7. Consolidated Statements of Cash Flows |
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 Significant Matters Pertaining to the Preparation of Consolidated Financial Statements The consolidated financial statements of NTT have been prepared in conformity with the accounting principles generally accepted in the United States of America (Accounting Principles Board Opinions, Statements of Financial Accounting Standards, etc.) 1. Application of New Accounting Standard Accounting for Certain Financial Instruments with Characteristics of Liabilities and Equity Effective April 1, 2004, NTT adopted Statement of Financial Accounting Standards No. 150 ("SFAS 150"), "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS 150 changes the accounting for certain financial instruments with characteristics of both liabilities and equity that, under previous guidance, could be classified as equity, by now requiring those instruments to be classified as liabilities (or assets in some circumstances) in the statement of financial position. Further, SFAS 150 requires disclosure regarding the terms of those instruments and settlement alternatives. The adoption of SFAS 150 did not have an impact on NTT's results of operations or financial position. 2. Principal Accounting Policies (1) Marketable Securities SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities" applies. (2) Inventories Inventories are stated at cost, not in excess of market value. The cost of telecommunication equipment to be sold is determined by the first-in first-out method. (3) Property, Plant and Equipment and Depreciation Property, plant, and equipment are stated at cost. Depreciation is computed principally using the declining-balance method with the exception of buildings for which the straight-line method is used. (4) Goodwill and Other Intangible Assets SFAS 142, "Goodwill and Other Intangible Assets" applies. (5) Liabilities for Employees' Severance Payments SFAS 87, "Employers' Accounting for Pensions," and SFAS 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination of Benefits" apply. (6) Derivative Financial Instruments SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," and SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" apply. (7) Income Taxes Income taxes are computed based on income (loss) before income taxes in the consolidated statements of income. According to the asset and liability approach, the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities and of operating loss carryforward are recognized as deferred tax assets or liabilities. (8) Restatement of financial statements for the prior period Consolidated financial statements for the six months ended September 30, 2003 have been restated and reclassified in accordance with the change in accounting policy for change in interest of investee in the second half of the year ended March 31, 2004. 3. Subsequent Events On February 17, 2004, AT&T Wireless Services, Inc. ("AT&T Wireless"), in which NTT DoCoMo, Inc. ("NTT DoCoMo"), a consolidated subsidiary of NTT, had approximately 16% ownership, entered into a merger agreement with Cingular Wireless LLC ("Cingular"), a mobile operator in the United States of America, and certain of its affiliates. Under the terms of the merger agreement, it was agreed that all the outstanding shares of common stock of AT&T Wireless shall be converted into 15 dollars per share in cash. On October 26, 2004, pursuant to the merger agreement, the merger between AT&T Wireless and Cingular became effective. As a result, NTT DoCoMo transferred all of its AT&T Wireless shares to Cingular, and NTT DoCoMo received 6,495 million dollars in cash. NTT ceased to apply the equity method of accounting for its investment in AT&T Wireless. NTT recognized a gain of 501.8 billion yen on the sale of AT&T Wireless shares as other income. NTT URBAN DEVELOPMENT CORPORATION ("NTT UD"), a consolidated subsidiary of NTT, made public offering in conjunction with its Tokyo Stock Exchange listing on November 4, 2004. In connection with the offering, NTT sold 66,000 shares (not including 21,000 over-allotment shares) of NTT UD for proceeds of 28,274 million yen, and a gain from share sale will be recognized as other income. Concurrently, NTT UD issued 132,000 new shares and received the total amount of 56,549 million yen. The decrease in ownership interest will be recorded as "Additional paid-in capital." As a result of these transactions, NTT's ownership interest in NTT UD decreased from 100% to 69.9%. [Reference] |
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