6-K 1 d470907d6k.htm FORM 6-K FORM 6-K
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 under the

Securities Exchange Act of 1934

For the month of November 2017

Commission File Number 1-8910

NIPPON TELEGRAPH AND TELEPHONE CORPORATION

(Translation of registrant’s name into English)

OTEMACHI FIRST SQUARE, EAST TOWER

5-1, OTEMACHI 1-CHOME

CHIYODA-KU, TOKYO 100-8116 JAPAN

(Address of principal executive office)

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

Form 20-F  ☒     Form 40-F  ☐

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

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


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INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2017

Attached is an English translation of certain items that were disclosed in NTT’s Quarterly Securities Report for the three and six months ended September 30, 2017, which NTT filed on November 13, 2017 with the Financial Services Agency of Japan. The consolidated information in the quarterly securities report was prepared on the basis of accounting principles generally accepted in the United States. The financial information for the three and six months ended September 30, 2017 in the quarterly securities report is unaudited.

The earnings projections of the registrant and its subsidiaries included in the press release contain forward-looking statements. The registrant desires to qualify for the “safe-harbor” provisions of the Private Securities Litigation Reform Act of 1995, and consequently is hereby filing cautionary statements identifying important factors that could cause the registrant’s actual results to differ materially from those set forth in the attachment.

The registrant’s forward-looking statements are based on a series of assumptions, projections, estimates, judgments and beliefs of the management of the registrant in light of information currently available to it regarding the registrant and its subsidiaries and affiliates, the economy and the telecommunications industry in Japan and overseas, and other factors. These projections and estimates may be affected by the future business operations of the registrant and its subsidiaries and affiliates, the state of the economy in Japan and abroad, possible fluctuations in the securities markets, the pricing of services, the effects of competition, the performance of new products, services and new businesses, changes to laws and regulations affecting the telecommunications industry in Japan and elsewhere, other changes in circumstances that could cause actual results to differ materially from any future results that may be derived from the forward-looking statements, as well as other risks included in the registrant’s most recent Annual Report on Form 20-F and other filings and submissions with the United States Securities and Exchange Commission.

No assurance can be given that the registrant’s actual results will not vary significantly from any expectation of future results that may be derived from the forward-looking statements included herein.

The information on any website referenced herein or in the attached material is not incorporated by reference herein or therein.

The attached material is a translation of the Japanese original. The Japanese original is authoritative.


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SIGNATURES

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

 

NIPPON TELEGRAPH AND TELEPHONE CORPORATION

By

 

            /s/ Takashi Ameshima

 

Name:

  Takashi Ameshima
 

Title:

 

Vice President

Investor Relations Office

Date: November 13, 2017


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[Translation]

 

 

Quarterly Securities Report

 

(The Second Quarter of the 33rd Business Term)

From July 1, 2017 to September 30, 2017

 

 

 

NIPPON TELEGRAPH AND TELEPHONE CORPORATION


Table of Contents

Table of Contents

 

Item 1. Overview of the Company

     3  

1. Selected Financial Data

     3  

2. Description of Business

     4  

Item 2. Business Overview

     5  

1. Risk Factors

     5  

2. Material Contracts

     5  

3. Analysis of Consolidated Financial Condition, Results of Operations, and Cash Flows

     6  

Item 3. Information on NTT

     14  

1. Information on NTT’s Shares

     14  

(1) Total Number of Shares

     14  

(2) Information on Share Acquisition Rights

     14  

(3) Information on Moving Strike Convertible Bonds

     14  

(4) Information on Shareholder Rights Plans

     14  

(5) Changes in the Total Number of Issued Shares, the Amount of Common Stock, and Other

     15  

(6) Major Shareholders

     16  

(7) Information on Voting Rights

     17  

2. Changes in Directors and Senior Management

     18  

Item 4. Financial Information

     19  

Consolidated Financial Statements

     20  

(1) Consolidated Balance Sheets

     20  

(2) Consolidated Statements of Income and Consolidated Statements of Comprehensive Income

     22  

(3) Consolidated Statements of Cash Flows

     26  

[Note]

 

 

 

This document is an English translation of certain items that were disclosed in NTT’s Quarterly Securities Report for the six-month period ended September 30, 2017, which NTT filed on November 13, 2017 with the Financial Services Agency of Japan.

The forward-looking statements and projected figures concerning the future performance of NTT and its subsidiaries and affiliates contained or referred to herein are based on a series of assumptions, projections, estimates, judgments and beliefs of the management of NTT in light of information currently available to it regarding NTT and its subsidiaries and affiliates, the economy and telecommunications industry in Japan and overseas, and other factors. These projections and estimates may be affected by the future business operations of NTT and its subsidiaries and affiliates, the state of the economy in Japan and abroad, possible fluctuations in the securities markets, the pricing of services, the effects of competition, the performance of new products, services and new businesses, changes to laws and regulations affecting the telecommunications industry in Japan and elsewhere, other changes in circumstances that could cause actual results to differ materially from the forecasts contained or referred to herein, as well as other risks included in NTT’s most recent Annual Securities Report on Form 20-F and other filings and submissions with the United States Securities and Exchange Commission.

 

 

 

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[Cover]

 

[Document Filed]

   Quarterly Securities Report (“Shihanki Hokokusho”)

[Applicable Law]

   Article 24-4-7, Paragraph 1 of the Financial Instruments and Exchange Act of Japan

[Filed to]

   Director, Kanto Local Finance Bureau

[Filing Date]

   November 13, 2017

[Fiscal Year]

   The Second Quarter of the 33rd Business Term (From July 1, 2017 to September 30, 2017)

[Company Name]

   Nippon Denshin Denwa Kabushiki Kaisha

[Company Name in English]

   NIPPON TELEGRAPH AND TELEPHONE CORPORATION

[Title and Name of Representative]

   Hiroo Unoura, President and Chief Executive Officer

[Address of Head Office]

   5-1, Otemachi 1-chome, Chiyoda-ku, Tokyo

[Phone No.]

   +81-3-6838-5481

[Contact Person]

   Takashi Ameshima, Head of IR, Finance and Accounting Department

[Contact Address]

   5-1, Otemachi 1-chome, Chiyoda-ku, Tokyo

[Phone No.]

   +81-3-6838-5481

[Contact Person]

   Takashi Ameshima, Head of IR, Finance and Accounting Department +81-3-6838-5481

[Place Where Available for Public Inspection]

  

Tokyo Stock Exchange, Inc.

(2-1, Nihombashi Kabutocho, Chuo-ku, Tokyo)

 

– 2 –


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Item 1. Overview of the company

1. Selected Financial Data

U.S. GAAP

 

    Six Months
Ended
September 30, 2016
    Six Months
Ended
September 30, 2017
    Fiscal year ended
March  31, 2017
 

Operating revenues

  Millions of yen     5,524,328       5,664,795       11,391,016  
      [2,807,589     [2,855,013  

Income before income taxes and equity in earnings (losses) of affiliated companies

  Millions of yen     896,905       982,025       1,527,769  

Net income attributable to NTT

  Millions of yen     476,096       527,505       800,129  
      [232,468     [256,033  

Comprehensive income (loss) attributable to NTT

  Millions of yen     319,189       562,436       860,200  

NTT shareholders’ equity

  Millions of yen     8,757,222       9,441,681       9,052,479  

Total assets

  Millions of yen     20,447,251       21,498,152       21,250,325  

NTT shareholders’ equity per share

  Yen     4,298.90       4,705.67       4,491.73  

Basic earnings per share attributable to NTT

  Yen     230.90       262.84       390.94  
      [114.12     [127.60  

Diluted earnings per share attributable to NTT

  Yen     —         —         —    

Equity ratio
(Ratio of NTT Shareholders’ Equity to Total Assets)

  %     42.8       43.9       42.6  

Net cash provided by operating activities

  Millions of yen     1,390,442       1,112,907       2,917,357  

Net cash used in investing activities

  Millions of yen     (876,529     (1,074,740     (2,089,311

Net cash used in financing activities

  Millions of yen     (562,399     (118,064     (981,511

Cash and cash equivalents at end of period

  Millions of yen     1,014,481       840,663       925,213  

 

Notes:   (1)   As NTT prepares quarterly consolidated financial reports, changes in non-consolidated key financial data, among others, are not provided.
  (2)   The figures of “Operating revenues,” “Net income attributable to NTT,” and “Basic earnings per share attributable to NTT” in square brackets are those for the three months ended September 30, 2016 and 2017, respectively.
  (3)   Operating revenues do not include consumption taxes.
  (4)   Diluted earnings per share attributable to NTT is not stated because NTT did not have potentially dilutive common shares that were outstanding during the period.

 

– 3 –


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2. Description of Business

The principal business segments of NTT Group (NTT and its affiliated companies) are its regional communications business, long distance and international communications business, mobile communications business, and data communications business.

There were no material changes in NTT Group’s business during the six months ended September 30, 2017, nor were there any material changes in its subsidiaries and affiliated companies.

 

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Item 2. Business Overview

1. Risk Factors

There were no risks newly identified during the six months ended September 30, 2017. There was no material change in risk factors which were described in NTT’s Annual Securities Report for the fiscal year ended March 31, 2017.

2. Material Contracts

There were no material contracts relating to NTT’s operations that were agreed upon or entered into during the six months ended September 30, 2017.

 

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3. Analysis of Consolidated Financial Condition, Results of Operations, and Cash Flows

(1) Consolidated Results

Six-Month Period Ended September 30, 2017 (April 1, 2017 – September 30, 2017)

 

     (Billions of yen)  
     Six Months
Ended
September 30, 2016
     Six Months
Ended
September 30, 2017
     Change      Percent
Change
 

Operating revenues

     5,524.3        5,664.8        140.5        2.5

Operating expenses

     4,597.8        4,689.6        91.8        2.0

Operating income

     926.5        975.2        48.7        5.3

Income before income taxes and equity in earnings (losses) of affiliated companies

     896.9        982.0        85.1        9.5

Net income attributable to NTT

     476.1        527.5        51.4        10.8

During the six months ended September 30, 2017, pursuant to its Medium-Term Management Strategy, adopted in May 2015, entitled “Towards the Next Stage 2.0,” NTT implemented measures to embark on a profit growth track by accelerating its self-transformation as a “Value Partner.”

<Efforts to Expand NTT’s Global Business and Increase Profit Generation>

NTT Group seeks to establish and expand its global cloud service as a cornerstone of its business operations, and strengthened its efforts to accelerate overseas profit generation through the following initiatives.

Specifically, NTT Group promoted cross-selling through collaboration among its group companies, including businesses related to global networks, cloud migration, and IT outsourcing. In addition, in response to increased demand for data center services, NTT launched its Rhein-Ruhr 1 Data Center in Germany, and began construction of new data center services in the cities of Mumbai and Bangalore in India.

Furthermore, each NTT Group Company has been engaged in strengthening and increasing the efficiency of its services and operations, and implementing cost reduction and profit generation measures through, among other things, reviewing its delivery systems.

<Efforts to Optimize Domestic Network Businesses and Enhance Profitability>

NTT Group continued working to enhance profitability by creating high value-added services as well as optimizing capital investments and reducing costs for its domestic network businesses, and worked to improve the efficiency of its facility use and reduce procurement costs, in addition to simplifying and streamlining its network systems.

In the regional communications business segment, NTT promoted initiatives for its “Hikari Collaboration Model” and subscriptions for Hikari access services for the “Hikari Collaboration Model” surpassed 10.00 million. In the mobile communications business segment, NTT worked to continuously enhance profitability by promoting its “Kake-hodai & Pake-aeru” billing plan, for which subscriptions reached over 39.00 million, and by agreeing to a business alliance with Matsumoto Kiyoshi Holdings Co., Ltd., including marketing collaborations and establishing point-sharing systems.

 

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<Efforts to Achieve Sustainable Growth >

NTT Group will support the communications services field as a Gold Partner (Telecommunications Services) for the Olympic and Paralympic Games Tokyo 2020, and sees the initiative to bring about Society 5.0 (the creation of a new smart society that helps to resolve social issues), which is being promoted through public-private partnerships, as a great opportunity to utilize its collective strength.

NTT Group plans to make use of these opportunities to further accelerate migration to the B2B2X model and, together with businesses in other fields and local governments, strengthen measures aimed at creating services that will become the standards of the next generation.

Specifically, NTT agreed with Komatsu Ltd., SAP Japan Co., Ltd. and OPTiM Corporation to collectively plan and operate “LANDLOG,” a new platform that connects all construction production processes. In addition, NTT began joint experiments with NYK Group relating to IoT next generation platform development in vessel shipping.

As a result of these efforts, NTT Group’s consolidated operating revenues for the six-month period ended September 30, 2017 were ¥5,664.8 billion (an increase of 2.5% from the same period of the previous fiscal year), consolidated operating expenses were ¥4,689.6 billion (an increase of 2.0% from the same period of the previous fiscal year), consolidated operating income was ¥975.2 billion (an increase of 5.3% from the same period of the previous fiscal year), consolidated income before income taxes and equity in earnings (losses) of affiliated companies was ¥982.0 billion (an increase of 9.5% from the same period of the previous fiscal year), and net income attributable to NTT was ¥527.5 billion (an increase of 10.8% from the same period of the previous fiscal year).

 

Notes:

     (1)      The consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States.
     (2)      NTT, NTT East, NTT West, NTT Communications, and NTT DOCOMO are Gold Partners (Telecommunications Services) for the Olympic and Paralympic Games Tokyo 2020.

(2) Segment Results

NTT Group has five business segments: regional communications business, long distance and international communications business, mobile communications business, data communications business and other business.

The regional communications business segment comprises fixed voice related services, IP/packet communications services, system integration services and other services.

The long distance and international communications business segment principally comprises fixed voice related services, IP/packet communications services, system integration services and other services.

The mobile communications business segment comprises mobile voice related services, IP/packet communications services and other services.

The data communications business segment comprises system integration services.

 

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The other business segment principally comprises real estate, finance, construction and power, systems development, and other services related to advanced research and development.

Results by business segment are as follows (intersegment revenues are included in the operating revenues, operating expenses and operating income of operational results for each business segment):

Regional Communications Business Segment

Six-Month Period Ended September 30, 2017 (April 1, 2017 – September 30, 2017)

 

     (Billions of yen)  
     Six Months
Ended
September 30, 2016
     Six Months
Ended
September 30, 2017
     Change     Percent
Change
 

Operating revenues

     1,620.4        1,580.6        (39.8     (2.5 )% 

Fixed voice related services

     604.3        568.9        (35.4     (5.9 )% 

IP/packet communications services

     771.9        766.5        (5.4     (0.7 )% 

System integration services

     64.5        64.2        (0.3     (0.4 )% 

Other services

     179.8        181.0        1.2       0.7
  

 

 

    

 

 

    

 

 

   

 

 

 

Operating expenses

     1,388.2        1,327.4        (60.7     (4.4 )% 
  

 

 

    

 

 

    

 

 

   

 

 

 

Operating income

     232.2        253.2        20.9       9.0
  

 

 

    

 

 

    

 

 

   

 

 

 

Operating revenues in the regional communications business segment for the six-month period ended September 30, 2017 decreased 2.5% from the same period of the previous fiscal year to ¥1,580.6 billion due to, among other things, a decrease in fixed voice related revenues. On the other hand, operating expenses for the six-month period ended September 30, 2017 decreased 4.4% from the same period of the previous fiscal year to ¥1,327.4 billion due to a decrease in depreciation costs, among other factors. As a result, segment operating income for the six-month period ended September 30, 2017 increased 9.0% from the same period of the previous fiscal year to ¥253.2 billion.

 

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Number of subscriptions

 

     (Thousands of subscriber lines/subscriptions)  

Service

   As of March 31,
2017
     As of September 30,
2017
     Change     Percent
Change
 

(NTT East)

          

Telephone Subscriber Lines

     9,315        9,014        (301     (3.2 )% 

INS-Net

     1,293        1,244        (49     (3.8 )% 

FLET’S Hikari (including Hikari Collaboration Model)

     11,173        11,381        208       1.9

FLET’S ADSL

     411        379        (32     (7.8 )% 

Hikari Denwa (thousand channels)

     9,369        9,478        109       1.2

FLET’S TV Transmission Services

     951        972        21       2.2

(NTT West)

          

Telephone Subscriber Lines

     9,482        9,154        (328     (3.5 )% 

INS-Net

     1,246        1,196        (49     (4.0 )% 

FLET’S Hikari (including Hikari Collaboration Model)

     8,880        9,005        125       1.4

FLET’S ADSL

     508        470        (38     (7.5 )% 

Hikari Denwa (thousand channels)

     8,390        8,447        56       0.7

FLET’S TV Transmission Services

     570        597        27       4.8

 

Notes:   (1)   Number of Telephone Subscriber Lines is the total of individual lines and central station lines (Subscriber Telephone Light Plan is included).
  (2)   “INS-Net” includes “INS-Net 64” and “INS-Net 1500.” In terms of number of channels, transmission rate, and line use rate (base rate), “INS-Net 1500” is in all cases roughly ten times greater than “INS-Net 64.” For this reason, one “INS-Net 1500” subscription is calculated as ten “INS-Net 64” subscriptions (including subscriptions to the “INS-Net 64 Lite Plan”).
  (3)   Number of FLET’S Hikari (including Hikari Collaboration Model) subscribers includes subscribers to “B FLET’S,” “FLET’S Hikari Next,” “FLET’S Hikari Light,” “FLET’S Hikari Lightplus” and “FLET’S Hikari WiFi Access” provided by NTT East, subscribers to “B FLET’S,” “FLET’S Hikari Premium,” “FLET’S Hikari Mytown,” “FLET’S Hikari Next,” “FLET’S Hikari Mytown Next,” “FLET’S Hikari Light” and “FLET’S Hikari WiFi Access” provided by NTT West and subscribers to the “Hikari Collaboration Model,” the wholesale provision of services to service providers by NTT East and NTT West.
  (4)   Numbers of subscribers for “Hikari Denwa” and “FLET’S TV Transmission Services” include wholesale services provided to service providers by NTT East and NTT West.

 

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Long Distance and International Communications Business Segment

Six-Month Period Ended September 30, 2017 (April 1, 2017 – September 30, 2017)

 

      (Billions of yen)  
     Six Months
Ended
September 30, 2016
     Six Months
Ended
September 30, 2017
     Change     Percent
Change
 

Operating revenues

     1,038.8        1,064.8        26.0       2.5

Fixed voice related services

     130.8        119.5        (11.3     (8.6 )% 

IP/packet communications services

     194.7        202.7        8.0       4.1

System integration services

     633.3        656.6        23.4       3.7

Other services

     80.1        86.0        5.9       7.3
  

 

 

    

 

 

    

 

 

   

 

 

 

Operating expenses

     996.7        994.4        (2.2     (0.2 )% 
  

 

 

    

 

 

    

 

 

   

 

 

 

Operating income

     42.2        70.4        28.2       66.9
  

 

 

    

 

 

    

 

 

   

 

 

 

Operating revenues in the long distance and international communications business segment for the six-month period ended September 30, 2017 increased 2.5% from the same period of the previous fiscal year to ¥1,064.8 billion. This increase was due to, among other things, an increase in system integration revenues due to increased revenues of data center services and an increase in IP/packet communications revenues due to the expansion of “OCN Hikari” and other services, partially offset by a decrease in fixed voice related revenues. On the other hand, operating expenses for the six-month period ended September 30, 2017 decreased 0.2% from the same period of the previous fiscal year to ¥994.4 billion due to impairment losses that were recorded for the six-month period ended September 30, 2016 that were not recorded for the six-month period ended September 30, 2017, among other things. As a result, segment operating income for the six-month period ended September 30, 2017 increased 66.9% from the same period of the previous fiscal year to ¥70.4 billion.

Number of Subscriptions

 

      (Thousands of subscriptions)  

Service

   As of March 31,
2017
     As of September 30,
2017
     Change     Percent
Change
 

OCN (ISP)

     7,739        7,637        (102     (1.3 )% 

Plala (ISP)

     3,106        3,135        29       0.9

Hikari TV

     3,023        3,018        (4     (0.1 )% 

 

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Mobile Communications Business Segment

Six-Month Period Ended September 30, 2017 (April 1, 2017 – September 30, 2017)

 

      (Billions of yen)  
     Six Months
Ended
September 30, 2016
     Six Months
Ended
September 30, 2017
     Change     Percent
Change
 

Operating revenues

       2,288.0          2,300.1            12.1           0.5

Mobile voice related services

     435.4        472.6        37.2       8.5

IP/packet communications services

     1,034.4        1,089.4        55.0       5.3

Other services

     818.2        738.1        (80.1     (9.8 )% 
  

 

 

    

 

 

    

 

 

   

 

 

 

Operating expenses

     1,704.3        1,752.8        48.5       2.8
  

 

 

    

 

 

    

 

 

   

 

 

 

Operating income

     583.7        547.3        (36.5     (6.2 )% 
  

 

 

    

 

 

    

 

 

   

 

 

 

Despite a decline in revenues due to enhancing returns to customers and the decrease in sales of equipment, operating revenues for the mobile communications business segment for the six-month period ended September 30, 2017 increased 0.5% from the same period of the previous fiscal year to ¥2,300.1 billion due to an increase in IP/packet communications revenues resulting from the expansion of “Kake-hodai & Pake-aeru” and “docomo Hikari.” On the other hand, operating expenses for the six-month period ended September 30, 2017 increased 2.8% from the same period of the previous fiscal year to ¥1,752.8 billion due to an increase in revenue-linked expenses in “docomo Hikari”, among other factors. As a result, segment operating income for the six-month period ended September 30, 2017 decreased 6.2% from the same period of the previous fiscal year to ¥547.3 billion.

Number of subscriptions

 

      (Thousands of subscriptions)  

Service

   As of March 31,
2017
     As of September 30,
2017
     Change     Percent
Change
 

Mobile Telecommunications Services

        74,880           75,361        481       0.6

(incl.) “Kake-hodai & Pake-aeru” billing plan

     37,066        39,617        2,552       6.9

Telecommunications Services (LTE (Xi))

     44,544        46,908        2,364       5.3

Telecommunications Services (FOMA (3G))

     30,336        28,453        (1,883     (6.2 )% 
  

 

 

    

 

 

    

 

 

   

 

 

 

sp-mode

     35,921        37,418        1,497       4.2
  

 

 

    

 

 

    

 

 

   

 

 

 

i-mode

     15,493        13,809        (1,684     (10.9 )% 
  

 

 

    

 

 

    

 

 

   

 

 

 

 

Note: Number of Mobile Telecommunications Services (including “Telecommunications Services (LTE (Xi))” and “Telecommunications Services (FOMA (3G))”) includes Communication Module Services.

 

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Data Communications Business Segment

Six-Month Period Ended September 30, 2017 (April 1, 2017 – September 30, 2017)

 

     (Billions of yen)  
     Six Months
Ended
September 30, 2016
     Six Months
Ended
September 30, 2017
     Change      Percent
Change
 

Operating revenues

     762.1        944.4        182.4        23.9

Operating expenses

     726.2          885.4          159.3              21.9

Operating income

     35.9        59.0        23.1        64.4

Operating revenues in the data communications business segment for the six-month period ended September 30, 2017 increased 23.9% from the same period of the previous fiscal year to ¥944.4 billion due to, among other things, the impact of the increase in the number of and expansion of consolidated subsidiaries resulting from the acquisition of Dell Services and the expansion of NTT’s domestic businesses. On the other hand, operating expenses for the six-month period ended September 30, 2017 increased 21.9% from the same period of the previous fiscal year to ¥885.4 billion due to, among other things, the impact of the increase in the number of and expansion of consolidated subsidiaries and an increase in revenue-linked expenses. As a result, segment operating income for the six-month period ended September 30, 2017 increased 64.4% from the same period of the previous fiscal year to ¥59.0 billion.

Other Business Segment

Six-Month Period Ended September 30, 2017 (April 1, 2017 – September 30, 2017)

 

     (Billions of yen)  
     Six Months
Ended
September 30, 2016
     Six Months
Ended
September 30, 2017
     Change     Percent
Change
 

Operating revenues

     567.6        564.4        (3.2     (0.6 )% 

Operating expenses

     537.9        525.0          (12.9      (2.4 )% 

Operating income

     29.7        39.4        9.7       32.7

Operating revenues in the other business segment for the six-month period ended September 30, 2017 decreased 0.6% from the same period of the previous fiscal year to ¥564.4 billion due to a decrease in revenues of NTT Group’s systems development business, partially offset by an increase in revenues of NTT Group’s real estate business, among other things. On the other hand, operating expenses for the six-month period ended September 30, 2017 decreased 2.4% from the same period of the previous fiscal year to ¥525.0 billion due to, among other things, a decrease in revenue-linked expenses in NTT Group’s systems development business and cost reductions by each group company. As a result, segment operating income for the six-month period ended September 30, 2017 increased 32.7% from the same period of the previous fiscal year to ¥39.4 billion.

 

– 12 –


Table of Contents

(3) Cash Flows

Net cash provided by operating activities for the six-month period ended September 30, 2017 decreased by ¥277.5 billion (20.0%) from the same period of the previous fiscal year to ¥1,112.9 billion. This decrease was due to, among other factors, a decrease in collection of accounts receivable.

Net cash used in investing activities increased by ¥198.2 billion (22.6%) from the same period of the previous fiscal year to ¥1,074.7 billion. This increase was due to, among other factors, an increase in payments for capital investments.

Net cash used in financing activities decreased by ¥444.3 billion (79.0%) from the same period of the previous fiscal year to ¥118.1 billion. This decrease was due to, among other factors, a decrease in stock repurchases by NTT and a decrease in stock repurchases by NTT’s subsidiaries.

As a result of the above, NTT Group’s consolidated cash and cash equivalents as of September 30, 2017 totaled ¥840.7 billion, a decrease of ¥84.6 billion (9.1%) from the end of the previous fiscal year.

 

     (Billions of yen)  
     Six Months
Ended
September 30, 2016
    Six Months
Ended
September 30, 2017
    Change     Percent
Change
 

Cash flows provided by operating activities

     1,390.4       1,112.9       (277.5     (20.0 )% 

Cash flows used in investing activities

     (876.5     (1,074.7     (198.2     (22.6 )% 

Cash flows provided by (used in) financing activities

     (562.4     (118.1     444.3       79.0

(4) Operational and Finance Issues Facing the Corporate Group

There were no material changes in the operational and finance issues facing the corporate group for the six months ended September 30, 2017, and no new additional issues arose during the period.

(5) Research and Development

NTT’s research and development expenses for the six months ended September 30, 2017 were ¥98.4 billion. There were no material changes in NTT’s research and development activities during the six months ended September 30, 2017.

 

– 13 –


Table of Contents

Item 3. Information on NTT

1. Information on NTT’s Shares

(1) Total Number of Shares

Total Number of Shares

 

Class

   Total Number of Shares Authorized to be Issued
(shares)
 

Common stock

     6,192,920,900  
  

 

 

 

Total

     6,192,920,900  
  

 

 

 

Issued Shares

 

Class

   Number of Shares
Issued as of September 30,
2017 (shares)
     Number of Shares
Issued as of the Filing
Date (shares)

(November 13, 2017)
    

Stock Exchange on
which the Company is
Listed

  

Description

Common Stock

     2,096,394,470        2,096,394,470     

Tokyo Stock Exchange

(The First Section)

   The number of shares per one unit of shares is 100 shares
  

 

 

    

 

 

    

 

  

 

Total

     2,096,394,470        2,096,394,470      —      —  
  

 

 

    

 

 

    

 

  

 

 

Notes:   (1)   Pursuant to the Board of Directors’ resolution on December 12, 2016, NTT acquired 30,587,200 shares of its outstanding common stock between December 19, 2016 and April 12, 2017.
  (2)   At a meeting of its Board of Directors held on September 25, 2017, NTT authorized repurchases of up to 30 million shares of its common stock at an aggregate cost not to exceed ¥150 billion during the period between September 26, 2017 and March 31, 2018.

(2) Information on Share Acquisition Rights

Not applicable.

(3) Information on Moving Strike Convertible Bonds

Not applicable.

(4) Information on Shareholder Rights Plans

Not applicable.

 

– 14 –


Table of Contents

(5) Changes in the Total Number of Issued Shares, the Amount of Common Stock, and Other

 

Date

   Changes in
the total
number of
issued shares

(shares)
     Balance of
the total
number of
issued shares

(shares)
     Changes  in
Common
Stock

(millions of
yen)
     Balance of
Common
Stock
(millions of
yen)
     Change in
Capital
Reserve
(millions of
yen)
     Balance of
Capital
Reserve
(millions of
yen)
 

July 1, 2017 – September 30, 2017

               2,096,394,470                  937,950                  2,672,826  

 

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Table of Contents

(6) Major Shareholders

 

     As of September 30, 2017  

Name

   Address     Number of
Shares  Held

(thousands of
shares)
     Ownership
Percentage to
the Total
Number of
Issued Shares
 

The Minister of Finance

    
1-1, Kasumigaseki 3-chome,
Chiyoda-ku, Tokyo
 
 
    679,122        32.39  

Japan Trustee Services Bank, Ltd. (Trust Account)

    
8-11, Harumi 1-chome,
Chuo-ku, Tokyo
 
 
    86,763        4.14  

The Master Trust Bank of Japan, Ltd. (Trust Account)

    
11-3, Hamamatsucho
2-chome, Minato-ku, Tokyo
 
 
    72,751        3.47  

JPMorgan Chase Bank 380055 (Standing proxy: Mizuho Bank, Ltd.)

    




270 PARK AVENUE,
NEW YORK, NY 10017,
UNITED STATES OF
AMERICA

(15-1, Konan 2-chome,
Minato-ku, Tokyo)

 
 
 
 

 
 

    53,203        2.54  

Japan Trustee Services Bank, Ltd. (Trust Account 5)

    
8-11, Harumi 1-chome,
Chuo-ku, Tokyo
 
 
    26,874        1.28  

Japan Trustee Services Bank, Ltd. (Trust Account 9)

    
8-11, Harumi 1-chome,
Chuo-ku, Tokyo
 
 
    24,594        1.17  

Japan Trustee Services Bank, Ltd. (Trust Account 1)

    
8-11, Harumi 1-chome,
Chuo-ku, Tokyo
 
 
    21,701        1.04  

Japan Trustee Services Bank, Ltd. (Trust Account 2)

    
8-11, Harumi 1-chome,
Chuo-ku, Tokyo
 
 
    21,140        1.01  

Moxley & Co. LLC (Standing proxy: The Bank of Tokyo-Mitsubishi UFJ, Ltd.)

    



4 NEW YORK PLAZA,
13TH FLOOR, NEW
YORK, NY 10004 U.S.A

(7-1, Marunouchi 2-chome,
Chiyoda-ku, Tokyo)

 
 
 

 
 

    20,862        1.00  

JPMorgan Chase Bank 385632 (Standing proxy: Mizuho Bank, Ltd.)

    




25 BANK STREET,
CANARY WHARF,
LONDON, E14 5JP,
UNITED KINGDOM

(15-1, Konan 2-chome,
Minato-ku, Tokyo)

 
 
 
 

 
 

    20,380        0.97  
  

 

 

   

 

 

    

 

 

 

Total

     —         1,027,394        49.01  
  

 

 

   

 

 

    

 

 

 

Note: NTT’s holdings of treasury stock (89,947,292 shares) are not included in the above table.

 

– 16 –


Table of Contents

(7) Information on Voting Rights

Issued Shares

 

     As of September 30, 2017  

Classification

   Number of Shares
(shares)
  Number of Voting Rights      Description  

Shares without Voting Rights

   —       —              

Shares with Restricted Voting Rights (treasury stock, etc.)

   —       —              

Shares with Restricted Voting Rights (others)

   —       —              

Shares with Full Voting Rights (treasury stock, etc.)

   (treasury stock)

89,947,200 shares of
common stock

(others)

36,800 shares of
common stock

    —              

Shares with Full Voting Rights (others)

   2,003,808,500 shares of
common stock
    20,038,079            

Shares Representing Less than One Unit

   2,601,970 shares of
common stock
    —              

Number of Issued Shares

   2,096,394,470 shares of
common stock
    —              
  

 

 

 

 

    

 

 

 

Total Number of Voting Rights

   —       20,038,079            
  

 

 

 

 

    

 

 

 

 

Notes:   (1)   Others in “Shares with Full Voting Rights (treasury stock, etc.)” means stock for which the exercise of voting rights are limited pursuant to Article 308 of the Companies Act of Japan.
  (2)   The total number of shares in “Shares with Full Voting Rights (others)” includes 29,100 shares held in the name of the Japan Securities Depository Center, and the number of shares in “Shares Representing Less Than One Unit” includes 44 shares held in the name of the Japan Securities Depository Center. “Number of Voting Rights” includes 291 voting rights associated with “Shares with Full Voting Rights” held in the name of the Japan Securities Depository Center, and does not include 6 voting rights associated with “Shares with Full Voting Rights” recorded on the shareholder register under NTT, but not actually owned by NTT.

 

– 17 –


Table of Contents

Treasury Stock

 

     As of September 30, 2017  

Name of Shareholder

   Address      Number of
Shares  Held
Under Own
Name (shares)
     Number of
Shares  Held
Under the
Names  of
Others
(shares)
     Total Shares
Held (shares)
     Ownership
Percentage to
the Total
Number of
Issued Shares
 

(treasury stock) Nippon Telegraph and Telephone Corporation

    
5-1, Otemachi 1-chome,
Chiyoda-ku, Tokyo
 
 
     89,947,200                  89,947,200        4.3

(others) Nihon Meccs Corporation

    
6-3, Irifune 3-chome,
Chuo-ku, Tokyo
 
 
     36,800                  36,800        0.0
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

               89,984,000                  89,984,000        4.3
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Notes:   (1)   Others in “Name of Shareholder” means stock for which the exercise of voting rights are limited pursuant to Article 308 of the Companies Act of Japan.
  (2)   In addition to the above, there are 600 shares that are recorded on the shareholder register under NTT, but not actually owned by NTT. Such shares are included in “Shares with Full Voting Rights (others)” under “Issued Shares”.
  (3)
  NTT acquired 30,587,200 shares of its outstanding common stock between December 19, 2016 and April 12, 2017. For details, please see “Note 3. Equity” under “Consolidated Financial Statement” of “4. Financial Information”.

2. Changes in Directors and Senior Management

    Not applicable.

 

– 18 –


Table of Contents

Item 4. Financial Information

Preparation Method of Quarterly Consolidated Financial Statements

The quarterly consolidated financial statements of NTT have been prepared in accordance with accounting terminology, forms and preparation methods required in order to issue American Depositary Shares, and in accordance with U.S. generally accepted accounting principles, pursuant to Article 95 of “Ordinance on the Terminology, Forms, and Preparation Methods of Quarterly Consolidated Financial Statements” (Cabinet Office Ordinance No. 64, 2007).

Figures in NTT’s quarterly consolidated financial statements have been rounded to the nearest million yen.

 

– 19 –


Table of Contents

NIPPON TELEGRAPH AND TELEPHONE CORPORATION

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

                                                       
     Millions of yen  
     March 31,
2017
    September 30,
2017
 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   ¥ 925,213     ¥ 840,663  

Short-term investments

     63,844       144,206  

Notes and accounts receivable, trade

     2,699,708       2,739,030  

Allowance for doubtful accounts (Note 7)

     (48,626     (48,729

Accounts receivable, other

     505,145       567,027  

Inventories (Note 2)

     365,379       386,862  

Prepaid expenses and other current assets

     573,170       600,288  

Deferred income taxes (Note 1)

     228,590       —    
  

 

 

   

 

 

 

Total current assets

     5,312,423       5,229,347  
  

 

 

   

 

 

 

Property, plant and equipment:

    

Telecommunications equipment

     11,046,115       11,014,642  

Telecommunications service lines

     16,064,732       16,145,869  

Buildings and structures

     6,147,869       6,222,954  

Machinery, vessels and tools

     2,032,389       2,117,492  

Land

     1,292,685       1,304,617  

Construction in progress

     421,819       459,247  
  

 

 

   

 

 

 
     37,005,609       37,264,821  

Accumulated depreciation

     (27,286,588     (27,461,554
  

 

 

   

 

 

 

Net property, plant and equipment

     9,719,021       9,803,267  
  

 

 

   

 

 

 

Investments and other assets:

    

Investments in affiliated companies

     484,596       496,445  

Marketable securities and other investments

     495,290       508,680  

Goodwill (Note 1)

     1,314,645       1,366,673  

Software

     1,209,485       1,201,543  

Other intangible assets

     453,918       416,509  

Other assets

     1,492,076       1,505,899  

Deferred income taxes (Note 1)

     768,871       969,789  
  

 

 

   

 

 

 

Total investments and other assets

     6,218,881       6,465,538  
  

 

 

   

 

 

 

Total assets

   ¥ 21,250,325     ¥ 21,498,152  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

– 20 –


Table of Contents

NIPPON TELEGRAPH AND TELEPHONE CORPORATION

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

                                                       
      Millions of yen  
     March 31,
2017
    September 30,
2017
 

LIABILITIES AND EQUITY

    

Current liabilities:

    

Short-term borrowings

   ¥ 227,207     ¥ 268,876  

Current portion of long-term debt

     681,904       710,206  

Accounts payable, trade

     1,612,996       1,239,946  

Current portion of obligations under capital leases

     14,430       15,866  

Accrued payroll

     443,308       442,953  

Accrued taxes on income

     239,755       247,954  

Accrued consumption tax

     75,083       92,430  

Advances received

     324,342       360,952  

Other

     512,368       483,083  
  

 

 

   

 

 

 

Total current liabilities

     4,131,393       3,862,266  
  

 

 

   

 

 

 

Long-term liabilities:

    

Long-term debt (excluding current portion)

     3,168,478       3,181,371  

Obligations under capital leases (excluding current portion)

     25,568       22,730  

Liability for employees’ retirement benefits

     1,599,381       1,624,134  

Accrued liabilities for point programs

     103,047       94,136  

Deferred income taxes (Note 1)

     166,751       150,380  

Other

     497,132       506,945  
  

 

 

   

 

 

 

Total long-term liabilities

     5,560,357       5,579,696  
  

 

 

   

 

 

 

Redeemable noncontrolling interests

     50,819       54,795  
  

 

 

   

 

 

 

Equity:

    

Nippon Telegraph and Telephone Corporation (“NTT”) shareholders’ equity

    

Common stock, no par value (Note 3)

Authorized – 6,192,920,900 shares

Issued 2,096,394,470 shares at March 31 and September 30, 2017

     937,950       937,950  

Additional paid-in capital

     2,862,035       2,855,486  

Retained earnings (Note 3)

     5,626,155       6,033,702  

Accumulated other comprehensive income (loss) (Note 3)

     1,562       33,142  

Treasury stock, at cost (Note 3) –

81,026,959 shares at March 31, 2017 and 89,947,292 shares at September 30, 2017

     (375,223     (418,599
  

 

 

   

 

 

 

Total NTT shareholders’ equity

     9,052,479       9,441,681  
  

 

 

   

 

 

 

Noncontrolling interests (Note 3)

     2,455,277       2,559,714  
  

 

 

   

 

 

 

Total equity

     11,507,756       12,001,395  
  

 

 

   

 

 

 

Contingent liabilities (Note 8)

    
  

 

 

   

 

 

 

Total liabilities and equity

   ¥  21,250,325     ¥  21,498,152  
  

 

 

   

 

 

 
      Yen  
     March 31,
2017
    September 30,
2017
 

Per share of common stock:

    

NTT shareholders’ equity

   ¥ 4,491.73     ¥ 4,705.67  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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Table of Contents

NIPPON TELEGRAPH AND TELEPHONE CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

SIX-MONTH PERIOD ENDED SEPTEMBER 30

 

     Millions of yen, except per share data  
     2016     2017  

Operating revenues (Note 5):

    

Fixed voice related services

   ¥ 619,316     ¥ 571,039  

Mobile voice related services

     429,604       467,669  

IP/packet communications services

     1,901,368       1,908,862  

Sale of telecommunications equipment

     423,074       348,515  

System integration

     1,397,071       1,599,833  

Other

     753,895       768,877  
  

 

 

   

 

 

 
     5,524,328       5,664,795  
  

 

 

   

 

 

 

Operating expenses:

    

Cost of services
(excluding items shown separately below)

     1,153,397       1,120,488  

Cost of equipment sold
(excluding items shown separately below)

     406,441       379,912  

Cost of system integration
(excluding items shown separately below)

     986,249       1,141,083  

Depreciation and amortization

     716,473       659,938  

Impairment losses

    

Goodwill

     4,471       —    

Other

     10,197       557  

Selling, general and administrative expenses (Note 6)

     1,320,616       1,387,634  
  

 

 

   

 

 

 
     4,597,844       4,689,612  
  

 

 

   

 

 

 

Operating income (Note 5)

     926,484       975,183  
  

 

 

   

 

 

 

Other income (expenses):

    

Interest and amortization of bond discounts and issue costs

     (19,780     (16,573

Interest income

     8,621       8,962  

Other, net (Note 3)

     (18,420     14,453  
  

 

 

   

 

 

 
     (29,579     6,842  
  

 

 

   

 

 

 

Income before income taxes and equity in earnings (losses) of affiliated companies

     896,905       982,025  
  

 

 

   

 

 

 

Income tax expense (benefit) (Note 3):

    

Current

     246,678       318,773  

Deferred

     34,766       (9,360
  

 

 

   

 

 

 
     281,444       309,413  
  

 

 

   

 

 

 

Income before equity in earnings (losses) of affiliated companies

     615,461       672,612  

Equity in earnings (losses) of affiliated companies (Note 3)

     10,065       6,755  
  

 

 

   

 

 

 

Net income

     625,526       679,367  
  

 

 

   

 

 

 

Less – Net income attributable to noncontrolling interests

     149,430       151,862  
  

 

 

   

 

 

 

Net income attributable to NTT

   ¥ 476,096     ¥ 527,505  
  

 

 

   

 

 

 

Per share of common stock:

    

Weighted average number of shares outstanding

     2,061,934,989       2,006,905,710  

Net income attributable to NTT (Note 1)

   ¥ 230.90     ¥ 262.84  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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Table of Contents

NIPPON TELEGRAPH AND TELEPHONE CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

SIX-MONTH PERIOD ENDED SEPTEMBER 30

 

     Millions of yen  
     2016     2017  

Net income

   ¥ 625,526     ¥ 679,367  

Other comprehensive income (loss), net of tax (Note 3)

    

Unrealized gain (loss) on securities

     (18,302     13,107  

Unrealized gain (loss) on derivative instruments

     (2,009     966  

Foreign currency translation adjustments

     (178,873     34,386  

Pension liability adjustments

     5,812       3,681  
  

 

 

   

 

 

 

Total other comprehensive income (loss)

     (193,372     52,140  
  

 

 

   

 

 

 

Total comprehensive income (loss)

     432,154       731,507  
  

 

 

   

 

 

 

Less – Comprehensive income attributable to noncontrolling interests

     112,965       169,071  
  

 

 

   

 

 

 

Total comprehensive income (loss) attributable to NTT

   ¥           319,189     ¥           562,436  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

– 23 –


Table of Contents

NIPPON TELEGRAPH AND TELEPHONE CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

THREE-MONTH PERIOD ENDED SEPTEMBER 30

 

     Millions of yen, except per share data  
     2016     2017  

Operating revenues (Note 5):

    

Fixed voice related services

   ¥ 307,546     ¥ 280,839  

Mobile voice related services

     216,627       238,933  

IP/packet communications services

     953,319       959,697  

Sale of telecommunications equipment

     236,358       175,098  

System integration

     708,761       817,327  

Other

     384,978       383,119  
  

 

 

   

 

 

 
     2,807,589       2,855,013  
  

 

 

   

 

 

 

Operating expenses:

    

Cost of services
(excluding items shown separately below)

     606,143       565,615  

Cost of equipment sold
(excluding items shown separately below)

     231,175       195,383  

Cost of system integration
(excluding items shown separately below)

     484,516       579,992  

Depreciation and amortization

     357,275       327,660  

Impairment losses

    

Goodwill

     4,471       —    

Other

     9,818       557  

Selling, general and administrative expenses (Note 6)

     675,102       702,220  
  

 

 

   

 

 

 
     2,368,500       2,371,427  
  

 

 

   

 

 

 

Operating income (Note 5)

     439,089       483,586  
  

 

 

   

 

 

 

Other income (expenses):

    

Interest and amortization of bond discounts and issue costs

     (9,774     (8,244

Interest income

     4,289       4,385  

Other, net (Note 3)

     17,194       6,065  
  

 

 

   

 

 

 
     11,709       2,206  
  

 

 

   

 

 

 

Income before income taxes and equity in earnings (losses) of affiliated companies

     450,798       485,792  
  

 

 

   

 

 

 

Income tax expense (benefit) (Note 3):

    

Current

     117,367       161,997  

Deferred

     25,152       (4,982
  

 

 

   

 

 

 
     142,519       157,015  
  

 

 

   

 

 

 

Income before equity in earnings (losses) of affiliated companies

     308,279       328,777  

Equity in earnings (losses) of affiliated companies (Note 3)

     5,452       3,184  
  

 

 

   

 

 

 

Net income

     313,731       331,961  
  

 

 

   

 

 

 

Less – Net income attributable to noncontrolling interests

     81,263       75,928  
  

 

 

   

 

 

 

Net income attributable to NTT

   ¥ 232,468     ¥ 256,033  
  

 

 

   

 

 

 

Per share of common stock:

    

Weighted average number of shares outstanding

     2,037,089,579       2,006,454,846  

Net income attributable to NTT

   ¥ 114.12     ¥ 127.60  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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NIPPON TELEGRAPH AND TELEPHONE CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

THREE-MONTH PERIOD ENDED SEPTEMBER 30

 

     Millions of yen  
     2016     2017  

Net income

   ¥ 313,731     ¥ 331,961  

Other comprehensive income (loss), net of tax (Note 3)

    

Unrealized gain (loss) on securities

     (3,600     8,984  

Unrealized gain (loss) on derivative instruments

     (5,387     (1,699

Foreign currency translation adjustments

     (78,093     25,530  

Pension liability adjustments

     3,236       1,588  
  

 

 

   

 

 

 

Total other comprehensive income (loss)

     (83,844     34,403  
  

 

 

   

 

 

 

Total comprehensive income (loss)

     229,887       366,364  
  

 

 

   

 

 

 

Less – Comprehensive income attributable to noncontrolling interests

     64,675       86,448  
  

 

 

   

 

 

 

Total comprehensive income (loss) attributable to NTT

   ¥           165,212     ¥           279,916  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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NIPPON TELEGRAPH AND TELEPHONE CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

SIX-MONTH PERIOD ENDED SEPTEMBER 30

 

                                                       
     Millions of yen  
     2016     2017  

Cash flows from operating activities:

    

Net income

   ¥ 625,526     ¥ 679,367  

Adjustments to reconcile net income to net cash provided by operating activities –

    

Depreciation and amortization

     716,473       659,938  

Impairment losses

     14,668       557  

Deferred taxes

     34,766       (9,360

Losses on disposals of property, plant and equipment

     32,753       28,823  

Gains on sales of property, plant and equipment

     (14,188     (1,106

Equity in (earnings) losses of affiliated companies

     (10,065     (6,755

(Increase) decrease in notes and accounts receivable, trade

     263,040       (12,313

(Increase) decrease in inventories

     (42,369     (31,521

(Increase) decrease in other current assets

     (84,175     (113,122

Increase (decrease) in accounts payable, trade and accrued payroll

     (254,909     (253,952

Increase (decrease) in accrued consumption tax

     (6,511     16,995  

Increase (decrease) in advances received

     34,708       40,285  

Increase (decrease) in accrued taxes on income

     (43,784     12,720  

Increase (decrease) in other current liabilities

     22,656       12,494  

Increase (decrease) in liability for employees’ retirement benefits

     20,592       24,925  

Increase (decrease) in other long-term liabilities

     15,576       (869

Other

     65,685       65,801  
  

 

 

   

 

 

 

Net cash provided by operating activities

            1,390,442              1,112,907  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Payments for property, plant and equipment

     (638,891     (699,119

Payments for intangibles

     (196,713     (192,690

Proceeds from sales of property, plant and equipment

     21,480       5,063  

Payments for purchases of non-current investments

     (23,484     (27,632

Proceeds from sales and redemptions of non-current investments

     42,097       15,034  

Acquisitions of subsidiaries, net of cash acquired

     (10,474     (17,475

Payments for purchases of short-term investments

     (79,097     (185,135

Proceeds from redemptions of short-term investments

     24,462       113,461  

Other

     (15,909     (86,247
  

 

 

   

 

 

 

Net cash used in investing activities

   ¥ (876,529   ¥ (1,074,740
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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Table of Contents

NIPPON TELEGRAPH AND TELEPHONE CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

SIX-MONTH PERIOD ENDED SEPTEMBER 30

 

                                                       
     Millions of yen  
     2016     2017  

Cash flows from financing activities:

    

Proceeds from issuance of long-term debt

   ¥ 149,354     ¥ 288,854  

Payments for settlement of long-term debt

     (201,187     (202,749

Proceeds from issuance of short-term debt

     1,987,414       3,222,376  

Payments for settlement of short-term debt

     (1,936,943     (3,185,981

Dividends paid (Note 3)

     (125,768     (120,922

Proceeds from sale of (payments for acquisition of) treasury stock, net

     (267,514     (43,407

Acquisition of shares of subsidiaries from noncontrolling interests

     (113,838     (8,877

Other

     (53,917     (67,358
  

 

 

   

 

 

 

Net cash used in financing activities

     (562,399     (118,064
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (22,670     1,266  
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (71,156     (78,631
  

 

 

   

 

 

 

Cash and cash equivalents at beginning of period

            1,088,275                 925,213  
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents due to change in fiscal year end of consolidated subsidiaries (Note 1)

     (2,638     (5,919
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   ¥ 1,014,481     ¥ 840,663  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

– 27 –


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NIPPON TELEGRAPH AND TELEPHONE CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Summary of significant accounting policies:

As permitted by the “Ordinance on the Terminology, Forms, and Preparation Methods of Quarterly Consolidated Financial Statements” (Japanese Cabinet Office Ordinance No. 64 of 2007), the accompanying consolidated balance sheets at March 31 and September 30, 2017, the consolidated statements of income and the consolidated statements of comprehensive income for the three and six months ended September 30, 2016 and 2017 and the consolidated statements of cash flows for the six months ended September 30, 2016 and 2017 of NTT and its subsidiaries (collectively with NTT, “NTT Group”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain disclosures required by U.S. GAAP have been omitted.

(1) Application of New Accounting Standards

Balance Sheet Classification of Deferred Taxes –

On November 20, 2015, the FASB issued ASU2015-17 “Balance sheet classification of deferred taxes” which requires that all deferred tax liabilities and assets be classified as noncurrent on the balance sheet.

Effective April 1, 2017, NTT Group adopted this ASU prospectively and prior periods were not retrospectively adjusted.

Simplifying the Test for Goodwill Impairment –

On January 26, 2017, the FASB issued ASU 2017-04 “Simplifying the Test for Goodwill Impairment,” which replaces the two-step goodwill impairment test with the one-step goodwill impairment test. The amendments in this update require that an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.

The adoption of ASU 2017-04 would be permitted for goodwill impairment tests with measurement dates after January 1, 2017. NTT Group adopted this ASU for goodwill impairment test with measurement date on July 1, 2017.

 

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(2) Change in Fiscal Year End of Certain Subsidiaries

As of April 1, 2016, certain of NTT’s consolidated subsidiaries changed their fiscal year ends from December 31 to March 31, thereby eliminating a three-month lag between their fiscal year ends and NTT’s fiscal year end in NTT’s quarterly consolidated financial statements. The elimination of this lag was applied as a change in accounting policy. NTT did not make any retrospective adjustments to its financial statements as these changes did not have a material impact on the consolidated financial statements for the fiscal year ended March 31, 2016. As a result of this change, NTT’s retained earnings, accumulated other comprehensive income (loss), and noncontrolling interests have decreased by ¥214 million, ¥1,454 million and ¥1,408 million, respectively, as of the beginning of the previous fiscal year. In addition, the change in cash and cash equivalents resulting from this change in fiscal year end is presented in the consolidated statements of cash flows under “Increase (decrease) in cash and cash equivalents due to change in fiscal year end of consolidated subsidiaries.”

As of April 1, 2017, certain of NTT’s consolidated subsidiaries changed their fiscal year ends from December 31 or January 31 to March 31, thereby eliminating a three-month or two-month lag between their fiscal year ends and NTT’s fiscal year end in NTT’s quarterly consolidated financial statements. The elimination of this lag was applied as a change in accounting policy. NTT did not make any retrospective adjustments to its financial statements as these changes did not have a material impact on the consolidated financial statements for the six months ended September 30, 2016 or the year ended March 31, 2017. As a result of this change, NTT’s retained earnings have increased by ¥964 million, and its accumulated other comprehensive income (loss) and noncontrolling interests have decreased by ¥3,351 million and ¥2,012 million, respectively, as of the beginning of the current fiscal year. In addition, the change in cash and cash equivalents resulting from this change in fiscal year end is presented in the consolidated statements of cash flows under “Increase (decrease) in cash and cash equivalents due to change in fiscal year end of consolidated subsidiaries.”

(3) Earnings per Share

Basic earnings per share (“EPS”) is computed based on the average number of shares outstanding during the period. Diluted EPS 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 for the six months ended September 30, 2016 and 2017, there is no difference between basic EPS and diluted EPS.

(4) Reclassifications

Certain items for prior periods’ financial statements have been reclassified to conform to the presentation for the six months ended September 30, 2017.

(5) Recently Issued Accounting Standards

Revenue from Contracts with Customers –

On May 28, 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers,” which requires an entity to recognize revenue when the entity transfers control of promised goods or services to customers. Revenue is recognized in an amount that reflects the consideration an entity expects to receive in exchange for those goods or services. An entity also is required to disclose sufficient quantitative and qualitative information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective.

 

– 29 –


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

On August 12, 2015, the FASB issued ASU 2015-14 “Revenue from Contracts with Customers: Deferral of the Effective Date,” and deferred the effective date of ASU 2014-09 by one year. Consequently, the new standard is effective for annual reporting periods beginning after December 15, 2017. The standard is expected to take effect for NTT Group on April 1, 2018. Early adoption of the standard as of April 1, 2017 would also be permitted.

The two permitted transition methods under the new standard are the full retrospective method, or the modified retrospective method. Under the full retrospective method, all periods presented will be updated upon adoption to conform to the new standard and a cumulative adjustment for effects on periods prior to the reporting period will be recorded to retained earnings at the beginning of the initial reporting period. Under the modified retrospective approach, the current reporting period will be updated to conform to the new standard and a cumulative adjustment for effects of applying the new standard to periods prior to the reporting period that includes the date of initial application is recorded to retained earnings as of the date of initial application, and also incremental disclosures related to the amount affected by the application of this new standard are required.

NTT has not decided on a transition method and is currently evaluating the impact of the new standard on NTT’s consolidated financial statements and related disclosures. The impact on revenue resulting from the application of the new standard will be subject to assessments that are dependent on many variables, including, but not limited to, the terms, the transaction prices including discounts and the mixture of the goods and services of NTT’s contractual arrangements. While NTT is continuing to assess all potential impacts resulting from the application of the new standard, NTT believes that the most significant impacts may include the following items:

 

 

The new standard requires the recognition of incremental costs of obtaining contacts and direct costs of fulfilling contracts with customers as assets. Under the current standard, those costs relating to communication services provided on the Regional communications business, the Long distance and international communications business, and the Mobile communications business are capitalized and amortized up to the upfront fees as the upper limit over the estimated average period of the subscription for each service. After adopting the new standard, all of those costs will be capitalized, and therefore, part of the sales commissions and other charges that have previously been treated as expenses will be recognized as additional assets.

 

 

The new standard requires that if customers are granted by an entity the option to acquire additional goods or services at a discount by a contract agreed between the customer and the entity, the entity shall identify this option as a separate performance obligation upon granting such option as a part of the consideration of the transaction being recognized as contract liabilities, and recognize revenue when the additional good or service is transferred at a discount to the customer or when such option expires. Under the current standard, NTT Group records accrued liabilities relating to the points that customers earn. After adopting the new standard, NTT Group will recognize a part of the consideration for transactions of mobile communications and other services as contract liabilities at the time when the points are granted, and recognize revenue when points are used for additional goods or services at a discount.

NTT Group is in the process of setting up operating processes and internal controls for the adoption of the new revenue recognition standard.

 

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Table of Contents

Recognition and Measurement of Financial Assets and Financial Liabilities –

On January 5, 2016, the FASB issued ASU 2016-01 “Recognition and Measurement of Financial Assets and Financial Liabilities,” which makes targeted improvements to the accounting for, and presentation and disclosure of, financial instruments. ASU 2016-01 requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. ASU 2016-01 does not affect the accounting for investments that would otherwise be consolidated or accounted for under the equity method. The new standard also affects the recognition of changes in fair value of financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017. The new standard is expected to take effect for NTT Group on April 1, 2018.

NTT is currently evaluating the effect of adopting the ASU.

Leases –

On February 25, 2016, the FASB issued ASU 2016-02 “Leases,” which requires all lessees to recognize right-of-use assets and lease liabilities, principally. The new standard is effective for fiscal years beginning after December 15, 2018. The new standard is expected to take effect for NTT Group on April 1, 2019. Early adoption is permitted.

The adoption of the new accounting standard is expected to result in the recognition of additional right-of-use assets and lease liabilities. NTT is considering the scope and the amounts of assets and liabilities to be recognized.

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost –

On March 10, 2017, the FASB issued ASU2017-07 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires that employers report the service cost component in the same line item(s) as other employee compensation costs arising from services rendered during the period, and report the other components of net benefit cost separately from the service cost component and outside a subtotal of operating income. Only the service cost component will be eligible for capitalization. The updated presentation of net benefit cost in an employer’s income statement is to be applied retrospectively while the change in capitalized benefit cost is to be applied prospectively. ASU 2017-07 is effective for fiscal years beginning after December 15, 2017. The standard is expected to take effect for NTT Group on April 1, 2018. Early adoption of the standard as of April 1, 2017 would also be permitted.

NTT is currently evaluating the effect of adopting the ASU.

2. Inventories:

Inventories at March 31 and September 30, 2017 comprised the following:

 

     Millions of yen  
     March 31,
2017
     September 30,
2017
 

Telecommunications equipment to be sold and materials

   ¥ 155,248      ¥ 143,736  

Projects in progress

     112,514        151,302  

Supplies

     97,617        91,824  
  

 

 

    

 

 

 

Total

   ¥ 365,379      ¥ 386,862  
  

 

 

    

 

 

 

 

– 31 –


Table of Contents

3. Equity:

Outstanding shares and treasury stock –

Changes in NTT’s shares of common stock and treasury stock for the fiscal year ended March 31, 2017 and for the six months ended September 30, 2017 are as follows:

 

     Change in shares  
     Issued
shares
     Treasury
stock
 

Balance at March 31, 2016

     2,096,394,470        255,269  

Acquisition of treasury stock under resolution of the board of directors

     —          80,731,900  

Acquisition of treasury stock through purchase of less-than-one-unit shares

     —          41,446  

Resale of treasury stock to holders of less-than-one-unit shares

     —          (1,656

Balance at March 31, 2017

     2,096,394,470        81,026,959  
  

 

 

    

 

 

 

Acquisition of treasury stock under resolution of the board of directors

     —          8,893,400  

Acquisition of treasury stock through purchase of less-than-one-unit shares

     —          27,529  

Resale of treasury stock to holders of less-than-one-unit shares

     —          (596
  

 

 

    

 

 

 

Balance at September 30, 2017

     2,096,394,470        89,947,292  
  

 

 

    

 

 

 

On May 13, 2016, the Board of Directors resolved that NTT may acquire up to 68 million shares of its outstanding common stock for an amount in total not exceeding ¥350 billion from May 16, 2016 through March 31, 2017. Based on this resolution, NTT repurchased 59,038,100 shares of its common stock at ¥267,384 million on June 14, 2016 using the ToSTNeT-3, and concluded the repurchase of its common stock authorized by Board of Directors’ resolution.

On December 12, 2016, the Board of Directors resolved that NTT may acquire up to 33 million shares of its outstanding common stock for an amount in total not exceeding ¥150 billion from December 13, 2016 through June 30, 2017. Based on this resolution, NTT repurchased 21,693,800 shares of its common stock for a total purchase price of ¥106,763 million between December 2016 and March 2017. NTT also repurchased 8,893,400 shares of its common stock for a total purchase price of ¥43,235 million in April 2017 and concluded the repurchase of its common stock authorized by Board of Directors’ resolution.

On September 25, 2017, the Board of Directors resolved that NTT may acquire up to 30 million shares of its outstanding common stock for an amount in total not exceeding ¥150 billion from September 26, 2017 through March 31, 2018. NTT also repurchased 11,400,000 shares of its common stock for a total purchase price of ¥60,294 million in October 2017.

 

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Dividends –

(1) Cash dividends paid

 

Resolution

   The shareholders’ meeting held on June 27, 2017

Class of shares

   Common stock

Source of dividends

   Retained earnings

Total cash dividends paid

   ¥120,922 million

Cash dividends per share

   ¥60

Record date

   March 31, 2017

Date of payment

   June 28, 2017

(2) Cash dividends declared

 

Resolution

   The board of directors’ meeting on November 10, 2017

Class of shares

   Common stock

Source of dividends

   Retained earnings

Total cash dividends declared

   ¥150,484 million

Cash dividends per share

   ¥75

Record date

   September 30, 2017

Date of payment

   December 11, 2017

 

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Changes in equity –

Changes in total equity, NTT shareholders’ equity and equity attributable to noncontrolling interests for the six months ended September 30, 2016 and 2017 are as follows:

 

     Millions of yen  
     NTT  shareholders’
equity
    Noncontrolling
interests
    Total
equity
 

Balance at March 31, 2016

   ¥ 8,833,806     ¥ 2,406,276     ¥ 11,240,082  

Adjustments due to change in fiscal year end of consolidated
subsidiaries (Note 1)

     (1,668     (1,408     (3,076

Balance at March 31, 2016 (as adjusted)

     8,832,138       2,404,868       11,237,006  

Dividends paid to NTT Shareholders

     (125,768     —         (125,768

Dividends paid to noncontrolling interests

     —         (56,607     (56,607

Acquisition of treasury stock

     (267,468     —         (267,468

Resale of treasury stock

     4       —         4  

Other equity transactions

     (873     (84,407     (85,280

Net income

     476,096       148,917       625,013  

Other comprehensive income (loss)

     (156,907     (33,603     (190,510

Unrealized gain (loss) on securities

     (14,189     (4,113     (18,302

Unrealized gain (loss) on derivative instruments

     (1,655     (354     (2,009

Foreign currency translation adjustments

     (145,914     (30,097     (176,011

Pension liability adjustments

     4,851       961       5,812  

Balance at September 30, 2016

   ¥ 8,757,222     ¥ 2,379,168     ¥ 11,136,390  
     Millions of yen  
     NTT  shareholders’
equity
    Noncontrolling
interests
    Total
equity
 

Balance at March 31, 2017

   ¥ 9,052,479     ¥ 2,455,277     ¥ 11,507,756  

Adjustments due to change in fiscal year end of consolidated
subsidiaries (Note 1)

     (2,387     (2,012     (4,399

Balance at March 31, 2017 (as adjusted)

     9,050,092       2,453,265       11,503,357  

Dividends paid to NTT Shareholders

     (120,922     —         (120,922

Dividends paid to noncontrolling interests

     —         (57,674     (57,674

Acquisition of treasury stock

     (43,379     —         (43,379

Resale of treasury stock

     3       —         3  

Other equity transactions

     (6,549     (2,705     (9,254

Net income

     527,505       150,916       678,421  

Other comprehensive income (loss)

     34,931       15,912       50,843  

Unrealized gain (loss) on securities

     6,803       6,304       13,107  

Unrealized gain (loss) on derivative instruments

     1,361       (395     966  

Foreign currency translation adjustments

     23,627       9,462       33,089  

Pension liability adjustments

     3,140       541       3,681  

Balance at September 30, 2017

   ¥ 9,441,681     ¥ 2,559,714     ¥ 12,001,395  

Changes in the redeemable noncontrolling interest are not included in the table.

 

– 34 –


Table of Contents

Accumulated other comprehensive income (loss) –

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

 

For the six months ended September 30

   Millions of yen  
   Unrealized
gain (loss) on
securities
    Unrealized
gain (loss) on
derivative
instruments
    Foreign
currency
translation
adjustments
    Pension
liability
adjustments
    Total  

Balance at March 31, 2016

   ¥ 109,211     ¥ (10,272   ¥ 119,053     ¥ (275,047   ¥ (57,055

Adjustments due to change in fiscal year end of consolidated subsidiaries (Note 1)

     —         107       (1,591     30       (1,454

Balance at March 31, 2016 (as adjusted)

     109,211       (10,165     117,462       (275,017     (58,509
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income before reclassification

     (7,483     (1,261     (178,873     (431     (188,048

Amounts reclassified from accumulated other comprehensive income

     (10,819     (748     —         6,243       (5,324
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     (18,302     (2,009     (178,873     5,812       (193,372
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less – Comprehensive income attributable to noncontrolling interests

     (4,113     (354     (32,959     961       (36,465
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2016

   ¥ 95,022     ¥ (11,820   ¥ (28,452   ¥ (270,166   ¥ (215,416
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

For the six months ended September 30

   Millions of yen  
   Unrealized
gain (loss) on
securities
    Unrealized
gain (loss) on
derivative
instruments
    Foreign
currency
translation
adjustments
    Pension
liability
adjustments
    Total  

Balance at March 31, 2017

   ¥ 114,283     ¥ (8,531   ¥ 87,378     ¥ (191,568   ¥ 1,562  

Adjustments due to change in fiscal year end of consolidated subsidiaries (Note 1)

     (9     —         (3,342     —         (3,351

Balance at March 31, 2017 (as adjusted)

     114,274       (8,531     84,036       (191,568     (1,789
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income before reclassification

     14,184       2,788       24,065       51       41,088  

Amounts reclassified from accumulated other comprehensive income

     (1,077     (1,822     10,321       3,630       11,052  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     13,107       966       34,386       3,681       52,140  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less – Comprehensive income attributable to noncontrolling interests

     6,304       (395     10,759       541       17,209  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2017

   ¥ 121,077     ¥ (7,170   ¥ 107,663     ¥ (188,428   ¥ 33,142  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

For the three months ended September 30

   Millions of yen  
   Unrealized
gain (loss) on
securities
    Unrealized
gain (loss) on
derivative
instruments
    Foreign
currency
translation
adjustments
    Pension
liability
adjustments
    Total  

Balance at June 30, 2016

   ¥ 97,867     ¥ (9,034   ¥ 35,907     ¥ (272,900   ¥ (148,160

Other comprehensive income before reclassification

     6,412       (4,440     (78,093     51       (76,070

Amounts reclassified from accumulated other comprehensive income

     (10,012     (947     —         3,185       (7,774
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     (3,600     (5,387     (78,093     3,236       (83,844
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less – Comprehensive income attributable to noncontrolling interests

     (755     (2,601     (13,734     502       (16,588
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2016

   ¥ 95,022     ¥ (11,820   ¥ (28,452   ¥ (270,166   ¥ (215,416
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

For the three months ended September 30

   Millions of yen  
   Unrealized
gain (loss) on
securities
    Unrealized
gain (loss) on
derivative
instruments
    Foreign
currency
translation
adjustments
    Pension
liability
adjustments
    Total  

Balance at June 30, 2017

   ¥ 116,802     ¥ (6,190   ¥ 88,360     ¥ (189,713   ¥ 9,259  

Other comprehensive income before reclassification

     10,157       138       22,473       35       32,803  

Amounts reclassified from accumulated other comprehensive income

     (1,173     (1,837     3,057       1,553       1,600  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     8,984       (1,699     25,530       1,588       34,403  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less – Comprehensive income attributable to noncontrolling interests

     4,709       (719     6,227       303       10,520  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2017

   ¥ 121,077     ¥ (7,170   ¥ 107,663     ¥ (188,428   ¥ 33,142  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Reclassifications out of accumulated other comprehensive income (loss) for the six and three months ended September 30, 2016 and 2017 are as follows:

 

    Millions of yen
    Amounts reclassified
from
accumulated other
comprehensive income
(loss)
   

Affected line items in

consolidated statements of income

For the six months ended September 30

  2016     2017    

Unrealized gain (loss) on securities

  ¥   15,502     ¥     1,495     Other, net
    (4,745     (418   Income tax benefit (expense)
    62       —       Equity in earnings (losses) of affiliated companies
 

 

 

   

 

 

   
  ¥ 10,819     ¥ 1,077     Net income
 

 

 

   

 

 

   

Unrealized gain (loss) on derivative instruments

  ¥ 1,127     ¥ 2,603    

Other, net

    (344     (814   Income tax benefit (expense)
    (35     33     Equity in earnings (losses) of affiliated companies
 

 

 

   

 

 

   
  ¥ 748     ¥ 1,822     Net income
 

 

 

   

 

 

   

Foreign currency translation adjustments

  ¥ —       ¥ 5,062    

Income tax benefit (expense)

    —         (15,383   Equity in earnings (losses) of affiliated companies
 

 

 

   

 

 

   
  ¥ —       ¥ (10,321   Net income
 

 

 

   

 

 

   

Pension liability adjustments

  ¥ (9,068   ¥ (5,152  

*

    2,825       1,522     Income tax benefit (expense)
 

 

 

   

 

 

   
  ¥ (6,243   ¥ (3,630   Net income
 

 

 

   

 

 

   

Total

  ¥ 5,324     ¥ (11,052  

Net income

 

 

 

   

 

 

   

 

* Amounts reclassified from pension liability adjustments are included in the computation of net periodic pension cost.

 

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Table of Contents
    Millions of yen
    Amounts reclassified
from
accumulated other
comprehensive income
(loss)
   

Affected line items in

consolidated statements of income

For the three months ended September 30

  2016     2017    

Unrealized gain (loss) on securities

  ¥   14,430     ¥     1,608     Other, net
    (4,420     (435   Income tax benefit (expense)
    2       —       Equity in earnings (losses) of affiliated companies
 

 

 

   

 

 

   
  ¥ 10,012     ¥ 1,173     Net income
 

 

 

   

 

 

   

Unrealized gain (loss) on derivative instruments

  ¥ 1,396     ¥ 2,607    

Other, net

    (431     (820   Income tax benefit (expense)
    (18     50     Equity in earnings (losses) of affiliated companies
 

 

 

   

 

 

   
  ¥ 947     ¥ 1,837     Net income
 

 

 

   

 

 

   

Foreign currency translation adjustments

  ¥ —       ¥ 1,400    

Income tax benefit (expense)

    —         (4,457   Equity in earnings (losses) of affiliated companies
 

 

 

   

 

 

   
  ¥ —       ¥ (3,057   Net income
 

 

 

   

 

 

   

Pension liability adjustments

  ¥ (4,570   ¥ (2,215   *
    1,385       662     Income tax benefit (expense)
 

 

 

   

 

 

   
  ¥ (3,185   ¥ (1,553   Net income
 

 

 

   

 

 

   

Total

  ¥ 7,774     ¥ (1,600   Net income
 

 

 

   

 

 

   

 

* Amounts reclassified from pension liability adjustments are included in the computation of net periodic pension cost.

Equity transactions with noncontrolling interests –

On April 28, 2016, the Board of Directors of NTT DOCOMO, Inc. (“NTT DOCOMO”), a subsidiary of NTT, resolved that NTT DOCOMO may acquire up to 99,132,938 shares of its outstanding common stock for an amount in total not exceeding ¥192,514 million from May 2, 2016 through December 31, 2016. Based on this resolution, NTT DOCOMO repurchased 9,021,000 shares of its common stock at ¥24,433 million using the ToSTNeT-3 on May 18, 2016, and also repurchased 31,340,000 shares of its common stock at ¥84,749 million by way of market purchases based on the discretionary dealing contract until September 30, 2016. As a result, NTT’s ownership interest in NTT DOCOMO increased from 65.7% to 66.4% and “Additional paid-in capital” decreased by ¥2,270 million in the consolidated balance sheet as of September 30, 2016.

On October 26, 2017, the Board of Directors of NTT DOCOMO resolved that NTT DOCOMO may acquire up to 120 million shares of its outstanding common stock for an amount in total not exceeding ¥300 billion from October 27, 2017 through March 31, 2018.

 

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4. Fair value measurements:

The inputs to valuation techniques used to measure fair value are required to be categorized by fair value hierarchy. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

 

 

Level 1 – Quoted prices for identical assets or liabilities in active markets

 

 

Level 2 – Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs derived principally from observable market data

 

 

Level 3 – Unobservable inputs

Assets and liabilities measured at fair value on a recurring basis as of March 31 and September 30, 2017 are as follows:

 

     Millions of yen  
     March 31, 2017  
     Fair value measurements using  
     Total      Level 1      Level 2      Level 3  

Assets

           

Available-for-sale securities:

           

Domestic equity securities

   ¥ 198,482      ¥ 198,482      ¥ —        ¥ —    

Foreign equity securities

     135,912        135,912        —          —    

Domestic debt securities

     59,138        214        58,759        165  

Foreign debt securities

     38,360        9        38,118        233  

Derivatives:

           

Forward exchange contracts

     1,137        —          1,137        —    

Interest rate swap agreements

     289        —          289        —    

Currency swap agreements

     71,930        —          71,930        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Derivatives:

           

Forward exchange contracts

     1,032        —          1,032        —    

Interest rate swap agreements

     3,938        —          3,938        —    

Currency swap agreements

     12,555        —          12,555        —    

Currency option agreements

     1,336        —          1,336        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

There were no transfers between Level 1 and Level 2.

Level 3 reconciliation is not disclosed, since the amounts in Level 3 are immaterial.

 

– 39 –


Table of Contents
     Millions of yen  
     September 30, 2017  
     Fair value measurements using  
     Total      Level 1      Level 2      Level 3  

Assets

           

Available-for-sale securities:

           

Domestic equity securities

   ¥ 216,878      ¥ 216,878      ¥ —        ¥ —    

Foreign equity securities

     123,691        123,691        —          —    

Domestic debt securities

     69,531        214        69,148        169  

Foreign debt securities

     40,733        125        40,494        114  

Derivatives:

           

Forward exchange contracts

     578        —          578        —    

Interest rate swap agreements

     201        —          201        —    

Currency swap agreements

     18,201        —          18,201        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Derivatives:

           

Forward exchange contracts

     3,927        —          3,927        —    

Interest rate swap agreements

     3,764        —          3,764        —    

Currency swap agreements

     15,939        —          15,939        —    

Currency option agreements

     837        —          837        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

There were no transfers between Level 1 and Level 2.

Level 3 reconciliation is not disclosed, since the amounts in Level 3 are immaterial.

Available-for-sale securities –

Available-for-sale securities comprise marketable equity securities and debt securities. If active market prices are available, fair value is measured by quoted prices for identical assets in active markets, which is classified as Level 1. If active market prices are not available, fair value is measured by inputs derived principally from observable market data provided by financial institutions, which is classified as Level 2. In cases in which fair value is measured by inputs derived from unobservable data, it is classified as Level 3.

Derivatives –

Derivatives comprise forward exchange contracts, interest rate swap agreements, currency swap agreements and currency option agreements. Fair value of derivatives is measured by inputs derived principally from observable market data provided by financial institutions, which is classified as Level 2.

Assets and liabilities measured at fair value on a nonrecurring basis for the six months ended September 30, 2016 and 2017 were immaterial.

 

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Table of Contents

5. Segment information:

Operating segments are components of NTT Group 1) that engage in business activities, 2) whose operating results are regularly reviewed by NTT Group’s chief operating decision maker to make decisions on the allocation of financial resources and to evaluate business performance, and 3) for which discrete financial information is available. Accounting policies used to determine segment profit/loss are consistent with those used to prepare the consolidated financial statements in accordance with accounting principles generally accepted in the United States.

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.

The long distance and international communications business segment principally comprises revenues from fixed voice related services, IP/packet communications services, system integration services and other operating revenues.

The mobile communications business segment principally comprises revenues from mobile voice related services, IP/packet communications services and sales of telecommunications equipment.

The data communications business segment comprises revenues from system integration services.

The other segment principally comprises operating revenues from such activities as building maintenance, real estate rental, systems development, leasing and research and development.

 

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Table of Contents

Operating revenues:

 

     Millions of yen  

For the six months ended September 30

   2016     2017  

Operating revenues:

    

Regional communications business –

    

External customers

   ¥ 1,352,117     ¥ 1,274,902  

Intersegment

     268,316       305,689  
  

 

 

   

 

 

 

Total

     1,620,433       1,580,591  

Long distance and international communications business –

    

External customers

     995,603       1,021,147  

Intersegment

     43,242       43,655  
  

 

 

   

 

 

 

Total

     1,038,845       1,064,802  

Mobile communications business –

    

External customers

     2,264,457       2,269,647  

Intersegment

     23,579       30,484  
  

 

 

   

 

 

 

Total

     2,288,036       2,300,131  

Data communications business –

    

External customers

     713,590       895,821  

Intersegment

     48,466       48,623  
  

 

 

   

 

 

 

Total

     762,056       944,444  

Other –

    

External customers

     198,561       203,278  

Intersegment

     369,047       361,111  
  

 

 

   

 

 

 

Total

     567,608       564,389  

Elimination

     (752,650     (789,562
  

 

 

   

 

 

 

Consolidated Total

   ¥ 5,524,328     ¥ 5,664,795  
  

 

 

   

 

 

 

 

– 42 –


Table of Contents
     Millions of yen  

For the three months ended September 30

   2016     2017  

Operating revenues:

    

Regional communications business –

    

External customers

   ¥ 678,741     ¥ 637,881  

Intersegment

     138,799       154,903  
  

 

 

   

 

 

 

Total

     817,540       792,784  

Long distance and international communications business –

    

External customers

     496,925       512,553  

Intersegment

     22,900       22,529  
  

 

 

   

 

 

 

Total

     519,825       535,082  

Mobile communications business –

    

External customers

     1,167,395       1,148,567  

Intersegment

     11,971       14,868  
  

 

 

   

 

 

 

Total

     1,179,366       1,163,435  

Data communications business –

    

External customers

     362,963       457,181  

Intersegment

     25,611       24,959  
  

 

 

   

 

 

 

Total

     388,574       482,140  

Other –

    

External customers

     101,565       98,831  

Intersegment

     193,895       184,181  
  

 

 

   

 

 

 

Total

     295,460       283,012  

Elimination

     (393,176     (401,440
  

 

 

   

 

 

 

Consolidated Total

   ¥ 2,807,589     ¥ 2,855,013  
  

 

 

   

 

 

 

 

– 43 –


Table of Contents

Segment profit:

 

     Millions of yen  

For the six months ended September 30

   2016      2017  

Segment profit:

     

Regional communications business

   ¥ 232,247      ¥ 253,152  

Long distance and international communications business

     42,180        70,384  

Mobile communications business

     583,738         547,285   

Data communications business

     35,888        59,007  

Other

     29,691        39,408  
  

 

 

    

 

 

 

Total segment profit

     923,744        969,236  

Elimination

     2,740        5,947  
  

 

 

    

 

 

 

Consolidated Total

   ¥    926,484      ¥    975,183  
  

 

 

    

 

 

 

 

     Millions of yen  

For the three months ended September 30

   2016      2017  

Segment profit:

     

Regional communications business

   ¥ 104,456      ¥ 119,521  

Long distance and international communications business

     15,162        35,576  

Mobile communications business

     285,425         269,694   

Data communications business

     14,020        33,727  

Other

     17,361        20,360  
  

 

 

    

 

 

 

Total segment profit

     436,424        478,878  

Elimination

     2,665        4,708  
  

 

 

    

 

 

 

Consolidated Total

   ¥    439,089      ¥    483,586  
  

 

 

    

 

 

 

Transfers between operating segments are based on the values that approximate arm’s-length prices. Operating income is operating revenue less costs and operating expenses.

There were no operating revenues from transactions with a single external customer amounting to 10% or more of NTT Group’s revenues for the six months ended September 30, 2016 and 2017.

 

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Table of Contents

6. Research and development expenses:

Research and development costs are charged to expenses as incurred. Research and development expenses amounted to ¥102,702 million and ¥98,350 million for the six months ended September 30, 2016 and 2017, respectively, and ¥57,621 million and ¥51,460 million for the three months ended September 30, 2016 and 2017, respectively.

7. Financing receivables:

NTT Group has certain “Financing receivables,” including loans and lease receivables. These financing receivables are mainly held by the financial subsidiaries of NTT. NTT manages these financing receivables by classifying them into “Installment sales receivable,” “Lease receivable,” “Loans receivable,” “Credit receivable” and “Others.”

The allowance for doubtful accounts against financing receivables collectively evaluated for impairment is computed based on each historical bad debt experience. The allowance for doubtful accounts against financing receivables individually evaluated for impairment is computed based on the estimated uncollectible amount based on an analysis of certain individual accounts. In addition, financing receivables that are determined to be uncollectible due to, among other factors, the condition of the debtor are written off at the time of determination.

Rollforward of allowance for doubtful accounts and recorded investment in financing receivables for the six months ended September 30, 2016 and 2017, and the changes in doubtful accounts for the six months ended September 30, 2016 and 2017 are as follows:

 

     Millions of yen  
     Installment
sales
receivable
    Lease
receivable
    Loans
receivable
    Credit
receivable
    Others     Total  

Allowance for doubtful accounts:

            

Balance at March 31, 2016

   ¥ 5,174     ¥ 4,359     ¥ 940     ¥ 11,006     ¥ 4,303     ¥ 25,782  

Provision

     610       295       13       12,156       (463     12,611  

Charge off

     (22     (360     (21     (10,302     —         (10,705

Recovery

     2       44       —         2       —         48  

Balance at September 30, 2016

     5,764       4,338       932       12,862       3,840       27,736  

Collectively evaluated for impairment

     5,684       1,559       432       12,862       52       20,589  

Individually evaluated for impairment

     80       2,779       500       —         3,788       7,147  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing receivables:

            

Balance at September 30, 2016

     1,008,094       416,078       99,927       362,529       4,448       1,891,076  

Collectively evaluated for impairment

     1,008,001       412,684       98,473       362,529       597       1,882,284  

Individually evaluated for impairment

   ¥ 93     ¥ 3,394     ¥ 1,454     ¥ —       ¥ 3,851     ¥ 8,792  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
     Millions of yen  
     Installment
sales
receivable
    Lease
receivable
    Loans
receivable
    Credit
receivable
    Others     Total  

Allowance for doubtful accounts:

            

Balance at March 31, 2017

   ¥ 4,102     ¥ 4,142     ¥ 805     ¥ 13,643     ¥ 9,664     ¥ 32,356  

Provision

     (1,582     271       7       15,348       (1,389     12,655  

Charge off

     (18     (388     (20     (12,898     (4,081     (17,405

Recovery

     —         30       —         1       —         31  

Balance at September 30, 2017

     2,502       4,055       792       16,094       4,194       27,637  

Collectively evaluated for impairment

     2,428       1,483       533       16,094       51       20,589  

Individually evaluated for impairment

     74       2,572       259       —         4,143       7,048  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing receivables:

            

Balance at September 30, 2017

        892,248       447,102       90,186       439,295       4,618       1,873,449  

Collectively evaluated for impairment

     892,171       444,371       89,555       439,295       434       1,865,826  

Individually evaluated for impairment

   ¥ 77     ¥ 2,731     ¥ 631     ¥ —       ¥ 4,184     ¥ 7,623  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

8. Contingent liabilities:

Contingent liabilities at September 30, 2017 for loans guaranteed, among other things, amounted to ¥76,302 million.

As of September 30, 2017, NTT Group had no material litigation or claims outstanding, pending or threatened against it, which would be expected to have a material adverse effect on NTT’s consolidated financial position or results of operations.

 

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9. Subsequent events:

Payment Received in Respect of Arbitration Award Regarding Stake in Tata Teleservices

Tata Teleservices Limited (“TTSL”) is a telecommunication operator in India and a privately held company.

As of September 30 2017, NTT Group held approximately 21.6% of the outstanding common shares of TTSL and accounted for the investment under the equity method.

Under the shareholders agreement (the “Agreement”) entered into among TTSL, Tata Sons Limited (“Tata Sons”) and NTT DOCOMO when NTT DOCOMO entered into a business alliance with TTSL in March 2009, NTT DOCOMO shall have certain shareholder rights, including the right to require Tata Sons to find a suitable buyer for NTT DOCOMO’s entire stake (1,248,974,378 shares, or approximately 26.5% of outstanding shares) in TTSL for 50% of the NTT DOCOMO’s acquisition price, which amounts to 72.5 billion Indian rupees (or ¥127.6 billion*1), or at fair value, whichever is higher, in the event that TTSL fails to achieve certain specified performance targets by March 31, 2014. The right became exercisable on May 30, 2014, and NTT DOCOMO exercised the right on July 7, 2014.

The obligation of Tata Sons under the Agreement was not fulfilled, although NTT DOCOMO repeatedly held discussions with Tata Sons regarding the sale of NTT DOCOMO’s entire stake in TTSL pursuant to the Agreement. Accordingly, NTT DOCOMO submitted a request for arbitration to the London Court of International Arbitration (“LCIA”) on January 3, 2015.

NTT DOCOMO received a binding arbitration award from the LCIA on June 23, 2016. The award ordered that Tata Sons pay damages to NTT DOCOMO in the amount of approximately $1,172 million (or ¥132.6 billion*2) for Tata Sons’ breach of the Agreement, upon NTT DOCOMO’s tender of its entire stake in TTSL to Tata Sons or its designee.

On July 8, 2016, NTT DOCOMO submitted an application to the High Court in India (“the Court”) requesting enforcement of the LCIA Award in India. On February 25, 2017, NTT DOCOMO and Tata Sons submitted a joint application to the Court requesting that the Court declare the LCIA Award enforceable in India. On April 28, 2017, the Court delivered a court decision approving the joint application.

On October 31, 2017, NTT DOCOMO received ¥144.9 billion*3 from Tata Sons as payment of the arbitration award amount in accordance with the Court decision regarding NTT DOCOMO’s stake in TTSL. As a result of this transaction, NTT Group expects to include the award amount of ¥144.9 billion in other income on the consolidated financial statements for the three month period ending December 31, 2017.

Concurrent with the receipt of the above award amount, all shares in TTSL held by NTT DOCOMO have been transferred to Tata Sons and companies designated by Tata Sons. Upon the transfer of NTT DOCOMO’s shares in TTSL, NTT Group no longer accounts for investments in TTSL under the equity method. As a result, NTT Group expects to include a loss on transfer of investments in affiliates of ¥29.8 billion, equal to the reclassification adjustments of foreign currency translation adjustments, in other expense on its consolidated financial statements for the three month period ending December 31, 2017.

 

*1 1 rupee = ¥1.76 as of October 31, 2017
*2 $1 = ¥113.16 as of October 31, 2017
*3 The amount received included interest earned and other costs awarded.

 

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NTT’s repurchase of its common stock

Please see note 3 for details.

NTT DOCOMO’s resolution to repurchase its common stock

Please see note 3 for details.

 

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