3. Proposal of Appropriation of Unappropriated Retained Earnings |
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Major Accounting Policies 1. Basis and methods of valuation for securities (1) Shares of subsidiaries and affiliated companies Cost computed according to moving average method. (2) Other securities [1] Securities with market price Mark-to-market method based on market price as of day of balance sheet date (full amount of valuation differentials is directly transferred to shareholders' equity; cost of sale is computed according to moving average method). [2] Securities without market price Valuation of cost is based on moving average method. 2. Inventories Valuation of cost of supplies is based on total average method. 3. Depreciation of Property, Plant and Equipment Depreciation of property, plant and equipment is by declining balance method (with the exception of buildings and structures depreciated by straight line method). Amortization of intangible assets is by straight line method. Durable years and remaining value are based on standards provided under corporate income tax laws. Depreciation of buildings and structures which have reached their depreciation limits as determined under corporate income tax laws is carried on to the extent of real remaining value. Software used by NTT is depreciated by straight line method based on the internally determined period of useful lives. 4. Accounting of Deferred Assets Discount on bonds payable is amortized on the straight-line method over the redemption period. As to bond issue cost, its total amount is expensed at the time of payment. 5. Accounting of Reserves (1) Reserves for Bad Debts The following provisions are made to cover losses from bad debts. Reserves for general claims are based on historical bad-debt ratios. Reserves for doubtful debts and other specific claims are based on estimates of unrecoverable amounts reflecting projections of recoverability of claims. No allocations were made to reserves during the current fiscal year. (2) Reserves for Employees' Severance Payments Reserves for employees' severance payments are allocated based on liabilities for employees' severance payments and projections of pension assets as of the end of the current fiscal year. Unrecognized prior service cost is computed by straight line method based on employees' average remaining years of employment at time of accrual, and is charged to expenses at time of accrual. Unrecognized actuarial differences are accounted for by straight line method based on employees' average remaining years of employment at time of accrual, and are charged to expenses beginning in the next term. 6. Accounting of Leasing Transactions Finance lease transactions, excepting transactions involving a transfer of ownership of leased assets to lessee, are accounted for using the same method as applicable to standard lease agreements. 7. Accounting for Hedging Activities (1) Accounting for Hedging Activities Hedging activities are principally accounted for under the "deferral hedge accounting". Designation ("Furiate-shori") is applied to forward exchange contracts and other foreign exchange contracts, and designated "exceptional accounting" ("Tokurei-shori") to interest-rate swaps that qualify for "exceptional accounting" (footnote 14, accounting standards for financial products). (2) Hedging Instruments and Hedged Items [1] Hedging Instruments Hedging instruments include forward exchange contracts, currency swaps, coupon swaps (i.e. currency swap of interest portion only), interest-rate swaps, interest-rate options, and others including combinations of the above. [2] Hedged Items Hedged items are assets (securities, loans, receivables, etc.) and liabilities (corporate bonds, borrowings, payables, etc.) exposed to variability of fair value or future cash flows derived from fluctuations of the exchange rate, interest rate, etc. [3] Hedging Policy To hedge the foreign exchange risks regarding assets and liabilities exposed to foreign exchange risks, forward exchange contracts, currency swaps, and other instruments are employed in compliance with internal rules. To hedge the interest-rate risks regarding assets and liabilities exposed to interest-rate risks, interest-rate swaps and other instruments are employed in compliance with internal rules. [4] Assessment of Hedge Effectiveness At the end of the each quarter, hedge effectiveness is assessed on each hedging transaction. This quarterly assessment excludes any transaction where an important terms and conditions such as principal, interest-rate, duration are identical between hedging instruments and hedged items. 8. Accounting of Consumption Taxes Accounting is by tax exclusion method. 9. Accounting for Treasury Stock and Reversal of Legal Reserves "Accounting Standard on Treasury Stock and Reversal of Legal Reserves" (Accounting Standards Board of Japan Statement 1, issued on February 21, 2002) has been applied beginning in the current fiscal year. This accounting change has no effect on recurring profit and net income before taxes. Shareholders' equity in the balance sheet for the current fiscal year is based on the revised rules for financial statements. Shareholders' equity for the previous year has been revised according to this method and indicated in the balance sheet. 10. Per Share Information "Accounting Standard for Earnings per Share" (Accounting Standards Board of Japan Statement 2, issued on September 25, 2002) and "Implementation Guidance for Accounting Standard for Earnings per Share" (Accounting Standards Board of Japan Implementation Guidance 4, issued on September 25, 2002) have been applied beginning in the current fiscal year. Application of the accounting standard has no effect on per share information in the financial statements of the previous year. Additional Information Application of Consolidated Tax Return System Consolidated Tax Return System has been applied beginning in the current fiscal year. Notes to Balance Sheet 1. Accumulated depreciation on property, plant, and equipment
2. In compliance with the provisions of Article 9 of the Law Concerning Nippon Telegraph and Telephone Corporation, Etc., the total assets of the company have been pledged as general collateral for corporate bonds issued. In accordance with the provisions of Article 9 of the Supplementary Provisions to the Law Concerning Partial Revision to the Nippon Telegraph and Telephone Corporation Law (law No. 98 of 1997), NTT is jointly responsible with Nippon Telegraph and Telephone East Corporation, Nippon Telegraph and Telephone West Corporation, and NTT Communications Corporation for corporate bonds issued prior to June 30, 1999. The total assets of the four companies have been pledged as general collateral for the said bonds. 3. Outstanding guarantees
Notes to Statements of Income R&D expenses included in operating expenses
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