitalizes the cost of internal-use software,
which has a useful life in excess of one year in accordance with AICPA Statement
of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." Subsequent additions, modifications or
upgrades to internal-use software are capitalized only to the extent that they
allow the software to perform a task it previously did not perform. Software
maintenance and training costs are expensed in the period in which they are
incurred. Capitalized computer software costs are amortized on a straight-line
basis over a period of generally five years.
Income taxes -
Income taxes are computed based on "Income (loss) before income taxes" included
in the consolidated statements of income. The asset and liability approach is
used to recognize deferred tax assets and liabilities for the expected future
tax consequences of temporary differences between the carrying amounts and the
tax basis of assets and liabilities and of operating loss carryforwards.
Valuation allowances are recorded to reduce deferred tax assets when it is more
likely than not that a tax benefit will not be realized.
-11-
--------------------------------------------------------------------------------
NTT Group applies the accounting procedures and presentation used in the
consolidated tax return system. Under the consolidated tax return system, the
amount of corporate income tax and adjusted amounts related to corporate income
and other similar tax is calculated by totaling the taxable income of NTT and
its wholly-owned subsidiaries. In addition, the realizable amount of deferred
tax assets relating to corporate income tax will be assessed on the basis of the
future taxable income estimates of NTT and its wholly owned subsidiaries. As of
September 30, 2005, NTT had 134 wholly owned subsidiaries in Japan, including
NTT East, NTT West and NTT Communications.
Derivative financial instruments -
NTT Group uses several types of derivative financial instruments to manage
foreign currency exchange rate and interest rate risks. NTT Group does not use
derivative instruments for trading or speculative purposes.
In accordance with Statement of Financial Accounting Standards No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities," No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities,"
and No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities," all derivatives are recognized as either assets or liabilities in
the balance sheet at fair value and are reported in "Prepaid expenses and other
current assets," "Other assets," "Current liabilities - Other" and "Long-term
liabilities - Other" in the consolidated balance sheets. Classification of each
derivative as current or non-current is based upon whether the maturity of each
instrument is less than or greater than 12 months. Changes in fair value of
derivative financial instruments are either recognized in income or
shareholders' equity (as a component of accumulated other comprehensive income
(loss)), depending on whether the derivative financial instrument qualifies as a
hedge and the derivative is being used to hedge changes in fair value or cash
flows.
The fair values of forward exchange contracts, interest rate swap agreements,
and currency swap agreements are estimated based on the amounts NTT Group would
receive or pay to terminate the contracts at each year end with discounted
amounts of net future cash flows.
For derivatives classified as fair value hedges, changes in the fair value of
derivatives designated and effective as fair value hedges for recognized assets
or liabilities or unrecognized firm commitments are recognized in earnings as
offsets to changes in the fair value of the related hedged assets or
liabilities.
-12-
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For derivatives classified as cash flow hedges, changes in the fair value of
derivatives designated and effective as cash flow hedges for forecasted
transactions or exposures associated with recognized assets or liabilities are
initially recorded in other comprehensive income (loss) and reclassified into
earnings when the hedged transaction affects earnings.
From time to time, however, NTT Group may enter into derivatives that
economically hedge certain of its risks, even though hedge accounting does not
apply under SFAS 133. In these cases, changes in the fair values of these
derivatives are recognized in current period earnings.
NTT Group formally documents all relationships between hedging instruments and
hedged items, as well as its risk management objective and strategy for
undertaking various hedge transactions. This process includes linking all
derivatives that are designated as fair value or cash flow hedges to (1)
specific assets or liabilities on the balance sheet or (2) specific firm
commitments or forecasted transactions. NTT Group also assesses (both at the
hedge's inception and on an ongoing basis at least quarterly) whether the
derivatives that are used in hedging transactions have been highly effective in
offsetting changes in the fair value or cash flows of hedged items and whether
those derivatives may be expected to remain highly effective in future periods.
When it is determined that a derivative is not highly effective as a hedge, NTT
Group discontinues hedge accounting. The amounts representing hedges'
ineffectiveness and the component of derivative instruments' gain or loss
excluded from the assessment of hedge effectiveness are reported as "Other, net"
in the consolidated statements of income.
Cash flows from financial instruments accounted for as hedges are classified in
the consolidated statements of cash flows under the same category as the items
being hedged.
Net income per share -
Basic net income per share is computed based on the average number of shares
outstanding during the period and is appropriately adjusted for any free
distribution of common stock. Diluted net income per share assumes the dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock. Since NTT did not issue dilutive securities, there is no difference
between basic net income per share and diluted net income per share.
Distribution of common stock -
On occasion, NTT may make a free distribution of common stock, which is
accounted for by a transfer from additional paid-in capital to the common stock
account.
-13-
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Comprehensive income -
Comprehensive income is defined in Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income," as a total change in shareholders'
equity, excluding capital transactions. NTT Group's comprehensive income
comprises net income plus other comprehensive income (loss) representing changes
in foreign currency translation adjustments, unrealized gains/losses on
securities, minimum pension liability adjustments and unrealized gains/losses on
derivative instruments.
Variable Interest Entities (VIEs) -
In accordance with FIN 46R, VIEs with assets totaling approximately Y23 billion
and Y23 billion ($204 million) as of March 31 and September 30, 2005,
respectively, which were established to develop real estate for rental, and VIEs
with assets totaling approximately Y55 billion and Y53 billion ($469 million) as
of March 31 and September 30, 2005, respectively, which were established to
lease software, for the purpose of securitization of mainly real estate and
software, have been recognized and consolidated as VIEs in which NTT Group is
the primary beneficiary.
In addition to the above, a VIE with assets totaling approximately Y74 billion
and Y84 billion ($743 million) as of March 31 and September 30, 2005,
respectively, which was established for the purpose of carrying out a project to
develop real estate for rental, has been recognized as a VIE in which NTT Group
holds significant variable interest, and NTT Group annually evaluates its
preferential interest of Y14.7 billion and Y14.7 billion ($130 million) as of
March 31 and September 30, 2005, respectively, which is accounted for using the
equity method. NTT Group is jointly responsible with the other investor for the
VIE's financing activities and estimates that its maximum exposure to loss over
the amount of the preferential interest is approximately Y30 billion and Y35
billion ($310 million) as of March 31 and September 30, 2005, respectively.
Accounting for Asset Retirement Obligations
NTT Group adopted Statement of Financial Accounting Standards No. 143 ("SFAS 143
"), "Accounting for Asset Retirement Obligations." SFAS 143 requires that legal
obligations associated with the retirement of tangible long-lived assets be
recorded as liabilities, measured at fair value, when those obligations are
incurred if a reasonable estimate of fair value can be made. Upon initially
recognizing liabilities for asset retirement obligations, an entity must
capitalize the cost by recognizing an increase in the carrying amount of the
related long-lived assets.
NTT Group's asset retirement obligations subject to SFAS 143 primarily relate to
obligations to restore leased land and buildings for NTT Group's
telecommunications equipment to their original condition. NTT estimates the fair
value of these liabilities and concludes its amount is immaterial.
-14-
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Accounting for the Transfer to the Japanese Government of the Substitutional
Portion of Employee Pension Fund Liabilities
NTT Group adopted Emerging Issues Task Force Issue No. 03-02 ("EITF 03-02"), "
Accounting for the Transfer to the Japanese Government of the Substitutional
Portion of Employee Pension Fund Liabilities." This provides a consensus that
Japanese employers should account for the entire separation process as a single
settlement event upon completion of the transfer to the Japanese Government of
the substitutional portion of the benefit obligations and related plan assets.
Prior to the actual transfer of the substitutional portion of the benefit
obligations and related plan assets, no accounting should be affected.
Additionally, EITF 03-02 requires that the resultant gain from the government
subsidy which is the difference between the substitutional portion of the
obligations settled, assuming a market discount rate, and the
government-calculated amount which determines the plan assets required to be
transferred, would be recognized as a gain at settlement.
In June 2003, pursuant to the Law Concerning Defined-Benefit Corporate Pension
Plans, NTT Kosei-Nenkin-Kikin (NTT Employees Pension Fund) applied to the
Japanese Government for permission to be relieved of the future obligation to
disburse the benefits covering the substitutional portion, and in September
2003, the approval was granted. However, in accordance with EITF 03-02, no
accounting should occur until the completion of the entire transfer.
It is undetermined when the transfer of the benefit obligations and related plan
assets will take place and what the sum accompanying the settlement will be.
Recent pronouncements -
In November 2004, FASB issued Statement of Financial Accounting Standards No.
151 ("SFAS 151"), "Inventory Costs-an amendment of ARB No. 43, Chapter 4." SFAS
151 amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to
clarify the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage). ARB No. 43, Chapter 4 previously
stated that such costs might be so abnormal as to require treatment as current
period charges. SFAS 151 requires that those items be recognized as
current-period charges regardless of whether they meet the criterion of "so
abnormal." In addition, SFAS 151 requires that allocation of fixed production
overheads to the costs of conversion be based on the normal capacity of the
production facilities. SFAS 151 is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005, which, for NTT Group, is effective
for the year beginning April 1, 2006. The adoption of SFAS 151 will not have an
impact on the results of operations and financial position of NTT Group.
-15-
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In December 2004, the FASB revised Statement of Financial Accounting Standards
No. 123 ("SFAS 123R"), "Share-Based Payment," which eliminates the ability to
account for share-based compensation transactions using APB Opinion No. 25, "
Accounting for Stock Issued to Employees," and generally requires instead that
such transactions be accounted for using a fair-value-based method. SFAS 123R is
effective during fiscal years beginning after June 15, 2005, which, for NTT
Group, is the year beginning April 1, 2006. NTT is currently evaluating the
impact of adopting SFAS 123R.
In December 2004, the FASB issued Statement of Financial Accounting Standards
No. 152 ("SFAS 152"), "Accounting for Real Estate Time-Sharing Transactions - an
amendment of FASB Statements No. 66 and 67." The statement amends Statement of
Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate," to
reference the financial accounting and reporting guidance for real estate
time-sharing transactions provided in SOP 04-2, "Accounting for Real Estate
Time-Sharing Transactions." This statement also amends Statement of Financial
Accounting Standards No. 67, "Accounting for Costs and Initial Rental Operations
of Real Estate Projects," to state that the guidance for (a) incidental
operations and (b) costs incurred to sell real estate projects does not apply to
real estate time-sharing transactions. SFAS 152 is effective during fiscal years
beginning after June 15, 2005, which, for NTT Group, is the year beginning April
1, 2006. The adoption of SFAS 152 will not have an impact on the results of
operations and financial position of NTT Group.
In December 2004, the FASB issued Statement of Financial Accounting Standards
No. 153, ("SFAS 153"), "Exchanges of Non-Monetary Assets - an amendment of APB
Opinion No. 29." The amendments eliminate the exception for non-monetary
exchanges of similar productive assets and replace it with a general exception
for exchanges of non-monetary assets that do not have commercial substance. The
provisions in SFAS 153 are effective for non-monetary asset exchanges occurring
during fiscal periods beginning after June 15, 2005, which, for NTT Group, is
the year beginning April 1, 2006. NTT estimates the adoption of SFAS 153 will
not have a material impact on its results of operations or financial position.
In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154
("SFAS 154") "Accounting Changes and Error Corrections - a replacement of APB
Opinion No.20 and FASB Statement No.3." SFAS 154 replaces APB Opinion No. 20 ("
APB 20"), "Accounting Changes," and FASB Statement No. 3, "Reporting Accounting
Changes in Interim Financial Statements," and changes the requirements for the
accounting for and reporting of a change in accounting principle. APB 20
previously required that most voluntary changes in accounting principle be
recognized by including in net income of the period of the change the cumulative
effect of changing to the new accounting principle. SFAS 154 requires
retrospective application to prior periods' financial statements of changes in
accounting principles. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005,
which, for NTT Group, is effective for the year beginning April 1, 2006. The
impact of SFAS 154 will depend on the change, if any, in a future period.
-16-
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Reclassifications -
Certain items for prior periods' financial statements have been reclassified to
conform to the presentation for the six months ended September 30, 2005. "Fixed
voice transmission services," "Mobile voice transmission services," "Data
transmission services" and "Leased circuit," previously represented on the
consolidated income statements, are reclassified and represented as "Fixed voice
related services," "Mobile voice related services" and "IP/packet communications
services."
2. U.S. dollar amounts:
U.S. dollar amounts are included solely for convenience. These translations
should not be construed as representations that the yen amounts actually
represent, or have been or could be converted into, U.S. dollars. As the amounts
shown in U.S. dollars are for convenience only, the rate of Y113 = US $1, the
approximate current rate at September 30, 2005, has been used for the purpose of
presentation of the U.S. dollar amounts in the accompanying consolidated
financial statements.
3. Impairment of long-lived assets:
Impairment of PHS business assets -
As a result of its revised business outlook, NTT Group evaluated the
recoverability of its long-lived assets, including property, plant and equipment
and rights to use telecommunications facilities of wireline carriers, of its PHS
business in accordance with SFAS 144 for the year ended March 31, 2005. To
estimate the fair value of the long-lived assets related to PHS business, NTT
Group used future undiscounted cash flows expected to be generated by the
long-lived assets because of the absence of an observable market price. Because
NTT Group estimated that future cash flows from the PHS business would be
negative, NTT Group wrote-down the entire carrying value of its long-lived
assets related to the PHS business, resulting in a non-cash impairment loss of Y
44,310 million for the year ended March 31, 2005. NTT Group also wrote-down the
entire carrying value of long-lived assets related to the PHS business which NTT
Group acquired during the six months ended September 30, 2005. Therefore, NTT
Group recognized an impairment loss of long-lived assets of Y432 million ($4
million) for the six months ended September 30, 2005. The impairment loss is
recorded in "Impairment loss" in the consolidated statements of income.
-17-
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4. Investments in affiliated companies:
On May 27, 2004, NTT DoCoMo, Inc. ("NTT DoCoMo") agreed to sell its entire
shareholding in Hutchison 3G UK Holdings Limited ("H3G UK") to Hutchison Whampoa
Limited ("HWL") for a total consideration of #120 million in a Sale and Purchase
Agreement signed between NTT DoCoMo and HWL. Under the terms of the agreement,
NTT DoCoMo were to receive payment in three installments, the final installment
of which was expected to be made in December 2006, either in cash or in shares
of Hutchison Telecommunications International Limited ("HTIL"), a subsidiary
company of HWL that is being listed on the Stock Exchange of Hong Kong since
October 15, 2004. NTT DoCoMo's right to receive #120 million as of the time of
completion of the transaction in February 2007 is secured by the Sale and
Purchase Agreement. As a result of the agreement, NTT DoCoMo waived certain of
its minority shareholder's rights, including voting right and supervisory board
representation. As NTT DoCoMo no longer had the ability to exercise significant
influence over H3G UK, NTT ceased to account for its investment in H3G UK using
the equity method.
During the year ended March 31, 2005, NTT DoCoMo received 187,966,653 shares of
HTIL (equivalent to #80 million) as the first installment payment by HWL, which
was reported as marketable securities and other investments, with a
corresponding amount recorded as other long-term liabilities until such time
that the transfer of H3G UK shares is completed.
On May 9, 2005, NTT DoCoMo received a notice from HWL that HWL intends to
exercise its right to accelerate completion of the payment on June 23, 2005. As
a result of the transaction, NTT recorded a gain on sale of affiliate shares of
Y61,962 million ($548 million) for the six months ended September 30, 2005.
NTT DoCoMo entered into an agreement with 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 phones compatible with "Osaifu-Keitai*" service and NTT DoCoMo
would form a capital alliance with Sumitomo Mitsui Card. Based on the agreement,
on July 11, 2005, NTT DoCoMo acquired 34% of Sumitomo Mitsui Card's common
shares for Y98,000 million ($867 million), including new shares issued by
Sumitomo Mitsui Card. Upon the completion of this transaction, NTT has accounted
for its investment in Sumitomo Mitsui Card using the equity method.
* "Osaifu-Keitai" refers to mobile phones equipped with a contactless IC chip,
as well as the useful function and services enabled by the IC chip. With this
function, a mobile phone can be utilized as electronic wallet, a credit card, an
electronic ticket, a membership card, an airline ticket, and more.
NTT Group reviewed the business outlook of their affiliates in order to
determine if any decline in investment values was other than temporary. As a
result of such evaluations, NTT determined that decline in the value of
investment in JSAT Corporation, a satellite operator, was other than temporary
and recorded impairment charges of Y19,379 million ($171 million) for the six
months ended September 30, 2005. The impairment charges are included with equity
in earnings (losses) of affiliated companies in the accompanying consolidated
statements of income.
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5. Marketable securities and other investments:
Marketable securities and other investments include available-for-sale
securities and held-to-maturity securities. The aggregate carrying amounts,
gross unrealized holding gains, gross unrealized holding losses and fair value
by major security type at March 31 and September 30, 2005, are as follows:
Millions of yen
March 31, 2005
-----------------------------------------------
Carrying Gross Gross Fair
amounts unrealized unrealized value
--------- gains losses ---------
---------- ----------
Available-for-sale:
Equity securities Y 70,352 Y 126,641 Y 534 Y 196,459
Debt securities 151,271 58 16 151,313
Held-to-maturity:
Debt securities 16,271 61 0 16,332
- ------- - -------- --- ------ - -------
Total Y 237,894 Y 126,760 Y 550 Y 364,104
- ------- - -------- --- ------ - -------
Millions of yen
September 30, 2005
-----------------------------------------------
Carrying Gross Gross Fair
amounts unrealized unrealized value
--------- gains losses ---------
---------- ----------
Available-for-sale:
Equity securities Y 57,569 Y 175,464 Y 135 Y 232,898
Debt securities 152,272 2 135 152,139
Held-to-maturity:
Debt securities 6,789 23 - 6,812
- ------- - -------- --- ------ - -------
Total Y 216,630 Y 175,489 Y 270 Y 391,849
- ------- - -------- --- ------ - -------
Millions of U.S. dollars
September 30, 2005
-----------------------------------------------
Carrying Gross Gross Fair
amounts unrealized unrealized value
--------- gains losses ---------
---------- ----------
Available-for-sale:
Equity securities $ 509 $ 1,553 $ 1 $ 2,061
Debt securities 1,348 0 1 1,347
Held-to-maturity:
Debt securities 60 0 - 60
- ------- - -------- --- ------ - -------
Total $ 1,917 $ 1,553 $ 2 $ 3,468
- ------- - -------- --- ------ - -------
-19-
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In the ordinary course of business, NTT maintains long-term investment
securities, which are included in "Marketable securities and other investments."
The total carrying amounts of the investment securities accounted for under the
cost method were Y74,116 million and Y74,444 million ($659 million) at March 31
and September 30, 2005, respectively.
Proceeds, gross realized gains and losses from sales of available-for-sale
securities for the six months ended September 30, 2004 and 2005 are as follows:
Millions Millions Millions
of yen of Yen of
U.S.
dollars
September September September
30, 30, 30,
2004 2005 2005
--------- --------- ---------
Proceeds Y 27,991 Y 6,396 $ 57
Gross realized gain Y 431 Y 4,541 $ 40
Gross realized loss Y 1,124 Y 190 $ 2
Maturities of debt securities classified as held-to-maturity at March 31 and
September 30, 2005 are as follows:
Millions of Yen Millions of yen Millions of
U.S. dollars
March 31, September 30, September 30,
2005 2005 2005
------------------- ------------------ ----------------
Carrying Fair Carrying Fair Carrying Fair
amounts amounts amounts
-------- value -------- value -------- value
-------- ------- -----
Due within 1 year Y 11,207 Y 11,253 Y 5,000 Y 5,009 $ 44 $ 44
Due after 1 year through 5 years 1,064 1,075 1,289 1,302 12 12
Due after 5 years through 10 years 4,000 4,004 500 501 4 4
Due after 10 years - - - - - -
- ------ - ------ - ------ - ----- -- ----- - ---
Total Y 16,271 Y 16,332 Y 6,789 Y 6,812 $ 60 $ 60
- ------ - ------ - ------ - ----- -- ----- - ---
6. 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 business segment principally comprises revenues from
fixed voice related services, IP/packet communications services, sales of
telecommunications equipment, and other operating revenues.
-20-
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The long distance and international communications business segment principally
comprises revenues from fixed voice related services, IP/packet communications
services, sales of telecommunications equipment, and other operating revenues.
The mobile communications business segment principally comprises revenues from
mobile voice related services, IP/packet communications services, sales of
telecommunications equipment, and other operating revenues.
The data communications business segment principally comprises revenues from
system integration services.
The other business segment principally comprises operating revenues from such
activities as building-maintenance, real estate rental, systems development,
leasing, and research and development.
Business segments -
Sales and operating revenue:
Millions of Millions of Millions
yen yen of
U.S.
dollars
For the six months ended September 30 2004 2005
----------------------------- ----------- --------------------------
Regional communications business -
Customers Y 1,921,823 Y 1,869,794 $ 16,547
Intersegment 314,206 318,315 2,817
- --------- - - --------- - - ------ -
Total 2,236,029 2,188,109 19,364
Long distance and international communications business -
Customers 506,653 529,901 4,689
Intersegment 57,652 52,517 465
- --------- - - --------- - - ------ -
Total 564,305 582,418 5,154
Mobile communications business -
Customers 2,440,267 2,347,905 20,778
Intersegment 11,686 25,550 226
- --------- - - --------- - - ------ -
Total 2,451,953 2,373,455 21,004
Data communications business -
Customers 328,237 329,546 2,916
Intersegment 43,068 49,507 438
- --------- - - --------- - - ------ -
Total 371,305 379,053 3,354
Other -
Customers 124,639 154,337 1,366
Intersegment 440,679 444,713 3,935
- --------- - - --------- - - ------ -
Total 565,318 599,050 5,301
Elimination (867,291 ) (890,602 ) (7,881 )
- --------- - - --------- - - ------ -
Consolidated total Y 5,321,619 Y 5,231,483 $ 46,296
- --------- - - --------- - - ------ -
-21-
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Segment profit or loss:
Millions Millions Millions
of yen of yen of
U.S.
dollars
For the six months ended September 30 2004 2005
----------------------------- --------- -----------------------
Operating income (loss):
Regional communications business Y 140,942 Y 118,854 $ 1,052
Long distance and international communications business 41,128 33,532 297
Mobile communications business 545,432 558,368 4,941
Data communications business 16,094 12,695 112
Other 35,299 32,891 291
- ------- - ------- -- -----
Total 778,895 756,340 6,693
Elimination 8,932 7,043 62
- ------- - ------- -- -----
Consolidated operating income Y 787,827 Y 763,383 $ 6,755
- ------- - ------- -- -----
Transfers between reportable businesses are made at arms-length prices.
Operating income is sales and operating revenues 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 six months
ended September 30, 2004 and 2005.
7. Leases:
Minimum future rental payments under operating leases that have initial or
remaining non-cancellable lease terms in excess of one year at March 31 and
September 30, 2005 are as follows:
Millions Millions Millions
of yen of yen of
U.S.
dollars
March September September
31, 30, 30,
2005 2005
2005 --------- ---------
--------
Within 1 year Y 3,818 Y 3,801 $ 34
After 1 year Y 30,301 Y 29,392 $ 260
- ------ - ------- --- -----
Total Y 34,119 Y 33,193 $ 294
- ------ - ------- --- -----
8. Research and development expenses:
Research and development expenses are charged to income as incurred and such
amounts charged to income for the six months ended September 30, 2004 and 2005
were Y144,521 million and Y140,023 million ($1,239 million), respectively.
-22-
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9. Subsidiary stock transactions:
In May 2004, NTT DoCoMo repurchased 43,000 shares of its common stock for Y8,447
million. As a result, NTT's interest in NTT DoCoMo increased from 63.6% to 63.7%
and the resulting increase in interest amounting to Y3,289 million was recorded
as goodwill on the balance sheet as of March 31, 2005.
In August 2004, NTT DoCoMo repurchased 1,815,526 shares for Y332,241 million and
NTT sold 1,748,000 shares to NTT DoCoMo at that time. As a result, NTT's
interest in NTT DoCoMo decreased from 63.7% to 62.4%. The resulting decrease in
interest amounting to Y59,295 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. As a result, NTT's interest in NTT DoCoMo increased
from 62.4% to 63.0%. The increase in interest is resulted in goodwill amounting
to Y29,368 million on the balance sheet as of March 31, 2005.
From May to July 2005, NTT DoCoMo repurchased 102,383 shares for Y16,916 million
($150 million). As a result, NTT's interest in NTT DoCoMo increased from 63.0%
to 63.2%. The resulting increase in interest amounting to Y5,213 million ($46
million) was recorded as goodwill on the balance sheet as of September 30, 2005.
In August 2005, NTT DoCoMo repurchased 1,561,220 shares for Y259,163 million
($2,293 million) and NTT Group sold 1,528,658 shares to NTT DoCoMo at that time.
As a result, NTT's interest in NTT DoCoMo decreased from 63.2% to 62.0%. The
resulting decrease in interest amounting to Y41,272 million ($365 million) was
recorded as additional paid-in capital on the balance sheet as of September 30,
2005.
In December 2005, subsequent to the six months ended September 30, 2005, NTT
DoCoMo repurchased 43,244 shares for Y80,000 million ($71 million) in the stock
market and NTT sold no shares to NTT DoCoMo at that time. As a result, NTT's
interest in NTT DoCoMo increased to 62.0%. 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 a 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 Y35,676
million, and a gain of Y26,984 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. The resulting decrease in interest amounting to Y
17,022 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%.
-23-
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10. 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.
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. 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 in income currently. The amount of ineffectiveness of these fair
value hedges, which were reflected in earnings, was not material for the periods
presented. In addition, there were no amounts excluded from the assessment of
hedge effectiveness of fair value hedges.
-24-
--------------------------------------------------------------------------------
Cash Flow Hedge -
The derivatives designated as cash flow hedges include forward exchange
contracts, currency swap agreements and interest rate swap agreements. 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, 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 earnings are
affected by the variability of cash flows of the hedged transaction. For the
periods presented, 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.
Fair value of financial instruments -
The table below shows the notional principal amounts, carrying amounts and fair
values of NTT Group's derivative financial instruments at March 31 and September
30, 2005:
Millions of yen
March 31, 2005
----------------------------------
Notional Carrying Fair
principal amounts value
amounts -------- --------
---------
Forward exchange contracts Y 10,827 Y (208 ) Y (208 )
Interest rate swap and currency swap agreements 678,388 (5,272 ) (5,272 )
- ------- - ------ - - ------ -
Total Y 689,215 Y (5,480 ) Y (5,480 )
- ------- - ------ - - ------ -
Millions of yen
September 30, 2005
----------------------------------
Notional Carrying Fair
Principal amounts value
amounts -------- --------
---------
Forward exchange contracts Y 11,043 Y (253 ) Y (253 )
Interest rate swap and currency swap agreements 714,946 (7,963 ) (7,963 )
- ------- - ------ - - ------ -
Total Y 725,989 Y (8,216 ) Y (8,216 )
- ------- - ------ - - ------ -
-25-
--------------------------------------------------------------------------------
Millions of U.S. dollars
September 30, 2005
------------------------------------
Notional Carrying Fair
principal amounts value
amounts -------- -----
---------
Forward exchange contracts $ 98 $ (2 ) $ (2
)
Interest rate swap and currency swap agreements 6,327 (71 ) (71
)
- ------- -- ----- - - ---
-
Total $ 6,425 $ (73 ) $ (73
)
- ------- -- ----- - - ---
-
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 September 30, 2005.
11. Contingent liabilities:
Contingent liabilities at September 30, 2005 for loans guaranteed amounted to Y
23,473 million ($208 million). The principal component of this total was a Y
17,274 million ($153 million) guarantee for borrowings by Cosmos Post and
Telecommunications International Leasing Co., Ltd, an affiliate.
At September 30, 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.
12. Pledged assets:
As of March 31 and September 30, 2005, in compliance with the provisions of
Article 9 of the Law Concerning the Nippon Telegraph and Telephone Corporation,
Etc., total assets are pledged as general collateral for corporate bonds. In
accordance with the provisions of Article 9 of the Supplementary Provisions to
the Law Concerning Partial Revision of the Nippon Telegraph and Telephone
Corporation Law (Law No. 98 of 1997), NTT, jointly and severally with NTT East,
NTT West, and NTT Communications, has assumed the obligations of corporate bonds
issued up to and including June 30, 1999, and the aggregate total of the assets
of the four companies have been pledged as general collateral for these bonds.
-26-
--------------------------------------------------------------------------------
13. Subsequent events:
On October 24, 2005, NTT DoCoMo dissolved its capital alliance with KPN Mobile
N.V. ("KPNM"). The i-mode license agreement between NTT DoCoMo and KPNM will be
maintained.
Under the agreement, NTT DoCoMo transferred all of its 2.16% holding of KPNM
shares to Koninklijke KPN N.V. ("KPN"), the parent company of KPNM. KPN agreed
to cooperate with NTT DoCoMo in the smooth operation of the global i-mode
alliance, through the use of KPN's i-mode-related patents and know how, for
example, and has paid cash of $5 million (Y692 million) to NTT DoCoMo.
As a result of this transaction, NTT expects to record a gain on a sale of
investment securities of Y40,030 million ($354 million), including a foreign
currency translation adjustment, as an other income for the year ending March
31, 2006. NTT also expects to account for the balance between the fair value of
the transferred shares and the amount of cash received, Y14,062 million ($124
million), which NTT regards as the consideration for the benefit of this
agreement, as an operating expense.
On September 29, 2005, the board of directors resolved that NTT may raise up to
Y150 billion ($1,327 million) by issuing bonds or incurring long-term borrowings
during the period from October 1 to December 31, 2005. Based on this resolution,
NTT issued bonds as follows:
Series 50 Nippon Telegraph and Telephone straight bonds
Date of issue December 2, 2005
Issue amount Y70 billion ($619 million)
Issue price 99.95%
Interest rate 1.58%
Date of September 18, 2015
maturity
Use of Capital investments
proceeds
-27-
This information is provided by RNS
The company news service from the London Stock Exchange
END
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