News Release nghk100514b

5. NON-CONSOLIDATED FINANCIAL STATEMENTS

(6)	Significant Matters Pertaining to the Preparation of Non-Consolidated Financial Statements

<1> Valuation of certain assets

a)	Investments in subsidiaries and affiliated companies
	Investments in subsidiaries and affiliated companies are stated at cost, which is determined by the moving average method.
b)	Other securities
	-	Marketable securities The securities whose fair value are readily determinable are stated at fair value as of the 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.
	-	Non-marketable securities The securities whose fair value are not readily determinable are stated at cost, which is determined by the moving average method.

<2> Inventories

Supplies are stated at cost, which is determined by the last purchase cost method (the balance sheet amount is computed using the method of devaluing the book price to reflect declines in profitability).

<3> Depreciation and amortization of fixed assets

a)	Property, plant, and equipment (except lease assets) and intangible assets (except lease assets)
	Property, plant, and equipment (except lease assets) are depreciated by using the declining-balance method with the exception of buildings for which the straight-line method is used. Intangible assets (except lease assets) are amortized on a straight-line basis. The useful lives are calculated on the estimated cycle of the assets and the residual values are calculated based on real residual values. Internal-use software is amortized on a straight-line basis over its estimated useful lives within five years.
b)	Lease assets
	Financial leases other than those deemed to transfer ownership of properties to lessees Depreciation of property, plant and equipment is computed by the declining-balance method with the exception of buildings, which are depreciated on a straight-line basis. The useful lives of the assets are the term of leases and the residual values of the assets are determined substantially. In a case where the residual value of a leased asset other than a building equals zero, depreciation of such asset is computed by multiplying ten-ninths to the equivalent amount computed by the declining-balance method under an assumption that the residual value of the asset is 10% of its acquisition cost. Intangible assets are amortized over the term of leases on a straight-line basis.

<4> Allowances

a)	Allowance for doubtful accounts
	To cover expected losses from bad debts, estimated uncollectible amounts 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.
b)	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 service periods at the time of recognition. (Change in accounting policy) Effective from the fiscal year ended March 31, 2010, NTT adopted the partial amendments (Number 3) of “Accounting Standard for Employees’ retirement benefits” (Accounting Standards Board of Japan, July 31, 2008, Corporate Accounting Standard No. 19). This change had no impact on amount of expenses and recognized balance of Liability for employees’ retirement benefits in adopted initial year.

<5> Hedging Activities

a)	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).
b)	Hedging Instruments and Hedged Items
	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.
	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.
c)	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.
d)	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.

<7> Changes in Accounting Policy

Recognition of the revenue and cost of completed construction
Previously, revenues concerning construction contracts were recognized upon completion of the construction. Effective from the fiscal year ended March 31, 2010, NTT adopted the “Accounting Standard for Construction Contracts” (Accounting Standards Board of Japan, December 27, 2007, Corporate Accounting Standard No. 15) and “Implementation Guidance on Accounting Standards for Construction Contracts” (Accounting Standards Board of Japan, December 27, 2007, Corporate Accounting Standard Implementation Guidance No. 18). Regarding construction contracts entered into after the beginning of this fiscal year, the revenue and cost of these contracts are recognized as work on the contracts progress (degree of progress in construction is estimated using the cost output method) in cases where it is possible to make a reasonable estimate on the certainty at achievement of the construction, while they are recognized upon completion of the contracted services in cases where a reasonable estimate is not possible.
This change had little impact on NTT’s earnings.