4. Consolidated Statements of Cash Flows [Notes] Significant Matters Pertaining to the Preparation of Consolidated Financial Statements The consolidated financial statements of NTT have been prepared in conformity with accounting principles generally accepted in the United States of America (Accounting Principles Board ("APB") Opinions, Statements of Financial Accounting Standards, etc). 1.Application of New Accounting Standard Inventory Costs Effective April 1, 2006, NTT Group adopted Statement of Financial Accounting Standards No. 151 ("SFAS 151"), "Inventory Costs -an amendment of Accounting Research Bulletin No. 43 ("ARB 43"), Chapter 4." SFAS 151 amends the guidance in ARB 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). ARB 43, Chapter 4 previously stated that such costs might be so abnormal as to require treatment as current period charges. SFAS 151 requires that those items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, SFAS 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The adoption of SFAS 151 did not have an impact on the results of operations or financial position of NTT Group. Share-Based Payment Effective April 1, 2006, NTT Group adopted a revision of Statement of Financial Accounting Standards No. 123 ("SFAS 123R"), "Share-Based Payment," which eliminates the ability to account for share-based compensation transactions using APB Opinion No. 25, "Accounting for Stock Issued to Employees," and generally requires instead that such transactions be accounted for using a fair-value-based method. The adoption of SFAS 123R did not have a material impact on the results of operations or financial position of NTT Group. Accounting for Real Estate Time-Sharing Transactions Effective April 1, 2006, NTT Group adopted Statement of Financial Accounting Standards No. 152 ("SFAS 152"), "Accounting for Real Estate Time-Sharing Transactions -an amendment of FASB Statements No. 66 and 67." The statement amends Statement of Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate," to reference the financial accounting and reporting guidance for real estate time-sharing transactions provided in AICPA Statement of Position 04-2, "Accounting for Real Estate Time-Sharing Transactions." This Statement also amends Statement of Financial Accounting Standards No. 67, "Accounting for Costs and Initial Rental Operations of Real Estate Projects," to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The adoption of SFAS 152 did not have an impact on the results of operations or financial position of NTT Group. Exchanges of Non-Monetary Assets Effective April 1, 2006, NTT Group adopted Statement of Financial Accounting Standards No. 153, ("SFAS 153"), "Exchanges of Non-Monetary Assets - an Amendment of APB Opinion No. 29." The amendments eliminate the exception for non-monetary exchanges of similar productive assets and replace it with a general exception for exchanges of non-monetary assets that do not have commercial substance. The adoption of SFAS 153 did not have a material impact on the results of operations or financial position of NTT Group. Accounting Changes and Error Corrections Effective April 1, 2006, NTT Group adopted Statement of Financial Accounting Standards No. 154 ("SFAS 154"), "Accounting Changes and Error Corrections-a replacement of APB Opinion No. 20 and FASB statement No. 3." SFAS 154 replaces APB Opinion No. 20 ("APB 20"), "Accounting Changes," and FASB Statement No. 3, "Reporting Accounting Changes in Interim Financial Statements," and changes the requirements for the accounting for and reporting of a change in accounting principle. APB 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. SFAS 154 requires retrospective application to prior periods' financial statements of changes in accounting principle. The adoption of SFAS No. 154 did not have any impact on the results of operations and financial position of NTT Group. NTT Group will continue to apply the requirements of SFAS No. 154 to any future accounting changes and error corrections. 2.Change of Revenue Recognition for "Nikagetsu Kurikoshi" Revenues arising from fixed voice related services, mobile voice related services, IP/packet communications services and other services are recognized at the time these services are provided to customers. With regard to revenues from mobile voice related services and IP/packet communications services, monthly rate plans for cellular (FOMA and mova) services generally include a certain amount of allowances (free minutes and/or packets), and the used amount of the allowances is subtracted from total usage in calculating the airtime revenue from a subscriber for the month. Prior to November 2003, the total amounts of the base monthly charges was recognized as revenues in the month they were charged as the subscribers could not carry over the unused allowances to the following months. In November 2003, NTT Group introduced a billing arrangement, called "Nikagetsu Kurikoshi" (two-month carry over), in which the unused allowances are automatically carried over up to the following two months. In addition, NTT Group introduced an arrangement which enables the unused allowances offered in and after December 2004 that have been carried over for two months to be automatically used to cover the airtime and/or packet fees exceeding the allowances of the other lines in the "Family Discount" group, a discounted billing arrangement for families with between two and ten subscriptions. Until the year ended March 31, 2006, NTT Group had deferred revenues based on the portion of all unused allowances at the end of the period. The deferred revenues are recognized as revenues as the subscribers make calls or data communications, similar to the way airtime revenues are recognized, or as the allowance expires. As NTT Group developed sufficient empirical evidence to reasonably estimate the portion of allowance that will be forfeited as unused, NTT Group started to recognize the revenue attributable to such forfeited allowances ratably as the remaining allowances are utilized, effective April 1, 2006. The effect of this accounting change was not material for NTT Group's financial position or result of operations. 3.Subsequent Events On June 15, 2006, the board of directors resolved that NTT may raise up to 70 billion yen by issuing bonds or incurring long-term borrowings during the period from July 1 to September 30, 2006. Based on this resolution, NTT issued bonds as follows: Series 51 Nippon Telegraph and Telephone straight bonds Date of issue July 31, 2006   Issue amount   70 billion yen   Issue price   99.99%   Interest rate   2.06%   Date of maturity   June 20, 2016   Use of proceeds   Capital investments Copyright (c) 2006 Nippon telegraph and telephone corporation