4. CONSOLIDATED FINANCIAL STATEMENTS (6) 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 Fair Value Measurements Effective April 1, 2008, NTT Group adopted Statement of Financial Accounting Standards No. 157 ("SFAS 157"), "Fair Value Measurements." SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The definition of fair value retains the exchange price notion, and SFAS 157 clarifies that the exchange price is the price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement date. SFAS 157 emphasizes that fair value is a market-based measurement and not an entity-specific measurement. It also establishes a fair value hierarchy used in fair value measurements and demands expanded disclosures of assets and liabilities measured at fair value. The adoption of SFAS 157 did not have a material impact on the results of operations or financial position of NTT Group.   The Fair Value Measurement Option for Financial Assets and Financial Liabilities Effective April 1, 2008, NTT Group adopted Statement of Financial Accounting Standards No. 159 ("SFAS 159"), "The Fair Value Measurement Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115." SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair market value that are not currently required to be measured at fair market value. Subsequent changes in fair value for designated items will be required to be reported in earnings or losses in the current period. SFAS 159 also establishes disclosure requirements for similar types of assets and liabilities measured at fair value. NTT Group has not elected the fair value option upon adoption of SFAS 159 for the year ended March 31, 2009.   Disclosures about Derivative Instruments and Hedging Activities Effective January 1, 2009, NTT Group adopted Statement of Financial Accounting Standards No. 161 ("SFAS 161"), "Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133." SFAS 161 requires companies with derivative instruments to disclose information that should enable financial-statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133, and how derivative instruments and related hedged items affect a company's financial position, financial performance, and cash flows. The adoption of SFAS 161 did not have any impact on the results of operations or financial position of NTT Group.   The Hierarchy of Generally Accepted Accounting Principles Effective November 15, 2008, NTT Group adopted Statement of Financial Accounting Standards No. 162 ("SFAS 162"), "The Hierarchy of Generally Accepted Accounting Principles." SFAS 162 makes the application of the hierarchy of generally accepted accounting principles explicitly and directly applicable to the preparers of financial statements, a step that recognizes the preparers' responsibilities for selecting the accounting principles for their financial statements. The adoption of SFAS 162 did not have an impact on the results of operations or the financial position of NTT Group. <2> Principal Accounting Policies, etc Marketable Securities SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities" applies.   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.   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.   Goodwill and Other Intangible Assets SFAS 142, "Goodwill and Other Intangible Assets" applies.   Liability for Employees' Retirement Benefits SFAS 87, "Employers' Accounting for Pensions," and SFAS 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans" apply.   Derivative Financial Instruments SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," SFAS 149, and "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" apply.   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.   Change in Accounting Estimate As 2G "mova" mobile phone service subscribers have been steadily migrating to 3G service, "FOMA", in mobile communications business, NTT Group has decided to terminate "mova" services on March 31, 2012 and to concentrate its management resources on "FOMA" services. As a result, effective October 1, 2008, NTT Group decreased the estimated useful lives of its long-term assets related to the "mova" services. The change resulted in a decrease of 60,072 million yen in operating income, 23,539 million yen in net income, and 17.50 yen in earnings per share for year ended March 31, 2009. <3> Stock Split and Implementation of Unit Share System With the implementation of the "Law for Partial Amendments to the Law Concerning Book-Entry Transfer of Corporate Bonds and Other Securities for the Purpose of Streamlining the Settlement of Trades of Stocks and Other Securities (Law No. 88 of 2004)" ("Settlement Streamlining Law"), on January 5, 2009, share certificates of listed companies were converted to electronic form. The introduction of the electronic share certificate system required that fractional shares be eliminated. In order to provide for a smooth transition away from the fractional share system, the board of directors, at their meeting held May 13, 2008, resolved that, subject to approval of the introduction of the unit share system at the 23rd general shareholders meeting and the approval of the Minister of Internal Affairs and Communications, on the day immediately preceding the implementation date of the electronic share certificate system, one share of common stock be split into 100 shares, and the number of shares constituting one unit be set at 100. This resolution was approved at the 23rd general shareholders meeting and by the Minister of Internal Affairs and Communications on June 25, 2008. The effective date of the stock split was determined when the implementation date of the Settlement Streamlining Law was set as January 5, 2009. Accordingly, on January 4, 2009, NTT effected the split of one share of its common stock into 100 shares, pursuant to the foregoing resolution. Figures previously reported as "per share of common stock" in this release, which is earnings or income per share, net assets per share, and dividends per share as of the year ended March 31, 2008, are not retroactively changed to those calculated based on the number of shares after the above-mentioned stock split. Figures of March 31, 2009 are calculated based on the number of shares after it. <4> Investment to Tata Teleservices Limited On November 12, 2008, NTT DOCOMO entered into an agreement on a strategic alliance with Tata Sons Limited, the prime promoter for Tata companies, and Tata Teleservices Limited (TTSL). On March 25, 2009, NTT Group acquired approximately 26% of outstanding common shares of TTSL for 252,321 million yen pursuant to the agreement and accounted for the investment by applying the equity method. <5> Subsequent Event On March 27, 2009, the board of directors resolved that NTT may raise up to 230 billion yen by issuing bonds or incurring long-term borrowings during the period from April 1 to June 30, 2009. Based on this resolution, NTT issued bonds as follows: Series 57 Nippon Telegraph and Telephone straight bonds   Date of payment April 30, 2009   Issue amount   60 billion yen   Issue price   100 yen per 100 yen   Interest rate   1.00%   Date of maturity   April 30, 2013   Use of proceeds   Capital investments Copyright (c) 2009 Nippon telegraph and telephone corporation