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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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