News Release tstq070511b

7. Consolidated Statements of Cash Flows

Supplemental information

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 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.

Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans

Effective March 31, 2007, NTT Group adopted Statement of Financial Accounting Standards No. 158 ("SFAS 158"), "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans." SFAS 158 amends Statement of Financial Accounting Standards No. 87, 88, 106 and 132(R) and requires employers to recognize in its statement of financial position an asset for a plan's overfunded status or a liability for a plan's underfunded status. Secondly, it requires employers to measure the plans assets and obligations that determine its funded status as of the end of the fiscal year. Lastly, employers are required to recognize changes in the funded status of a plan in the year that the changes occur with the changes reported in comprehensive income. The adoption of SFAS 158 did not have an impact on the results of operations, but had an impact on the financial position of NTT Group, which mainly resulted in decrease of "Liabilities for employees' retirement benefits" amounting to 30,080 million yen and increase in "Accumulated other comprehensive income (loss)" amounting to 20,380 million yen (net of tax).

Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements

Effective March 31, 2007, NTT Group adopted Staff Accounting Bulletin No. 108 ("SAB 108"), "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements." SAB 108 provides guidance on how prior year misstatements should be taken into consideration when quantifying misstatements in current year financial statements for purposes of determining whether the current year's financial statements are materially misstated. The adoption of SAB 108 did not have any impact on the results of operations and financial position of NTT Group. NTT Group will determine the materiality of misstatements in financial statements in accordance with the provisions of SAB 108.

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 telecommunications 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.

(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 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans" apply.

(6)

Derivative Financial Instruments

SFAS 133, "Accounting for Derivatives Instruments and Hedging Activities," SFAS 138 "Accounting for Certain Derivatives Instruments and Certain Hedging Activities, an amendment of SFAS No. 133" and SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" apply.

(7)

Income Taxes

Income taxes are computed on income (loss) before income taxes in the consolidated statements of income. According to the asset and liability approach, the expected future 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.

3.	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 had been recognized as revenues as subscribers make calls or utilize data connections, 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, effective April 1, 2006, NTT Group started to recognize the revenue attributable to such forfeited allowances ratably as the remaining allowances are utilized, in addition to the revenue recognized when subscribers make calls or utilize data connections. The effect of this accounting change was not material for NTT Group's financial position or result of operations.

4.	Subsequent Event

On April 17, 2007, the NTT Kosei-Nenkin-Kikin ("NTT Plan") applied to the Japanese Minister of Health, Labor and Welfare for permission to be relieved of the past obligations to disburse the NTT Plan benefits covering the substitutional portion. However, no accounting should occur until the completion of the entire transfer. It is undetermined when the transfer of the benefit obligations and related plan assets will take place and what the sum accompanying the settlement will be.