17. Non-Consolidated Comparative Statements of Cash Flows Significant Matters Pertaining to the Preparation of Non-Consolidated Financial Statements 1.  Valuation of certain assets (1) Securities [1] Investments in subsidiaries and affiliated companies Investments in subsidiaries and affiliated companies are stated at cost, which are determined by the moving average method. [2] Other securities a.  Marketable securities The securities whose fair value are readily determinable are stated at fair value as of balance sheet date with unrealized gains and losses directly reported as a separate component of net assets. The cost of securities sold is determined by the moving average method. b.  Non-marketable securities The securities whose fair value are not readily determinable are stated at cost, which are determined by the moving average method. (2) Inventories Supplies are stated at cost, which are determined by the last purchase cost method. 2.  Depreciation and amortization of fixed assets Property, plant, and equipment are depreciated by using the declining-balance method with the exception of buildings for which the straight-line method is used. Intangible assets are amortized on a straight-line basis. Their estimated useful lives and residual value are determined on the basis provided by the Corporate Income Tax Laws. Buildings, after having been depreciated over the depreciable periods based on the Corporate Income Tax Laws, keep depreciated up to the end of their actual useful lives. Internal-use software is amortized on a straight-line basis over their estimated useful lives within five years. 3.  Allowances (1) Allowance for doubtful accounts To cover expected losses from bad debts, estimated amounts to be uncollectible are accrued, for general claims, computing on historical bad-debt ratios, and for specific claims including doubtful accounts, considering their own recoverability. No allowance is accrued as of this year-end. (2) Liability for employees' retirement benefits To provide for employees' pension benefits, benefit obligations and plan assets are estimated and accrued as of this year-end. Prior service cost is amortized on a straight-line basis over the average remaining service periods at the time of recognition. Actuarial net gain or loss is amortized on a straight-line basis over the average remaining services periods at the time of recognition. 4.  Leases Finance leases other than those deemed to transfer the title of leased assets to lessees are accounted for in a similar manner as operating leases. 5.  Hedging Activities (1) Accounting for Hedging Activities Hedging activities are principally accounted for under "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" (Accounting Standards for Financial Instruments, Footnote 14). (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 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 each quarter, hedge effectiveness is assessed on each hedging transaction. This quarterly assessment excludes any transaction where important terms and conditions such as principal, interest-rate and duration are identical between hedging instruments and hedged items. 6.  Consumption Taxes Consumption tax is separately accounted for by excluding it from each transaction amount. Changes in Accounting Policy 1.  Accounting Standard for Presentation of Net Assets in the Balance Sheet Effective from the fiscal year ended March 31, 2007, NTT adopted the "Accounting Standard for Presentation of Net Assets in the Balance Sheet" (Accounting Standards Board of Japan, December 9, 2005, Corporate Accounting Standard No. 5) and "Implementation Guidance on Accounting Standards for Presentation of Net Assets in the Balance Sheet" (Accounting Standards Board of Japan, December 9, 2005, Corporate Accounting Standard Implementation Guidance No. 8). The amount corresponding to the previous "Shareholders' Equity" is 5,035,635 million of yen. Due to amendment of the Financial Statements Regulations, the Company prepares the presentation of net assets in the balance sheets as of March 31, 2007 based on the amended Financial Statements Regulations. 2.  Accounting Standard for Directors' Bonus Effective from the fiscal year ended March 31, 2007, NTT adopted the "Accounting Standard for Directors' Bonus" (Accounting Standards Board of Japan, November 29, 2005, Corporate Accounting Standard No. 4). This change had littie impact on NTT's earnings. 3.  Accounting Standard for Financial Instruments and Accounting for Deferred Assets Effective from the fiscal year ended March 31, 2007, NTT adopted the "Accounting Standard for Financial Instruments" (Accounting Standards Board of Japan, August 11, 2006, Corporate Accounting Standard No. 10). In addition, effective from the fiscal year ended March 31, 2007, NTT adopted the "Tentative Measures on Accounting for Deferred Assets" (Accounting Standards Board of Japan, August 11, 2006, Practical Solutions No. 19). Due to the foregoing, discount on bonds stated as a deferred asset in the previous interim balance sheets is now reflected by deducting such amounts from the amount of the relevant bonds in the liability section. This change had no impact on NTT's earnings. 4.  Partial Revision of Accounting Standard for Treasury Shares and Appropriation of Legal Reserves Effective from the fiscal year ended March 31, 2007, NTT adopted the revised "Accounting Standard for Treasury Shares and Appropriation of Legal Reserves" (Accounting Standards Board of Japan, August 11, 2006, Revised Corporate Accounting Standard No. 1) and "Implementation Guidance on Accounting Standard for Treasury Shares and Appropriation of Legal Reserves" (Accounting Standards Board of Japan, August 11, 2006, Revised Corporate Accounting Standard Implementation Guidance No. 2). This change had no impact on NTT's earnings. The changes regarding the description of balance sheet items resulting from the revision of the rules for financial statements is as follows. "Treasury Shares" stated at the fiscal end of the "Shareholders' Equity" section as a deductible item against shareholders' equity in the fiscal year ended March 31, 2006 is stated at the end of the "Shareholders' Equity" subsection as a deductible item against shareholders' equity from the fiscal year ended March 31, 2007. 5.  Accounting Standard for Business Combinations Effective from the fiscal year ended March 31, 2007, NTT adopted the "Accounting Standard for Business Combinations" (the Business Accounting Council, October 31,2003), "Accounting Standard for Business Divestitures" (Accounting Standards Board of Japan, December 27, 2005, Corporate Accounting Standard No.7) and "Implementation Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures" (Accounting Standards Board of Japan, December 22, 2006, Corporate Accounting Standard Implementation Guidance No.10) Notes to Non-Consolidated Balance Sheets 1.  Accumulated depreciation on property, plant and equipment: March 31, 2006: 230,882 million yen March 31, 2007:   240,582 million yen 2.  In compliance with the provisions of Article 9 of the Law Concerning Nippon Telegraph and Telephone Corporation, Etc., the total assets of NTT 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 and the total assets of the four companies above have been pledged as general collateral for the said bonds. 3.  Outstanding guarantees: March 31, 2006: 64,000 million yen March 31, 2007:   - Notes to Non-Consolidated Statements of Income 1.  Research & Development expenses included in operating expenses: Year ended March 31, 2006: 135,228 million yen Year ended March 31, 2007:   128,814 million yen Notes to Non-Consolidated Statements of Changes In Shareholders' Equity and Other Net Assets Matters Pertaining to Treasury stock Type of stock Common stock   Number of shares on March 31, 2006   1,919,356.08 shares   Increase in number of shares during this year (Payments to acquire treasury stock)   9,525.82 shares   Decrease in number of shares during this year (Resale of treasury stock)   7,341.82 shares   Number of shares on March 31, 2007   1,921,540.08 shares Copyright (c) 2007 Nippon telegraph and telephone corporation