<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 30, 1998
REGISTRATION NO. 333-67603
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM F-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
NIPPON DENSHIN DENWA KABUSHIKI KAISHA
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
(TRANSLATION OF REGISTRANT'S NAME IN ENGLISH)
4813 NONE
JAPAN (PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
JURISDICTION OF CODE NUMBER)
INCORPORATION OR
ORGANIZATION) 19-2, NISHI-SHINJUKU 3-CHOME
SHINJUKU-KU, TOKYO 163-8019
JAPAN
813-5359-2122
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
NTT AMERICA, INC.
101 PARK AVENUE
NEW YORK, NEW YORK 10178
U.S.A.
212-867-1511
(NAME, ADDRESS, AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPY TO:
THEODORE A. PARADISE ROBERT W. MULLEN, JR. STEPHEN A. GRANT
DAVIS POLK & WARDWELL MILBANK, TWEED, HADLEY & ROBERT G. DELAMATER
AKASAKA TWIN TOWER EAST MCCLOY SULLIVAN & CROMWELL
13F 1 CHASE MANHATTAN PLAZA TOKIO KAIJO BUILDING
17-22, AKASAKA 2-CHOME NEW YORK, NEW YORK 10005 SHINKAN
MINATO-KU, TOKYO 107-0052 U.S.A. 2-1, MARUNOUCHI 1-CHOME
JAPAN CHIYODA-KU, TOKYO 100-
0005 JAPAN
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
---------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE(4)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, par value
(Yen)50,000 per
share(3)............ 227,500 shares $7,625.50 $1,734,801,250 $482,275
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) The amount of shares registered also includes any shares initially offered
and sold outside the United States and thereafter sold or resold in the
United States. The shares are not being registered for the purpose of
sales outside the United States.
(2) Estimated solely for purposes of determining the registration fee
pursuant to Rule 457(c) under the Securities Act.
(3) A separate Registration Statement on Form F-6 has been filed for the
registration of American Depositary Shares evidenced by American
Depositary Receipts representing the shares being registered hereby
(Registration No. 33-81562).
(4) The Registrant previously paid $432,330 in respect of $1,555,144,500 of
the proposed maximum aggregate offering price and is currently paying
$49,945 for the increase in the maximum aggregate offering price to
$1,734,801,250.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE AT SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE +
+SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS +
+IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE SECURITIES IN +
+ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 30, 1998
[LOGO] NTT
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
1,000,000 SHARES OF COMMON STOCK
(PAR VALUE (Yen)50,000 PER SHARE)
IN THE FORM OF SHARES OR AMERICAN DEPOSITARY SHARES
-----------
This is an offering of shares and American depositary shares of Nippon
Telegraph and Telephone Corporation. Each ADS is equal to 1/200th of a share of
NTT. This prospectus relates to an offering of shares, in the form of
shares or ADSs, in the United States and Canada in connection with a global
offering of up to 1,000,000 shares. In addition, shares, in the form of
shares or ADSs, are being offered outside the United States, Canada and Japan
in an international offering and shares are being offered in Japan.
The Minister of Finance of Japan, representing the Government of Japan, is
offering all of the shares being sold in the global offering. NTT will not
receive any proceeds from the sale of the shares or ADSs.
The common stock of NTT is listed on the First Section of the Tokyo Stock
Exchange and on all other stock exchanges in Japan. Application will be made to
list the shares offered in the global offering on the First Section of the
Tokyo Stock Exchange. The common stock is also listed on the London Stock
Exchange. The ADSs are listed on the New York Stock Exchange under the symbol
"NTT." On November 24, 1998, the closing sale price of the common stock on the
TSE was (Yen)945,000 per share and the closing sale price of the ADSs on the
New York Stock Exchange was $39.81 per ADS, each ADS representing 1/200th of a
share of NTT.
-----------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-----------
<TABLE>
<S> <C> <C> <C>
PER SHARE PER ADS TOTAL
Initial public offering price...
Underwriting commissions........
Proceeds, before expenses, to the
Minister of Finance............
</TABLE>
-----------
Joint Global Coordinators and Joint Bookrunners
DAIWA SECURITIES CO. LTD. GOLDMAN SACHS INTERNATIONAL WARBURG DILLON READ
-----------
GOLDMAN, SACHS & CO. WARBURG DILLON READ LLC DAIWA SECURITIES AMERICA INC.
MERRILL LYNCH & CO. MORGAN STANLEY DEAN WITTER SALOMON SMITH BARNEY
-----------
Prospectus dated December , 1998.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information that
should be considered before investing in NTT. You should read the entire
prospectus carefully in evaluating an investment in NTT.
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
NTT, together with its subsidiaries, is the largest provider of
telecommunications services in Japan and operates one of the largest telephone
networks in the world. Its predominant business is providing nationwide
telecommunications services. These services fall into seven major classes:
telephone services, telegraph services, leased circuit services, data
communication facility services, ISDN services, sale of telecommunication
equipment and other services.
Telephone services are the largest part of the business of NTT and its
subsidiaries, representing approximately 66.7%, or (Yen)6.3 trillion, of total
operating revenues of (Yen)9.5 trillion in fiscal year 1998. Sale of
telecommunication equipment contributed 10.3% of operating revenues, other
services, which include multimedia-related services and system development
services, contributed 9.0%, leased circuit services 5.2%, data communication
facility services 3.9%, ISDN services 3.9% and telegraph services 1.0%.
NTT and its subsidiaries' telephone services consist primarily of local, long
distance and wireless services. International telecommunications services were
recently added after the adoption of amendments to the NTT Law, allowing NTT
and its subsidiaries for the first time to provide consumers with a full range
of telephony services. NTT is the principal provider of fixed-line services in
Japan with approximately 60 million subscribers.
NTT provides cellular telephone services through NTT DoCoMo, its 67.1% owned
subsidiary. NTT DoCoMo, together with its subsidiaries, is the largest provider
of cellular telephone services in Japan and the largest cellular operator in
the world as measured by subscribers, with approximately 20.8 million
subscribers as of September 30, 1998. NTT DoCoMo is NTT's largest subsidiary in
terms of consolidated operating revenues and operating income in fiscal year
1998.
NTT provides data communication facility services through NTT DATA, its 54.2%
owned subsidiary. NTT DATA is the leading provider of information systems and
computer networking in Japan. NTT DATA primarily engages in strategic planning,
systems planning, and systems design and installation of information systems
and computer networks.
REORGANIZATION
In June 1997, the Diet passed amendments to the NTT Law implementing a plan
proposed by the Ministry of Posts and Telecommunications, and accepted in
principle by NTT, to reorganize NTT prior to December 20, 1999. Under the
amendments, NTT will become a holding company. NTT's regional and long-distance
businesses will be reorganized into three newly established wholly owned
subsidiaries consisting of two regional telecommunications companies serving
each of eastern and western Japan, and a long distance telecommunications
company which will also offer international telecommunications services. The
amendments also allow NTT to enter the international telecommunications
business through subsidiaries prior to the reorganization with approval of the
Minister of Posts and Telecommunications. NTT began offering international
telecommunications services through a subsidiary on September 1, 1997.
As a holding company after the reorganization, NTT intends to establish a
clear group strategy, in addition to a focused business strategy and financial
targets for the NTT group as a whole and for each business unit in the group.
NTT believes that the reorganization will enable it to implement strategies to
allocate resources more
1
<PAGE>
efficiently and create other synergies within the group. By clearly identifying
the roles and responsibilities of the holding company and each group member,
NTT intends to establish a corporate culture characterized by responsiveness,
accountability and an emphasis on efficiency and profitability. The
reorganization will enable NTT to centralize basic research and development
efforts at the holding company level and share the results of those efforts
within the group.
COMPETITIVE STRENGTHS
. Dominant market position in local, long distance and wireless markets
. Leader in multimedia related technology and optical fiber
. Largest beneficiary of increasing demand for multimedia
. Core performing assets -- NTT DoCoMo and NTT DATA
. Strong consolidated financial performance
STRATEGY
. Strengthen competitiveness of core business by adopting a flexible and
effective pricing strategy, promoting a shift from conventional phone
lines to a digital public telecommunications network and providing
diversified wireless services over a high quality digital wireless
network
. Improve efficiency by reducing the total number of employees through
natural attrition and focusing capital investment in demand-oriented
customer services
. Promote development of multimedia business by constructing value-added
networks, developing related platforms and content, using cost-effective
technology to deploy optical fiber and deploying next generation
wireless technology
. Increase commitment to international business
CHALLENGES
. Increasing competition in local, long distance and wireless markets
. Further deregulation of the pricing of telecommunications services
. Possible effects of implementation of Long-run Incremental Cost
Methodology or other measures to reduce permitted interconnection
charges
. High personnel costs associated with the current size and age-structure
of NTT's workforce
. Uncertain demand by end-users to extend the optical fiber network to
their homes
RECENT DEVELOPMENTS
NTT DOCOMO OFFERING
On October 22, 1998 NTT DoCoMo completed its initial public offering and
listed its stock on the First Section of the Tokyo Stock Exchange. NTT sold
218,000 shares of NTT DoCoMo's common stock, without par value, for total
proceeds of (Yen)826.1 billion and NTT DoCoMo issued 327,000 new shares of
stock for total proceeds of (Yen)1,236.5 billion. As a result of the offering,
NTT's stake in NTT DoCoMo has been reduced from 94.7% to 67.1%.
2
<PAGE>
During fiscal year 1999, NTT and its subsidiaries will recognize pre-tax
gains on the sale and issuance of NTT DoCoMo's shares of approximately (Yen)781
billion and (Yen)784 billion, respectively, as well as applicable deferred
taxes thereon. These non-recurring gains and taxes thereon have been excluded
from the pro forma unaudited statement of income included in this prospectus.
PHS SERVICES
NTT's personal handyphone system, or PHS services, a digital microcellular
system developed in Japan, are provided by NTT Personal Group. Since October
1997, the number of NTT Personal Group's PHS customers has steadily fallen.
NTT's PHS services have operated at a loss over the past several years and NTT
expects the PHS services to continue to operate at a loss over the next several
years. As a result, NTT has concluded that it would be difficult to continue
PHS services through NTT Personal Group and decided to transfer its PHS
businesses to NTT DoCoMo. NTT expects to complete the transfer on December 1,
1998 and to liquidate NTT Personal Group following the transfer.
SFAS 71 WRITE-OFF
In its financial statements as of and for the six-month period ended
September 30, 1998, NTT has discontinued the application of the provisions of
Statement of Financial Accounting Standards No. 71, "Accounting for the Effects
of Certain Types of Regulation," or "SFAS 71," for all of its operations.
Pursuant to the requirements of Statement of Financial Accounting Standards No.
101, "Regulated Enterprises--Accounting for the Discontinuation of Application
of FASB Statement No. 71," or "SFAS 101," NTT has recorded an extraordinary
non-cash charge in its U.S. GAAP financial statements of (Yen)462 billion, net
of income taxes in the amount of (Yen)427 billion, for the six-month period
ended September 30, 1998 and has eliminated (Yen)889 billion of regulatory
assets from its balance sheet as of September 30, 1998.
3
<PAGE>
THE GLOBAL OFFERING
Global Offering:............
Up to 1,000,000 shares, consisting of the U.S.
offering, the international offering and the
Japanese offering.
U.S. Offering:..........
shares in the form of shares or ADSs.
International
Offering:............... shares in the form of shares or ADSs.
Japanese Offering:......
shares.
Selling Shareholder:........
All of the shares being offered in the global
offering are being offered by the Minister of
Finance of Japan, representing the Government of
Japan. As of September 30, 1998, the Government
owned 10,419,289.24 shares or 65.48% of NTT's
outstanding shares and after the global offering
the Government will own approximately 59% of
NTT's outstanding shares.
Offering Price:............. (Yen) per share
$ per ADS (based on an exchange rate of
(Yen) = $1.00 and adjusted for the ratio of
1/200th share per ADS)
The ADSs:................... An American depositary receipt, or ADR, is a
negotiable certificate issued by a United States
bank or trust company acting as depositary. In
the same way that a share certificate of a U.S.
issuer would evidence shares, an ADR evidences
American depositary shares, which are also
referred to as ADSs. Each ADS represents an
ownership interest in 1/200th of one share of
NTT, which shares are held in Japan on deposit by
the depositary or its agent for the benefit of
holders of ADRs.
Lock-up Agreement: .........
NTT and the Minister of Finance have agreed with
the underwriters not to dispose of or hedge any
of their shares of stock or securities
convertible into or exchangeable for shares
during the period from the date of this
prospectus continuing through the date 180 days
after the date of this prospectus, other than,
with respect to the Minister of Finance's
agreement, to NTT for repurchase and cancellation
or to an entity controlled by the Government of
Japan that agrees to be bound by the foregoing
restrictions, except with the prior written
consent of the joint global coordinators. With
respect to NTT's agreement with the underwriters,
such agreement does not apply to any existing
employee or director benefit plans.
Listing:.................... Tokyo Stock Exchange (and all other stock
exchanges in Japan)
London Stock Exchange
New York Stock Exchange (ADSs)
Payment and Settlement:.....
The underwriters expect to deliver certificates
representing the shares against payment therefor
in yen in Tokyo through the central clearing
system in Japan, known as JASDEC, on December ,
1998 (Tokyo time). The underwriters expect to
deliver ADSs against payment therefor in U.S.
dollars in New York, New York through the
facilities of DTC on December , 1998.
Security Codes:
Shares.................. Tokyo Stock Exchange Securities Identification
Code: 9432
ISIN: JP3735400008
Common Code: 002364085
SEDOL: 6641373
ADSs.................... CUSIP: 654624105
ISIN: US6546241059
SEDOL: 2639996
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below and certain data under
Other Financial Data have been derived from the consolidated financial
statements and notes thereto of NTT and its subsidiaries which have been
prepared in conformity with accounting principles generally accepted in the
United States. The consolidated financial statements of NTT and its
subsidiaries as of and for the years ended March 31, 1994, 1995, 1996, 1997 and
1998 have been audited by Price Waterhouse. The information set forth below
should be read in conjunction with, and is qualified in its entirety by
reference to, the consolidated financial statements of NTT and its subsidiaries
included in this prospectus and the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained herein.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED MARCH 31,
--------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1998
-------------- --------------- --------------- --------------- --------------- --------
(MILLIONS EXCEPT PER SHARE AMOUNTS, PERCENTAGES OR RATIOS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
INCOME DATA:
Operating
revenues........ (Yen)6,686,976 (Yen)7,043,822 (Yen)7,908,643 (Yen)8,821,782 (Yen)9,450,013 $70,000
Telephone....... 4,879,929 5,039,474 5,557,674 6,038,146 6,306,034 46,711
Telegraph....... 80,987 90,559 96,746 98,683 92,211 683
Leased circuit.. 400,710 400,103 393,415 428,715 488,160 3,616
Data
communication
facility....... 237,457 259,520 301,365 337,934 372,765 2,761
Sale of
telecommunication
equipment...... 308,906 401,957 606,102 889,834 969,586 7,182
Miscellaneous... 778,987 852,209 953,341 1,028,470 1,221,257 9,047
Operating
expenses........ 6,296,893 6,653,588 7,212,492 8,052,307 8,577,968 63,540
Operating
income.......... 390,083 390,234 696,151 769,475 872,045 6,460
Extraordinary
loss, net of
taxes........... -- -- -- -- -- --
Net income
(loss).......... 83,396 85,443 273,646 251,457 214,460 1,589
Net income per
share of common
stock........... 5,241 5,370 17,197 15,803 13,478 100
BALANCE SHEET
DATA:
Cash and cash
equivalents..... (Yen) 691,591 (Yen) 582,447 (Yen) 638,642 (Yen) 821,140 (Yen) 913,236 $ 6,765
Property, plant
and equipment,
net............. 10,737,495 10,857,314 11,136,221 11,655,768 12,005,362 88,929
Total assets..... 14,076,677 14,397,961 15,399,448 16,475,094 17,352,531 128,537
Total
liabilities..... 9,106,606 9,397,524 10,203,329 11,134,684 11,888,603 88,064
Total interest
bearing debt.... 4,425,602 4,720,401 4,986,208 5,597,520 6,058,526 44,878
Total
shareholders'
equity.......... 4,970,071 5,000,437 5,196,119 5,340,410 5,463,928 40,473
OTHER FINANCIAL
DATA:
Capital
expenditures.... (Yen)1,953,174 (Yen)1,994,775 (Yen)2,244,576 (Yen)2,612,878 (Yen)2,685,961 $ 19,896
Depreciation and
amortization.... 1,717,745 1,832,063 1,909,768 2,093,314 2,281,843 16,903
Net cash provided
by operating
activities...... 2,090,738 1,920,627 2,306,778 2,650,708 2,730,607 20,227
Net cash used in
investing
activities...... 2,151,912 2,228,459 2,286,593 2,861,484 2,908,947 21,548
Adjusted
EBITDA(1) ...... 2,247,147 2,430,881 2,816,093 3,075,829 3,318,579 24,582
Adjusted EBITDA
margin(1)(2).... 33.6% 34.5% 35.6% 34.9% 35.1%
Net income (loss)
margin(2)....... 1.2 1.2 3.5 2.9 2.3
Return on
equity(3)....... 1.68 1.71 5.37 4.77 3.97
Return on
assets(4)....... 2.85 2.74 4.67 4.83 5.16
<PAGE>
<CAPTION>
AS OF AND FOR THE SIX MONTHS ENDED
SEPTEMBER 30,
----------------------------------------
1997 1998 1998
--------------- --------------- --------
(MILLIONS EXCEPT PER SHARE AMOUNTS, PERCENTAGES OR RATIOS)
(UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF
INCOME DATA:
Operating
revenues........ (Yen)4,637,146 (Yen)4,711,694 $34,901
Telephone....... 3,157,421 3,161,571 23,419
Telegraph....... 44,823 40,966 303
Leased circuit.. 237,386 250,785 1,858
Data
communication
facility....... 183,748 187,256 1,387
Sale of
telecommunication
equipment...... 446,648 460,077 3,408
Miscellaneous... 567,120 611,039 4,526
Operating
expenses........ 4,080,758 4,118,637 30,508
Operating
income.......... 556,388 593,057 4,393
Extraordinary
loss, net of
taxes........... -- (462,508) (3,426)
Net income
(loss).......... 195,572 (172,893) (1,281)
Net income per
share of common
stock........... 12,291 (10,866) (80)
BALANCE SHEET
DATA:
Cash and cash
equivalents..... (Yen) 511,217 (Yen) 686,750 $ 5,087
Property, plant
and equipment,
net............. 11,905,104 11,967,695 88,650
Total assets..... 16,582,752 16,834,182 124,698
Total
liabilities..... 11,090,402 11,596,124 85,898
Total interest
bearing debt.... 5,646,654 5,923,261 43,876
Total
shareholders'
equity.......... 5,492,350 5,238,058 38,800
OTHER FINANCIAL
DATA:
Capital
expenditures.... 1,439,971 1,253,879 9,288
Depreciation and
amortization.... 1,054,554 1,074,063 7,956
Net cash provided
by operating
activities...... 1,234,005 1,184,041 8,771
Net cash used in
investing
activities...... 1,537,122 1,184,079 8,771
Adjusted
EBITDA(1) ...... 1,688,950 1,733,621 12,842
Adjusted EBITDA
margin(1)(2).... 36.4% 36.8%
Net income (loss)
margin(2)....... 4.2 (3.7)
Return on
equity(3)....... 3.61 (3.23)
Return on
assets(4)....... 3.37 3.47
</TABLE>
- -------
(1) Adjusted EBITDA refers to operating income before deducting depreciation
and amortization expenses and losses on sale and disposal of property,
plant and equipment.
(2) Calculated as a percentage of operating revenues.
(3) Calculated as net income (loss) as a percentage of average total
shareholders' equity.
(4) Calculated as operating income as a percentage of average total assets.
5
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
The summary unaudited pro forma financial information set forth below should
be read in conjunction with the historical and pro forma consolidated financial
statements of NTT, together with the related notes, included in this
prospectus. The summary unaudited pro forma financial information gives effect
to the NTT DoCoMo offering and the use of proceeds therefrom as if such
transaction occurred with respect to the pro forma statement of income data as
of the beginning of the periods indicated and with respect to the pro forma
balance sheet data as of March 31, 1998 and September 30, 1998, as applicable.
The pro forma financial information set forth below is not necessarily
indicative of the operating results that actually would have been achieved had
such transactions been consummated as of the dates indicated or that may be
achieved in the future.
The Pro Forma, as adjusted, column gives effect to the sale of 218,000 shares
of NTT DoCoMo by NTT and the issuance of 327,000 shares by NTT DoCoMo. The Pro
Forma column only gives effect to the sale of the 218,000 shares. During the
fiscal year ending March 31, 1999, NTT and its subsidiaries will recognize pre-
tax gains on the sale and issuance of NTT DoCoMo's shares of approximately
(Yen)781 billion and (Yen)784 billion, respectively, as well as applicable
deferred taxes thereon. These non-recurring gains and taxes thereon have been
excluded from the pro forma unaudited statement of income. For the interim
period, NTT intends to use the proceeds from the sale of NTT DoCoMo shares to
repay debt that will ultimately be re-borrowed in order to pay a special
dividend and repurchase NTT's outstanding stock. Accordingly, the proceeds from
the sales are reflected in cash and cash equivalents. The reduction in interest
expense as a result of short-term debt repayments pending the expected share
repurchase and special dividend is not material.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR AS OF AND FOR THE SIX MONTHS
ENDED MARCH 31, 1998 ENDED SEPTEMBER 30, 1998
---------------------------------------------- -----------------------------------------------
PRO FORMA, PRO FORMA,
HISTORICAL PRO FORMA AS ADJUSTED HISTORICAL PRO FORMA AS ADJUSTED
-------------- -------------- -------------- -------------- -------------- ---------------
(MILLIONS OF YEN EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Operating revenues...... (Yen)9,450,013 (Yen)9,450,013 (Yen)9,450,013 (Yen)4,711,694 (Yen)4,711,694 (Yen) 4,711,694
Operating expenses...... 8,577,968 8,577,968 8,577,968 4,118,637 4,118,637 4,118,637
Operating income........ 872,045 872,045 872,045 593,057 593,057 593,057
Other expenses
(income)............... 216,513 216,513 190,713 20,110 20,110 8,410
Interest and amortiza-
tion of bond discounts
and issue costs....... 235,363 235,363 209,563 108,979 108,979 97,279
Interest income........ (2,086) (2,086) (2,086) (1,471) (1,471) (1,471)
Gains on sales of
subsidiary stocks..... -- -- -- (69,106) (69,106) (69,106)
Other, net............. (16,764) (16,764) (16,764) (18,292) (18,292) (18,292)
Income before income
taxes.................. 655,532 655,532 681,332 572,947 572,947 584,647
Income taxes............ 418,276 418,276 431,476 284,803 284,803 290,803
Current................ 362,910 362,910 376,110 210,476 210,476 216,476
Deferred............... 55,366 55,366 55,366 74,327 74,327 74,327
Extraordinary loss, net
of taxes .............. -- -- -- (462,508) (462,508) (462,508)
Income (loss) before
minority interest...... 237,256 237,256 249,856 (174,364) (174,364) (168,664)
Minority interest in
consolidated
subsidiaries........... (32,275) (59,523) (91,091) (3,261) (19,668) (38,057)
Equity in earnings of
affiliated companies... 9,479 9,479 9,479 4,732 4,732 4,732
Net income (loss)....... 214,460 187,212 168,244 (172,893) (189,300) (201,989)
Basic and diluted net
income per share....... 13,478 11,765 10,573 (10,866) (11,897) (12,694)
BALANCE SHEET DATA:
Cash and cash
equivalents............ (Yen) 913,236 (Yen)1,739,376 (Yen)2,109,876 (Yen) 686,750 (Yen)1,512,890 (Yen) 1,883,390
Total assets............ 17,352,531 18,178,671 18,176,184 16,834,182 17,660,322 17,659,213
Current liabilities..... 3,445,826 3,880,826 3,518,136 2,935,973 3,370,973 2,813,566
Short-term borrowings.. 456,995 456,995 269,235 428,689 428,689 99,339
Current portion of
long-term debt........ 825,422 825,422 650,492 697,899 697,899 469,842
Accrued taxes on
income................ 188,616 623,616 623,616 210,807 645,807 645,807
Other current
liabilities........... 1,974,793 1,974,793 1,974,793 1,598,578 1,598,578 1,598,578
Long-term liabilities... 8,306,737 8,306,737 7,803,427 8,440,242 8,440,242 8,131,649
Long-term debt......... 4,776,109 4,776,109 4,272,799 4,796,673 4,796,673 4,488,080
Liability for
employees' severance
payments.............. 2,890,761 2,890,761 2,890,761 2,988,212 2,988,212 2,988,212
Other long-term
liabilities........... 639,867 639,867 639,867 655,357 655,357 655,357
Minority interest in
consolidated
subsidiaries........... 136,040 188,701 648,145 219,909 275,422 737,737
Retained earnings....... 2,051,205 2,389,684 2,793,753 1,834,221 2,169,848 2,572,424
Shareholders' equity.... 5,463,928 5,802,407 6,206,476 5,238,058 5,573,685 5,976,261
</TABLE>
6
<PAGE>
SUMMARY OPERATING AND OTHER DATA
The following table sets forth certain operating and other data for the five
years ended March 31, 1998.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED MARCH 31,
------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
JAPANESE DEMOGRAPHIC AND
ECONOMIC DATA:
Population
(millions)(1).......... 124.8 125.0 125.6 125.9 126.2
GDP (trillions)(1)...... (Yen)476.7 (Yen)478.8 (Yen)489.2 (Yen)503.1 (Yen)504.6
GDP per capita
(millions)(1).......... 3.8 3.8 3.9 4.0 4.0
JAPANESE
TELECOMMUNICATIONS
MARKET DATA:
Fixed line:
Total number of
telephone subscriber
lines of NTT
(millions)............ 58.5 59.6 60.8 61.2 60.2
Telephone subscriber
line penetration rate
(%)................... 46.9 47.7 48.4 48.6 47.7
Total ISDN subscribers
of NTT (millions)..... 0.3 0.4 0.6 1.3 2.6
Local market share
(%)(2)................ 98.8 98.7 98.6 97.7 97.1
Long distance market
share (%)(2).......... 70.9 68.7 68.1 64.3 59.4
Cellular:
Total cellular
subscribers in Japan
(millions)............ 2.1 4.3 10.2 20.9 31.5
Cellular penetration
rate (%).............. 1.7 3.5 8.2 16.6 25.0
Cellular subscribers
of NTT DoCoMo and its
subsidiaries
(millions)............ 1.3 2.2 4.9 11.0 18.0
Market share of NTT
DoCoMo and its
subsidiaries (%)(3)... 62.0 50.9 48.4 52.5 57.0
PHS:
Total PHS subscribers
in Japan (millions)... -- -- 1.5 6.0 6.7
PHS penetration rate
(%)................... -- -- 1.2 4.8 5.3
NTT PHS subscribers
(millions)............ -- -- 0.4 1.9 1.9
Market share of NTT
and its subsidiaries
(%)(3)................ -- -- 26.1 30.7 28.3
TRAFFIC DATA OF NTT AND
ITS SUBSIDIARIES:
Number of calls
(millions):
Fixed line tele-
phone(4)............. 74,238 77,278 78,201 79,891 73,668
ISDN (voice and digi-
tal)(4).............. 705 1,082 1,662 2,890 5,721
Hours of use (millions):
Fixed line tele-
phone(4)............. 3,509 3,610 3,535 3,441 3,240
ISDN (voice and digi-
tal)(4).............. 22 34 56 121 290
Cellular.............. N/A 61 121 252 448
EMPLOYEES (THOUSANDS):.. 248 235 231 230 226
</TABLE>
- -------
N/A: Not Available.
(1) Based on the 1998 Economic White Paper.
(2) Market share data is based on number of calls.
(3) Market share data is based on number of subscribers.
(4) Based on NTT's end-to-end traffic only.
7
<PAGE>
WHERE TO FIND MORE INFORMATION
NTT files reports and other information with the SEC. These reports and other
information about NTT can be read and copied at the SEC's public reference room
in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Starting with NTT's Form 20-F for
the fiscal year ended March 31, 1998, NTT's filings are also available to the
public over the Internet at the SEC's web-site at http://www.sec.gov.
NTT can "incorporate by reference" the information it files with the SEC,
which means that NTT can disclose important information to you by referring you
to those documents. The information incorporated by reference is considered to
be part of this prospectus. NTT incorporates by reference its Annual Report on
Form 20-F for the fiscal year ended March 31, 1998 (File No. 1-8910) that was
filed with the SEC pursuant to the Securities Exchange Act of 1934.
In addition, any reports on Form 20-F, including any amendments thereto, that
will be filed with the SEC and certain reports that NTT designates on Form 6-K
that may be furnished to the SEC prior to the termination of this offering will
also be incorporated by reference and considered part of this prospectus and
will automatically update and supersede the information contained herein.
You may request a copy of any document incorporated by reference, at no cost,
by writing or telephoning NTT at 19-2, Nishi-Shinjuku 3-chome, Shinjuku-ku,
Tokyo 163-8019, Japan, Attention: General Affairs Department, Investor
Relations Section, telephone number: 813-5359-2122.
FORWARD LOOKING STATEMENTS
Statements made in this prospectus and in documents incorporated by reference
are forward looking statements. These include statements with respect to NTT
and its subsidiaries' plans, strategies and beliefs and other statements that
are not historical facts. The statements are based on management's assumptions
and beliefs in light of the information currently available to it. These
assumptions and beliefs include information concerning:
. NTT and its subsidiaries; and
. the economy and telecommunications industry in Japan and overseas.
The assumptions also involve risks and uncertainties which may cause the actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by such forward
looking statements. Potential risks and uncertainties include, without
limitation:
. risks and uncertainties associated with the pricing of services;
. the effects of deregulation of the telecommunications market and
increased competition;
. the success of NTT's reorganization; and
. the ability of its subsidiaries, including without limitation NTT
DoCoMo, to maintain growth and the success of new products and
services and new businesses.
8
<PAGE>
USE OF PROCEEDS
The Minister of Finance of Japan, also referred to as MOF, representing the
Government of Japan, will receive all of the proceeds from the sale of the
shares or ADSs. NTT will not receive any proceeds. See "Principal Shareholders
and Selling Shareholder."
EXCHANGE RATES
In certain parts of this prospectus, yen amounts have been translated into
U.S. dollars for the convenience of investors. Unless otherwise noted herein,
the rate used for the translations was (Yen)135 equal to $1.00, which was the
approximate exchange rate on September 30, 1998. The following table sets forth
the noon buying rates in New York City for cable transfers in yen as announced
for customs purposes by the Federal Reserve Bank of New York--the "Noon Buying
Rate"--for Japanese yen expressed in Japanese yen per $1.00. The Noon Buying
Rate on November 24, 1998 was $1=(Yen)120.85. No representation is made that
the Japanese yen or U.S. dollar amounts referred to herein could have been or
could be converted into U.S. dollars or Japanese yen, as the case may be, at
any particular rate or at all.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------------------------------------------------
1994 1995 1996 1997 1998 1999(1)
----------- ----------- ----------- ----------- ----------- -----------
YEN EXCHANGE RATES PER
U.S. DOLLAR:
<S> <C> <C> <C> <C> <C> <C>
High.................... (Yen)114.20 (Yen)105.38 (Yen)107.29 (Yen)124.54 (Yen)133.99 (Yen)147.14
Low..................... 102.40 86.85 81.12 104.49 111.42 114.46
Average(2).............. 107.13 98.48 96.95 113.20 123.57 135.39
At period-end........... 102.40 86.85 107.00 123.72 133.29 120.85
</TABLE>
- --------
(1) Through November 24, 1998.
(2) The average of month-end rates during the period.
Fluctuations in the exchange rate between the Japanese yen and the U.S.
dollar will affect the U.S. dollar equivalent of the Japanese yen price of the
shares on the Japanese stock exchanges and, as a result, are likely to affect
the market price of the ADSs on the New York Stock Exchange. NTT will declare
any cash dividends on shares in Japanese yen and exchange rate fluctuations
will affect the U.S. dollar amounts received by holders of ADSs on conversion
of cash dividends on the shares represented by the ADSs. See "Description of
ADRs and Deposit Agreement."
9
<PAGE>
CAPITALIZATION
The following table, which should be read in conjunction with NTT's
historical and pro forma consolidated financial statements included herein,
sets forth the unaudited consolidated capitalization of NTT and its
subsidiaries as of September 30, 1998 and as adjusted to give pro forma effect
to the NTT DoCoMo offering and the application of proceeds therefrom. Except as
disclosed below, there has been no material change in the consolidated
capitalization of NTT and its subsidiaries since March 31, 1998.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
-----------------------------------------------------
HISTORICAL PRO FORMA, AS ADJUSTED
-------------------------- --------------------------
(MILLIONS (MILLIONS
(MILLIONS OF OF (MILLIONS OF OF
YEN) DOLLARS) YEN) DOLLARS)
<S> <C> <C> <C> <C>
SHORT-TERM DEBT
Total short-term debt
(including short-term
borrowings and current
portion of long-term
debt).................. (Yen) 1,126,588 $ 8,345 (Yen) 569,181 $ 4,216
=============== ======= =============== =======
LONG-TERM DEBT
Long-term debt.......... (Yen) 4,796,673 $35,531 (Yen) 4,488,080 $33,245
--------------- ------- --------------- -------
SHAREHOLDERS' EQUITY
Common stock,
(Yen)50,000 par value.. 795,600 5,893 795,600 5,893
Authorized: 62,400,000
shares
Issued and outstanding:
15,912,000 shares
Additional paid-in capi-
tal.................... 2,530,476 18,744 2,530,476 18,744
Legal reserve........... 107,094 793 107,094 793
Unrealized loss on secu-
rities................. (34,447) (255) (34,447) (255)
Foreign currency trans-
lation adjustments..... 5,114 38 5,114 38
Retained earnings....... 1,834,221 13,587 2,572,424 19,055
--------------- ------- --------------- -------
Total shareholders' eq-
uity................... 5,238,058 38,800 5,976,261 44,268
--------------- ------- --------------- -------
Total capitalization.... (Yen)10,034,731 $74,331 (Yen)10,464,341 $77,513
=============== ======= =============== =======
</TABLE>
10
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below and certain data under Other
Financial Data have been derived from the consolidated financial statements and
notes thereto of NTT and its subsidiaries which have been prepared in
conformity with accounting principles generally accepted in the United States.
The consolidated financial statements of NTT and its subsidiaries as of and for
the years ended March 31, 1994, 1995, 1996, 1997 and 1998 have been audited by
Price Waterhouse. The information set forth below should be read in conjunction
with, and is qualified in its entirety by reference to, the consolidated
financial statements of NTT and its subsidiaries included in this prospectus
and the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained herein.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED MARCH 31,
---------------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1998
-------------- -------------- -------------- -------------- -------------- -------
(MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF IN-
COME DATA:
Operating
revenues........ (Yen)6,686,976 (Yen)7,043,822 (Yen)7,908,643 (Yen)8,821,782 (Yen)9,450,013 $70,000
Telephone....... 4,879,929 5,039,474 5,557,674 6,038,146 6,306,034 46,711
Telegraph....... 80,987 90,559 96,746 98,683 92,211 683
Leased circuit.. 400,710 400,103 393,415 428,715 488,160 3,616
Data
communication
facility....... 237,457 259,520 301,365 337,934 372,765 2,761
Sale of
telecommunication
equipment...... 308,906 401,957 606,102 889,834 969,586 7,182
Miscellaneous... 778,987 852,209 953,341 1,028,470 1,221,257 9,047
Operating
expenses........ 6,296,893 6,653,588 7,212,492 8,052,307 8,577,968 63,540
Personnel....... 2,340,760 2,328,917 2,285,502 2,266,599 2,345,609 17,375
Depreciation,
amortization
and maintenance
costs.......... 2,315,517 2,624,199 2,809,602 2,998,550 3,185,044 23,593
Other........... 1,640,616 1,700,472 2,117,388 2,787,158 3,047,315 22,572
Operating
income.......... 390,083 390,234 696,151 769,475 872,045 6,460
Other expenses
(income)........ 215,904 225,524 151,012 259,702 216,513 1,604
Interest and
amortization of
bond discounts
and issue
costs.......... 274,247 277,544 268,032 253,950 235,363 1,743
Interest
income......... (13,102) (5,967) (2,066) (1,839) (2,086) (15)
Gains on sales
of subsidiary
stocks......... -- -- (98,011) -- -- --
Other, net...... (45,241) (46,053) (16,943) 7,591 (16,764) (124)
Income before
income taxes ... 174,179 164,710 545,139 509,773 655,532 4,856
Income taxes..... 91,979 82,429 272,974 260,927 418,276 3,098
Extraordinary
loss, net of
taxes........... -- -- -- -- -- --
Income before
minority
interests....... 82,200 82,281 272,165 248,846 237,256 1,758
Minority interest
in consolidated
subsidiaries.... 754 (2,433) (6,124) (11,718) (32,275) (239)
Equity in
earnings of
affiliated
companies....... 442 5,595 7,605 14,329 9,479 70
Net income
(loss).......... 83,396 85,443 273,646 251,457 214,460 1,589
Net income (loss)
per share of
common stock.... 5,241 5,370 17,197 15,803 13,478 100
<PAGE>
<CAPTION>
AS OF AND FOR THE SIX MONTHS
ENDED SEPTEMBER 30,
----------------------------------------
1997 1998 1998
--------------- --------------- --------
(UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF IN-
COME DATA:
Operating
revenues........ (Yen)4,637,146 (Yen)4,711,694 $34,901
Telephone....... 3,157,421 3,161,571 23,419
Telegraph....... 44,823 40,966 303
Leased circuit.. 237,386 250,785 1,858
Data
communication
facility....... 183,748 187,256 1,387
Sale of
telecommunication
equipment...... 446,648 460,077 3,408
Miscellaneous... 567,120 611,039 4,526
Operating
expenses........ 4,080,758 4,118,637 30,508
Personnel....... 1,158,680 1,103,619 8,175
Depreciation,
amortization
and maintenance
costs.......... 1,491,252 1,541,795 11,421
Other........... 1,430,826 1,473,223 10,912
Operating
income.......... 556,388 593,057 4,393
Other expenses
(income)........ 108,189 20,110 149
Interest and
amortization of
bond discounts
and issue
costs.......... 120,298 108,979 807
Interest
income......... (1,135) (1,471) (11)
Gains on sales
of subsidiary
stocks......... -- (69,106) (512)
Other, net...... (10,974) (18,292) (135)
Income before
income taxes ... 448,199 572,947 4,244
Income taxes..... 242,235 284,803 2,110
Extraordinary
loss, net of
taxes........... -- (462,508) (3,426)
Income before
minority
interests....... 205,964 (174,364) (1,292)
Minority interest
in consolidated
subsidiaries.... (14,651) (3,261) (24)
Equity in
earnings of
affiliated
companies....... 4,259 4,732 35
Net income
(loss).......... 195,572 (172,893) (1,281)
Net income (loss)
per share of
common stock.... 12,291 (10,866) (80)
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED MARCH 31,
---------------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1998
-------------- -------------- -------------- -------------- -------------- -------
(MILLIONS EXCEPT PER SHARE AMOUNTS, PERCENTAGES OR RATIOS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA:
Cash and cash
equivalents.... (Yen) 691,591 (Yen) 582,447 (Yen) 638,642 (Yen) 821,140 (Yen) 913,236 $ 6,765
Notes and
accounts
receivable,
trade.......... 636,071 700,932 1,058,308 930,792 1,085,381 8,040
Inventories..... 105,149 128,527 164,490 231,407 223,776 1,657
Property, plant
and equipment,
net............ 10,737,495 10,857,314 11,136,221 11,655,768 12,005,362 88,929
Investments in
affiliated
companies...... 83,945 79,013 86,900 113,762 201,945 1,496
Marketable
securities and
other
investments.... 102,944 175,506 195,345 154,947 124,910 925
Intangible and
other assets... 923,597 1,118,326 1,324,893 1,654,289 1,904,503 14,107
Total assets.... 14,076,677 14,397,961 15,399,448 16,475,094 17,352,531 128,537
Total
liabilities.... 9,106,606 9,397,524 10,203,329 11,134,684 11,888,603 88,064
Accounts
payable,
trade.......... 765,782 669,036 903,579 1,115,840 1,131,444 8,381
Total interest
bearing debt... 4,425,602 4,720,401 4,986,208 5,597,520 6,058,526 44,878
Short term
borrowings..... 127,584 147,265 208,438 387,544 456,995 3,385
Current portion
of long term
debt........... 733,824 669,104 671,948 667,964 825,422 6,114
Long term debt.. 3,564,194 3,904,032 4,105,822 4,542,012 4,776,109 35,379
Total
shareholders'
equity......... 4,970,071 5,000,437 5,196,119 5,340,410 5,463,928 40,473
OTHER FINANCIAL
DATA:
Capital
expenditures... (Yen)1,953,174 (Yen)1,994,775 (Yen)2,244,576 (Yen)2,612,878 (Yen)2,685,961 $19,896
Depreciation and
amortization... 1,717,745 1,832,063 1,909,768 2,093,314 2,281,843 16,903
Net cash
provided by
operating
activities..... 2,090,738 1,920,627 2,306,778 2,650,708 2,730,607 20,227
Net cash used in
investing
activities .... 2,151,912 2,228,459 2,286,593 2,861,484 2,908,947 21,548
Research and
development
expenses....... 310,572 313,918 318,105 328,529 288,931 2,140
Adjusted
EBITDA(1)...... 2,247,147 2,430,881 2,816,093 3,075,829 3,318,579 24,582
Adjusted EBITDA
margin(1)(2)... 33.6% 34.5% 35.6% 34.9% 35.1%
Net income
(loss)
margin(2)...... 1.2 1.2 3.5 2.9 2.3
Return on
equity(3)...... 1.68 1.71 5.37 4.77 3.97
Return on
assets(4)...... 2.85 2.74 4.67 4.83 5.16
Return on
capital
employed(5).... 2.07 2.00 3.43 3.57 3.80
<PAGE>
<CAPTION>
AS OF AND FOR THE SIX MONTHS
ENDED SEPTEMBER 30,
-------------------------------
1997 1998 1998
----------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET
DATA:
Cash and cash
equivalents.... 511,217 686,750 5,087
Notes and
accounts
receivable,
trade.......... 914,360 1,032,964 7,652
Inventories..... 277,875 288,919 2,140
Property, plant
and equipment,
net............ 11,905,104 11,967,695 88,650
Investments in
affiliated
companies...... 165,838 239,451 1,774
Marketable
securities and
other
investments.... 144,628 100,243 743
Intangible and
other assets... 1,738,781 1,314,095 9,734
Total assets.... 16,582,752 16,834,182 124,698
Total
liabilities.... 11,090,402 11,596,124 85,898
Accounts
payable,
trade.......... 868,090 895,638 6,634
Total interest
bearing debt... 5,646,654 5,923,261 43,876
Short term
borrowings..... 304,520 428,689 3,175
Current portion
of long term
debt........... 704,695 697,899 5,170
Long term debt.. 4,637,439 4,796,673 35,531
Total
shareholders'
equity......... 5,492,350 5,238,058 38,800
OTHER FINANCIAL
DATA:
Capital
expenditures... 1,439,971 1,253,879 9,288
Depreciation and
amortization... 1,054,554 1,074,063 7,956
Net cash
provided by
operating
activities..... 1,234,005 1,184,041 8,771
Net cash used in
investing
activities .... 1,537,122 1,184,079 8,771
Research and
development
expenses....... -- -- --
Adjusted
EBITDA(1)...... 1,688,950 1,733,621 12,842
Adjusted EBITDA
margin(1)(2)... 36.4% 36.8%
Net income
(loss)
margin(2)...... 4.2 (3.7)
Return on
equity(3)...... 3.61 (3.23)
Return on
assets(4)...... 3.37 3.47
Return on
capital
employed(5).... 2.47 2.56
</TABLE>
- --------
(1) Adjusted EBITDA refers to operating income before deducting depreciation
and amortization expenses and losses on sale and disposal of property,
plant and equipment.
(2) Calculated as a percentage of operating revenues.
(3) Calculated as net income (loss) as a percentage of average total
shareholders' equity.
(4) Calculated as operating income as a percentage of average total assets.
(5) Calculated as operating income multiplied by (1 minus 51% (the marginal tax
rate)) as a percentage of the sum of average total interest bearing debt
and average total shareholders' equity.
12
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information set forth below should be read
in conjunction with the historical and pro forma consolidated financial
statements of NTT, together with the notes thereto, included in this
prospectus. The unaudited pro forma financial information gives effect to the
NTT DoCoMo offering and the use of proceeds therefrom as if such transaction
occurred with respect to the pro forma statement of income data as of the
beginning of the periods indicated and with respect to the balance sheet data
as of March 31, 1998 and September 30, 1998, as applicable. The pro forma
financial information set forth below is not necessarily indicative of the
operating results that actually would have been achieved had such transactions
been consummated as of the dates indicated or that may be achieved in the
future.
The Pro Forma, as adjusted, column gives effect to the sale of 218,000 shares
of NTT DoCoMo by NTT and the issuance of 327,000 shares by NTT DoCoMo. The Pro
Forma column only gives effect to the sale of the 218,000 shares. During the
fiscal year ending March 31, 1999, NTT and its subsidiaries will recognize pre-
tax gains on the sale and issuance of NTT DoCoMo's shares of approximately
(Yen)781 billion and (Yen)784 billion, respectively, as well as applicable
deferred taxes thereon. These non-recurring gains and taxes thereon have been
excluded from the pro forma unaudited statement of income. For the interim
period, NTT intends to use the proceeds from the sale of NTT DoCoMo shares to
repay debt that will ultimately be re-borrowed in order to pay a special
dividend and repurchase NTT's outstanding stock. Accordingly, the proceeds from
the sales are reflected in cash and cash equivalents. The reduction in interest
expense as a result of short-term debt repayments pending the expected share
repurchase and special dividend is not material.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR AS OF AND FOR THE SIX MONTHS
ENDED MARCH 31, 1998 ENDED SEPTEMBER 30, 1998
---------------------------------------------- -----------------------------------------------
PRO FORMA, PRO FORMA,
HISTORICAL PRO FORMA AS ADJUSTED HISTORICAL PRO FORMA AS ADJUSTED
-------------- -------------- -------------- -------------- --------------- --------------
(MILLIONS OF YEN EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Operating revenues...... (Yen)9,450,013 (Yen)9,450,013 (Yen)9,450,013 (Yen)4,711,694 (Yen)4,711,694 (Yen)4,711,694
Operating expenses...... 8,577,968 8,577,968 8,577,968 4,118,637 4,118,637 4,118,637
Operating income........ 872,045 872,045 872,045 593,057 593,057 593,057
Other expenses
(income)............... 216,513 216,513 190,713 20,110 20,110 8,410
Interest and amortiza-
tion of bond discounts
and issue costs....... 235,363 235,363 209,563 108,979 108,979 97,279
Interest income........ (2,086) (2,086) (2,086) (1,471) (1,471) (1,471)
Gains on sales of
subsidiary stocks..... -- -- -- (69,106) (69,106) (69,106)
Other, net............. (16,764) (16,764) (16,764) (18,292) (18,292) (18,292)
Income before income
taxes.................. 655,532 655,532 681,332 572,947 572,947 584,647
Income taxes............ 418,276 418,276 431,476 284,803 284,803 290,803
Current................ 362,910 362,910 376,110 210,476 210,476 216,476
Deferred............... 55,366 55,366 55,366 74,327 74,327 74,327
Extraordinary loss, net
of taxes............... -- -- -- (462,508) (462,508) (462,508)
Income (loss) before
minority interest...... 237,256 237,256 249,856 (174,364) (174,364) (168,664)
Minority interest in
consolidated
subsidiaries........... (32,275) (59,523) (91,091) (3,261) (19,668) (38,057)
Equity in earnings of
affiliated companies... 9,479 9,479 9,479 4,732 4,732 4,732
Net income (loss)....... 214,460 187,212 168,244 (172,893) (189,300) (201,989)
Basic and diluted net
income per share....... 13,478 11,765 10,573 (10,866) (11,897) (12,694)
BALANCE SHEET DATA:
Cash and cash
equivalents............ (Yen) 913,236 (Yen)1,739,376 (Yen)2,109,876 (Yen) 686,750 (Yen) 1,512,890 (Yen)1,883,390
Total assets............ 17,352,531 18,178,671 18,176,184 16,834,182 17,660,322 17,659,213
Current liabilities..... 3,445,826 3,880,826 3,518,136 2,935,973 3,370,973 2,813,566
Short-term borrowings.. 456,995 456,995 269,235 428,689 428,689 99,339
Current portion of
long-term debt........ 825,422 825,422 650,492 697,899 697,899 469,842
Accrued taxes on
income................ 188,616 623,616 623,616 210,807 645,807 645,807
Other current
liabilities........... 1,974,793 1,974,793 1,974,793 1,598,578 1,598,578 1,598,578
Long-term liabilities... 8,306,737 8,306,737 7,803,427 8,440,242 8,440,242 8,131,649
Long-term debt......... 4,776,109 4,776,109 4,272,799 4,796,673 4,796,673 4,488,080
Liability for
employees' severance
payments.............. 2,890,761 2,890,761 2,890,761 2,988,212 2,988,212 2,988,212
Other long-term
liabilities........... 639,867 639,867 639,867 655,357 655,357 655,357
Minority interest in
consolidated
subsidiaries........... 136,040 188,701 648,145 219,909 275,422 737,737
Retained earnings....... 2,051,205 2,389,684 2,793,753 1,834,221 2,169,848 2,572,424
Shareholders' equity.... 5,463,928 5,802,407 6,206,476 5,238,058 5,573,685 5,976,261
</TABLE>
13
<PAGE>
SELECTED OPERATING DATA
The following table sets forth certain operating and other data for the five
years ended March 31, 1998.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS
ENDED MARCH 31,
------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
JAPANESE DEMOGRAPHIC AND
ECONOMIC DATA:
Population
(millions)(1).......... 124.8 125.0 125.6 125.9 126.2
GDP (trillions)(1)...... (Yen)476.7 (Yen)478.8 (Yen)489.2 (Yen)503.1 (Yen)504.6
GDP per capita
(millions)(1).......... 3.8 3.8 3.9 4.0 4.0
JAPANESE
TELECOMMUNICATIONS
MARKET DATA:
Fixed line:
Total number of
telephone subscriber
lines of NTT
(millions)............. 58.5 59.6 60.8 61.2 60.2
Telephone subscriber
line penetration
rate(%)................ 46.9 47.7 48.4 48.6 47.7
Total ISDN subscribers
of NTT (millions)...... 0.3 0.4 0.6 1.3 2.6
Local market share
(%)(2)................. 98.8 98.7 98.6 97.7 97.1
Long distance market
share (%)(2)........... 70.9 68.7 68.1 64.3 59.4
Cellular:
Total cellular
subscribers in Japan
(millions)............. 2.1 4.3 10.2 20.9 31.5
Cellular penetration
rate (%)............... 1.7 3.5 8.2 16.6 25.0
Cellular subscribers of
NTT DoCoMo and its
subsidiaries
(millions)............. 1.3 2.2 4.9 11.0 18.0
Market share of NTT
DoCoMo and its
subsidiaries (%)(3).... 62.0 50.9 48.4 52.5 57.0
PHS:
Total PHS subscribers in
Japan (millions)....... -- -- 1.5 6.0 6.7
PHS penetration rate
(%).................... -- -- 1.2 4.8 5.3
NTT PHS subscribers
(millions)............. -- -- 0.4 1.9 1.9
Market share of NTT and
its subsidiaries
(%)(3)................. -- -- 26.1 30.7 28.3
TRAFFIC DATA OF NTT AND
ITS SUBSIDIARIES:
Number of calls
(millions):
Fixed line
telephone(4)........... 74,238 77,278 78,201 79,891 73,668
ISDN (voice and
digital)(4)............ 705 1,082 1,662 2,890 5,721
Hours of use (millions):
Fixed line
telephone(4)........... 3,509 3,610 3,535 3,441 3,240
ISDN (voice and
digital)(4)............ 22 34 56 121 290
Cellular................ N/A 61 121 252 448
EMPLOYEES (THOUSANDS):.. 248 235 231 230 226
</TABLE>
- --------
N/A: Not Available.
(1) Based on the 1998 Economic White Paper.
(2) Market share data is based on number of calls.
(3) Market share data is based on number of subscribers.
(4) Based on NTT's end-to-end traffic only.
14
<PAGE>
RECENT DEVELOPMENTS
NTT DOCOMO OFFERING
On October 22, 1998, NTT DoCoMo completed its initial public offering and
listed its stock on the First Section of the Tokyo Stock Exchange. NTT sold
218,000 shares of NTT DoCoMo's common stock, without par value, for total
proceeds of (Yen)826.1 billion and NTT DoCoMo issued 327,000 new shares of
stock for total proceeds of (Yen)1,236.5 billion. As a result of the offering,
NTT's stake in NTT DoCoMo has been reduced from 94.7% to 67.1%. Following
shareholder approval at the next ordinary meeting of shareholders in June 1999,
as well as an approval of the Minister of Posts and Telecommunications, or MPT,
NTT intends to use the proceeds from its sale of NTT DoCoMo shares to
repurchase approximately (Yen)120 billion of NTT's outstanding common stock and
to pay a special dividend of (Yen)5,000 per share to NTT's shareholders of
record on March 31, 1999, and for general corporate purposes. NTT DoCoMo and
its subsidiaries also expect to use the proceeds to repay debt, to fund current
and future capital expenditures and for general corporate purposes.
During fiscal year 1999, NTT and its subsidiaries will recognize pre-tax
gains on the sale and issuance of NTT DoCoMo's shares of approximately (Yen)781
billion and (Yen)784 billion, respectively, as well as applicable deferred
taxes thereon. These non-recurring gains and taxes thereon have been excluded
from the pro forma unaudited statement of income included in this prospectus.
According to media reports in the spring of 1997, the Fair Trade Commission
has suggested that NTT's dominant position as provider of local telephone
service is an obstacle to fair competition among wireless telecommunications
companies and that NTT's ownership of NTT DoCoMo should be reduced to
substantially less than 50%. In response to the media reports, NTT stated that
its ownership of NTT DoCoMo does not have any adverse effects on fair
competition.
PHS SERVICES
NTT's PHS services are provided by NTT Personal Group. Since October 1997,
the number of NTT Personal Group's PHS customers has steadily fallen. NTT's PHS
services have operated at a loss over the past several years and NTT expects
the PHS services to continue to operate at a loss over the next several years.
As a result, NTT has concluded that it would be difficult to continue PHS
services through NTT Personal Group and decided to transfer its PHS businesses
to NTT DoCoMo and its subsidiaries. NTT expects to complete the transfer on
December 1, 1998 and to liquidate NTT Personal Group following the transfer.
NTT expects that NTT DoCoMo and its subsidiaries can realize synergies through
the combination of its cellular services with the PHS business, including by
utilizing PHS's superior data transmission capability and by integrating PHS
products and services into the existing sales and distribution network of NTT
DoCoMo and its subsidiaries, although there can be no assurance that the PHS
business will not continue to have an adverse effect on the financial results
and operations of NTT and its subsidiaries. Neither the transfer nor the
expected synergies are reflected in the pro forma consolidated financial
statements included herein.
SFAS 71 WRITE-OFF
In its financial statements as of and for the six-month period ended
September 30, 1998, NTT has discontinued the application of the provisions of
SFAS 71 for all of its operations. Pursuant to the requirements of SFAS 101,
NTT has recorded an extraordinary non-cash charge in its U.S. GAAP financial
statements of (Yen)462 billion, net of income taxes in the amount of (Yen)427
billion, for the six-month period ended September 30, 1998 and has eliminated
(Yen)889 billion of regulatory assets from its balance sheet as of September
30, 1998.
SPECIAL DIVIDEND AND SHARE REPURCHASE
On October 22, 1998, NTT announced plans to pay a special dividend of
(Yen)5,000 per share to shareholders of record as of March 31, 1999, in
addition to an ordinary dividend of (Yen)2,500 to shareholders of record as of
the same date, and repurchase approximately (Yen)120 billion of outstanding
shares. The payment of dividends and the share repurchase will be made using a
portion of the proceeds from the NTT DoCoMo offering and will take place
following approval at the next ordinary meeting of shareholders in June 1999,
as well as an approval of MPT.
15
<PAGE>
JAPANESE ECONOMY
The sluggish Japanese economy had a negative impact on NTT's fixed-line
telephone traffic in fiscal year 1998. In fiscal year 1998, sluggish economic
conditions contributed to a decrease in NTT end-to-end fixed-line telephone
traffic from 79,891 million calls in fiscal year 1997 to 73,668 million calls
in fiscal year 1998 and 3,441 million hours of use in fiscal year 1997 to 3,240
million hours of use in fiscal year 1998.
During the six-month period ended September 30, 1998, the Japanese economy
remained stagnant due to weak consumer spending and lower capital investment by
small and middle-size firms. This sluggishness in the Japanese economy
continued to have a negative impact on the rate of growth in operating revenues
for the six-month period ended September 30, 1998. Although other factors also
contributed to the decrease in the rate of growth of operating revenues, the
sluggish Japanese economy was one factor which contributed to the decline.
Operating revenues for the six-month period ended September 30, 1998 increased
1.6% to (Yen)4,711,694 million from (Yen)4,637,146 million for the six-month
period ended September 30, 1997.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Significant changes in the legislative and regulatory framework for
telecommunications in Japan have occurred since 1985, including the
introduction of telecommunications reform laws aimed at promoting
competition in the telecommunications services market.
In June 1997, the Diet passed amendments to the NTT Law which implement a
plan proposed by MPT, and accepted in principle by NTT, to reorganize NTT.
Following the reorganization, NTT will continue to exist as a holding company.
The principal sources of NTT's cash revenues will be dividends from its
subsidiaries. NTT is also considering the sharing of certain research and
development costs and management costs with its subsidiaries. At this time, the
ultimate effect of the implementation of the amendments to the NTT Law on the
financial position and results of operations of NTT and its subsidiaries cannot
be determined. See "Business--Reorganization."
In order to promote further competition in the telecommunications market, and
as part of the Government's overall policy toward deregulation, the
Telecommunications Business Law--the "Telecom Business Law"--was revised in May
1998. NTT is subject to the special rules applicable under the revised Telecom
Business Law, which became effective on November 1, 1998. It is expected that
until the reorganization, rates for regional telecommunications services
provided by NTT will continue to be subject to MPT approval, while rates for
such services provided by the regional companies after the reorganization will
be subject to a price-cap system. See "Regulatory Developments--Price-Cap
System."
In June 1997, the Diet revised the Telecom Business Law in an attempt to
promote transparent, fair, prompt and reasonable interconnection. The
conditions upon which network access is offered will be of great significance
to the development of the Japanese telecommunications market. The cost of
interconnection to NTT's network is expected to be a significant part of the
operating costs of competing network operators, and, as competition grows,
increasingly important to NTT.
In May 1998, the U.S. Government and the Japanese Government issued a status
report in which the Japanese Government expressed its intent to introduce
"Long-run Incremental Cost Methodology" for the setting of interconnection
charges. At this time, the ultimate results of the introduction of Long-run
Incremental Cost Methodology on the financial position and results of
operations of NTT and its subsidiaries cannot be determined. See "Regulatory
Developments--Interconnection."
SFAS 71 WRITE-OFF
In its financial statements as of and for the six-month period ended
September 30, 1998, NTT has discontinued the application of the provisions of
SFAS 71 for all of its operations. Under SFAS 71, NTT had accounted for the
effects of the rate-making process by establishing certain regulatory assets,
including the deferral of certain costs. Pursuant to the requirements of SFAS
101, NTT has recorded an extraordinary non-cash charge in its U.S. GAAP
financial statements of (Yen)462 billion, net of income taxes in the amount of
(Yen)427 billion, for the six-month period ended September 30, 1998 and has
eliminated (Yen)889 billion of regulatory assets from its balance sheet as of
September 30, 1998.
After assessing the recent revision of the Telecom Business Law and proposed
price-cap system, NTT recognizes that it is required under SFAS 101 to change
its accounting for regulated operations. NTT's determination that it is no
longer eligible for the continued application of SFAS 71 is based on the belief
that the convergence of competition, technological change, actual and potential
regulatory and legislative actions, and other factors are creating open and
competitive markets.
NTT DOCOMO OFFERING
On October 22, 1998, NTT DoCoMo completed its initial public offering and
listed its stock on the First Section of the Tokyo Stock Exchange. See "Recent
Developments--NTT DoCoMo Offering." During fiscal year 1999, NTT and its
subsidiaries will recognize pre-tax gains on the sale and issuance of NTT
DoCoMo's shares of approximately (Yen)781 billion and (Yen)784 billion,
respectively, as well as applicable deferred taxes thereon. These non-recurring
gains and taxes thereon have been excluded from the pro forma unaudited
statement of income included in this prospectus.
17
<PAGE>
YEAR 2000 PROBLEM
NTT and its subsidiaries recognize the potential for the Year 2000 Problem to
disrupt the smooth operation of computer systems. To mitigate such risk, NTT
and its subsidiaries began an in-house investigation in March 1995, and in the
following November established a task force to promote NTT-wide preparations
based on the efficient sharing of related information. NTT and its subsidiaries
are addressing both information technology ("IT") and non-IT systems.
With a number of favorable conditions, such as the ability of its network
infrastructure to handle a four digit century and the conversion of
intracompany support systems to a four digit century as an intercorporate
standard in 1992, management estimates that costs related to the Year 2000
Problem for NTT and its subsidiaries will be approximately (Yen)5.1 billion.
However, this estimate may be revised should problems occur from outside
sources or due to unforeseen circumstances. NTT and its subsidiaries presently
believe that the Year 2000 Problem will not pose significant operational
problems for its systems. However, if the anticipated modifications and
conversions are not completed on a timely basis, or if the systems of other
companies on which the systems and operations of NTT and its subsidiaries rely
are not converted on a timely basis, the Year 2000 Problem could have an
adverse effect on the operations of NTT and its subsidiaries.
To the extent NTT has not already implemented a four digit century on its
computer systems, NTT and its subsidiaries have completed renovation and begun
final testing and validation on the majority of its computer systems. NTT and
its subsidiaries have already completed changes determined to be necessary on a
smaller number of its computer systems, and such systems are currently in use.
At the same time, NTT and its subsidiaries have begun renovation of the
remaining portion of its systems. NTT and its subsidiaries have set a target of
June 1999 for renovation to be completed at its network infrastructure and
intracompany support systems, but no assurance can be given that this schedule
will be met.
NTT and its subsidiaries are taking steps to assess the level of risk by
acquiring information from external vendors to confirm the status of compliance
measures by such vendors for the Year 2000 Problem and performing tests where
necessary. However, given the reliance on third party information and the
difficulty of determining potential errors, no assurance can be given that the
computer systems or operations of NTT and its subsidiaries will not be affected
by mistakes, if any, of third parties or third party failures to complete the
Year 2000 project on a timely basis.
NTT and its subsidiaries recognize the importance or readiness for potential
worst case scenarios. As a result, NTT and its subsidiaries are working to
identify scenarios requiring contingency plans and to develop any necessary
plans.
RESULTS OF OPERATIONS
For the six-month period ended September 30, 1998 and fiscal years 1998 and
1997, operating revenues increased 1.6%, 7.1% and 11.5%, respectively. For the
six-month period ended September 30, 1998, strong demand for cellular telephone
services and digital-related services, including ISDN services, high-speed
digital leased circuit services and open computer network services or OCN
services caused by increased demand for Internet access, contributed to the
growth in operating revenues, offsetting the negative impact of the sluggish
Japanese economy and a reduction in rates for long distance services. In fiscal
year 1998, growth in cellular telephone services and digital-related services
offset the negative impact of the rate reduction for long distance services and
a reduction in interconnection charges paid by certain competing Type I
Carriers (so called "NCCs"--New Common Carriers) for network access. In fiscal
year 1997, the increase in operating revenues was caused mainly by growth in
revenues from cellular telephone services and digital-related demand. Operating
income increased 6.6% for the six-month period ended September 30, 1998 and
13.3% in fiscal year 1998, following an increase of 10.5% in fiscal year 1997.
NTT recorded a net loss of (Yen)173 billion for the six-month period ended
September 30, 1998, primarily as a result of the (Yen)462 billion extraordinary
non-cash after-tax charge reflecting the discontinuance of the application of
the provisions of SFAS 71 for all of its operations. Excluding this
extraordinary one-time item, net income increased 48.1% to (Yen)290 billion.
Net income declined 14.7% in fiscal year 1998 and declined 8.1% in fiscal year
1997.
18
<PAGE>
Because the services of NTT and its subsidiaries are integrated, it is not
practical to segregate and quantify the effects of factors related to sales
volume and factors related to price on operating revenues in a wholly
meaningful fashion. NTT and its subsidiaries have achieved significant cost
reductions since incorporation and have recorded increased revenues despite
substantial rate reductions.
Rate reductions are affecting revenues from the long distance and leased
circuit services of NTT and its subsidiaries. In addition, downward revisions
to interconnection rates charged to NCCs for accessing the network of NTT and
its subsidiaries have had an adverse impact on interconnection revenues.
NTT has implemented the following rate reductions for long distance services
for the periods indicated below:
<TABLE>
<CAPTION>
ESTIMATED ANNUAL IMPACT
ON NTT'S REVENUE BASED
ON THE VOLUME OF SERVICES
FISCAL YEAR(1) EFFECTIVE DATE AT THE EFFECTIVE DATE
-------------- -------------- -------------------------
(BILLIONS OF YEN)
<S> <C> <C>
1994................................ October 1993 (Yen)270
1996................................ March 1996 60
1997................................ February 1997 60
1998................................ February 1998 80
</TABLE>
- --------
(1) There were no rate reductions during fiscal year 1995.
As the effective dates have not coincided with the beginning of fiscal years,
the estimated impact does not fully correspond with the impact for the fiscal
years in which the changes went into effect. In addition, demand is affected by
such factors as the marketing strategies of competitors and general economic
conditions.
NTT increased the rate it charges for its directory assistance services in
February 1995 and October 1995. NTT also increased rates for public telephone
call charges in fiscal years 1994 and 1995. These factors had the effect of
increasing revenues approximately (Yen)100 billion per 12-month period. In
February 1995, NTT increased its monthly charge for basic exchange lines. This
factor had the effect of increasing revenues approximately (Yen)190 billion per
12-month period. NTT applied for a further revision of its directory assistance
services charges to MPT in December 1997. This revision was partially
implemented in May 1998 following the approval of MPT and will be further
implemented in May 1999. This revision is expected to have the effect of
increasing NTT's revenues by (Yen)15 billion per 12-month period.
The following table sets forth a breakdown by category of operating revenues
for NTT and its subsidiaries for the six-month periods ended September 30, 1997
and 1998.
<TABLE>
<CAPTION>
PERCENT INCREASE
SIX MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ----------------
1997 1998 1998
---------- ---------- ----------------
(BILLIONS)
<S> <C> <C> <C>
Operating Revenues
Telephone............................... (Yen)3,157 (Yen)3,162 0.1%
Telegraph............................... 45 41 (8.6)
Leased circuit.......................... 237 251 5.6
Data communication facility............. 184 187 1.9
ISDN.................................... 157 248 58.4
Sale of telecommunications equipment.... 447 460 3.0
Other(1)................................ 410 363 (11.6)
---------- ----------
Total................................. (Yen)4,637 (Yen)4,712 1.6%
========== ==========
</TABLE>
- --------
(1) Revenues attributable to other services consist of revenues attributable to
miscellaneous services minus revenues attributable to ISDN services.
19
<PAGE>
The following table sets forth a breakdown by category of the operating
revenues for NTT and its subsidiaries for fiscal years 1996, 1997 and 1998.
<TABLE>
<CAPTION>
PERCENT INCREASE
YEARS ENDED
YEARS ENDED MARCH 31, MARCH 31,
-------------------------------------- ------------------
1996 1997 1998 1998 1997 1998
---------- ---------- ---------- ----- -------- --------
(BILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues
Telephone............... (Yen)5,558 (Yen)6,038 (Yen)6,306 $46.7 8.6% 4.4%
Telegraph............... 97 99 92 0.7 2.0 (6.6)
Leased circuit.......... 393 429 488 3.6 9.0 13.9
Data communication
facility............... 301 338 373 2.8 12.1 10.3
ISDN.................... 127 190 368 2.7 50.0 93.2
Sale of
telecommunication
equipment.............. 606 890 970 7.2 46.8 9.0
Other(1)................ 827 838 853 6.3 1.4 1.8
---------- ---------- ---------- -----
Total................. (Yen)7,909 (Yen)8,822 (Yen)9,450 $70.0 11.5% 7.1%
========== ========== ========== =====
</TABLE>
- --------
(1) Revenues attributable to other services consist of revenues attributable to
miscellaneous services minus revenues attributable to ISDN services.
SIX-MONTH PERIOD ENDED SEPTEMBER 30, 1998 COMPARED WITH SIX-MONTH PERIOD ENDED
SEPTEMBER 30, 1997
OPERATING REVENUES
The operating revenues for NTT and its subsidiaries are divided into the
following seven service categories: telephone services, telegraph services,
leased circuit services, data communication facility services, ISDN services,
sale of telecommunication equipment and other services.
NTT and its subsidiaries believe that competition in the telecommunications
markets has changed from competition based primarily on price to competition
based on the quality and variety of services provided. To compete more
effectively, NTT and its subsidiaries have introduced a range of new services,
including discount services designed to provide optional calling plans to
different customer segments and value-added services. In addition, NTT and its
subsidiaries have continued to take steps to enhance operational efficiency and
improve customer service.
Although other factors also contributed to the decrease in the rate of growth
of operating revenues, continued sluggishness in the Japanese economy continued
to have a negative impact on the rate of growth in operating revenues for the
six-month period ended September 30, 1998. Operating revenues for the six-month
period ended September 30, 1998 increased 1.6% to (Yen)4,711,694 million from
(Yen)4,637,146 million for the six-month period ended September 30, 1997.
TELEPHONE SERVICES
Operating revenues from telephone services increased 0.1% in the six-month
period ended September 30, 1998 to (Yen)3,162 billion, accounting for 67.1% of
operating revenues. NTT's telephone services consist of telephone subscriber,
cellular telephone, PHS, public telephone and other services. Demand for
cellular telephone services supported the increase.
Telephone Subscriber Services
Owing to an increase in sales of ISDN services, the number of subscriber
lines in use decreased 1.56 million from September 30, 1997 to 59.46 million
subscriber lines at September 30, 1998.
20
<PAGE>
Although the six-month period ended September 30, 1998 represented a
continuation of the decrease in the total number of subscriber lines from the
end of fiscal year 1998, management believes that the majority of lost
subscriber lines represent customers switching from analog subscriber lines to
ISDN lines.
In February 1998, NTT reduced the rate for daytime calls over 100 kilometers
from (Yen)110 to (Yen)90 for a three-minute call. This rate reduction had a
negative impact on operating revenues during the six-month period ended
September 30, 1998 of approximately (Yen)40 billion.
NTT applied for a further revision of its directory assistance service
charges to MPT in December 1997. This revision was partially implemented in May
1998 following the approval of MPT and will be further implemented in May 1999.
This revision is expected to have the effect of increasing NTT's revenues by
(Yen)15 billion per 12-month period.
Cellular Telephone Services
In the six-month period ended September 30, 1998, the market for cellular
telephone services continued to expand and total cellular telephone subscribers
in Japan reached 36.5 million at September 30, 1998, representing 40.1% growth
since September 30, 1997. The number of NTT DoCoMo's subscribers reached
approximately 20.8 million at September 30, 1998, a 44.2% increase from
September 30, 1997. In the six-month period ended September 30, 1998, NTT
DoCoMo's cellular telephone traffic continued to grow in terms of number of
calls as well as hours of use, reflecting the expansion of its market.
PHS Services
Initially, PHS services grew rapidly by providing inexpensive services with
small and lightweight terminals. In September 1997, the number of subscribers
reached seven million. Since October 1997, however, the number of customers has
steadily fallen. NTT has decided to transfer its PHS businesses to NTT DoCoMo
and its subsidiaries. See "Recent Developments--PHS Services."
TELEGRAPH SERVICES
Operating revenues from telegraph services declined 8.6% in the six-month
period ended September 30, 1998 to (Yen)41 billion, accounting for 0.9% of
operating revenues. This revenue category includes both telegram and telex
services.
The number of telegrams sent declined 5.3% to 17.1 million telegrams.
Telegrams sent for weddings and condolences continued to decline during the
period.
In telex services, the number of subscribers continued to decline during the
six-month period ended September 30, 1998, reflecting the ongoing shift toward
the use of facsimile machines, e-mail and other alternative means of
communication.
LEASED CIRCUIT SERVICES
Operating revenues from leased circuit services grew 5.6% in the six-month
period ended September 30, 1998 to (Yen)251 billion, accounting for 5.3% of
operating revenues. Strong demand for high-speed digital leased circuit
services was driven by the trend toward rapid, digital telecommunications
networks and LAN/WAN construction in the corporate sector. Sales growth was
supported by "Digital Access 64," a low-cost service with simplified functions,
and "Digital Access 128."
The number of high-speed digital circuits grew 38.9% from 140,000 as of
September 30, 1997 to 195,000 at September 30, 1998, and the number of
conventional leased circuits decreased 7.9% to 866,000 as customers switched to
high-speed communications services.
21
<PAGE>
In an effort to rebalance its rate structure in its leased circuit services,
NTT implemented tariff revisions for the services. Revisions took effect in
September 1995, April 1996, April 1997 and April 1998. These revisions are
estimated by NTT to have the effect of decreasing NTT's revenues by (Yen)42
billion per 12-month period.
In the six-month period ended September 30, 1998, NTT introduced low-cost
services with simplified functions such as "Digital Access 1500" for
communication within 30 kilometers and "Digital Reach" for communication over
30 kilometers.
DATA COMMUNICATION FACILITY SERVICES
Operating revenues from data communication facility services increased 1.9%
in the six-month period ended September 30, 1998 to (Yen)187 billion,
accounting for 4.0% of operating revenues.
INTEGRATED SERVICES DIGITAL NETWORK (ISDN)
Operating revenues for ISDN services increased 58.4% in the six-month period
ended September 30, 1998 to (Yen)248 billion. Growth in ISDN services was
driven by strong demand in the corporate sector and the growing penetration of
Internet services in homes. NTT's ISDN services comprise INS-Net 64 and INS-Net
1500.
In June 1998, NTT introduced "INS Area Plus," which allows customers to make
calls extending to adjacent areas, or up to 20 kilometers, at a cost of (Yen)10
in the daytime for three minutes and (Yen)10 for four minutes during late night
hours and early morning by paying a fixed monthly fee.
The number of INS-Net 64 (64 kilobit per second) subscribers at September 30,
1998 was 3.0 million, an increase of 86.2% compared to September 30, 1997, and
the number of INS-Net 1500 subscribers grew 40.3% to 39,000 due to the strong
demand for Internet access.
SALE OF TELECOMMUNICATION EQUIPMENT
Operating revenues from sales of telecommunication equipment grew 3.0% in the
six-month period ended September 30, 1998 to (Yen)460 billion, or 9.8% of
operating revenues. An increase in the sales of cellular telephone terminals
was the primary factor contributing to this growth.
OTHER SERVICES
Operating revenues from other services fell 11.6% in the six-month period
ended September 30, 1998 to (Yen)363 billion, accounting for 7.7% of operating
revenues. Other services provided by NTT and its subsidiaries include digital
data exchange, facsimile network (F-Net), pocket pager, Open Computer Network
(OCN) services and system development services.
OCN
NTT's OCN subscribers increased to 298,000 at September 30, 1998, a 322.6%
increase from the six-month period ended September 30, 1997. Management
attributes this increase to the strong demand for Internet services. NTT
recently added "Super OCN" to its OCN service. Super OCN is a secure, high
quality service designed for high-traffic Internet users such as universities
and corporations.
OPERATING EXPENSES
Operating expenses increased 0.9% during the six-month period ended September
30, 1998 to (Yen)4,119 billion. Personnel costs were (Yen)1,104 billion, a
decrease of 4.8% from the six-month period ended September 30, 1997.
Depreciation, amortization and maintenance costs increased 3.4% in the six-
month period ended September 30, 1998 to (Yen)1,542 billion. Of this amount,
depreciation and amortization was (Yen)1,074 billion, an increase of 1.8%.
Increases in depreciation at NTT DoCoMo and its subsidiaries, reflecting
aggressive capital investment to meet strong demand, exceeded declines in
depreciation recorded by NTT.
22
<PAGE>
Other operating expenses for the six-month period ended September 30, 1998
were (Yen)1,473 billion, an increase of 3.0% due to such factors as growth in
agency commissions and expenses for terminal equipment as a result of high
subscriber growth at NTT DoCoMo and its subsidiaries.
As a result of the above factors, operating income increased (Yen)37 billion,
or 6.6%, to (Yen)593 billion.
NET INCOME
NTT recorded a net loss of (Yen)173 billion for the six-month period ended
September 30, 1998 primarily as a result of the (Yen)462 billion extraordinary
non-cash after-tax charge reflecting the discontinuance of accounting for its
operations in accordance with the provisions of SFAS 71. Excluding this
extraordinary one-time item, net income increased 48.1% to (Yen)290 billion as
a result of the factors described above. Net income was positively affected by
such factors as the sale of shares of NTT DATA in May 1998, which reduced NTT's
stake from 60.1% to 54.2% and resulted in a pre-tax gain of (Yen)69 billion.
FISCAL YEAR 1998 COMPARED WITH FISCAL YEAR 1997
OPERATING REVENUES
TELEPHONE SERVICES
Operating revenues from telephone services increased 4.4% in fiscal year 1998
to (Yen)6,306 billion, or 66.7% of operating revenues. Telephone services
consist of telephone subscriber, cellular telephone, PHS, public telephone and
other services. Growth during fiscal year 1998 was supported by a sharp rise in
cellular telephone subscribers, offsetting a decline in fixed-line telephone
subscribers amid a mature market and a shift to such services as NTT's INS-Net
services.
Telephone Subscriber Services
Owing to an increase in sales of INS-Net services and cellular telephones,
the number of subscriber lines in use decreased 1.04 million from the previous
fiscal year to 60.19 million subscriber lines at fiscal year-end. Although the
fiscal year marked the first time that the total number of subscriber lines at
the end of a fiscal year has decreased from the previous year, management
believes that the majority of lost subscriber lines represent customers
switching from analog subscriber lines to ISDN lines, which are accounted for
under "other services."
In fiscal year 1998, NTT's end-to-end telephone traffic decreased from the
previous year in terms of number of calls as well as hours of use. Management
attributes the decrease in network traffic to declines in telephone subscribers
and the sluggish Japanese economy. The number of calls and hours of use
decreased slightly when combined with ISDN.
In February 1998, NTT reduced the rate for daytime calls over 100 kilometers
from (Yen)110 to (Yen)90 for a three-minute call. This rate reduction had a
negative impact on operating revenues during fiscal year 1998 of approximately
(Yen)80 billion.
NTT applied for a further revision of its directory assistance service
charges to MPT in December 1997. This revision was partially implemented in May
1998 following the approval of MPT and will be further implemented in May 1999.
This revision is expected to have the effect of increasing NTT's revenues by
(Yen)15 billion per 12-month period.
The interconnection of local switches with local and long-distance carriers
began during fiscal year 1996 through NTT's Group Centers (GCs, or local
switching offices), bringing direct competition to the local call market. NTT
responded with two competitive new discounted services, "Area Plus" and "Time
Plus" during fiscal year 1998.
Interconnection charges were reduced further in March 1998 applicable to
calls made from April 1997. The adverse impact on interconnection charge
revenues during fiscal year 1998 was approximately (Yen)62 billion.
23
<PAGE>
Cellular Telephone Services
In fiscal year 1998, the market for cellular telephone services continued to
expand and total cellular telephone subscribers in Japan reached 31.5 million,
recording year-on-year growth of 51.1%. The number of subscribers to NTT DoCoMo
and its subsidiaries reached nearly 18.0 million at March 31, 1998, a 64.1%
increase from the previous fiscal year. In fiscal year 1998, cellular telephone
traffic for NTT DoCoMo and its subsidiaries continued to grow from the previous
year in terms of number of calls as well as hours of use reflecting the
expansion of its market.
PHS Services
Since October 1997, the number of customers has steadily fallen. NTT has
decided to transfer its PHS businesses to NTT DoCoMo and its subsidiaries. See
"Recent Developments--PHS Services."
TELEGRAPH SERVICES
Operating revenues from telegraph services declined 6.6% in fiscal year 1998
to (Yen)92 billion, accounting for 1.0% of operating revenues.
The number of telegrams sent declined 6.6% to 37.6 million telegrams, as
efforts to improve customer service, including the introduction of "D-MAIL," a
telegram service that makes use of the Internet, were unable to offset a
decline of 8.1% in telegrams for weddings and condolences to 33.6 million
telegrams. Kanji telegrams (Chinese character telegrams) accounted for
approximately 90% of all telegrams sent during the term.
In telex services, the number of subscribers continued to decline during the
fiscal year, reflecting the ongoing shift toward the use of facsimile machines,
e-mail and other alternative means of communication.
LEASED CIRCUIT SERVICES
Operating revenues from leased circuit services grew 13.9% in fiscal year
1998 to (Yen)488 billion, accounting for 5.2% of operating revenues. Strong
demand for high-speed digital leased circuit services was driven by the trend
toward rapid, digital telecommunications networks and LAN/WAN construction in
the corporate sector. Sales growth was supported by "Digital Access 64," a low-
cost service with simplified functions, and "Digital Access 128," a new service
launched during the fiscal year.
The number of high-speed digital circuits climbed 57.5% to 169,000. However,
the number of conventional leased circuits decreased 6.7% to 902,000 as
customers switched to high-speed communications services.
In an effort to rebalance its rate structure in its leased circuit services,
NTT implemented tariff revisions for the services. Revisions took effect in
September 1995, April 1996, April 1997 and April 1998. These revisions are
estimated by NTT to have the effect of decreasing NTT's revenues by (Yen)42
billion per 12-month period.
DATA COMMUNICATION FACILITY SERVICES
Operating revenues from data communication facility services rose 10.3% in
fiscal 1998 to (Yen)373 billion, or 3.9% of operating revenues. During the
fiscal year, corporations, national and local governments, and financial
institutions continued to increase steadily their use of data communications
services. In addition to growing revenues from previously established systems,
services launched during the second-half of fiscal year 1997 and the beginning
of fiscal year 1998 contributed to revenue growth. NTT and its subsidiaries
also prioritized the marketing of such services as "STAR-ACE," a multi-shared
banking system for regional financial institutions and "SCAW Design Series,"
which handles core fields of corporate operations such as finance and
production, as important strategic products.
24
<PAGE>
INTEGRATED SERVICES DIGITAL NETWORK (ISDN)
Operating revenues from ISDN increased 93.2% in fiscal year 1998 to (Yen)368
billion, or 3.9% of operating revenues. Growth in ISDN services was driven by
strong demand in the corporate sector and the growing penetration of Internet
services in the home. NTT's ISDN services comprise INS-Net 64 and INS-Net 1500.
In July 1997, NTT launched "INS-Net 64 Light" which makes ISDN more
accessible to consumers by allowing installation expenses to be included in
monthly charges, eliminating up-front financial outlays. "Phoenix mini,"
another new service, leverages the benefits of INS-Net to offer low-cost video
telephone services affordable to general consumers.
As a result of the above factors, the number of INS-Net 64 subscribers
climbed 120.4% to 2.29 million, and the number of INS-Net 1500 subscribers rose
55.9% to approximately 33,600. ISDN traffic also recorded strong growth. Robust
growth in the number of ISDN circuits, combined with higher basic service
charges, offset declines in conventional telephone service revenues.
SALE OF TELECOMMUNICATION EQUIPMENT
Operating revenues from the sale of telecommunication equipment increased
9.0% in fiscal year 1998 to (Yen)970 billion, which was 10.3% of operating
revenues. Sales of stand-alone telephones and other products to consumers were
sluggish, and sales of PHS terminals declined 8.5% as a result of competition
from cellular telephones. However, sales of equipment to support LAN and ISDN
services were strong, and sales of cellular telephone terminals rose 12.4%,
reflecting robust subscriber growth and the introduction of attractive new
models.
OTHER SERVICES
Operating revenues from other services (miscellaneous) increased 1.8% in
fiscal year 1998 to (Yen)853 billion, or 9.0% of operating revenues.
OCN
Amid dramatic growth in computer communications such as the Internet and
connections between corporate LANs, the number of NTT's OCN subscribers
increased to 158,700 at fiscal year-end. During fiscal year 1998, NTT added
service menus to fulfill customers' diversifying requirements, such as "OCN
Standard" and "OCN Enterprise," new dedicated access services, and "OCN Dial
Access Light," a dial-up access with a new rate plan. NTT also expanded service
areas in accordance with demand and provided a greater range of value-added
services.
OPERATING EXPENSES
Operating expenses increased 6.5% in fiscal year 1998 to (Yen)8,578 billion.
Personnel expenses were (Yen)2,346 billion, an increase of 3.5%. Although the
total number of employees at the end of fiscal year 1998 was 226,000, a decline
of 4,000 compared with the end of fiscal year 1997, an increase in employees'
salaries and severance-related expenses led to higher personnel expenses.
Depreciation, amortization and maintenance costs increased (Yen)186 billion
to (Yen)3,185 billion. Depreciation recorded by NTT declined, despite increases
in depreciable assets related to digitizing NTT's network and investment in
facilities for providing ISDN services, as a result of lower depreciation of
metal cables following progress in converting to an optical access network.
However, increases in depreciation at NTT DoCoMo and its subsidiaries,
reflecting aggressive capital investment to meet strong demand, exceeded
declines at NTT.
Other operating expenses increased (Yen)260 billion to (Yen)3,047 billion,
due to such factors as growth in agency commissions and expenses for terminal
equipment as a result of high subscriber growth at NTT DoCoMo and its
subsidiaries.
25
<PAGE>
As a result of the above factors, operating income increased (Yen)103
billion, or 13.3%, to (Yen)872 billion.
NET INCOME
Income tax increased as a result of the establishment of a valuation
allowance related to deferred tax assets. Management took this step in
recognition that the operating loss carryforwards for tax purposes of NTT
Personal Group would not likely be realized given continued losses associated
with PHS businesses. This and other factors offset growth in operating income.
Consequently, net income fell 14.7% to (Yen)214.5 billion.
FISCAL YEAR 1997 COMPARED WITH FISCAL YEAR 1996
OPERATING REVENUES
TELEPHONE SERVICES
Operating revenues from telephone services increased 8.6% in fiscal year 1997
to (Yen)6,038 billion, accounting for 68.4% of operating revenues. Operating
revenues from cellular telephone services continued to record strong growth.
The number of cellular telephone subscribers as of fiscal year-end grew 122.0%
to approximately 11.0 million. Growth in cellular telephone service revenues on
NTT and its subsidiaries' network offset the adverse impact of the following
rate reductions. The rates on long distance, daytime calls over 160 kilometers
were reduced from (Yen)180 to (Yen)140 per three-minute call in March 1996 and
daytime calls over 100 kilometers were reduced from (Yen)140 to (Yen)110 in
February 1997. These reductions had an adverse impact on operating revenues of
approximately (Yen)120 billion. Interconnection charges were reduced, effective
April 1996 for long distance and PHS, NCCs and effective December 1996 for
cellular NCCs. In fiscal year 1997, the adverse impact on access revenues,
which NTT receives from long distance, cellular, PHS, international and local
NCCs, was approximately (Yen)101 billion.
TELEGRAPH SERVICES
Operating revenues from telegraph services grew 2.0% in fiscal year 1997 to
(Yen)99 billion, or 1.1% of operating revenues. Although the number of
telegrams sent declined 2.9% to 40,198 thousand telegrams, growth in such value
added services as kanji telegrams (Chinese character telegrams) resulted in an
increase in the average price per telegram sent. Kanji telegrams accounted for
approximately 91% of all telegrams sent during the term.
LEASED CIRCUIT SERVICES
Operating revenues from leased circuit services in fiscal year 1997 were
(Yen)429 billion, accounting for 4.9% of operating revenues. These revenues
increased 9.0% as compared with fiscal 1996, despite a rate reduction in
September 1995, which had an adverse impact of approximately (Yen)15 billion in
fiscal year 1997. The number of high-speed digital circuits grew 87.5% to
107,000 at the end of fiscal year 1997, and the number of conventional leased
circuits decreased 3.4% to 967,000.
DATA COMMUNICATION FACILITY SERVICES
Operating revenues from data communication facility services increased 12.1%
in fiscal year 1997 to (Yen)338 billion, accounting for 3.8% of operating
revenues. Strong demand was recorded from national and local governments and
financial institutions. Growth in operating revenues from data communication
facility services was also due in part to positive result from NTT DATA's
aggressive marketing of the strategically important product "STAR-ACE," a
shared system for regional banks.
INTEGRATED SERVICES DIGITAL NETWORK (ISDN)
Operating revenues from ISDN increased 50.0% in fiscal year 1997 to (Yen)190
billion, accounting for 2.2% of operating revenues.
26
<PAGE>
The number of INS-Net 64 (64 kilobits per second) lines at the end of the
fiscal year was 1,037,000, an increase of 103.3% from a year earlier, and the
number of INS-Net 1500 lines grew 111.2% to 22,000 lines.
SALE OF TELECOMMUNICATION EQUIPMENT
Operating revenues from sale of telecommunication equipment grew 46.8% in
fiscal year 1997 to (Yen)890 billion, or 10.1% of operating revenues. Growth
was supported primarily by the sale of cellular telephone equipment and
telephone systems for corporate use.
OTHER SERVICES
Operating revenues from other services (miscellaneous) rose 1.4% in fiscal
year 1997 to (Yen)838 billion, accounting for 9.5% of operating revenues.
OPERATING EXPENSES
Operating expenses increased 11.6% during fiscal year 1997 to (Yen)8,052
billion. Personnel costs were (Yen)2,267 billion, a decrease of 0.8% from
fiscal year 1996. The total number of employees at the end of fiscal year 1997
was 230,000, compared with 231,000 a year earlier. This decrease offset an
average 2.8% increase in employee salaries. The number of employees of NTT at
the end of fiscal year 1997 was 182,000, accounting for 79.1% of the total
workforce of 230,000. Since its privatization in 1985, NTT has striven to
increase its operational efficiency through such efforts as rationalizing
companywide business processes and eliminating sales offices. NTT has also been
restructured by reallocating human resources, scaling back hiring, and offering
voluntary retirement plans. As a result of these efforts, personnel reductions
of 3,000 NTT employees were achieved in fiscal year 1997.
Depreciation, amortization and maintenance costs increased 6.7% in fiscal
year 1997 to (Yen)2,999 billion. Of this amount, depreciation and amortization
was (Yen)2,093 billion, an increase of 9.6%. This increase reflected higher
investments made in recent periods to convert to optical access networks, for
ISDN circuits and for cellular telephone services. Maintenance costs in fiscal
year 1997 were (Yen)578 billion, an increase of 1.8%. Other operating expenses
for fiscal year 1997 were (Yen)2,787 billion, an increase of 31.6%. Expenses
related to the disposal of fixed assets were (Yen)327 billion, a decrease of
1.4%, and research and development expenses amounted (Yen)329 billion, an
increase of 3.3%.
As a result of the above factors, operating income increased 10.5% to
(Yen)769 billion.
NET INCOME
Other expenses grew 72.0% in fiscal year 1997 to (Yen)260 billion. Interest
and amortization of bond discounts and issue costs totaled (Yen)254 billion, a
decrease of 5.3%. Income before income taxes was (Yen)510 billion, a decrease
of 6.5%, and net income was (Yen)251 billion, a decrease of 8.1%.
LIQUIDITY AND CAPITAL RESOURCES
SIX-MONTH PERIOD ENDED SEPTEMBER 30, 1998 COMPARED WITH SIX-MONTH PERIOD ENDED
SEPTEMBER 30, 1997
FINANCING
Net cash provided by operating activities was (Yen)1,184 billion in the six-
month period ended September 30, 1998, compared with (Yen)1,234 billion in the
six-month period ended September 30, 1997, a decrease of 4.0%. Net cash
provided by operating activities during the six-month period ended September
30, 1998 was not adequate to make payments for property, plant and equipment
and dividends. The shortfall was made up for by raising long-term debt. Net
cash used in investing activities was (Yen)1,184 billion, a decrease of
(Yen)353 billion from the six-month period ended September 30, 1997.
27
<PAGE>
Net cash used in financing activities for the six-month period ended
September 30, 1998 was (Yen)226 billion as compared with (Yen)7 billion for the
six-month period ended September 30, 1997. NTT has established a corporate goal
of controlling outstanding debt and realizing more efficient sources of funds
from both domestic and overseas markets.
Proceeds from the issuance of long-term debt for the six-month period ended
September 30, 1998 was (Yen)318 billion, compared with (Yen)510 billion for the
six-month period ended September 30, 1997. This debt included bond offerings in
Japanese yen.
CAPITAL RESOURCES
As of September 30, 1998, NTT and its subsidiaries had cash and cash
equivalents (investments with principal maturities of less than three months)
of (Yen)687 billion, compared with (Yen)511 billion at September 30, 1997. Cash
equivalents represent a temporary cash surplus to repay debts and for working
capital and capital investments. Accordingly, the balance of cash equivalents
will fluctuate year-by-year depending on particular funding and working capital
requirements. The ratio of interest-bearing debt (short-term borrowings and
long-term debt) to shareholders' equity increased to 113.1% at September 30,
1998, compared with 102.8% at September 30, 1997.
CAPITAL INVESTMENTS
Capital investments for property, plant and equipment and intangible assets,
computed on the basis of all cash investments and other considerations, during
the six-month period ended September 30, 1998 were (Yen)1,289 billion, compared
with (Yen)1,466 billion in the six-month period ended September 30, 1997.
FISCAL YEAR 1998 COMPARED WITH FISCAL YEAR 1997
FINANCING
Net cash provided by operating activities was (Yen)2,731 billion in fiscal
year 1998, compared with (Yen)2,651 billion in fiscal year 1997. Net cash
provided by operating activities during fiscal year 1998 was not sufficient to
make payments for property, plant and equipment and dividends. The shortfall
was made up for by raising long-term debt. Net cash used in investing
activities was (Yen)2,909 billion, an increase of (Yen)47 billion from fiscal
year 1997.
The high level of capital investment in fiscal year 1998 was used to
strengthen multimedia services capacity and enhance the quality of telephone
and non-telephone services, mainly through the installation of digital
switching exchanges and equipment and facilities necessary to establish a
nationwide fiber-optic network. On December 17, 1997, NTT's domestic
telecommunications network was completely digitized.
Net cash provided by financing activities for fiscal year 1998 was (Yen)270
billion, compared with (Yen)393 billion in fiscal year 1997.
Proceeds from the issuance of long-term debt in fiscal year 1998 was
(Yen)1,048 billion, compared with (Yen)1,137 billion in fiscal year 1997. This
debt included bond offerings in Japanese yen and U.S. dollars. For a further
description of NTT's debt, see Note 9 of the Notes to Consolidated Financial
Statements.
28
<PAGE>
CAPITAL RESOURCES
As of March 31, 1998, NTT and its subsidiaries had cash and cash equivalents
(investments with principal maturities of less than three months) of (Yen)913
billion, compared with (Yen)821 billion at March 31, 1997. The ratio of
interest bearing debt (short-term borrowings and long-term debt) to
shareholders' equity increased to 110.9% at March 31, 1998, compared with
104.8% at March 31, 1997.
CAPITAL INVESTMENTS
Capital investments for property, plant and equipment and intangible assets,
computed on the basis of all cash investments and other considerations, during
fiscal year 1998 were (Yen)2,962 billion, compared with (Yen)3,078 billion in
fiscal year 1997.
To meet more sophisticated, diverse and global needs of customers, the
majority of such investments were made to increase digitization, including the
installation of digital exchanges and optical fiber cables. Other areas of
investment included the promotion of research and development and the renewal
and improvement of existing facilities, such as telephone subscriber lines,
public telephones that use magnetic cards and leased circuit lines.
As of March 31, 1998, NTT and its subsidiaries had outstanding commitments
for the purchase of property, plant, equipment and other assets of
approximately (Yen)501 billion (U.S.$3,708 million).
FISCAL YEAR 1997 COMPARED WITH FISCAL YEAR 1996
FINANCING
Net cash provided by operating activities was (Yen)2,651 billion in fiscal
year 1997, compared with (Yen)2,307 billion in fiscal year 1996, an increase of
14.9%. Net cash provided by operating activities during fiscal year 1997 was
adequate to make payments for property, plant and equipment. Surplus cash from
operating activities and additional cash provided by the issuance of long-term
debt was used to pay dividends, invest in affiliates, acquire intangible fixed
assets and repay interest-bearing debt. Net cash used in investing activities
was (Yen)2,861 billion, an increase of (Yen)575 billion from fiscal year 1996.
The high level of capital investment was aimed at enhancing the quality of
telephone and non-telephone services, primarily through the installation of
digital switching exchanges, digital transmission lines, including fiber-optic
cables to private homes, and other equipment necessary to establish a
nationwide fiber-optic network.
Net cash provided by financing activities for fiscal year 1997 was (Yen)393
billion, compared with (Yen)36 billion in fiscal year 1996.
Since its privatization, NTT has made efforts, as an issuer, to improve the
efficiency of the bond market. As part of those efforts, NTT introduced the
fixed price re-offer method to the market in fiscal year 1992. NTT continues to
make efforts to improve the Japanese bond market and further reduce its
issuance costs.
In fiscal year 1997, long-term debt raised was (Yen)1,137 billion, compared
with (Yen)898 billion in fiscal year 1996. This debt included bond offerings in
Japanese yen, U.S. dollars and other currencies.
CAPITAL RESOURCES
As of March 31, 1997, NTT and its subsidiaries had cash and cash equivalents
(investments with principal maturities of less than three months) of (Yen)821
billion, compared with (Yen)639 billion at March 31, 1996. The ratio of
interest-bearing debt (short-term borrowings and long-term debt) to
shareholders' equity increased to 104.8% at March 31, 1997, compared with 96.0%
at March 31, 1996.
29
<PAGE>
CAPITAL INVESTMENTS
Capital investments for property, plant and equipment and intangible assets,
computed on the basis of all cash investments and other considerations, during
fiscal year 1997 were (Yen)3,078 billion, compared with (Yen)2,714 billion in
fiscal 1996.
To meet the more sophisticated, diverse and global needs of customers, the
majority of such investments were made to increase digitization, including the
installation of digital exchanges and fiber-optic cables, and to improve the
systematization for rationalizing NTT and its subsidiaries' business aimed at
reducing labor costs and increasing efficiency. Other areas of investment
included the necessary infrastructure for cellular and PHS services, the
promotion of research and development, and the renewal and improvement of
existing facilities, such as telephone subscriber lines, public telephones that
use magnetic cards and leased circuit lines.
As of March 31, 1997, NTT and its subsidiaries had outstanding commitments
for the purchase of property, plant, equipment and other assets of
approximately (Yen)451 billion.
30
<PAGE>
BUSINESS
NTT, together with its subsidiaries, is the largest provider of
telecommunications services in Japan. The nationwide telecommunications
services it provides fall into seven major classes: telephone services,
telegraph services, leased circuit services, data communication facility
services, ISDN services, sale of telecommunication equipment and other
services. Revenues from each of these classes over the six-month periods ended
September 30, 1997 and 1998 and the last fiscal three years are as follows:
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED
SEPTEMBER 30,
----------------------------------
1997 1998
---------------- ----------------
(BILLIONS OF YEN)
<S> <C> <C> <C> <C>
Operating Revenues
Telephone.................................. (Yen)3,157 68.1% (Yen)3,162 67.1%
Telegraph.................................. 45 1.0 41 0.9
Leased circuit............................. 237 5.1 251 5.3
Data communication facility................ 184 4.0 187 4.0
ISDN....................................... 157 3.4 248 5.2
Sale of telecommunications equipment....... 447 9.6 460 9.8
Other(1)................................... 410 8.8 363 7.7
---------- ----- ---------- -----
Total.................................. (Yen)4,637 100.0% (Yen)4,712 100.0%
========== ===== ========== =====
</TABLE>
- --------
(1) Revenues attributable to other services consist of revenues attributable to
miscellaneous services minus revenues attributable to ISDN services.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
----------------------------------------------------
1996 1997 1998
---------------- ---------------- ----------------
(BILLIONS OF YEN)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues
Telephone............... (Yen)5,558 70.3% (Yen)6,038 68.4% (Yen)6,306 66.7%
Telegraph............... 97 1.2 99 1.1 92 1.0
Leased circuit.......... 393 5.0 429 4.9 488 5.2
Data communication fa-
cility................. 301 3.8 338 3.8 373 3.9
ISDN.................... 127 1.6 190 2.2 368 3.9
Sale of telecommunica-
tion equipment......... 606 7.7 890 10.1 970 10.3
Other(1)................ 827 10.4 838 9.5 853 9.0
---------- ----- ---------- ----- ---------- -----
Total............... (Yen)7,909 100.0% (Yen)8,822 100.0% (Yen)9,450 100.0%
========== ===== ========== ===== ========== =====
</TABLE>
- --------
(1) Revenues attributable to other services consist of revenues attributable to
miscellaneous services minus revenues attributable to ISDN services.
NTT and its subsidiaries have experienced compound annual growth in operating
revenues of 10.3% during the last three fiscal years. For the fiscal year ended
March 31, 1998, NTT and its subsidiaries reported operating revenues of
(Yen)9,450 billion ($70,000 million), operating income of (Yen)872 billion
($6,460 million) and net income of (Yen)214 billion ($1,589 million).
NTT was established under the Nippon Telegraph and Telephone Corporation Law,
or NTT Law, and is responsible for providing nationwide telephone services and
for promoting research in telecommunications technologies and disseminating the
results of such research. NTT is subject to regulation of certain aspects of
its management under the NTT Law. NTT, together with other Type I Carriers
(defined as companies which provide telecommunications services through their
own network facilities), is regulated by MPT under the Telecom Business Law.
31
<PAGE>
COMPETITIVE STRENGTHS
NTT believes that the following are its principal competitive strengths:
DOMINANT MARKET POSITION
NTT, together with its subsidiaries, is the dominant telecommunication
services provider in each of its principal domestic telecommunication services
markets: local, long distance and wireless services. NTT's position in each of
these markets provides it with strong cash flow and a stable earnings base.
NTT's position in the local market allows it to collect access charge revenues
from other telecommunications operators which provide domestic long distance,
wireless and international telecommunications services.
LEADER IN MULTIMEDIA RELATED TECHNOLOGY AND OPTICAL FIBER
NTT, together with its subsidiaries, has recently invested heavily in
upgrading and modernizing its fixed-line and wireless networks. As a result,
the digitization of NTT's fixed-line telephone networks was completed in
December 1997. NTT's modern digital networks allow it to provide high-speed
data transmission and other services necessary to the development of
multimedia-related services such as Internet services, information services and
electronic commerce. NTT believes that with the introduction of leading-edge
optical fiber technology, NTT will continue to be in a position to provide
multimedia-related services to customers in a highly efficient and cost-
effective manner.
LARGEST BENEFICIARY OF INCREASING DEMAND FOR MULTIMEDIA
NTT, together with its subsidiaries, has experienced strong growth in
multimedia-related sales. With the rapidly expanding demand for Internet and
data-communication related services, NTT expects that multimedia sales will
become an increasingly important part of its business. NTT believes that its
modern networks and its investment in research and development have positioned
it to exploit opportunities for growth in this market, including through the
provision of services such as video conferencing, full motion video and mobile
computing.
CORE PERFORMING ASSETS--NTT DOCOMO AND NTT DATA
NTT DoCoMo, together with its subsidiaries, is the largest cellular services
provider in the world, with approximately 20.8 million subscribers and a market
share of approximately 57% in Japan, as of September 30, 1998. Japan is the
second largest cellular market in the world in terms of subscribers. During
fiscal year 1998, total cellular subscribers increased approximately 50.7% to
31.5 million as of March 31, 1998. The subscriber base and revenues of NTT
DoCoMo and its subsidiaries are expected to continue to grow in the near-to-
medium term, although it is not likely that they will continue to grow at
historical rates. NTT DoCoMo is also one of the world's leading companies in
the development of a third generation wireless technology known as W-CDMA,
which should allow the provision of a full range of sophisticated new services,
including full-motion wireless video and other mobile multimedia services such
as mobile computing, to NTT DoCoMo's subscribers.
NTT DATA is the leading provider of information systems and computer
networking in Japan. NTT DATA provides strategic planning, systems planning,
systems design and installation and systems maintenance and facilities
management to a wide range of governmental, financial and industrial clients.
NTT expects that NTT DATA will continue to grow as the government agencies,
financial institutions and leading corporations with which NTT DATA has strong
relationships continue to invest in information technology.
STRONG CONSOLIDATED FINANCIAL PERFORMANCE
NTT, together with its subsidiaries, has shown strong and stable growth in
consolidated operating revenue for the past five years with revenue of
(Yen)9.45 trillion for the fiscal year ended March 31, 1998. For the same
fiscal year, NTT's consolidated operating income was (Yen)872 billion and
Adjusted EBITDA was (Yen)3.32 trillion. Operating expense as a percentage of
operating revenue has dropped by 3.4% over the last five fiscal years as a
result of NTT's cost control strategy.
32
<PAGE>
STRATEGY
NTT's goal is to develop from a domestic provider of conventional
telecommunications services to an international provider of comprehensive
information and communications services. NTT expects that as communications
technology develops, communications service providers will be able to transmit
digitized information in a more efficient and cost-effective manner through
sophisticated optical fiber networks. As a result, NTT expects that there will
be increased demand for networks that provide value-added services, such as
Internet services and mobile computing. NTT also expects that there will be
increasing demand for platforms used on these networks, including electronic
commerce and Internet navigation, and information content carried through
these networks, including music, books and other media. NTT intends to take
advantage of these expected trends by expanding its business to include the
construction of value-added networks and the development of related platforms
and content. In connection with its goal of becoming an international
information and communications service provider, NTT also intends to bring its
business management practices, including competition strategy, research and
development strategy and financial management, in line with international
management standards.
NTT's business strategy focuses on strengthening the competitiveness of its
core business, developing its multimedia-related business and expanding its
international business.
STRENGTHEN COMPETITIVENESS OF CORE BUSINESS
NTT, together with its subsidiaries, plan to strengthen its competitiveness
in the local, long distance and wireless communications businesses by:
. Adopting a flexible and effective pricing strategy corresponding to
competitive conditions in the local and long distance markets
. Satisfying its customers' demands by promoting a shift from conventional
fixed lines to ISDN, a digital public telecommunications network through
which multiple services, such as voice, data, images and video, can be
provided to customers
. Promoting more profitable value-added services such as toll free
dialing, number display and voice-mail, which will result in added
convenience to customers
. Controlling operating costs, including reducing the total number of
employees through natural attrition at the local service business
. Shifting capital investment strategy from investment in infrastructure
to investment in demand-oriented customer service for fixed line
businesses
. Diversifying services and tariff structures for wireless communication
businesses
. Promoting to customers the strengths of the nationwide, high quality
digital wireless communication networks and further improving network
quality and efficiency
IMPROVE EFFICIENCY
NTT plans to improve efficiency by:
. Reducing high personnel costs associated with the current size and age
structure of its workforce through natural attrition, thus raising
operating revenue per employee and reducing personnel cost margin as a
percentage of operating revenue
. Focusing capital expenditures on demand-oriented customer services
instead of on infrastructure expansion to simplify network
infrastructure
. Reducing consolidated capital expenditure after completing the
digitization of its fixed-line network
33
<PAGE>
PROMOTE DEVELOPMENT OF MULTIMEDIA BUSINESS
NTT plans to promote the development of multimedia-related businesses by:
. Expanding into new areas in the multimedia business, such as
constructing value-added networks and developing related platforms and
content
. Using cost-effective technology to deploy optical fiber to telephone
poles near end-user's homes to provide multimedia-related services to
end-users in an efficient and cost-effective manner
. Promoting mobile computing using W-CDMA technology to provide customers
with increasingly sophisticated cellular services and full-scale mobile
multimedia services
. Promoting digital services which utilize NTT's digital switching network
and its subsidiaries' digital networks to improve transmission of data
to customers
. Taking advantage of synergies between group companies, including NTT
DoCoMo and NTT DATA
. Continuing comprehensive research and development activities
INCREASE COMMITMENT TO INTERNATIONAL BUSINESS
NTT plans to continue to expand its international businesses by:
. Participating in a comprehensive range of international
telecommunications services for multinational corporations under the
brand name "Arcstar"
. Investing in telecommunications carriers overseas, principally in Asia
. Establishing a leadership position in the development of W-CDMA
technology, which will enable the provision of international roaming
services and other mobile multimedia services to NTT DoCoMo's cellular
subscribers
34
<PAGE>
PRINCIPAL BUSINESS ACTIVITIES
The following table sets forth certain information concerning the principal
facilities and operations of NTT and its subsidiaries as of the dates
indicated.
<TABLE>
<CAPTION>
AS OF MARCH 31,
---------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Telephone services:
- -------------------
Telephone subscriber lines
(thousands).......................... 58,459 59,583 60,774 61,223 60,186
Cellular telephone subscribers
(thousands).......................... 1,322 2,206 4,936 10,960 17,984
PHS subscribers (thousands)........... -- -- 393 1,853 1,905
Public telephones (thousands)......... 820 801 799 794 777
Telegraph services:
- -------------------
Telegrams (thousands)................. 44,997 43,288 41,385 40,198 37,564
Telex subscribers (thousands)......... 20 18 15 12 10
Leased circuit services:
- ------------------------
Conventional circuits (thousands)..... 1,018 1,025 1,001 967 902
High-speed digital circuits
(thousands).......................... 20 31 57 107 169
Integrated Services Digital Network
(ISDN) services:
- -----------------------------------
ISDN subscribers:
INS-Net 64 (thousands).............. 235 337 510 1,037 2,286
INS-Net 1500 (thousands)............ 5 6 10 22 34
Other services:
- ---------------
Open Computer Network (OCN) services
(thousands).......................... -- -- -- 1 159
Digital data exchange (DDX) services:
Digital Data Exchange-Packet (DDX-
P)................................. 39,439 36,740 33,424 31,821 30,625
Digital Data Exchange-Telephone
Packet (DDX-TP).................... 370,833 410,739 432,457 444,788 446,522
Frame Relay (Super Relay FR)........ -- 28 565 3,942 15,701
Pocket pager subscribers (thousands).. 4,948 5,355 6,328 5,836 3,908
Facsimile network subscribers
(thousands).......................... 601 678 812 1,015 1,128
Employees (thousands)................. 248 235 231 230 226
</TABLE>
Telephone Services
NTT, together with its subsidiaries, is currently the largest provider of
telecommunications services in Japan. Revenues from telephone services were
66.7% of operating revenues in fiscal year 1998. Telephone services consist of
telephone subscriber, cellular telephone, PHS, public telephone and other
services.
Telephone Subscriber Services
Telephone subscriber service is NTT's principal business activity and NTT is
the principal provider of fixed-line telephone subscriber service in Japan. NTT
currently faces significant competition in the long distance market from each
of Japan Telecom, DDI Corporation, Teleway, TTNet and KDD. Owing to an increase
in sales of INS-Net services, the number of telephone subscriber lines in use
decreased 1.04 million from the end of fiscal year 1997 to 60.19 million
subscriber lines at the end of fiscal year 1998.
NTT believes that Japanese fixed-line penetration and utilization are low
when compared with the United States and other developed countries. NTT and its
subsidiaries are constantly trying to promote greater utilization of telephones
through marketing and through the promotion of telephone subscriber services
such as toll free dialing, caller I.D. and voice mail and other network
services. NTT also researches and develops new services that it believes will
satisfy customer needs.
35
<PAGE>
The following table sets forth NTT's end to end traffic for fixed telephone
and ISDN services:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------
NUMBER OF CALLS 1996 1997 1998
--------------- ------- ------- -------
(MILLION CALLS)
<S> <C> <C> <C>
Fixed line telephone................................. 78,201 79,891 73,668
ISDN (Voice mode).................................... 904 1,613 3,569
ISDN (Digital mode).................................. 758 1,277 2,152
------- ------- -------
Fixed line telephone and ISDN total.................. 79,864 82,781 79,389
======= ======= =======
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------
HOURS OF USE 1996 1997 1998
------------ ------- ------- -------
(MILLION HOURS)
<S> <C> <C> <C>
Fixed line telephone................................. 3,535 3,441 3,240
ISDN (Voice mode).................................... 29 56 122
ISDN (Digital mode).................................. 27 65 168
------- ------- -------
Fixed line telephone and ISDN total.................. 3,591 3,562 3,531
======= ======= =======
</TABLE>
Cellular Telephone Services
NTT's cellular telecommunications and paging businesses are conducted
throughout Japan by NTT's 67.1% owned subsidiary, NTT Mobile Communications
Network, Inc., or NTT DoCoMo, and its eight regional subsidiaries. NTT DoCoMo
and its subsidiaries are Japan's leading mobile telecommunications services
providers and are the largest cellular operators in the world as measured by
total number of cellular subscribers. The market for cellular telephone
services continued to expand, and total cellular telephone subscribers in Japan
reached 31.5 million in fiscal year 1998. The number of NTT DoCoMo subscribers
was approximately 20.8 million at September 30, 1998.
The following table sets forth information regarding subscribers and market
share of NTT DoCoMo and its subsidiaries:
<TABLE>
<CAPTION>
AS OF MARCH 31,
-----------------------------------
1994 1995 1996 1997 1998
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Cellular telephone subscribers
(thousands)............................. 1,322 2,206 4,936 10,960 17,984
Cellular subscribers on digital service
(thousands)............................. 6 380 2,556 9,445 17,706
Market share............................. 62.0% 50.9% 48.4% 52.5% 57.0%
</TABLE>
The following table sets forth information regarding NTT DoCoMo's cellular
telephone traffic:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Hours of use (millions).............................. 121 252 448
</TABLE>
PHS Services
PHS is a wireless telecommunication technology similar to cellular which uses
base stations which are smaller and easier to install than those used for
cellular services. In addition, when first introduced PHS service offered lower
tariffs, smaller and lighter handsets and longer battery life and higher data
transmission speeds than conventional cellular phones. However, as cellular
operators have regularly reduced rates and as cellular handsets have continued
to decrease in size and weight, the price and size advantages of PHS have grown
less significant.
Compared to traditional cellular services, PHS services are difficult to use
while mobile, have smaller coverage areas due to lower transmission power, have
limited network coverage and have higher dropped call rates.
36
<PAGE>
NTT's PHS services are provided by NTT Personal Group, which consists of NTT
Central Personal Communications Network Inc. and eight other subsidiaries.
Since October 1997, the number of NTT Personal Group's PHS customers has
steadily fallen. NTT has decided to transfer its PHS businesses to NTT DoCoMo
and its subsidiaries. See "Recent Developments--PHS Services."
The following table sets forth information regarding NTT Personal Group's
subscribers and its market share:
<TABLE>
<CAPTION>
AS OF MARCH 31,
------------------
1996 1997 1998
---- ----- -----
<S> <C> <C> <C>
PHS subscribers (thousands)............................... 393 1,853 1,905
Market share.............................................. 26.1% 30.7% 28.3%
</TABLE>
Telegraph Services
Under the Telecom Business Law, NTT has sole responsibility for domestic
telegram services. In telegram services, NTT has introduced new services, such
as "D-MAIL," a telegram service that makes use of the Internet. However, such
new services have not offset declines in the use of telegrams. In telex
services, the number of subscribers continued to decline during the fiscal
year, reflecting the ongoing shift toward the use of facsimile machines, e-mail
and other alternative means of communication.
Leased Circuit Services
NTT provides customized telephone and data transmission services to major
corporate customers that include high speed circuits that are modified to meet
the specific needs of the customer. As a result of the increase in corporate
use of information systems, sales of high-speed data transmission services,
especially economical 64-kilobit-per-second lines, have been strong.
ISDN Services
NTT provides Integrated Services Digital Network services, or ISDN services,
which facilitate high-speed access to the Internet. Due to strong demand in the
corporate sector and the growing penetration of Internet services in the home,
ISDN services, which are comprised of INS-Net 64 and INS-Net 1500, have
recorded strong growth.
Data Communication Facility Services
NTT, through its subsidiary NTT DATA, develops data communications systems
through the integration of computer hardware and software with
telecommunications networks. Data communications systems include: data
communications systems for individual clients, network data communications
systems to which multiple clients subscribe and ready-made or "packaged" data
communications systems used by many clients. NTT DATA has developed a broad-
based clientele in three sectors: the public administration sector, the
financial sector and the industrial sector. On May 12, 1998, NTT sold 27,500
shares of NTT DATA for (Yen)150 billion, which reduced NTT's stake from 60.1%
to 54.2% and resulted in a pre-tax gain of (Yen)69 billion.
Other Services
Other services provided by NTT and its subsidiaries include:
.digital data exchange services, providing reliable, high quality data
transmission networks;
.facsimile network services (F-Net);
.pocket pager services;
.system development services, which provide for the development, delivery
and sale of packaged data communications systems; and
.Open Computer Network (OCN) services.
.OCN services help computers communicate where there is no need for a
real-time response.
.Charges for OCN services are calculated based on flat rates and do not
depend on distance or duration of communications and therefore OCN
services provide customers with inexpensive connections to the
Internet and other networks.
37
<PAGE>
MULTIMEDIA
NTT and its subsidiaries have experienced strong growth in multimedia-related
revenues. NTT's multimedia business consists primarily of providing multimedia
telecommunications services, such as video conferencing, full motion video and
mobile computing.
The following table sets forth NTT's digital related service revenue:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------
1996 1997 1998
-------- -------- --------
(BILLIONS OF YEN)
<S> <C> <C> <C>
OCN.............................................. (Yen) -- (Yen) 0 (Yen) 6
Digital data exchange............................ 42 44 54
High-speed digital circuit....................... 89 128 192
ISDN............................................. 127 190 368
-------- -------- --------
Total.......................................... (Yen)258 (Yen)362 (Yen)620
======== ======== ========
</TABLE>
As part of its multimedia growth strategy, NTT completed the upgrade of its
network to digital technology in December 1997. The digital network of NTT
allows it to offer multimedia-related services such as ISDN, high-speed data
transmission services and frame-relay and cell-relay services.
NTT believes that deployment of fiber optic cables is important for the
future provision of multimedia-related services due to fiber optic cable's
superior data transmission capabilities. NTT plans to provide coverage of fiber
optic cables in the access network for approximately 100% of business areas by
2000 followed by a goal of 100% nationwide by 2010. NTT has recently developed
technology to reduce significantly the cost of installing fiber optic cables to
telephone poles nearby end users.
NTT believes that the deployment of fiber optic cables will allow it to offer
increasingly sophisticated services to its customers, though there are no
assurances as to the extent of demand for such services.
NTT believes that its modern networks and its investment in research and
development have positioned it to exploit opportunities for growth in the
multimedia market.
REORGANIZATION
In June 1997, the Diet passed amendments to the NTT Law implementing a plan
proposed by MPT, and accepted in principle by NTT, to reorganize NTT prior to
December 20, 1999. Under the amendments, NTT will become a holding company with
its regional and long distance businesses reorganized into three newly
established wholly-owned subsidiaries consisting of NTT East, NTT West and a
long distance telecommunications company. The amendments also allow NTT to
enter the international telecommunications business through subsidiaries prior
to the reorganization with approval of MPT. NTT began offering international
telecommunications services through a subsidiary on September 1, 1997. NTT's
international services are currently offered primarily through two
subsidiaries, NTT Worldwide Telecommunications Corporation, or NTT-WT, and NTT
Worldwide Network Corporation, or NTT-WN.
On December 4, 1997, pursuant to the amendments to the NTT Law, the Ministry
of Posts and Telecommunications announced the Basic Principles for the
reorganization. These Basic Principles set forth, among other things, certain
operational restrictions and requirements with which NTT will have to comply
upon the reorganization, including a requirement that the regional companies
shall have separate directors from the long distance company, the long distance
company may not procure equipment together with the holding company and the
regional companies, and the two regional companies deal on the same terms with
the long distance company as they would with other telecommunications
companies. NTT will, pursuant to the amendments to the NTT Law, prepare and
submit to MPT for approval "the Implementation Plans Concerning the Transfer of
the Business Activities and Succession of the Rights and Obligations of Nippon
Telegraph and
38
<PAGE>
Telephone Corporation" in accordance with the Basic Principles. Matters
concerning the transfer of business, which is the precondition of
reorganization, will be presented to shareholders at the ordinary general
meeting of shareholders in June 1999.
In connection with the reorganization, the amendments also provide, among
other things, for NTT East and NTT West to enter into an arrangement by which
NTT East may bear a portion of NTT West's expenses by payment of cash for the
fiscal years ending within three years after the incorporation of NTT East.
This arrangement will only be permitted if both NTT East and NTT West have the
same fiscal year end. This arrangement in any one fiscal year is also subject
to the requirements that NTT East must have earned a profit in such fiscal year
equal to or greater than the expenses it is proposing to share and the amount
of expenses to be shared must fall within a range provided by the Ministry of
Posts and Telecommunications. Under this arrangement, because NTT East will pay
a portion of NTT West's expenses if NTT East has profits and NTT West has
losses, taxable income of NTT East will be decreased by the amount of expenses
of NTT West paid by NTT East.
Because NTT will transfer a material portion of its business in the course of
the reorganization, shareholder approval is required under the Japanese
Commercial Code. The required vote for approval is two-thirds of the number of
shares present and voting at a shareholders meeting where a quorum of at least
a majority of all the outstanding shares is present. Pursuant to the amendments
to the NTT Law, NTT is currently preparing a plan to implement the
reorganization for each of the two regional companies and the long distance
company and intends to submit such plan to MPT for approval by May 1999.
As a holding company after the reorganization, NTT intends to establish a
clear group strategy, in addition to a focused business strategy and financial
targets for the NTT group as a whole and for each business unit in the group.
NTT believes that the reorganization will enable it to implement strategies to
allocate resources more efficiently and create other synergies within the
group. By clearly identifying the roles and responsibilities of the holding
company and each group member, NTT intends to establish a corporate culture
characterized by responsiveness, accountability and an emphasis on efficiency
and profitability. The reorganization will enable NTT to centralize basic
research and development efforts at the holding company level and share the
results of those efforts within the group.
INTERNATIONAL TELECOMMUNICATIONS BUSINESSES
NTT and its subsidiaries are actively involved in establishing carrier
businesses and infrastructure operations in Asia. Since 1992, NTT and its
subsidiaries have invested in and provided technological know-how to projects
in Thailand, the Philippines, Indonesia, Sri Lanka, Vietnam, Singapore and
Malaysia.
NTT provides international telecommunications services through its
subsidiaries, NTT-WT and NTT-WN. NTT-WT and NTT's overseas subsidiaries
launched global end-to-end services in September 1997 mainly for multinational
corporations, with a service area spanning major locations in the United
States, Europe and Asia. NTT-WT plans to expand the geographic coverage and the
range of value-added network services. In June 1998, NTT-WT and IBM Corporation
agreed to provide international data transmission network services. Also in
June 1998, NTT-WT and International Digital Communications Inc. ("IDC") agreed
that NTT-WT will resell IDC's volume discount international telephone services,
worldwide leased circuit and frame-relay services in addition to NTT-WT's
Arcstar-brand global telecommunications services. IDC will become an agent for
the sale of NTT-WT's domestic and international call discount resale services.
NTT-WT's Arcstar-brand global communications services were provided in 12
countries as of September 1998. The services are used by domestic and foreign
corporate customers. To expand the functions of these services, NTT formed a
strategic partnership by investing in Verio Inc., a U.S.-based Internet service
provider.
Starhub, a consortium formed by NTT, British Telecom and two local
corporations, won licenses from the Singaporean government to provide public
basic telecommunication services, both domestic and international, and public
cellular mobile telephone services, which are expected to start in April 2000.
In China, NTT
39
<PAGE>
established Beijing Telecom NTT Engineering Co., Ltd. with the Beijing Posts
and Telecommunications Administration and began to provide system-integration
services for customers mainly in the Beijing area.
In addition to the services provided by NTT-WT, NTT-WN provides, among other
services, facility-based international leased circuit services and
international telephone services. NTT-WN also participates in international
consortia for the construction and maintenance of the "China-U.S. Undersea
Fiber Optic Cable Network" and the "Japan-U.S. Cable Network." Both networks
will be world's largest-class submarine fiber-optic cables linking Japan and
other Pacific Rim countries.
COMPETITION
NTT and its subsidiaries face competition in virtually all aspects of their
business, including in the local, long distance and wireless markets. In
addition to current competitors, new entrants, including foreign
telecommunications companies, are expected to enter each of these markets in
the future.
Until recently, NTT faced little or no competition in the market for local
telecommunications services. NTT currently has one principal competitor in the
local market, Tokyo Telecommunications Network Co., Inc. ("TTNet"), which
operates in the Tokyo metropolitan area. At March 31, 1998, TTNet had 1.16
million subscribers. NTT believes that TTNet's entry into the local telephone
market will have the effect of increasing competition. NTT introduced two new
calling plans during fiscal year 1998 to compete more effectively. "Area Plus"
service allows customers to make three-minute calls extending to adjacent
areas, or up to 20 kilometers, at a cost of (Yen)10 in the daytime ((Yen)10 for
four minutes during late night hours and early morning) by paying a fixed
monthly fee. "Time Plus" service enables local calls to be made at a cost of
(Yen)10 for five minutes within their own local calling area ((Yen)10 for seven
minutes during late night hours and early morning) by similarly paying a fixed
monthly fee.
NTT currently faces significant competition in the long distance market from
each of Japan Telecom, DDI Corporation, Teleway, TTNet and KDD. In fiscal year
1998, the share of inter-prefecture calls between all prefectures in Japan for
NTT's fixed line telephone services dropped from 64.3% to 59.4%, while NTT's
share dropped from 66% to 63% when ISDN services are included. In February
1998, NTT reduced the rate for daytime calls over 100 kilometers to eliminate
price advantages held by competitors in the long distance market. This rate
reduction is estimated to reduce annual revenues by approximately (Yen)80
billion. See also "Regulatory Developments."
NTT DoCoMo and its subsidiaries' competitors in the cellular market are IDO,
DDI Cellular group, Tu-Ka group, Digital Tu-Ka group and Digital Phone group.
Despite intense competition, NTT DoCoMo and its subsidiaries had approximately
57% market share of cellular subscribers as of March 31, 1998. Intense
competition in the cellular market has led to rapid, substantial and sustained
decreases in the prices for handsets, monthly access fees and usage charges for
calls. Certain of the competitors of NTT DoCoMo and its subsidiaries offer
cellular services in a competing format, such as cdmaOne currently offered by
DDI and expected to be offered by IDO after April 1999.
NTT Personal Group's competitors in the PHS market are DDI Pocket group and
ASTEL group. DDI Pocket group is the leader among the three PHS group operators
with approximately 51.8% market share, NTT Personal Group has approximately
28.3% market share and ASTEL group has approximately 19.8% market share of PHS
subscribers as of March 31, 1998.
RESEARCH AND DEVELOPMENT
NTT believes that its investment in research and development is important to
allow it to develop new products and services and to remain competitive. For
the fiscal years ended March 31, 1998, 1997 and 1996, research and development
expenses amounted to (Yen)288.9 billion, (Yen)328.5 billion and (Yen)318.1
billion, or 3.1%, 3.7% and 4.0% of operating revenues, respectively. See Note
16 to "Notes to Consolidated Financial Statements--Research and development
expenses and advertising costs."
40
<PAGE>
NTT is currently engaged in research and development projects to develop
technology to lower the cost of installing fiber optic wires, to develop
standard protocols for high-speed access telecommunications systems, and to
improve the energy-efficiency of communications equipment. NTT and its
subsidiaries are also developing technology to facilitate Internet and
multimedia development, including systems to allow digital sound and visual
communications, to improve the protection of intellectual property rights for
digital materials, and to provide ultra-high speed transmission rates for
Internet, intranet and other high-volume applications. NTT DoCoMo and its
subsidiaries are developing W-CDMA in connection with International Mobile
Telecommunications--2000 ("IMT--2000"), a third-generation wireless
communication platform for the next century.
CAPITAL INVESTMENTS
NTT and its subsidiaries' capital investments for the preceding three fiscal
years are shown in the table below.
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
FOR THE YEARS ENDED MARCH 31, MARCH 31,
-------------------------------- -----------
1996 1997 1998 1998
---------- ---------- ---------- -----------
(BILLIONS OF YEN) (MILLIONS
OF DOLLARS)
<S> <C> <C> <C> <C>
Expansion and improvement of
services:
Telephone....................... (Yen)1,796 (Yen)1,856 (Yen)1,774 $13,141
Data communication facility..... 127 155 132 978
Other........................... 213 401 354 2,622
Research and development.......... 155 147 158 1,170
Construction, improvement and
renovation
of office building, etc.......... 423 519 544 4,030
---------- ---------- ---------- -------
Total........................... (Yen)2,714 (Yen)3,078 (Yen)2,962 $21,941
========== ========== ========== =======
</TABLE>
NTT and its subsidiaries continue to make large capital investments to meet
the demands for telecommunications services and for modernization programs. In
recent years, a substantial portion of capital investments has been used to
finance the installation of digital transmission and switching equipment
throughout NTT's telecommunications network. NTT completed full digitization of
subscriber terminal capacity in December 1997.
In fiscal year 1999, NTT and its subsidiaries expect to make capital
investments in an amount not significantly different from the levels of the
past three fiscal years. NTT plans to provide coverage of optical fiber cables
in the access network for approximately 100% of business areas by 2000 followed
by a goal of 100% nationwide by 2010. NTT developed "New Optical Access
System," which enables low-cost opticalization up to telephone poles near
customers, at a cost almost equivalent to metallic cable. This speeds the
deployment of optical fiber cables in the access network, bringing NTT and its
subsidiaries one step closer to the full introduction of high-speed broadband
networks.
PROCUREMENT
Neither NTT nor its subsidiaries have any manufacturing divisions and,
accordingly, they procure finished products from outside suppliers. Therefore,
NTT and its subsidiaries are continually seeking opportunities to develop
relationships with high-quality, cost-efficient suppliers from around the world
to strengthen its business operations in Japan's highly competitive
telecommunications market.
PRIVATIZATION
The total number of outstanding shares of NTT at the time of its
establishment was 15.6 million. Until October 1986, MOF owned 100% of the
outstanding shares of NTT. Between October 1986 and October 1988,
41
<PAGE>
MOF sold 5.4 million shares to a variety of individual and institutional
investors. As of September 30, 1998, as a result of a 1.02-to-1 stock split on
November 24, 1995, the number of outstanding shares amounted to 15,912,000 and
MOF owned 10,419,289.24 shares, representing 65.5% of the outstanding shares.
As of September 30, 1998, no other shareholder owned more than 10% of the
outstanding shares.
In December 1990, MOF announced its plan that out of the 5.0 million shares
then available for sale under the NTT Law, MOF would sell 2.5 million of such
shares at the rate of approximately 0.5 million shares per fiscal year (with
any shares remaining unsold to be sold in future years based on market
conditions), and retain the other 2.5 million shares for the time being. Prior
to the offering of the shares contemplated by this prospectus, no such sales
had been made as the Government concluded that market conditions would not
permit smooth absorption of the shares. The NTT Law requires that the
disposition of shares by MOF must be within the limits determined by the Diet
in the relevant annual budget. One million shares are permitted to be sold
under the budget for the fiscal year ending March 31, 1999. It is NTT's
understanding that at present the Government has not decided whether there will
be any changes in the plan announced in December of 1990 after the global
offering. In addition, it is NTT's understanding that at present the Government
has not determined the number of shares the sale of which will be permitted
under the annual budget to be submitted to the Diet for the fiscal year ending
March 31, 2000. The Government generally proposes its annual budget to the Diet
in January of each year. The fiscal year of the Government begins April 1.
RELATIONSHIP WITH GOVERNMENT
Prior to the global offering, the Government owned approximately 65.5%, and
after the global offering will own approximately 59%, of the outstanding shares
of NTT. For a description of the Government's ownership of shares of NTT, see
"Principal Shareholders and Selling Shareholder." The Government, acting
through MPT, also regulates the activities of NTT. See "Regulatory
Developments." In addition, the Government is one of the largest customers of
NTT and its subsidiaries. NTT and its subsidiaries transact business with
various departments and agencies of the Government as separate customers on an
arm's-length basis. The Government, in its capacity as shareholder, votes at
shareholder meetings of NTT and, by virtue of its position as a majority
shareholder, theoretically has the power to control most decisions taken at
such meetings, although the Government has not used this power to direct the
management of NTT. The Government also has the power to take certain actions
with respect to the networks of NTT and its subsidiaries in the interests of
national security and international relations.
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES
NTT is a limited liability, joint-stock company incorporated under the laws
of Japan. All of its directors and executive officers (and certain experts
named herein) reside in Japan. Substantially all of the assets of such persons
and of NTT are located outside the United States. It may not be possible,
therefore, for investors to effect service of process within the United States
upon NTT or such persons or to enforce against them judgments obtained in
United States courts predicated upon the civil liability provisions of the
federal securities laws of the United States. NTT has been advised by its
Japanese counsel, Tomotsune Kimura & Mitomi, that there is doubt as to the
enforceability in Japan, in original actions or in actions for enforcement of
judgments of United States courts, of liabilities predicated solely upon the
federal securities laws of the United States.
42
<PAGE>
REGULATORY DEVELOPMENTS
PRICING OF TELECOMMUNICATIONS SERVICES
In connection with measures introduced to promote further competition in the
telecommunications market, changes have been made to the regulations governing
the manner in which telecommunications service providers set prices for their
telecommunications services. In general and subject to certain exceptions,
notification to MPT is all that is required for a Type I Carrier to change the
prices it charges for its telecommunications services, such as long distance
services. However, changes in the prices charged for basic telephone services,
ISDN services and leased circuit services within prefectures are expected to be
subject to a price-cap system described below. Also, changes to prices charged
for interconnection with a Type I Carrier's network are subject to prior
approval by MPT as described below.
PRICE-CAP SYSTEM
In order to promote further competition in the telecommunications market, and
as part of the Government's overall policy toward deregulation, the Telecom
Business Law was revised in May 1998 and became effective as of November 1,
1998. For certain services to be provided by Type I Carriers, such as NTT, with
"designated telecommunications facilities" (defined as a facility providing a
percentage of telecommunications service in a region in excess of a percentage
designated by MPT) and specified in an ordinance of the Ministry of Posts and
Telecommunications, a price-cap system is to be introduced. The ordinance
stipulates that the price-cap system is applicable to basic telephone services,
ISDN services and leased circuit services provided within prefectures by a Type
I Carrier with such "designated telecommunications facilities." Certain of
NTT's facilities for its regional telecommunications services have been
designated as "designated telecommunications facilities" due to NTT's dominant
position in the local telecommunications market. It is expected that until the
reorganization, rates for regional telecommunications services provided by NTT
will continue to be subject to MPT approval, while rates for such services
provided by the regional companies after the reorganization will be subject to
the price cap system. Under the price cap system, an index will be annually
fixed by MPT. Only notification of MPT will be required for changes in rates
which do not exceed such index, while changes in excess of the index will
require the prior approval of MPT. It is currently expected that the index will
initially equal the Consumer Price Index in Japan less a productivity factor
and an exogenous factor.
INTERCONNECTION
The Telecom Business Law requires that every Type I Carrier, such as NTT,
must agree to the request of other telecommunications carriers to access its
network through interconnection, subject to certain limited exceptions. A Type
I Carrier maintaining a "designated telecommunications facility" is required to
submit each interconnection tariff and conditions of interconnection with MPT
for approval. Currently, NTT is the only Type I Carrier obligated to make such
submission. MPT will issue approval if the conditions are technically and
economically feasible, the interconnection charges for each function have been
specified by applicable ordinances of the Ministry of Posts and
Telecommunications, the charges are fair and impartial in view of the costs of
such services, the interconnection charges are not disadvantageous as compared
to the conditions the Type I Carrier would impose to connect its own
telecommunications facilities and there is no unfair discrimination against any
particular communications carrier. In January 1998, NTT submitted its
interconnection tariffs in connection with its "designated telecommunications
facilities," including, principally, its local exchanges, and such tariffs were
approved in March 1998.
In May 1998, the U.S. Government and the Japanese Government issued a status
report in which the Japanese Government expressed its intention to introduce
"Long-run Incremental Cost Methodology" for setting interconnection charges.
Long-run Incremental Cost Methodology would calculate interconnection
43
<PAGE>
charges based on costs assumed to be incurred for construction of the current
network with presently available equipment and technology. In the report issued
by the U.S. Government and the Japanese Government it was specifically stated
that:
. a bill to amend the Telecom Business law will be submitted to the
regular Diet Session in the spring of 2000 in order to implement Long-run
Incremental Cost Methodology as early as possible;
. due consideration will be paid to ensure that the implementation of
Long-run Incremental Cost Methodology would cause no disruption to the
provision of universal services and that it would not prove destructive to
end user rates and business operations of incumbent local exchange
carriers; and
. prior to the introduction of Long-run Incremental Cost Methodology
based charges, the Japanese Government will, within the scope of its
existing authority, promote the reduction of interconnection charges as
much as possible.
At this time, the ultimate results of the introduction of Long-run
Incremental Cost Methodology on the financial position and results of
operations of NTT and its subsidiaries cannot be determined. The condition upon
which access to networks, especially to local networks is offered, is of great
significance to the development of the Japanese telecommunications market.
UNIVERSAL SERVICES
In June 1998, the Ministry of Posts and Telecommunications released a report
concerning universal services, the provision of which is an obligation of NTT
under the NTT Law. The report concluded that certain telephone services are
indispensable to the national welfare and should be deemed "universal services"
that require proper and stable provision with equal conditions across the
country. In the report released by the Ministry of Posts and
Telecommunications, "universal services" would include basic telephone services
to customers throughout Japan. ISDN and wireless telephone services were
excluded from the scope of "universal services." At the present time, it is not
clear what obligations will be imposed on NTT and other Type I Carriers with
respect to the provision of "universal services;" however, the report places
emphasis on the establishment of a "Universal Services Fund." The report
proposed that, through contributions by telecommunications service providers to
the fund, providers of universal services such as NTT should be subsidized for
the costs incurred to provide such services. It was also proposed that
international and long distance telephone services should not be subsidized
since competition among telecommunications service providers has already led to
nationwide availability. The Ministry of Posts and Telecommunications is
currently reviewing the possibility of establishing the fund.
NUMBER PORTABILITY
The Ministry of Posts and Telecommunications is now having discussions on the
introduction of local number portability, which will enable subscribers to
change their telephone companies without changing their phone numbers.
PRESUBSCRIPTION
The Ministry of Posts and Telecommunications is currently considering the
introduction of "Presubscription" for domestic and international service.
Presubscription will enable telephone subscribers to use the telecommunications
service provider of their choice without dialing prefixes by prior selection of
and registration with such service provider. In November 1998, the Ministry of
Posts and Telecommunications announced that presubscription shall be introduced
in the spring of 2001.
44
<PAGE>
DIVIDENDS AND PRICE RANGE OF SHARES AND ADSS
The primary market for the common stock of NTT is the Tokyo Stock Exchange,
also referred to as the TSE. The common stock has been traded on the First
Section of that exchange since February 1987 and are also listed on all other
stock exchanges in Japan. Application will be made to list the shares offered
in the global offering on the First Section of the TSE.
TOKYO STOCK EXCHANGE
The TSE market is a continuous auction market where buy and sell orders
directly interact with one another. All orders, either limit or market, are
placed by member broker/dealer firms with the "Saitori" member who functions
solely as a middleman between these firms. The Saitori member maintains a
central order book for each of its "franchise" stocks allocated by the TSE and
matches orders in accordance with price priority and time precedence.
The TSE has been adopting the following measures to prevent certain short-
term price fluctuations.
Special Bid or Asked Quotes
When there is a major order imbalance, the TSE requires the Saitori member to
indicate a "special bid quote" or a "special asked quote," showing that there
exists a major imbalance between buy and sell orders. A special quote is
publicly disseminated through the market information system of the TSE,
enabling market participants to respond to the imbalance. If contraside orders
come into the market and equilibrium is established at the special quote, the
quote is withdrawn by the Saitori member. Conversely, when the imbalance
continues, the Saitori member renews the special quote, with the approval from
the TSE, upward or downward at an interval of every five minutes or more within
the variation set forth in the table below until equilibrium is established.
Daily price limits
In addition to special quotes, the TSE maintains daily price limits for
individual stocks to prevent day-to-day swings in stock prices and also to
provide a "time-out" for publicizing a major price rise or decline in a stock
and resultant evaluation of the situation by the investing public. TSE's daily
price limits are set in terms of absolute yen depending upon the price range of
each stock for the purpose of simplicity. As the price limits simply prohibit
bids and offers at prices beyond the limits, the market for a stock is open for
trading within the limits, even after the stock hits a limit.
The daily price limit also applies to the special quote. Thus, the special
quote cannot be indicated beyond the limit.
The total trading volume in 1997 on the TSE was 107.5 billion shares, with a
daily average of 439.0 million shares.
45
<PAGE>
The following table sets forth for the periods indicated the reported high
and low sale prices and the average daily trading volume of the common stock on
the TSE. It also sets forth the closing highs and lows of two TSE stock
indices. The Tokyo Stock Price Index, or TOPIX, which is published by the TSE,
is a weighted index of the market value of all stocks listed on the First
Section of the TSE. As of March 31, 1998, stocks of 1,327 companies were traded
on the First Section of the TSE. The Nikkei Stock Average is a widely followed
unweighted arithmetic average of 225 selected stocks traded on the First
Section.
<TABLE>
<CAPTION>
TSE CLOSING NIKKEI
PRICE PER SHARE CLOSING TOPIX STOCK AVERAGE
------------------- AVERAGE DAILY ----------------- -------------------
HIGH LOW TRADING VOLUME HIGH LOW HIGH LOW
--------- --------- ------------------ -------- -------- --------- ---------
CALENDAR PERIOD (YEN) (YEN) (NUMBER OF SHARES) (POINTS) (POINTS) (YEN) (YEN)
<S> <C> <C> <C> <C> <C> <C> <C>
1996
First quarter.......... 866,000 742,000 5,343 1,638.10 1,520.46 21,406.85 19,627.57
Second quarter......... 835,000 772,000 5,208 1,725.64 1,640.11 22,750.70 21,170.72
Third quarter.......... 841,000 753,000 4,441 1,708.21 1,539.67 22,455.49 20,107.11
Fourth quarter......... 922,000 770,000 8,726 1,622.91 1,448.45 21,612.30 19,161.71
1997
First quarter.......... 915,000 808,000 7,390 1,480.86 1,326.60 19,446.00 17,303.65
Second quarter......... 1,120,000 836,000 15,757 1,560.28 1,320.82 20,681.07 17,485.75
Third quarter.......... 1,240,000 999,000 8,828 1,555.16 1,373.97 20,575.26 17,683.27
Fourth quarter......... 1,150,000 920,000 7,585 1,391.06 1,130.00 17,842.16 14,775.22
1998
First quarter.......... 1,230,000 1,050,000 7,918 1,300.30 1,120.61 17,264.34 14,664.44
Second quarter......... 1,170,000 996,000 5,633 1,254.74 1,156.47 16,536.66 14,715.38
Third quarter.......... 1,280,000 995,000 8,162 1,280.73 1,043.57 16,731.72 13,406.39
Fourth quarter (through
November 24, 1998).... 1,080,000 819,000 9,350 1,155.61 980.11 15,164.64 12,879.97
</TABLE>
On November 24, 1998, the last reported sale price of the shares on the TSE
was (Yen)945,000 per share, and the closing TOPIX and Nikkei Stock Average on
that date were 1,155.61 and (Yen)15,164.64, respectively.
SETTLEMENT
Settlement of transactions concerning shares listed on any of the stock
exchanges in Japan, including the TSE, will normally be effected on the fourth
business day from and including the transaction date. Settlement in Japan is
made by physical delivery of share certificates or through the Japanese
Securities Depository Center, also known as JASDEC. See "Description of the
Shares--General."
AMERICAN DEPOSITARY SHARES
The ADSs are listed on the New York Stock Exchange. 200 ADSs represent one
share. The ADSs are evidenced by ADRs issued by Morgan Guaranty Trust Company
of New York, as depositary.
46
<PAGE>
On September 30, 1998, approximately 6,014,400 ADSs (equivalent to 30,072
shares, or approximately 0.19% of the total number of shares outstanding on
that date) were outstanding and were held by 191 record holders of ADRs
(including 186 record holders in the United States holding 6,013,725 ADSs). The
following table sets forth for the periods indicated the high and low sales
price of the ADSs as set forth on the New York Stock Exchange composite tape.
<TABLE>
<CAPTION>
NYSE AVERAGE DAILY
PRICE PER ADS TRADING VOLUME
------------- ----------------
HIGH LOW
------------- (NUMBER OF ADSS)
CALENDAR PERIOD ($) ($)
<S> <C> <C> <C>
1996
First quarter................................... 42.50 36.00 4,078
Second quarter.................................. 39.63 36.13 2,944
Third quarter................................... 38.63 34.88 1,911
Fourth quarter.................................. 40.25 35.00 1,920
1997
First quarter................................... 39.00 34.63 3,489
Second quarter.................................. 49.25 34.50 46,080
Third quarter................................... 52.00 46.25 22,166
Fourth quarter.................................. 47.38 35.94 20,667
1998
First quarter................................... 48.50 41.13 19,307
Second quarter.................................. 43.88 34.69 13,732
Third quarter................................... 45.06 35.63 14,689
Fourth quarter (through November 24, 1998)...... 45.00 31.38 19,003
</TABLE>
The common stock is also listed on the London Stock Exchange.
DIVIDENDS
NTT has paid dividends on the shares semiannually in respect of each fiscal
year since NTT's founding in 1985. The annual dividend is recommended by the
Board of Directors and approved by shareholders at the general meeting of
shareholders required to be held in June of each year and by MPT. Immediately
following approval thereof at the meeting and approval of MPT, dividends are
distributed to holders of record at the preceding March 31 in proportion to
their respective holdings of shares at that date. Annual dividends may be
distributed in cash. In addition to annual dividends, NTT may make cash
distributions from its retained earnings to its shareholders of record as of
September 30 in each year by resolution of its Board of Directors and approval
of MPT.
The following table sets forth the respective shareholder and Board of
Directors (interim dividend) approval dates, payment dates and amount of
dividends (expressed in yen and expressed as a U.S. dollar equivalent based on
the Noon Buying Rate on the date of payment) paid by NTT applicable to each of
the six-month periods indicated.
<TABLE>
<CAPTION>
RECORD DATE/SIX MONTHS DIVIDEND
ENDED APPROVAL DATE PAYMENT DATE PER SHARE
- ---------------------- ----------------- ----------------- --------------------
(YEN) (DOLLARS)
<S> <C> <C> <C> <C>
September 30, 1995...... November 22, 1995 December 13, 1995 (Yen)2,500 $24.57
March 31, 1996.......... June 27, 1996 June 28, 1996 (Yen)2,500 $22.84
September 30, 1996...... November 22, 1996 December 13, 1996 (Yen)2,500 $21.97
March 31, 1997.......... June 27, 1997 June 30, 1997 (Yen)2,500 $21.81
September 30, 1997...... November 21, 1997 December 12, 1997 (Yen)2,500 $19.17
March 31, 1998.......... June 26, 1998 June 29, 1998 (Yen)2,500 $17.62
September 30, 1998*..... November 20, 1998 December 11, 1998 (Yen)2,500
</TABLE>
- --------
* Purchasers of shares or ADSs in the global offering will not be entitled to
this dividend because they will not be shareholders of record on September
30, 1998.
47
<PAGE>
On October 22, 1998 NTT announced a plan to pay a special dividend of
(Yen)5,000 per share to shareholders of record as of March 31, 1999 following
shareholder approval in June 1999 and subject to approval by MPT. See
"Description of the Shares--Dividends." NTT also announced plans to pay an
ordinary dividend of (Yen)2,500 to shareholders of record on March 31, 1999
following shareholder approval in June 1999, as well as an approval of MPT.
The payment, as well as the amount, of dividends in the future will be
subject to the level of NTT's earnings, NTT's financial condition and other
factors, including applicable government regulatory action.
Under Japanese foreign exchange controls currently in effect, dividends paid
on shares held by non-residents of Japan may be converted into any foreign
currency and repatriated abroad. Under the terms of the deposit agreement
pursuant to which ADRs are issued, the Depositary is required, to the extent
that in its judgment it can convert Japanese yen on a reasonable basis into
U.S. dollars and transfer the resulting dollars to the United States, to
convert all cash dividends that it receives in respect of deposited shares into
U.S. dollars and to distribute the amount thus received (after deduction of
applicable withholding taxes and expenses of the Depositary) to the holders of
ADRs.
For a discussion of the tax treatment of dividends paid to U.S. Holders of
ADSs, see "Certain Tax Considerations."
48
<PAGE>
PRINCIPAL SHAREHOLDERS AND SELLING SHAREHOLDER
Upon consummation of the global offering, MOF will own approximately 59% of
the outstanding shares. MOF is required by the NTT Law and the amendments to
the NTT Law to own one-third or more of the total number of the outstanding
shares. However, any increase in the number of shares attributable to the
issuance of new shares, including shares issued upon the conversion or exercise
of any convertible debentures or debentures with preemptive rights, is not
included for the time being in calculating the proportion of the shares held by
MOF for this purpose. Under this requirement, as of March 31, 1998, the maximum
number of shares permitted to be sold by the Government was 5.1 million shares.
49
<PAGE>
DESCRIPTION OF THE SHARES
Set forth below is certain information relating to the shares, including
brief summaries of certain provisions of NTT's Articles of Incorporation and
NTT's Share Handling Regulations, as currently in effect, and of the Commercial
Code of Japan and the NTT Law. These summaries do not purport to be complete
and are qualified in their entirety by reference to the full Articles of
Incorporation and the full Share Handling Regulations which have been filed or
incorporated by reference as exhibits to the Registration Statement of which
this prospectus forms a part.
GENERAL
Under the Articles of Incorporation, the presently authorized capital stock
of NTT consists of 62,400,000 shares of common stock with a par value of
(Yen)50,000 per share. As of September 30, 1998, 15,912,000 shares were issued
and outstanding. The Commercial Code requires that shares be in registered
form. Under the Commercial Code, shares are transferable by delivery of share
certificates, but in order to assert shareholders' rights against NTT, the
transferee must have its name and address registered on NTT's register of
shareholders. The Share Handling Regulations require shareholders to file their
names, addresses and seal impressions with The Chuo Trust and Banking Company,
Limited, the transfer agent for NTT. Foreign shareholders customarily using a
signature may file a specimen signature in lieu of a seal impression.
Shareholders not resident in Japan are required to file a mailing address in
Japan or appoint a resident proxy in Japan. These requirements do not apply to
the holders of ADSs or ADRs.
The central clearing system of share certificates under the Law Concerning
Central Clearing of Share Certificates and Other Securities of Japan started to
operate in October 1991. Under this system, a holder of shares may choose, at
its discretion, to participate in this system and all certificates of shares
elected to be put into this system will be deposited with the sole depository
under the system, JASDEC (through a participating institution, such as a
securities company or bank, having a clearing account with the clearing house,
if the holder is not such a securities company or bank), and all such shares
will be registered in the name of the clearing house on NTT's register of
shareholders. Each participating shareholder will in turn be registered in
NTT's register of beneficial shareholders and be treated the same way as
shareholders registered on NTT's register of shareholders. For the purpose of
transferring the deposited shares, delivery of share certificates is not
required. In general, beneficial owners of deposited shares registered in the
register of beneficial owners are entitled with respect to such shares to the
same rights and benefits as the holders of shares registered in the register of
shareholders. The registered beneficial owners may exercise the rights attached
to the shares, such as voting rights, and will receive dividends (if any) and
notices to shareholders directly from NTT. The shares held by a person as a
registered shareholder and those held by the same person as a registered
beneficial owner are aggregated for such purposes. New shares issued with
respect to deposited shares, including those issued upon a stock split,
automatically become deposited shares. The beneficial owners are required to
file with the transfer agent of NTT principally through the relevant
participating institution, the same information as is required from the
registered shareholders. Beneficial owners may at any time withdraw their
shares from deposit and receive share certificates.
DIVIDENDS
The Articles of Incorporation provide that NTT's financial accounts shall be
closed on March 31 of each year and that dividends, if any, shall be paid to
the shareholders of record at the close of business as of such date. Pursuant
to the Commercial Code, after the close of the fiscal year, the Board of
Directors prepares, among other things, a proposal for appropriation of profits
and retained earnings for year-end dividends, legal reserve and other reserves,
and such appropriation customarily includes a bonus to Directors and Corporate
Auditors. This proposal is then submitted to the Board of Corporate Auditors of
NTT and the independent certified public accountants for their review and
comments. Then the proposal accompanied by the Board of Corporate Auditors' and
independent accountant's reports are submitted for shareholder approval at the
Ordinary General Meeting of Shareholders, which, pursuant to the Articles of
Incorporation, must be convened in June of each year.
50
<PAGE>
In addition to year-end dividends, the Board of Directors may, by resolution,
declare an interim cash dividend to shareholders of record as of the close of
September 30 of each year, without prior shareholder approval, but subject to
the restrictions described below. The requisite appropriation of profits and
retained earnings and related transfer of the applicable amount to legal
reserve occurs at the time of the payment of the interim dividend from funds
available for appropriation in respect of the immediately preceding fiscal
year, less the year-end dividends and bonuses to Directors and Corporate
Auditors paid in respect of such prior fiscal year and any transfer of profits
and retained earnings to the stated capital subsequent to the prior fiscal
year-end. Payment of interim dividends reduces the funds legally available for
the payment of year-end dividends for the fiscal year in which such interim
dividends are resolved and paid.
Under the NTT Law, the appropriation of profits and retained earnings,
including the payment of interim dividends, of NTT requires the approval of
MPT.
Under the Commercial Code, the shareholders may, by resolution at an Ordinary
General Meeting of Shareholders, transfer to NTT's stated capital account any
amount which could otherwise be distributed as year-end dividends and the Board
of Directors may, by its resolution but subject to the approval of MPT, pay a
dividend in the form of additional shares, by way of a stock split without
affecting the par value thereof, up to the amount so transferred to NTT's
stated capital account.
The Commercial Code provides that a company may not make any distribution of
profits by way of year-end dividends or interim dividends for any fiscal year
unless it has set aside in its legal reserve an amount equal to at least one-
tenth of the amount paid by way of appropriation of profits and retained
earnings for such fiscal year until the legal reserve is one-quarter of its
stated capital. The Commercial Code permits a company to distribute profits by
way of year-end or interim dividends out of the excess of its net assets over
the aggregate of:
. its stated capital;
. its additional paid-in capital;
. its accumulated legal reserve;
. the legal reserve to be set aside in respect of the fiscal year
concerned; and
. the excess, if any, of unamortized expenses incurred in preparation for
commencement of business and in connection with research and development
expense over the aggregate of amounts listed above, other than its
stated capital.
In the case of interim dividends, the net assets are calculated by reference
to the balance sheet as at the last closing of the company's accounts, but
adjusted to reflect any subsequent payment by way of appropriation of profits
and retained earnings and the related transfer to the legal reserve, any
subsequent transfer of profits and retained earnings to stated capital and the
aggregate purchase price of shares determined by a resolution at the ordinary
general meeting of shareholders authorizing a company to acquire its shares
pursuant to the below mentioned amendments to the Commercial Code, provided
that interim dividends may not be paid where there is a risk that at the end of
the fiscal year there might not be any excess of net assets over the aggregate
of the amounts listed above. If NTT has on its balance sheet a number of shares
that NTT has acquired for the purpose of transferring the same to its Directors
or employees pursuant to the amendments to the Commercial Code which took
effect on October 1, 1994 and June 1, 1997 (the "1994/1997 amendments to the
Commercial Code") but such shares are yet to be transferred, the book value of
such shares shall be deducted from the amount available for payment of annual
and interim dividends. As of March 31, 1998, the net assets of NTT determined
in accordance with the Commercial Code were (Yen)4,601 billion (U.S. $34,081
million), its stated capital was (Yen)795.6 billion (U.S. $5,893 million), its
additional paid-in capital was (Yen)2,530 billion (U.S. $18,741 million) and
its legal reserve was (Yen)99 billion (U.S. $733 million).
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In Japan the "ex-dividend" date and the record date for dividends precede the
date of determination of the amount of the dividend to be paid. See "Record
Date." For information as to taxation of dividends, see "Certain Tax
Considerations--Japanese Taxation."
TRANSFER OF ADDITIONAL PAID-IN CAPITAL AND LEGAL RESERVE TO STATED CAPITAL AND
STOCK SPLITS
The Commercial Code permits NTT, by resolution of the Board of Directors, to
transfer the whole or any part of additional paid-in capital and legal reserve
to stated capital and, after being authorized by MPT pursuant to the NTT Law,
to grant to shareholders additional shares free of charge by way of a stock
split without affecting the par value thereof, with reference to the whole or
any part of the amount of additional paid-in capital and legal reserve so
transferred to stated capital. When NTT issues new shares in the future, the
entire amount of the issue price of such new shares is required to be accounted
for as stated capital, although NTT may account for an amount not exceeding
one-half of such issue price as additional paid-in capital (subject to the
remainder being not less than the total par value, if any, of the new shares
being issued). Such additional shares may also be granted by reference to the
amount representing the portion of the issue price of shares in excess of the
par value thereof which has been accounted for as stated capital. The stock
split may be made only if:
. the total par value of the shares in issue after the stock split does
not exceed the stated capital; and
. the net assets of NTT (as appearing in the latest balance sheet) divided
by the number of the shares in issue after the stock split is at least
(Yen)50,000.
The Commercial Code permits NTT to make a distribution to shareholders by way
of a rights issue at a subscription price per share which is less than the par
value thereof if:
. the difference between the subscription price and the par value does not
exceed the amount of the stated capital minus the aggregate par value of
all outstanding shares, divided by the number of new shares to be issued
pursuant to such rights issue;
. the sum of the net assets of NTT (as appearing on its latest balance
sheet) and the total subscription price, divided by the number of the
shares outstanding immediately after the issuance of the new shares, is
at least (Yen)50,000; and
. the subscription rights are made transferable.
In order to satisfy the requirement listed first above, the Board of Directors
may transfer the whole or any part of additional paid-in capital or legal
reserve to stated capital.
FRACTIONAL SHARES
If NTT makes stock splits or issues convertible bonds or debentures or bonds
or debentures with warrants or rights to subscribe for new shares, fractional
shares constituting one-hundredth of one share or any integral multiple thereof
will be issued depending on the conditions of such splits or issues. Fractional
shares will not carry voting rights but, under the Articles of Incorporation,
they will have the right to receive dividends. Under the Articles of
Incorporation, any certificate representing such fractional shares will not be
issued and therefore fractional shares are not normally transferable. Holders
of fractional shares will be registered in the register of fractional shares.
The registered holders of fractional shares may at any time require NTT to
purchase such shares at the current market price.
ORDINARY GENERAL MEETING OF SHAREHOLDERS
The Ordinary General Meeting of Shareholders to settle accounts of NTT for
each fiscal year is held in June each year in Tokyo, Japan. In addition, NTT
may hold an extraordinary general meeting of shareholders whenever necessary by
giving at least two weeks' advance notice to shareholders.
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Under the Commercial Code, notice of any shareholders' meeting, setting forth
the place, time and purpose thereof, must be mailed to each shareholder (or, in
the case of a non-resident shareholder, to his or her resident proxy or mailing
address in Japan appointed or determined pursuant to the Share Handling
Regulations) at least two weeks prior to the date set for the meeting.
VOTING RIGHTS
A shareholder is entitled to one vote per share subject to the limitation on
voting rights set forth in the following paragraph. Under the Commercial Code,
except as otherwise provided by law or by the Articles of Incorporation, a
resolution can be adopted at a General Meeting of Shareholders by a majority of
the shares having voting rights represented at the meeting. The Commercial Code
and the Articles of Incorporation provide, however, that the quorum for the
election of Directors and Corporate Auditors shall not be less than one-third
of the total number of outstanding shares having voting rights. NTT's
shareholders are not entitled to cumulative voting in the election of
Directors. A corporate shareholder, more than one-quarter of whose outstanding
shares are directly or indirectly owned by NTT, may not exercise its voting
rights in respect of the shares of NTT. Shareholders may exercise their voting
rights through proxies provided that the proxies are also shareholders. Under
the NTT Law, the election and removal of Directors and Corporate Auditors are
subject to the approval of MPT.
The Commercial Code provides that in order to amend the articles of
incorporation of a corporation and in certain other instances, including a
reduction of the stated capital, the removal of a Director or Corporate
Auditor, dissolution, merger or consolidation, the transfer of the whole or an
important part of the business, the taking over of the whole of the business of
any other corporation or any offering of new shares at a "specially favorable"
price (or any offering of convertible bonds or debentures with "specially
favorable" conversion conditions or of bonds or debentures with warrants or
rights to subscribe for new shares with "specially favorable" conditions) to
persons other than shareholders, the quorum shall be a majority of the total
number of shares outstanding and the approval of the holders of at least two-
thirds of the shares represented at the meeting is required.
SUBSCRIPTION RIGHTS
Holders of the shares have no preemptive rights under the Articles of
Incorporation. Authorized but unissued shares may be issued at such times and
upon such terms as the Board of Directors determines, subject to the approval
of MPT and the limitation as to the offering of new shares at a "specially
favorable" price discussed in "Voting Rights" above. Under the Commercial Code,
the Board of Directors may, however, determine that shareholders shall be given
subscription rights regarding a particular issue of new shares, in which case
such rights must be given on uniform terms to all shareholders as of a record
date of which not less than two weeks' public notice must be given. Each of the
shareholders to whom such rights are given must also be given notice of the
expiry thereof at least two weeks prior to the date on which such rights are to
expire.
Rights to subscribe for new shares may be made transferable or
nontransferable by the Board of Directors and may be made at par or at or
substantially below the market price of shares. Accordingly, rights offerings
can result in substantial dilution or can result in rights holders not being
able to realize the economic value of such rights.
LIQUIDATION RIGHTS
In the event of a liquidation of NTT, the assets remaining after payment of
all debts, liquidation expenses and taxes will be distributed among the
shareholders in proportion to the respective numbers of shares which they hold.
LIABILITY TO FURTHER CALLS OR ASSESSMENTS
All NTT's presently outstanding shares are fully paid and nonassessable.
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TRANSFER AGENT
The Chuo Trust and Banking Company, Limited is the transfer agent for the
shares. As such transfer agent, its office at 7-1, Kyobashi 1-chome, Chuo-ku,
Tokyo 104-8345, Japan keeps NTT's register of shareholders and makes transfer
of record ownership upon presentation of the certificates representing the
transferred shares.
RECORD DATE
The close of business on March 31 is the record date for NTT's year-end
dividends, if paid. The shareholders who are registered as the holders on NTT's
register of shareholders at the close of business as of March 31 are also
entitled to exercise shareholders' voting rights at the Ordinary General
Meeting of Shareholders with respect to the fiscal year ending on such March
31. The close of business on September 30 of each year is the record date for
interim dividends, if paid. In addition, NTT may set a record date for
determining the shareholders entitled to other rights and for other purposes by
giving at least two weeks' public notice.
The shares generally trade ex-dividend or ex-rights in the Japanese stock
exchanges on the third business day prior to a record date (or if the record
date is not a business day, the fourth business day prior thereto), for the
purpose of dividends or rights offerings.
REPURCHASE BY THE COMPANY OF SHARES
Except as otherwise permitted by the Commercial Code as set out below,
neither NTT nor any of its subsidiaries may acquire shares except by means of a
reduction of capital in the manner provided in the Commercial Code.
The 1994/1997 amendments to the Commercial Code enable NTT to acquire shares
for the following purposes, subject to the authorization of shareholders at an
ordinary general meeting:
(1) for the purpose of transferring the same to its Directors and/or
employees; and
(2) for the purpose of cancellation thereof.
Acquisition by NTT of its shares for the purpose of (1) above is subject to,
among other things, the following restrictions:
. the number of shares to be acquired must not exceed 10% of the total
number of issued shares; and
. the aggregate amount of the purchase price must not exceed the amount of
the retained earnings available for annual dividend payment less the sum
of any amount paid or to be paid by way of appropriation of retained
earnings and any transfer of retained earnings to stated capital.
Acquisition by NTT of its shares for the purpose of (2) above is subject to,
among other things, the following restrictions:
. the aggregate amount of the purchase price must not exceed the amount of
the retained earnings available for any annual dividend payment less the
sum of any amount paid or to be paid by way of appropriation of retained
earnings and any transfer of retained earnings to stated capital; and
. there is not a concern that there would be no retained earnings
available for annual dividend payment at the close of the current fiscal
year.
In the case of shares being listed on an exchange or the over-the-counter
market, acquisition shall be made through the market or by way of tender offer
by the close of the following ordinary general meeting. The amendments
introduced for the purpose of (1) above enable NTT to introduce a stock option
plan using the shares already issued, subject to the satisfaction of certain
additional requirements.
The Law for Special Exceptions to the Commercial Code concerning Procedures
of Cancellation of shares, which was enacted in 1997 and amended with effect
from March 30, 1998, authorizes a company whose shares
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are listed on an exchange or the over-the-counter market to acquire and cancel
its shares by a resolution of the Board of Directors if such company's articles
of incorporation provide that shares may be purchased for the purpose of
cancellation. Currently, NTT's articles do not contain such a provision. Under
such law, a company may acquire its shares using its retained earnings subject
to, among other things, the following restrictions:
. the number of shares to be acquired must not exceed 10% of total issued
shares; and
. the aggregate amount of the purchase price must not exceed one-half of
the amount available for any interim dividend payment less the aggregate
amount of any interim dividend payment.
In addition, until March 31, 2000 (with certain transitional exceptions), a
company may acquire and cancel its shares using its additional paid-in capital
if its articles of incorporation so provide and subject to, among other things,
the following restrictions:
. the aggregate amount of the purchase price must not exceed an amount
equal to the excess of the sum of additional paid-in capital and legal
reserve over a quarter of the amount of stated capital; and
.there must remain an amount available for interim dividend payment.
Currently, NTT's articles do not have such a provision.
EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
The Foreign Exchange and Foreign Trade Law of Japan, as amended, and the
cabinet orders and ministerial ordinances issued thereunder (collectively, the
"Foreign Exchange Regulations") govern certain matters relating to the
acquisition and holding of shares of equity securities of Japanese corporations
by "non-residents of Japan" and "foreign investors" (as defined below). For
purposes of determining ownership interests, the Depositary is the deemed owner
of shares underlying ADRs.
"Non-residents of Japan" are defined as individuals who are not resident in
Japan and corporations whose principal offices are located outside Japan.
Generally, branches and other offices of Japanese corporations located outside
Japan are regarded as non-residents of Japan, but branches and other offices of
non-resident corporations located within Japan are regarded as residents of
Japan. "Foreign investors" are defined to be:
. individuals not resident in Japan;
. corporations which are organized under the laws of foreign countries or
whose principal offices are located outside Japan; and
. corporations not less than 50% of the shares of which are held by either
of the above persons or a majority of the officers (or officers having
the power of representation) of which are non-resident individuals.
Acquisition of Shares
Acquisition by a non-resident of Japan of shares of stock of a Japanese
corporation from a resident of Japan had generally required prior notification
by the acquiring person to MOF. An amendment to the Foreign Exchange and
Foreign Trade Control Law was enacted and took effect as of April 1, 1998. This
amendment abolished the prior notification requirement and was substituted by a
subsequent reporting requirement by the resident of Japan. Such subsequent
reporting by the resident of Japan is not required where:
.the amount of the purchase transaction of shares is (Yen)100 million or
less; or
. the purchase transaction is effected by certain financial institutions
acting as the agent or intermediary, as prescribed by the Foreign
Exchange Regulations.
Notwithstanding the foregoing, if the proposed transaction falls within the
category of "inward direct investment," the transaction is subject to
regulation. The term "inward direct investment" in relation to transactions in
shares means in relevant part: acquisition of shares of a listed corporation by
a foreign investor (whether from a resident, a non-resident or any other
foreign investor) the result of which would be such
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investor's holding directly or indirectly 10% or more of the total outstanding
shares of such corporation or (if such foreign investor already holds 10% or
more of the total outstanding shares of such corporation) acquisition of
additional shares in such corporation.
Whenever shares of NTT are acquired in a transaction which at such time falls
within the category of an inward direct investment requiring prior
notification, the foreign investor who makes such investment must file a prior
notification with MOF and other governmental ministries having jurisdiction
over the business of NTT 30 days prior to such transaction. When a prior
notification is required, the said ministries may recommend the modification or
abandonment of the proposed acquisition and, if the recommendation is not
accepted, order its modification or prohibition.
The acquisition of shares by non-resident shareholders by way of stock split
is not subject to any notification requirements.
American Depositary Shares
Neither the deposit of shares by a non-resident of Japan, the issuance of
ADRs evidencing the ADSs created by such deposit in exchange therefor nor the
withdrawal of the underlying shares upon surrender of ADRs is subject to any
formalities or restrictions referred to in the four preceding paragraphs,
except where as a result of such deposit or withdrawal, the aggregate number of
shares held by the Depositary or the holder surrendering ADRs, as the case may
be, would be 10% or more of the total outstanding shares, in which event prior
notification may be required as noted above.
Dividends and Proceeds of Sales
Under the Foreign Exchange Regulations, dividends paid on, and the proceeds
of sales in Japan of, shares held by non-residents of Japan may in general be
converted into any foreign currency and repatriated abroad.
Reporting of Substantial Shareholdings
The Securities and Exchange Law of Japan requires any person who has become,
beneficially and solely or jointly, a holder of more than 5% of the total
issued shares of a company listed on any Japanese stock exchange to file with
MOF within five business days a report concerning such shareholdings. A similar
report must also be made in respect of any subsequent change of 1% or more in
any such holding. For this purpose, shares issuable to such person upon
conversion of convertible securities or exercise of share subscription warrant
are taken into account in determining both the number of shares held by such
holder and the issuer's total share capital. Copies of each such report must
also be furnished to the issuer of such shares and all Japanese stock exchanges
on which the shares are listed.
Restrictions on Foreign Ownership
Pursuant to an amendment to the NTT Law which became effective as of August
1, 1992, foreign nationals and foreign corporations, which were previously
prohibited from owning the shares, are allowed to own shares. However, if the
aggregate amount of NTT's voting rights which may be owned by:
(1) any person who does not have Japanese nationality;
(2) any foreign government or any of its representatives;
(3) any foreign juridical person or association; and
(4) any juridical person or association
(x) which owns 10% or more of NTT's voting rights and
(y) 10% or more of the voting rights of which are owned by the persons
or bodies listed in (1) through (3) above
(the proportion of NTT's voting rights in this case is determined by
multiplying the proportion expressed in (x) by that expressed in (y))
is more than 20% of NTT's total voting rights, then NTT is prohibited from
registering ownership of shares by such persons in excess of such limit.
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DESCRIPTION OF ADRS AND DEPOSIT AGREEMENT
An ADR is a negotiable certificate issued by a United States bank or trust
company acting as depositary. In the same way that a share certificate of a
U.S. issuer would evidence shares, an ADR evidences American depositary shares,
which are also referred to as ADSs. Each ADS represents an ownership interest
in 1/200th of one share of NTT, which shares are held in Japan on deposit by
the depositary or its agent for the benefit of holders of ADRs.
The terms of the ADRs are contained in the deposit agreement dated as of July
8, 1994 among NTT, Morgan Guaranty Trust Company of New York, as depositary,
and the holders of ADRs issued thereunder. The following is a summary of the
material provisions of the deposit agreement and, as such, it does not contain
all information that may be relevant to holders of ADRs. Investors should read
the entire deposit agreement (including the form of ADR) for complete
information. Copies of the deposit agreement are available at the principal
office of the depositary in New York, presently located at 60 Wall Street, New
York, New York 10260.
The depositary will issue ADRs based on the deposit of shares with The Bank
of Tokyo-Mitsubishi, Ltd. as custodian under the deposit agreement. Deposited
shares will be represented by ADSs. If a holder's ownership interest is held
through a broker, dealer or other third party, such broker, dealer or third
party will provide documentation showing the holder's beneficial interest in
the ADSs. Only persons in whose names ADRs are registered on the books of the
depositary will be treated as holders of ADRs by the depositary and NTT. The
term "holders" shall refer only to persons in whose name ADRs are registered on
the books of the depositary. The depositary owes no duties to anyone other than
NTT and holders.
DEPOSIT OF SHARES AND ISSUANCE OF ADRS
Shares deposited with the custodian must be accompanied by certain documents,
including instruments showing that such shares have been properly transferred
or endorsed to the person on whose behalf the deposit is being made. The
custodian will hold all deposited shares for the account of the depositary.
Holders thus have no direct ownership interest in the shares and only have such
rights as are contained in the deposit agreement. The custodian will also hold
any additional securities, property and cash received on or in substitution for
the deposited shares. The deposited shares and any such additional items are
referred to as "deposited securities."
Upon each deposit of shares, receipt of related delivery documentation and
compliance with the other provisions of the deposit agreement, including the
payment of the fees and charges of the depositary, the depositary will issue an
ADR or ADRs in the name of the person entitled thereto evidencing the number of
ADSs to which such person is entitled. Certificated ADRs will be delivered at
the depositary's principal New York office or any other location that it may
designate as its transfer office.
SURRENDER OF ADRS AND DELIVERY OF DEPOSITED SECURITIES
Holders are entitled to receive the deposited securities underlying the ADSs
upon surrender of certificated ADRs to the depositary with delivery
instructions for the deposited securities. In addition, holders must pay all
fees, taxes and governmental charges that may apply. Deposited securities are
normally delivered at the custodian's office unless the holder requests, at his
own risk and expense, that they be delivered to another place. The depositary
may only restrict the withdrawal of deposited securities in connection with:
. temporary delays caused by closing transfer books of the depositary or
NTT or the deposit of shares in connection with voting at a
shareholders' meeting, or the payment of dividends;
. the payment of fees, taxes and similar charges; or
. compliance with any U.S. or foreign laws or governmental regulations
relating to the ADRs.
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DISTRIBUTIONS ON DEPOSITED SECURITIES
NTT may make various types of distributions with respect to its securities.
Except as stated below, to the extent the depositary is legally permitted it
will deliver such distributions to holders in proportion to their interests in
the following manner:
. Cash: The depositary shall convert cash distributions from foreign
currency to U.S. dollars if this is permissible and can be done on a
reasonable basis. The depositary will endeavor to distribute such cash
in a practicable manner, and may deduct any taxes required to be
withheld, any expenses of converting foreign currency and transferring
funds to the United States, and certain other expenses and adjustments.
. Shares: In the case of a distribution in shares, the depositary may
issue and will issue if NTT so requests additional ADRs to evidence the
number of ADSs representing such shares. Only whole ADSs will be issued.
Any shares which would result in fractional ADSs will be sold and the
net proceeds will be distributed to the holders entitled thereto. In
addition, if the distribution results in the issuance of fractional
shares, the depositary will sell such fractional shares to NTT.
. Rights: In the case of a distribution of rights to subscribe for
additional shares or other rights, if NTT provides satisfactory evidence
that the depositary may lawfully distribute such rights, the depositary
may arrange for holders to instruct the depositary as to the exercise of
such rights. However, if NTT does not furnish such evidence, the
depositary may:
.sell such rights if practicable and distribute the net proceeds as
cash; or
.allow such rights to lapse, whereupon holders of ADRs will receive
nothing.
NTT has no obligation to file a registration statement under the
Securities Act in order to make any rights available to holders. Any
sale or lapse of rights may reduce the holders' equity interest in NTT.
. Other Distributions: In the case of a distribution of securities or
property other than those described above, the depositary may either:
.distribute such securities or property in any manner it deems fair and
equitable; or
.sell such securities or property and distribute any net proceeds as
cash.
The depositary may choose any practicable method of distribution for any
specific holder, including the distribution of foreign currency, securities or
property, or it may retain such items on behalf of the holder as deposited
securities.
There can be no assurances that the depositary will be able to convert any
currency at a specified exchange rate or sell any property, rights, shares or
other securities at a specified price, nor that any of such transactions can be
completed within a specified time period.
RESTRICTIONS ON FOREIGN OWNERSHIP
The NTT Law restricts NTT's ability to register shares owned by certain
foreign persons and entities, in the aggregate, in excess of 20% of the voting
securities of NTT. See "Description of Shares--Exchange Controls and Other
Limitations Affecting Security Holders--Restrictions on Foreign Ownership." All
shares held as deposited securities under the deposit agreement are deemed to
be owned by foreign persons for purposes of this ownership limitation. The
ownership interests of ADR holders are subject to certain procedures for the
enforcement of this limitation, including the cancellation of ADSs and the
forfeiture of transfer rights, rights to give voting instructions and rights to
receive dividends. Holders are bound by NTT's interpretation of these
procedures and the foreign ownership limitation.
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NTT may decline to register shares presented by the custodian for
registration on the grounds that the foreign ownership limitation would be
exceeded. In such case, the depositary will use its best reasonable efforts to:
. determine the holder of the ADRs to which such shares relate;
. stop the transfer of such ADRs and disregard any voting instructions
given by the holder of such ADRs;
. notify the holder that such ADRs may not be transferred or voted and
that the depositary will, at its option, either deliver the underlying
shares to the holder or sell such shares on behalf of the holder;
. deliver either the underlying shares or the proceeds of any sale to the
holder of the ADRs; and
. cancel such ADRs.
If the depositary decides that it is not practicable to determine the holder
of such ADRs, then the depositary will use its best reasonable efforts to
purchase an equal number of additional ADRs, sell the shares whose registration
was refused, and cancel the ADRs to which such shares relate. The holders are
liable for any deficiency and the depositary is entitled to reimbursement for
all costs of purchasing the additional ADRs and may deduct such costs from the
net proceeds of the sale of the shares. If there is any shortfall, the
depositary may deduct the same from distributions payable to ADR holders or may
sell deposited securities held under the deposit agreement and apply the
proceeds against such shortfall.
Under Japanese law, an ADR holder cannot assert any rights as a shareholder
against NTT, including voting and dividend rights, unless the shares which
underlie such holder's ADRs are registered in NTT's share register in the name
of the depositary. Since NTT registers the transfer of shares according to its
customary practice, the timing of the registration of deposited shares may be
affected by how frequently NTT effects registration at any given time.
RECORD DATES
The depositary may fix a record date for determining the holders who shall be
entitled to receive distributions, exercise voting rights, receive notices, or
act on other matters. Such record date will be as near as possible to the
corresponding record date set by NTT.
VOTING OF DEPOSITED SECURITIES
After receiving voting materials from NTT, the depositary will notify the
holders of any shareholder meeting or solicitation of consents or proxies. This
notice will describe how the holder may instruct the depositary to exercise the
voting rights for the shares which underlie such holder's ADRs. If the
depositary receives instructions on or before the date specified in the notice
to holders, the depositary will endeavor to vote the shares in accordance with
the holder's instructions. If the depositary does not receive instructions from
a holder on or before the date established by the depositary for such purpose,
the depositary will deem such holder to have instructed the depositary to vote
or cause to be voted the shares so represented in favor of any proposals or
recommendations by NTT. To accomplish this, the depositary will issue a
discretionary proxy to NTT to vote the underlying shares in favor of any
proposals or recommendations of NTT. No votes will be cast as to fractional
shares, which shall be rounded down to the nearest whole share. Because there
is no guarantee that holders will receive voting materials in time to instruct
the depositary to vote, it is possible that holders or persons who hold their
ADRs through brokers, dealers or other third parties will not have the
opportunity to exercise their rights to vote. The depositary will not itself
exercise any voting discretion. Furthermore, neither the depositary nor its
agents are responsible for any failure to carry out any voting instructions,
for the manner in which any vote is cast or for the effect of any vote.
INSPECTION OF TRANSFER BOOKS
The depositary will maintain books for the registration, transfer,
combination and split-up of ADRs. Such books will be available for inspection
by the holders for the purpose of communicating with holders in the interest of
the business of NTT or a matter related to the deposit agreement.
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CHANGES AFFECTING DEPOSITED SECURITIES
If NTT takes certain actions that affect the deposited securities, including
(1) any change in par value, split-up, consolidation, cancellation or other
reclassification of deposited securities and (2) any recapitalization,
reorganization, merger, consolidation, liquidation, receivership, bankruptcy or
sale of all or substantially all the assets of NTT, then the depositary may
choose to:
(1) amend the form of ADR;
(2) distribute additional or amended ADRs;
(3) distribute cash, securities or other property it has received in
connection with such actions;
(4) sell any securities or property received and distribute the proceeds
as cash; or
(5) none of the above.
If the depositary does not choose any of (1)-(4), any of the cash, securities
or other property it receives shall constitute part of the deposited securities
and each ADR will then represent a proportionate interest in such property.
AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT
NTT and the depositary may jointly amend the deposit agreement. The holders
must be given at least 30 days notice of any amendment that imposes or
increases any fees or charges (except for taxes and other charges specifically
payable by holders under the deposit agreement), or affects any substantial
existing right of holders. If a holder continues to hold ADRs after being so
notified, such holder is deemed to agree to such amendment. No amendment may
take away any holder's right cancel ADRs and to receive the deposited
securities underlying the ADRs, except in order to comply with requirements of
law.
If directed by NTT, the depositary shall terminate the deposit agreement by
giving the holders at least 30 days prior notice. The depositary may also
terminate the deposit agreement by providing such notice if it has resigned and
no successor has been appointed within 90 days after its resignation. After
termination, the depositary's only responsibility will be to deliver deposited
securities to holders who surrender their ADRs, and to hold or sell
distributions received on deposited securities. As soon as practicable after
the expiration of six months from the termination date, the depositary will
sell the deposited securities which remain and hold the net proceeds of such
sales, without liability for interest, in trust for the holders who have not
yet surrendered their ADRs. After making such sale, the depositary shall have
no obligations except to account for such proceeds and other cash.
CHARGES OF THE DEPOSITARY
Holders will be charged a fee for each issuance of ADRs, including issuances
resulting from distributions of shares, rights and other property, and for each
surrender of ADRs in exchange for deposited securities. The fee in each case is
$5.00 for each 100 ADSs (or any portion thereof) evidenced by the ADRs issued
or surrendered. Holders or persons depositing shares may also be charged the
following expenses:
. stock transfer or other taxes and other governmental charges;
. cable, telex and facsimile transmission and delivery charges;
. transfer or registration fees for the registration of transfer of
deposited securities on any applicable register in connection with the
deposit or withdrawal of deposited securities; and
. expenses of the depositary in connection with the conversion of foreign
currency into U.S. dollars.
60
<PAGE>
NTT will pay all other charges and expenses of the depositary and any agent
of the depositary (except the custodian) pursuant to agreements from time to
time between NTT and the depositary. Fees payable by holders and persons
depositing shares may be amended from time to time.
LIABILITY OF HOLDERS FOR TAXES
Holders must also pay any tax or other governmental charge payable by the
custodian or the depositary on any ADR, deposited security or distribution. If
a holder owes any tax or other governmental charge, the depositary may (1)
deduct the amount thereof from any cash distributions, or (2) sell deposited
securities and deduct the amount owing from the net proceeds of such sale. In
either case the holder remains liable for any shortfall. If any tax or
governmental charge is required to be withheld on any non-cash distribution,
the depositary may sell the distributed property or securities to pay such
taxes and distribute any remaining net proceeds to the holders entitled
thereto.
CONDITIONS TO THE ISSUANCE OF ADRS AND OTHER TRANSACTIONS
The depositary, the custodian or NTT may refuse to:
. issue, register or transfer an ADR or ADRs;
. effect a split-up or combination of ADRs;
. deliver distributions on any such ADRs; or
. permit the withdrawal of deposited securities (unless the deposit
agreement provides otherwise)
until the following conditions have been met:
. the holder has paid all taxes, governmental charges, and fees and
expenses as required in the deposit agreement;
. the holder has provided the depositary with any information it may deem
necessary or proper, including, without limitation, proof of identity
and the genuineness of any signature; and
. the holder has complied with such regulations as the depositary may
establish under the deposit agreement.
The depositary may also suspend the issuance of ADRs, the deposit of shares,
the registration, transfer, split-up or combination of ADRs, or the withdrawal
of deposited securities (unless the deposit agreement provides otherwise), if
the register for ADRs or any deposited securities is closed or if the
depositary or NTT decide any such action is advisable.
LIMITATIONS ON LIABILITY
The deposit agreement expressly limits the obligations and liability of the
depositary, NTT and their respective agents. The depositary and NTT will not be
liable:
. if they are prevented or hindered in performing any obligation by
circumstances beyond their control, including, without limitation,
requirements of law, the terms of the deposited securities, and acts of
God;
. for exercising or failing to exercise discretion under the deposit
agreement;
. if they perform their obligations without gross negligence or bad faith;
or
. for any action based on advice or information from legal counsel,
accountants, any person presenting shares for deposit, any holder, or
other qualified person.
61
<PAGE>
PRE-RELEASED ADRS
The depositary may issue ADRs not only against the deposit with the custodian
of shares (or rights to receive shares from NTT or any registrar, transfer
agent, clearing agent or similar entity), but also against the agreement by a
qualified third party to deliver to the depositary the shares within a
specified period of time. ADRs issued against such an agreement are called
"Pre-released ADRs." Pre-released ADRs may be issued only if:
. the depositary has received collateral for the full market value of the
Pre-released ADRs; and
. each recipient of Pre-released ADRs agrees in writing that he or she
(1) owns the underlying shares;
(2) assigns all rights in such shares to the depositary;
(3) holds such shares for the account of the depositary; and
(4) will deliver such shares to the custodian as soon as practicable,
and promptly if the depositary so demands.
In general, the number of Pre-released ADRs will not evidence more than 20%
of all ADSs outstanding at any given time (excluding those evidenced by Pre-
released ADRs). However, the depositary may change or disregard such limit from
time to time under certain circumstances.
THE DEPOSITARY
The depositary is Morgan Guaranty Trust Company of New York, a New York
banking corporation. Morgan Guaranty Trust Company of New York is a commercial
bank offering a wide range of banking and trust services to its customers in
the New York metropolitan area, throughout the United States and around the
world.
62
<PAGE>
CERTAIN TAX CONSIDERATIONS
JAPANESE TAXATION
The following is a summary, prepared by Tomotsune Kimura & Mitomi, of the
principal Japanese tax consequences to an owner of shares or ADSs who is an
individual not resident in Japan or a non-Japanese corporation. The statements
regarding Japanese tax laws set forth below are based on the laws in force and
as interpreted by the Japanese taxation authorities as of the date hereof and
are subject to changes in the applicable Japanese laws or double taxation
conventions occurring after that date. This summary is not exhaustive of all
possible tax considerations which may apply to a particular investor and
potential investors are advised to satisfy themselves as to the overall tax
consequences of the acquisition, ownership and disposition of shares or ADSs,
including specifically the tax consequences under Japanese law, the laws of the
jurisdiction of which they are resident, and any tax treaty between Japan and
their country of residence, by consulting their own tax advisors.
Generally, a non-resident of Japan (whether an individual or a corporation)
is subject to Japanese withholding tax on dividends paid by Japanese
corporations. Stock splits are not subject to Japanese income tax. However, a
transfer of retained earnings or legal reserve (but, in general, not additional
paid-in capital) to stated capital (whether made in connection with a stock
split or otherwise) is treated as a dividend payment to shareholders for
Japanese tax purposes and is, in general, subject to Japanese income tax. No
such transfer would be necessary in connection with a stock split if the total
par value of the shares in issue after the stock split does not exceed the
stated capital. NTT currently does not intend to transfer its retained earnings
to stated capital.
Under the Convention between the United States of America and Japan for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect
to Tax on Income dated March 8, 1971 (the "Convention"), as currently in force,
the maximum rate of Japanese withholding tax which may be imposed on dividends
paid to a United States resident or corporation not having a "permanent
establishment" (as defined therein) in Japan is limited to:
(i) 15% of the gross amount actually distributed; or
(ii) if the recipient is a corporation, 10% of the gross amount actually
distributed, if
(a) during the part of the paying corporation's taxable year which
precedes the date of payment of the dividend and during the whole of
its prior taxable year (if any), at least 10% of the voting shares of
the paying corporation were owned by the recipient corporation, and
(b) not more than 25% of the gross income of the paying corporation
for such prior taxable year (if any) consists of interest or dividends
(as defined therein).
For purposes of the Convention and Japanese tax law, U.S. holders of ADRs
will be treated as the owners of the shares underlying the ADSs evidenced by
the ADRs.
In the absence of any applicable tax treaty, convention or agreement reducing
the maximum rate of withholding tax, the rate of Japanese withholding tax
applicable to dividends paid by Japanese corporations to non-residents of Japan
or non-Japanese corporations is 20%. At the date of this prospectus, Japan has
income tax treaties, conventions or agreements whereby the above mentioned
withholding tax rate is reduced, in most cases to 15% for portfolio investors
with, inter alia, Australia, Belgium, Canada, Denmark, Finland, France,
Germany, Ireland, Italy, Luxembourg, The Netherlands, New Zealand, Norway,
Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States
of America.
A non-resident holder who is entitled to a reduced rate of Japanese
withholding tax on payment of dividends by NTT is required to submit an
Application Form for Income Tax Convention regarding Relief from Japanese
Income Tax on Dividends in advance through NTT to the relevant tax authority
before payment of dividends. A standing proxy for a non-resident holder may
provide such application service. With respect to ADSs, such reduced rate is
applicable if the Depositary or its agent submits two Application Forms for
Income
63
<PAGE>
Tax Convention (one prior to payment of dividends, the other within eight
months after NTT's fiscal year-end). To claim such reduced rate a non-resident
holder of ADSs will be required to file proof of taxpayer status, residence and
beneficial ownership (as applicable) and to provide other information or
documents as may be required by the Depositary. A non-resident holder who does
not submit an application in advance will be entitled to claim the refund of
withholding taxes withheld in excess of the rate of an applicable tax treaty
from the relevant Japanese tax authority.
Gains derived from the sale outside Japan of shares or ADSs by a non-resident
of Japan, or from the sale of shares within Japan by a non-resident of Japan
not having a permanent establishment in Japan, are generally not subject to
Japanese income tax.
Japanese inheritance and gift taxes at progressive rates may be payable by an
individual who has acquired shares or ADSs as legatee, heir or donee even
though neither the individual nor the deceased nor donor is a Japanese
resident.
Generally, a transfer by a non-resident of Japan of shares on any Japanese
stock exchange is subject to a Japanese securities transaction tax which is
levied on the transferor at the rate of 0.1% (currently) of the aggregate
transfer prices. A transfer by a non-resident of Japan of ADSs on the NYSE is
not subject to the Japanese securities transaction tax provided the transferor
is outside Japan at the time of the transfer. Non-residents of Japan interested
in trading shares or ADSs through facilities other than the NYSE should seek
the advice of their own tax advisors as to Japanese securities transaction tax
or other tax consequences.
UNITED STATES FEDERAL INCOME TAXATION
The following discussion includes the opinion of Milbank, Tweed, Hadley &
McCloy as to the principal United States federal income tax consequences under
present law of an investment in the ADSs or the shares. This summary and
opinion applies only to investors that hold the ADSs or shares as capital
assets and that have the U.S. dollar as their functional currency. It is not
intended as tax advice to any particular investor, certain of which (such as
banks, insurance companies, dealers, tax-exempt entities, persons holding an
ADS or share as part of a straddle, hedging, conversion or integrated
transaction and holders of 10% or more of the voting shares of NTT) are subject
to special tax treatment. NTT believes, and the discussion therefore assumes,
that it is not and will not become a passive foreign investment company for
United States federal income tax purposes. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR TAX ADVISORS ABOUT THE UNITED STATES FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF ADSS OR
SHARES.
As used here, the term "U.S. holder" means a beneficial owner of ADSs or
shares that is (i) a United States citizen or resident, (ii) a domestic
corporation or partnership, (iii) a trust subject to the control of a U.S.
person and the primary supervision of a U.S. court or (iv) an estate the income
of which is subject to United States federal income taxation regardless of its
source. The term "non-U.S. holder" refers to any other holder of ADSs or
shares. If the obligations of the Depositary are performed in accordance with
the terms of the deposit agreement, holders of ADSs (or ADRs evidencing ADSs)
generally will be treated as the owners of the shares represented by those ADSs
(or ADRs evidencing ADSs).
Dividends and Other Distributions
Dividends (including the amount of any Japanese taxes withheld) paid with
respect to the ADSs or shares generally will be includible in the gross income
of a U.S. holder as ordinary income when the dividends are received by the
Depositary, in the case of ADSs, or by the U.S. holder, in the case of shares.
The dividends generally will be foreign source income but generally will be
treated separately, together with other items of "passive income" (or in the
case of certain holders, "financial services income") for foreign tax credit
limitation purposes. The dividends will not be eligible for the dividends-
received deduction allowed to corporations. Dividends paid in yen will be
includible in a U.S. dollar amount based on the exchange rate in
64
<PAGE>
effect on the date of receipt (which, in the case of ADSs, will be the date of
receipt by the Depositary). Any gain or loss recognized on a subsequent sale or
conversion of the yen for a different amount generally will be United States
source ordinary income or loss. Distributions to U.S. holders of additional
shares or rights to subscribe for shares will generally be subject to federal
income tax if, for example, a U.S. holder can elect to receive cash in lieu of
shares or rights, or, the distribution of shares or rights is not
proportionate.
A non-U.S. holder generally will not be subject to United States federal
income tax on dividends paid by NTT with respect to the ADSs or shares unless
such income is effectively connected with the conduct by the non-U.S. holder of
a trade or business within the United States (and is attributable to a
permanent establishment maintained in the United States by such non-U.S.
holder, if an applicable income tax treaty so requires as a condition for such
non-U.S. holder to be subject to United States taxation on a net income basis
in respect of income from shares or ADSs).
Capital Gains
U.S. holders will recognize capital gain or loss upon the sale or other
disposition of ADSs or shares (or rights to subscribe for shares) held by the
U.S. holder or the Depositary. U.S. holders will not recognize gain or loss on
deposits or withdrawals of shares in exchange for ADSs or on the exercise of
subscription rights. Gain recognized by a U.S. holder on a sale or other
disposition of shares or ADSs generally will be treated as U.S. source income.
Consequently, in the case of a disposition of shares or ADSs, the U.S. holder
may not be able to use the foreign tax credit for any Japanese tax imposed on
the gain unless it can apply the credit against tax due on income from foreign
sources. Because of a lack of clarity under current law, Milbank, Tweed, Hadley
& McCloy is unable to express an opinion regarding whether any loss would be
treated as United States or foreign source for foreign tax credit purposes. If
such a loss were treated as foreign source for foreign tax credit purposes, the
amount of the U.S. holder's allowable foreign tax credit may be reduced.
A non-U.S. holder of ADSs or shares will not be subject to United States
federal income tax on gain from the sale or other disposition of ADSs or shares
unless (i) such gain is effectively connected with the conduct of a trade or
business within the United States (and is attributable to a permanent
establishment maintained in the United States by such non-U.S. holder, if an
applicable income tax treaty so requires as a condition for such non-U.S.
holder to be subject to United States taxation on a net income basis in respect
of gain from the sale or other disposition of shares or ADSs) or (ii) the non-
U.S. holder is an individual who is present in the United States for at least
183 days during the taxable year of the disposition and certain other
conditions are met.
Information Reporting and Backup Withholding
Dividends in respect of the ADSs or shares and the proceeds from the sale,
exchange, or redemption of the ADSs or shares may be reported to the United
States Internal Revenue Service if paid to noncorporate holders. A 31% backup
withholding tax also may apply to amounts paid to noncorporate holders unless
they provide an accurate taxpayer identification number, a properly executed
U.S. Internal Revenue Service Form W-8 or otherwise establish a basis for
exemption. The amount of any backup withholding from a payment to a U.S. holder
will be allowed as a credit against the U.S. holder's United States federal
income tax liability. The requirements for establishing an exemption from
information reporting and backup withholding will change for payments made
after December 31, 1999.
65
<PAGE>
EXPERTS
The financial statements of Nippon Telegraph and Telephone Corporation as of
March 31, 1998 and 1997 and for each of the three years in the period ended
March 31, 1998, included herein and incorporated in this prospectus by
reference to the Annual Report on Form 20-F of Nippon Telegraph and Telephone
Corporation for the year ended March 31, 1998, have been so included and
incorporated in reliance on the report of Price Waterhouse, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
VALIDITY OF SECURITIES
The validity of the ADSs will be passed upon on behalf of NTT by Milbank,
Tweed, Hadley & McCloy, MOF by Davis Polk & Wardwell and the underwriters by
Sullivan & Cromwell. The validity of the shares underlying such ADSs will be
passed upon by Tomotsune Kimura & Mitomi, Japanese counsel to NTT, and
Tsunematsu Yanase & Sekine, Japanese counsel to the Underwriters. In giving
their opinions, Milbank, Tweed, Hadley & McCloy, Davis Polk & Wardwell and
Sullivan & Cromwell may rely as to matters of Japanese law upon the opinions of
Tomotsune Kimura & Mitomi and Tsunematsu Yanase & Sekine, and Tomotsune Kimura
& Mitomi and Tsunematsu Yanase & Sekine may rely as to matters of New York law
upon the opinions of Milbank, Tweed, Hadley & McCloy, Davis Polk & Wardwell and
Sullivan & Cromwell. All statements in this prospectus with respect to or
involving matters of Japanese law have been passed upon by Tomotsune Kimura &
Mitomi and Tsunematsu Yanase & Sekine, and are stated herein on their
authority. Statements as to United States taxation in this prospectus under the
caption "Certain Tax Considerations--United States Federal Income Taxation"
includes the opinion of Milbank, Tweed, Hadley & McCloy and are stated herein
on their authority.
66
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements:
Report of Independent Accountants....................................... F-2
Consolidated Balance Sheets at March 31, 1997 and 1998.................. F-3
Consolidated Statement of Income for the three years ended March 31,
1998................................................................... F-5
Consolidated Statement of Shareholders' Equity for the three years ended
March 31, 1998......................................................... F-6
Consolidated Statement of Cash Flows for the three years ended March 31,
1998................................................................... F-7
Notes to Consolidated Financial Statements.............................. F-8
Unaudited Interim Consolidated Financial Statements:
Unaudited Consolidated Balance Sheet at September 30, 1998.............. F-27
Unaudited Consolidated Statement of Income for the six-month periods
ended
September 30, 1997 and 1998............................................ F-29
Unaudited Consolidated Statement of Cash Flows for the six-month periods
ended
September 30, 1997 and 1998............................................ F-30
Notes to the Unaudited Interim Consolidated Financial Statements........ F-31
Pro Forma Financial Statements:
Pro Forma Unaudited Condensed Consolidated Financial Statements......... P-1
Pro Forma Unaudited Condensed Consolidated Balance Sheet at March 31,
1998................................................................... P-2
Pro Forma Unaudited Condensed Consolidated Statement of Income for the
year ended
March 31, 1998......................................................... P-5
Pro Forma Unaudited Condensed Consolidated Balance Sheet at September
30, 1998............................................................... P-7
Pro Forma Unaudited Condensed Consolidated Statement of Income for the
six-month period
ended September 30, 1998............................................... P-10
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Nippon Telegraph and Telephone
Corporation
In our opinion, the consolidated financial statements, expressed in yen,
listed in the accompanying index present fairly, in all material respects, the
financial position of Nippon Telegraph and Telephone Corporation and its
subsidiaries at March 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1998, in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards in Japan
and in the United States of America which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse
Tokyo, Japan
June 26, 1998, except for Note 3 as to which the date is October 1, 1998
F-2
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31
<TABLE>
<CAPTION>
1997 1998 1998
--------------- --------------- ------------
MILLIONS OF YEN MILLIONS OF
U.S. DOLLARS
(NOTE 3)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents
(Notes 5 and 19)............. (Yen) 821,140 (Yen) 913,236 $ 6,765
Notes and accounts receivable,
trade (Notes 4 and 19)....... 930,792 1,085,381 8,040
Allowance for doubtful
accounts..................... (26,363) (35,816) (265)
Inventories (Note 6).......... 231,407 223,776 1,657
Prepaid expenses and other
current assets (Note 11)..... 353,332 417,900 3,095
--------------- --------------- --------
Total current assets........ 2,310,308 2,604,477 19,292
--------------- --------------- --------
Property, plant and equipment
(Notes 9 and 15):
Telecommunications equipment.. 10,925,837 11,633,361 86,173
Telecommunications service
lines........................ 11,496,236 11,722,358 86,833
Buildings and structures...... 4,557,920 4,763,092 35,282
Machinery, vessels and tools.. 1,902,698 1,997,359 14,795
Land.......................... 579,140 609,186 4,513
Construction in progress...... 688,448 639,262 4,735
--------------- --------------- --------
30,150,279 31,364,618 232,331
Accumulated depreciation...... (18,494,511) (19,359,256) (143,402)
--------------- --------------- --------
11,655,768 12,005,362 88,929
--------------- --------------- --------
Investments and other assets:
Investments in affiliated
companies.................... 113,762 201,945 1,496
Marketable securities and
other investments
(Note 7)..................... 154,947 124,910 925
Intangible and other assets
(Note 8)..................... 1,654,289 1,904,503 14,107
Deferred income taxes (Note
11).......................... 586,020 511,334 3,788
--------------- --------------- --------
2,509,018 2,742,692 20,316
--------------- --------------- --------
(Yen)16,475,094 (Yen)17,352,531 $128,537
=============== =============== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31
<TABLE>
<CAPTION>
1997 1998 1998
--------------- --------------- ------------
MILLIONS OF YEN MILLIONS OF
U.S. DOLLARS
(NOTE 3)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Short-term borrowings (Notes 9
and 19)...................... (Yen) 387,544 (Yen) 456,995 $ 3,385
Current portion of long-term
debt (Notes 9 and 19)........ 667,964 825,422 6,114
Accounts payable, trade (Notes
4 and 19).................... 1,115,840 1,131,444 8,381
Accrued payroll (Note 19)..... 427,276 494,387 3,662
Accrued interest.............. 54,054 55,976 415
Accrued taxes on income....... 224,870 188,616 1,397
Accrued consumption tax (Note
12).......................... 27,295 99,813 740
Advances received............. 49,521 72,117 534
Other......................... 118,954 121,056 897
--------------- --------------- --------
Total current liabilities... 3,073,318 3,445,826 25,525
--------------- --------------- --------
Long-term liabilities:
Long-term debt (Notes 9 and
19).......................... 4,542,012 4,776,109 35,379
Obligations under capital
leases (Note 15)............. 452,968 473,681 3,508
Liability for employees'
severance payments (Note
10).......................... 2,795,089 2,890,761 21,413
Other (Note 11)............... 166,179 166,186 1,231
--------------- --------------- --------
7,956,248 8,306,737 61,531
--------------- --------------- --------
Minority interest in
consolidated subsidiaries...... 105,118 136,040 1,008
--------------- --------------- --------
Shareholders' equity (Note 13):
Common stock, (Yen)50,000 par
value--
Authorized--62,400,000 shares
Issued and outstanding--
15,912,000 shares........... 795,600 795,600 5,893
Additional paid-in capital.... 2,530,476 2,530,476 18,744
Legal reserve................. 94,140 102,678 761
Unrealized loss on securities
(Note 7)..................... (4,648) (20,061) (149)
Foreign currency translation
adjustments.................. -- 4,030 30
Retained earnings............. 1,924,842 2,051,205 15,194
--------------- --------------- --------
5,340,410 5,463,928 40,473
--------------- --------------- --------
Commitments and contingent
liabilities (Note 20)..........
--------------- --------------- --------
(Yen)16,475,094 (Yen)17,352,531 $128,537
=============== =============== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED MARCH 31
<TABLE>
<CAPTION>
1996 1997 1998 1998
-------------- -------------- -------------- ------------
MILLIONS OF YEN MILLIONS OF
U.S. DOLLARS
(NOTE 3)
<S> <C> <C> <C> <C>
Operating revenues (Note
4):
Telephone............. (Yen)5,557,674 (Yen)6,038,146 (Yen)6,306,034 $46,711
Telegraph............. 96,746 98,683 92,211 683
Leased circuit........ 393,415 428,715 488,160 3,616
Data communication
facility............. 301,365 337,934 372,765 2,761
Sale of
telecommunication
equipment............ 606,102 889,834 969,586 7,182
Miscellaneous......... 953,341 1,028,470 1,221,257 9,047
-------------- -------------- -------------- -------
7,908,643 8,821,782 9,450,013 70,000
-------------- -------------- -------------- -------
Operating expenses
(Notes 4 and 16):
Personnel............. 2,285,502 2,266,599 2,345,609 17,375
Depreciation,
amortization and
maintenance costs.... 2,809,602 2,998,550 3,185,044 23,593
Other................. 2,117,388 2,787,158 3,047,315 22,572
-------------- -------------- -------------- -------
7,212,492 8,052,307 8,577,968 63,540
-------------- -------------- -------------- -------
Operating income........ 696,151 769,475 872,045 6,460
-------------- -------------- -------------- -------
Other expenses (income):
Interest and
amortization of bond
discounts and issue
costs................ 268,032 253,950 235,363 1,743
Interest income....... (2,066) (1,839) (2,086) (15)
Gains on sale of
subsidiary stocks
(Note 17)............ (98,011) -- -- --
Other, net............ (16,943) 7,591 (16,764) (124)
-------------- -------------- -------------- -------
151,012 259,702 216,513 1,604
-------------- -------------- -------------- -------
Income before income
taxes.................. 545,139 509,773 655,532 4,856
-------------- -------------- -------------- -------
Income taxes (Note 11):
Current............... 274,409 359,005 362,910 2,688
Deferred.............. (1,435) (98,078) 55,366 410
-------------- -------------- -------------- -------
272,974 260,927 418,276 3,098
-------------- -------------- -------------- -------
Income before minority
interest............... 272,165 248,846 237,256 1,758
Minority interest in
consolidated
subsidiaries........... (6,124) (11,718) (32,275) (239)
Equity in earnings of
affiliated companies... 7,605 14,329 9,479 70
-------------- -------------- -------------- -------
Net Income.............. (Yen) 273,646 (Yen) 251,457 (Yen) 214,460 $ 1,589
============== ============== ============== =======
<CAPTION>
YEN U.S. DOLLARS
(NOTE 3)
<S> <C> <C> <C> <C>
Per share of common
stock:
Net income............ (Yen) 17,197 (Yen) 15,803 (Yen) 13,478 $ 100
-------------- -------------- -------------- -------
Cash dividends,
applicable to
earnings for the year
(Note 13)............ (Yen) 4,902 (Yen) 5,000 (Yen) 5,000 $ 37
-------------- -------------- -------------- -------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEAR ENDED MARCH 31
<TABLE>
<CAPTION>
1996 1997 1998 1998
-------------- -------------- -------------- ------------
MILLIONS OF YEN MILLIONS OF
U.S. DOLLARS
(NOTE 3)
<S> <C> <C> <C> <C>
Common stock (Note 13):
At beginning of year.. (Yen) 780,000 (Yen) 795,600 (Yen) 795,600 $ 5,893
Capitalization of
additional paid-in
capital.............. 15,600 -- -- --
-------------- -------------- -------------- -------
At end of year........ 795,600 795,600 795,600 5,893
-------------- -------------- -------------- -------
Additional paid-in
capital (Note 13):
At beginning of year.. 2,546,076 2,530,476 2,530,476 18,744
Transfer to common
stock................ (15,600) -- -- --
-------------- -------------- -------------- -------
At end of year........ 2,530,476 2,530,476 2,530,476 18,744
-------------- -------------- -------------- -------
Legal reserve (Note 13):
At beginning of year.. 77,689 85,602 94,140 698
Change during the
year................. 7,913 8,538 8,538 63
-------------- -------------- -------------- -------
At end of year........ 85,602 94,140 102,678 761
-------------- -------------- -------------- -------
Unrealized gain (loss)
on securities (Note 7):
At beginning of year.. 22,923 22,959 (4,648) (35)
Change during the
year................. 36 (27,607) (15,413) (114)
-------------- -------------- -------------- -------
At end of year........ 22,959 (4,648) (20,061) (149)
-------------- -------------- -------------- -------
Foreign currency
translation
adjustments:
At beginning of year.. -- -- -- --
Change during the
year................. -- -- 4,030 30
-------------- -------------- -------------- -------
At end of year........ -- -- 4,030 30
-------------- -------------- -------------- -------
Retained earnings (Note
13):
At beginning of year.. 1,573,749 1,761,482 1,924,842 14,258
Appropriations--
Cash dividends
((Yen)2,451 in
1996, (Yen)2,500 in
1997 and
(Yen)2,500--$19 in
1998 per share).... (39,000) (39,780) (39,780) (295)
Transfer to legal
reserve............ (4,013) (4,560) (4,560) (34)
Interim distribution--
Cash dividends
((Yen)2,451 in
1996, (Yen)2,500 in
1997 and
(Yen)2,500--$19 in
1998 per share).... (39,000) (39,779) (39,779) (295)
Transfer to legal
reserve............ (3,900) (3,978) (3,978) (29)
Net income............ 273,646 251,457 214,460 1,589
-------------- -------------- -------------- -------
At end of year........ 1,761,482 1,924,842 2,051,205 15,194
-------------- -------------- -------------- -------
Shareholders' equity at
end of year............ (Yen)5,196,119 (Yen)5,340,410 (Yen)5,463,928 $40,473
============== ============== ============== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31
<TABLE>
<CAPTION>
1996 1997 1998 1998
------------ ------------ ------------ ------------
MILLIONS OF YEN MILLIONS OF
U.S. DOLLARS
(NOTE 3)
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............ (Yen)273,646 (Yen)251,457 (Yen)214,460 $ 1,589
Adjustments to
reconcile net income
to net cash provided
by operating
activities--
Depreciation and
amortization......... 1,909,768 2,093,314 2,281,843 16,903
Deferred taxes........ (1,435) (98,078) 55,366 410
Loss on sale or
disposal of property,
plant and equipment.. 210,174 213,040 164,691 1,220
Gains on sales of
subsidiary stocks
(Note 17)............ (98,011) -- -- --
(Increase) decrease in
notes and accounts
receivable, trade.... (351,331) 131,339 (145,136) (1,075)
(Increase) decrease in
inventories.......... (35,963) (66,917) 7,631 57
(Increase) decrease in
other current
assets............... (42,475) 3,724 (11,712) (87)
Increase in accounts
payable, trade and
accrued payroll...... 266,608 140,919 125,000 926
Increase in accrued
consumption tax...... 1,099 515 72,518 537
Increase (decrease) in
advances received.... (59,167) 12,762 22,596 167
Increase (decrease) in
accrued taxes on
income............... 186,866 (7,995) (36,290) (269)
Increase (decrease) in
liability for
employees' severance
payments, net of
deferred pension
costs................ 53,989 22,394 (16,293) (121)
Increase (decrease) in
other long-term
liabilities.......... (7,876) (56,968) 1,054 8
Other................. 886 11,202 (5,121) (38)
------------ ------------ ------------ --------
Net cash provided by
operating
activities.......... 2,306,778 2,650,708 2,730,607 20,227
------------ ------------ ------------ --------
Cash flows from
investing activities:
Payments for property,
plant and equipment.. (2,244,576) (2,612,878) (2,685,961) (19,896)
Proceeds from sale of
property, plant and
equipment............ 18,327 9,517 10,827 80
Acquisition of
investments in
affiliates and
intangible and other
assets............... (239,114) (258,123) (233,813) (1,732)
Proceeds from sales of
subsidiary stocks
(Note 17)............ 178,770 -- -- --
------------ ------------ ------------ --------
Net cash used in
investing
activities.......... (2,286,593) (2,861,484) (2,908,947) (21,548)
------------ ------------ ------------ --------
Cash flows from
financing activities:
Proceeds from issuance
of long-term debt.... 897,665 1,136,896 1,047,974 7,763
Payments for
settlement of long-
term debt............ (817,980) (804,385) (706,388) (5,233)
Dividends paid........ (78,000) (79,559) (79,559) (589)
Net increase
(decrease) in short-
term borrowings and
other................ 34,325 140,322 8,409 62
------------ ------------ ------------ --------
Net cash provided by
financing
activities.......... 36,010 393,274 270,436 2,003
------------ ------------ ------------ --------
Net increase in cash
and cash equivalents.. 56,195 182,498 92,096 682
Cash and cash
equivalents at
beginning of year..... 582,447 638,642 821,140 6,083
------------ ------------ ------------ --------
Cash and cash
equivalents at end of
year.................. (Yen)638,642 (Yen)821,140 (Yen)913,236 $ 6,765
============ ============ ============ ========
Cash paid during the
year for:
Interest.............. (Yen)269,416 (Yen)258,748 (Yen)233,344 $ 1,728
------------ ------------ ------------ --------
Income taxes.......... (Yen) 87,803 (Yen)361,641 (Yen)400,860 $ 2,969
------------ ------------ ------------ --------
Capital lease
obligations incurred
during the year....... (Yen) 52,126 (Yen) 56,631 (Yen) 99,975 $ 741
------------ ------------ ------------ --------
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS:
Nippon Telegraph and Telephone Corporation ("the Company") is primarily
engaged in the provision of nationwide telecommunications services in Japan.
The Company and its subsidiaries' services fall into six major classes:
telephone services, telegraph services, leased circuit services, data
communication facility services, sale of telecommunication equipment and other
services.
In June 1997, the Japanese Diet passed the Law Concerning Partial Revision to
the Nippon Telegraph and Telephone Corporation Law ("the Revision Law"). This
Revision Law implements a plan proposed by the Ministry of Posts and
Telecommunications, and accepted in principle by the Company, to reorganize the
Company. Under the Revision Law, the Company will continue to exist but will
operate primarily as a holding company with its businesses reorganized into
three newly established companies, two regional telecommunications companies
and a long distance telecommunications company. The Revision Law also allows
the Company to enter, through one or more subsidiaries, the international
telecommunications business before the reorganization of the Company upon
approval of the Minister of Posts and Telecommunications ("the MPT").
In December 1997, the Ministry of Posts and Telecommunications announced "the
Basic Principles Concerning the Transfer of the Business Activities and
Succession of the Rights and Obligations of Nippon Telegraph and Telephone
Corporation." The Company will prepare "the Implementation Plans Concerning the
Transfer of the Business Activities and Succession of the Rights and
Obligations of Nippon Telegraph and Telephone Corporation" in accordance with
the Basic Principles. Matters concerning the transfer of business, which is the
precondition of reorganization, will be presented to shareholders at the
ordinary general meeting of shareholders in June 1999.
The Company plans to take advantage of the opportunities presented by the
Revision Law to effectively compete in extremely challenging international
markets, actively promote expansion of global telecommunications and multimedia
businesses, and further enhance its operations. At this time, however, the
ultimate effect of the implementation of the New Law on the financial position
and results of operations of the Company cannot be determined.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company and its subsidiaries in Japan maintain their records and prepare
their statutory financial statements in accordance with the Japanese Commercial
Code by applying accounting principles generally accepted in Japan (Japanese
GAAP). The Company, as a regulated company, also follows the NTT Law, the
Telecommunications Business Law ("the Telecom Business Law") and other related
accounting regulations for preparing such financial statements.
The accompanying consolidated financial statements incorporate certain
adjustments and reclassifications relating to (1) the tax effects of temporary
differences, (2) compensated absences and severance lump-sum and pension
payments, (3) foreign currency translation, (4) capital leases, (5) unrealized
gains and losses on debt and equity securities and certain other items to
conform with accounting principles generally accepted in the United States of
America. These adjustments were not recorded in the statutory books of account.
Significant accounting policies, after reflecting adjustment for the above,
are as follows:
BASIS OF CONSOLIDATION AND ACCOUNTING FOR INVESTMENTS IN AFFILIATED
COMPANIES--
The consolidated financial statements include the accounts of the Company and
those of its majority-owned subsidiaries. All significant intercompany
transactions and accounts are eliminated in consolidation.
F-8
<PAGE>
Investments in 20 to 50 percent-owned companies, in which the ability to
exercise significant influence exists, are stated at cost plus equity in
undistributed earnings.
On occasion, a subsidiary may issue its shares to third parties at amounts
per share in excess of or less than the Company's average per share carrying
value. With respect to such transactions, the resulting gains or losses arising
from a change in interest are recorded in income for the year in which the
change in interest transaction occurs.
The excess of cost over underlying equity at acquisition dates of investments
in subsidiaries and affiliated companies, if significant in amount, is
amortized over five years.
ACCOUNTING UNDER REGULATION--
The Company is currently subject to regulations under the Telecom Business
Law and accordingly, has adopted Statement of Financial Accounting Standards
No. 71 ("SFAS 71"), "Accounting for the Effects of Certain Types of
Regulation", which requires that the effects of the rate-making process be
recorded. Such effects concern mainly the time at which various items enter
into the determination of net income in order to follow the principle of
matching costs and revenues. These timing differences can create "regulatory
assets." These regulatory assets included in the accompanying consolidated
financial statements are listed and discussed below:
<TABLE>
<CAPTION>
1997 1998 1998
------------ ------------ ------------
MILLIONS OF YEN MILLIONS
OF
U.S. DOLLARS
<S> <C> <C> <C>
Regulatory assets due to:
Deferred compensated absences*........ (Yen)160,389 (Yen)132,538 $ 982
Deferred severance lump-sum and
pension payments**................... 573,696 603,337 4,469
Unamortized purchases of the leased
assets under SFAS 13................. 108,309 110,995 822
------------ ------------ ------
(Yen)842,394 (Yen)846,870 $6,273
============ ============ ======
</TABLE>
- --------
* Included in "Prepaid expenses and other current assets" in the accompanying
consolidated financial statements
** Included in "Intangible and other assets" in the accompanying consolidated
financial statements
Accrual for employees' compensated absences is reflected in the accompanying
consolidated financial statements and, as the Company expects to recover such
costs through the regulatory process when such amounts are paid, the related
deferred charges are reflected in the accompanying consolidated financial
statements.
Deferred severance lump-sum and pension payments above represent differences
between the Company's severance lump-sum and pension payments calculated under
Japanese GAAP and costs determined under the provisions of Statement of
Financial Accounting Standards No. 87 ("SFAS 87"), "Employers' Accounting for
Pensions". The Company expects to recover such differences through the
regulatory process when such amounts are accrued in accordance with Japanese
GAAP.
Certain leases qualifying as capital leases are capitalized and related lease
obligations are reflected in the accompanying financial statements. As required
by the SFAS 71, the leased assets of the Company are amortized to the extent of
the amount equal to rental expenses less interest on the lease obligations.
In order to promote further competition in the telecommunications market, and
as part of the Government's overall policy toward deregulation, the Telecom
Business Law was revised in May 1998. Under the revised Law, Type I Carriers
need not obtain approval from MPT but only notify MPT of their rates. For
certain services to be provided by such carriers with "designated
telecommunications facilities" and to be specified in an ordinance of the
Ministry of Posts and Telecommunications, a price-cap system will be
F-9
<PAGE>
introduced. Under the price-cap system, an index will be annually fixed by MPT,
and if the increase ratio of a new rate does not exceed such index, such
carriers need not obtain approval from MPT but only notify MPT of their rates.
The Revised Law will become effective at a date to be established by Cabinet
order not later than November 7, 1998. It is expected that until the
reorganization, rates for regional telecommunications services provided by the
Company will continue to be subject to MPT approval, while rates for such
services provided by the regional companies after the reorganization will be
subject to the price-cap system. Management, however, believes that the Company
currently meets the criteria for continued application of SFAS 71 but will
continue to evaluate significant changes on the Japanese regulatory and
competitive environment to assess the Company's overall compliance with
SFAS 71.
ESTIMATES--
The preparation of the Company's consolidated financial statements in
conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION--
Revenue from telecommunications services mainly represent telephone service
revenues. Telephone service revenues are recorded at the time billings are made
to customers based on seconds of traffic processed plus basic fees, on a
monthly billing cycle basis. Sales of telecommunications equipment are
recognized when products are delivered. Other telecommunications services
revenues are recorded when the services are rendered to customers.
CASH AND CASH EQUIVALENTS--
Cash in excess of daily requirements is invested in temporary cash
equivalents mainly consisting of time deposits and marketable bonds of the
Government of Japan, commercial paper and certificates of deposit purchased
under agreements to resell, all of which are low-risk, short-term financial
instruments readily convertible to known amounts of cash and having an original
maturity of three months or less. Such instruments are deemed to be cash
equivalents for the purpose of the statement of cash flows.
FOREIGN CURRENCY TRANSLATION--
All asset and liability accounts of foreign subsidiaries and affiliates are
translated into Japanese yen at appropriate year-end current rates and all
income and expense accounts are translated at rates that approximate those
rates prevailing at the time of transactions. The resulting translation
adjustments are accumulated as a component of shareholders' equity.
MARKETABLE SECURITIES--
Unrealized gains and losses on equity securities designated as available-for-
sale, whose fair values are readily determinable, are reported in a separate
component of shareholders' equity, net of applicable taxes. Debt securities
designated as held-to-maturity are carried at amortized cost and are reduced to
net realizable value for other than temporary declines in market value.
Realized gains and losses which are determined on the average cost method are
reflected in income.
INVENTORIES--
Inventories are stated at cost, not in excess of market, cost being
determined by the "average cost" basis. Projects in progress, which mainly
relate to software production based on contracts with customers, are stated at
the lower of cost or estimated realizable value, cost being determined as the
accumulated production cost for contract items and on a first-in first-out
basis for other items.
F-10
<PAGE>
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION--
Property, plant and equipment is stated at cost (including contract price,
direct labor charges and other related overhead), which is determined in
accordance with applicable accounting regulations. The regulations provide that
the cost of funds used during construction for telecommunications equipment
does not constitute allowable cost for capitalization and that customers'
contributions received by the Company in connection with installation of
telecommunications service lines are deducted from the cost of service lines.
Depreciation is computed principally using a declining-balance method at rates
based on estimated useful lives of the assets with the exception of buildings
for which the straight-line method is generally used. With minor exceptions,
the estimated useful lives of depreciable properties are as follows:
<TABLE>
<S> <C>
Telecommunications equipment.................................. 5 to 42 years
Telecommunications service lines.............................. 10 to 27 years
Buildings and structures...................................... 3 to 75 years
Machinery, vessels and tools.................................. 2 to 17 years
</TABLE>
Maintenance and repairs, including minor renewals and betterments, are
charged to income as incurred.
LIABILITY FOR EMPLOYEES' SEVERANCE PAYMENTS--
Employees whose services with the Company and its subsidiaries are terminated
are normally entitled to lump-sum severance payments or pension payments as
described below, determined by reference to the current basic rate of pay,
length of service and conditions under which the termination occurs. Under
normal circumstances, the minimum payment is an amount based on voluntary
retirement. Employees receive additional benefits on involuntary retirement. As
a result of the plan amendment made in the fiscal year ended March 31, 1993,
which resulted in unrecognized prior service costs at March 31, 1993, employees
receive further benefits if they retire between the ages of 45 and 55 with 10
years or more of service with the Company.
In the fiscal year ended March 31, 1993, the Company and certain subsidiaries
established a non-contributory funded pension plan with insurance companies and
trust companies. The benefits under the plan cover 28 percent of the
indemnities under existing regulations to employees who are more than 50 years
old and will be retiring after twenty or more years of service. Retirement
benefits are payable, at the option of the employee, in monthly installments or
in a lump-sum.
Through March 31, 1997 substantially all employees of the Company and its
subsidiaries in Japan were eligible to receive severance payments under the NTT
Severance Payment Plan and pension payments under the NTT Mutual Aid Plan. The
funded status of the Company's Employees' Severance Payments at March 31, 1997
related solely to the NTT Severance Payment Plan.
As part of the Japanese social insurance scheme restructuring, the Japanese
Welfare Pension Insurance Law was amended effective April 1, 1997 to convert
the NTT Mutual Aid Plan, which was administered by the Public Corporation
Employee Mutual Aid Association Law, into a government-sponsored welfare
pension plan under the Japanese Welfare Pension Insurance Law. At the same
time, the Company established the NTT Kosei Nenkin Kikin ("the NTT group
companies' welfare pension plan"), a defined benefit pension plan to which both
the Company and the employees make contributions and which is regulated by the
Japanese Welfare Pension Insurance Law. The NTT Severance Payment Plan was not
affected.
Effective April 1, 1997, a portion of the obligation under the NTT Mutual Aid
Plan and related assets was transferred to the NTT group companies' welfare
pension plan by the Japanese government. The NTT Mutual Aid Plan was considered
a multi-employer plan as defined by Statement of Financial Accounting Standards
No. 87 ("SFAS 87") "Employers' Accounting Pensions" and accordingly, expense
was recognized as
F-11
<PAGE>
contributions were owed to such plan. Because the Japanese government accounted
for the assets and liabilities under such plan under a method other than that
required by SFAS 87, the Company had an actuary value the plan's assets and
liabilities pursuant to the provisions of SFAS 87. Pursuant to the provisions
of SFAS 87, the fair value of the assets transferred to the plan was (Yen)629
billion and the actuarial present value of benefit obligations (vested benefit,
accumulated benefit and projected benefit obligations) as of April 1, 1997 were
(Yen)279 billion, (Yen)281 billion and (Yen)495 billion, respectively.
Substantially all of the difference between the assets and the actuarial
present value of the projected benefit obligations was reflected as a reduction
of regulatory assets.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS--
Effective April 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), "Accounting for Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of." This standard
requires that long-lived assets and certain identifiable intangibles held and
used be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets or intangibles may not be
recoverable. The adoption of this standard did not materially affect the
financial position or results of operations as the Company was generally in
conformance with this standard prior to adoption.
INCOME TAXES--
The provision for income taxes is computed based on the pretax income
included in the consolidated statement of income. The asset and liability
approach is used to recognize deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. Valuation allowances are
recorded to reduce deferred tax assets when it is more likely than not that a
tax benefit will not be realized.
DERIVATIVE FINANCIAL INSTRUMENTS--
The Company and certain subsidiaries enter into several derivative financial
instruments, such as forward exchange contracts, interest rate swap agreements
and currency swap agreements, in order to limit their main exposure to loss in
relation to underlying debt instruments resulting from adverse fluctuations in
foreign currency exchange rates and interest rates. The Company and its
subsidiaries do not use derivative financial instruments for speculative
purposes. Most of these instruments are integrated as part of debt transactions
and are entered into at the beginning date of those transactions, and have the
same maturity as the underlying debt. These instruments are executed with large
financial institutions.
As forward exchange contracts and currency swap agreements are utilized for
hedging purposes, such resulting gains or losses are effectively offset against
foreign exchange gains or losses on the underlying hedged debts through
recognition in the same period.
The Company and certain subsidiaries entered into interest rate swap
agreements which are fully integrated with underlying debt obligations and
designed to convert floating rate debt into fixed rate debt, or vice versa. As
the purpose of entering into the swap transaction is mainly to change the
nature of debt, the Company and certain subsidiaries account for the swap
agreement like a hedge of the obligation and record interest expense using the
revised interest rate.
Cash flows from financial instruments are classified in the consolidated
statement of cash flows under the same categories as the cash flows from the
related assets, liabilities or anticipated transactions.
NET INCOME PER SHARE--
Net income per common share is computed based on the average number of shares
outstanding during the year and is appropriately adjusted for any free
distribution of common stock.
F-12
<PAGE>
In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 128 ("SFAS 128"), "Earnings per Share", which replaces the presentation of
primary Earnings per Share (EPS) with a presentation of basic EPS and also
requires dual presentation of basic and diluted EPS with an appropriate
reconciliation of both computations. Basic EPS is computed based on the average
number of shares of common stock outstanding during each period. Diluted EPS
assumes the dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock. Although the provisions of SFAS 128 are applied to
the current and prior periods, the basic and diluted EPS amounts are the same
as those amounts previously reported as Net Income Per Share of Common Stock.
DISTRIBUTION OF COMMON STOCK--
On occasion, the Company may make a free distribution of common stock which
is accounted for by a transfer of the applicable par value from additional
paid-in capital to the common stock account. Under the Japanese Commercial
Code, a stock dividend can be effected by an appropriation of retained earnings
to the common stock account by a resolution of the general shareholders'
meeting and the free share distribution with respect to the amount as
appropriated by a resolution of the Board of Directors' Meeting.
RECENT PRONOUNCEMENTS--
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130 ("SFAS 130"), "Reporting Comprehensive Income." This standard requires
additional disclosures in the financial statements for periods beginning after
December 15, 1997, and will have no effect on the Company's financial position
or results of operations.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". This SOP, which is effective
for financial statements for fiscal years beginning after December 15, 1998,
provides guidance on accounting for the costs of computer software developed or
obtained solely to meet the Company's internal needs. At this stage, it is not
possible to estimate the impact of adoption on the Company's financial position
or results of operations.
RECLASSIFICATIONS--
Certain items for prior years' financial statements have been reclassified to
conform to the 1998 presentation.
3. U.S. DOLLAR AMOUNTS:
U.S. dollar amounts are included solely for convenience. These translations
should not be construed as representations that the yen amounts actually
represent, or have been or could be converted into, U.S. dollars. As the
amounts shown in U.S. dollars are for convenience only, the rate of (Yen)135 =
US$1, the approximate exchange rate at September 30, 1998, has been used for
the purpose of presentation of the U.S. dollar amounts in the accompanying
consolidated financial statements.
4. RELATED PARTY TRANSACTIONS:
The Company and its subsidiaries have entered into a number of different
types of transactions with affiliated companies, of which major transactions
are the sales of telecommunications terminal equipment, the purchases of
terminal equipment and materials and the receipt of certain services.
F-13
<PAGE>
Transactions with affiliated companies for each of the three years in the
period ended March 31, 1998 and the related balances at March 31, 1997 and 1998
were as follows:
<TABLE>
<CAPTION>
1996 1997 1998 1998
------------ ------------ ------------ ------------
MILLIONS OF YEN MILLIONS OF
U.S. DOLLARS
<S> <C> <C> <C> <C>
Sales.................... (Yen)158,470 (Yen)193,856 (Yen)169,347 $1,254
============ ============ ============ ======
Purchases................ (Yen)328,074 (Yen)365,910 (Yen)423,998 $3,141
============ ============ ============ ======
Receivables.............. (Yen) 40,942 (Yen) 45,339 $ 336
============ ============ ======
Payables................. (Yen)119,357 (Yen)147,718 $1,094
============ ============ ======
</TABLE>
Dividends from affiliated companies accounted for by the equity method for
the years ended March 31, 1996, 1997, and 1998 were (Yen)411 million, (Yen)522
million and (Yen)592 million ($4 million), respectively.
5. CASH AND CASH EQUIVALENTS:
Cash and cash equivalents at March 31, 1997 and 1998 comprised the following:
<TABLE>
<CAPTION>
1997 1998 1998
------------ ------------ ------------
MILLIONS OF YEN MILLIONS OF
U.S. DOLLARS
<S> <C> <C> <C>
Cash ................................ (Yen)490,420 (Yen)573,995 $4,252
Certificates of deposit, commercial
paper and marketable securities
purchased under agreements to
resell.............................. 161,946 74,539 552
Time deposits, certificates of
deposit and other................... 168,774 264,702 1,961
------------ ------------ ------
(Yen)821,140 (Yen)913,236 $6,765
============ ============ ======
</TABLE>
Certificates of deposit, commercial paper and securities, including
marketable bonds of the Government of Japan, are purchased under agreements to
resell and are to be sold back to financial institutions at predetermined
selling prices and dates. Such certificates of deposit, commercial paper and
securities and other deposits are stated at amounts which approximate fair
value.
6. INVENTORIES:
Inventories at March 31, 1997 and 1998 comprised the following:
<TABLE>
<CAPTION>
1997 1998 1998
------------ ------------ ------------
MILLIONS OF YEN MILLIONS OF
U.S. DOLLARS
<S> <C> <C> <C>
Telecommunications terminals to be
sold.............................. (Yen)126,694 (Yen)109,689 $ 812
Projects in progress............... 92,776 100,456 744
Materials and supplies............. 11,937 13,631 101
------------ ------------ ------
(Yen)231,407 (Yen)223,776 $1,657
============ ============ ======
</TABLE>
F-14
<PAGE>
7. MARKETABLE SECURITIES AND OTHER INVESTMENTS:
Marketable securities and other investments include available-for-sale
securities and held-to-maturity securities. The aggregate fair value, gross
unrealized holding gains, gross unrealized holding losses and carrying amounts
by major security type at March 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED
AMOUNTS GAINS LOSSES FAIR VALUE
------------ ----------- ----------- ------------
MILLIONS OF YEN
<S> <C> <C> <C> <C>
Available-for-sale:
Equity securities....... (Yen)119,770 (Yen)42,340 (Yen)51,720 (Yen)110,390
Held-to-maturity:
Debt securities......... 4,850 88 0 4,938
------------ ----------- ----------- ------------
Total................. (Yen)124,620 (Yen)42,428 (Yen)51,720 (Yen)115,328
============ =========== =========== ============
<CAPTION>
MARCH 31, 1998
-------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED
AMOUNTS GAINS LOSSES FAIR VALUE
------------ ----------- ----------- ------------
MILLIONS OF YEN
<S> <C> <C> <C> <C>
Available-for-sale:
Equity securities....... (Yen)118,925 (Yen)30,513 (Yen)68,980 (Yen) 80,458
Held-to-maturity:
Debt securities......... 3,507 18 0 3,525
------------ ----------- ----------- ------------
Total................. (Yen)122,432 (Yen)30,531 (Yen)68,980 (Yen) 83,983
============ =========== =========== ============
<CAPTION>
MARCH 31, 1998
-------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED
AMOUNTS GAINS LOSSES FAIR VALUE
------------ ----------- ----------- ------------
MILLIONS OF U.S. DOLLARS
<S> <C> <C> <C> <C>
Available-for-sale:
Equity securities....... $ 881 $ 226 $ 511 $ 596
Held-to-maturity:
Debt securities......... 26 0 0 26
------------ ----------- ----------- ------------
Total................. $ 907 $ 226 $ 511 $ 622
============ =========== =========== ============
</TABLE>
During the years ended March 31, 1996, 1997 and 1998, the net unrealized gain
or loss on available-for-sale securities included in the separate component of
shareholders' equity, net of applicable taxes, increased by (Yen)36 million,
decreased by (Yen)27,607 million and decreased by (Yen)15,413 million ($114
million), respectively.
Maturities of debt securities classified as held-to-maturity at March 31,
1998 are as follows:
<TABLE>
<CAPTION>
1998 1998
--------------------- --------------
CARRYING FAIR CARRYING FAIR
AMOUNTS VALUE AMOUNTS VALUE
---------- ---------- -------- -----
MILLIONS OF YEN MILLIONS OF
U.S. DOLLARS
<S> <C> <C> <C> <C>
Due after 1 year through 5 years....... (Yen) 783 (Yen) 815 $ 6 $ 6
Due after 5 years through 10 years..... 2,724 2,710 20 20
---------- ---------- --- ---
Total................................ (Yen)3,507 (Yen)3,525 $26 $26
========== ========== === ===
</TABLE>
F-15
<PAGE>
Proceeds from sales of available-for-sale securities for the years ended
March 31, 1996, 1997 and 1998 were immaterial.
In the ordinary course of business, the Company maintains long-term
investment securities, included in marketable securities and other investments,
issued by a large number of privately held companies. The aggregate carrying
amounts of the investments in privately held companies were (Yen)39,707 million
and (Yen)40,945 million ($303 million) at March 31, 1997 and 1998,
respectively. The corresponding fair values at those dates were not computed as
such estimation was not readily determinable.
8. INTANGIBLE AND OTHER ASSETS:
Intangible and other assets and the related accumulated amortization at March
31, 1997 and 1998 were as follows:
<TABLE>
<CAPTION>
1997 1998 1998
-------------- -------------- ------------
MILLIONS OF YEN MILLIONS
OF
U.S. DOLLARS
<S> <C> <C> <C>
Computer software............. (Yen)1,683,924 (Yen)1,881,423 $13,936
Rights to use utility
facilities and other......... 539,762 590,309 4,373
-------------- -------------- -------
2,223,686 2,471,732 18,309
Accumulated amortization...... (1,163,186) (1,272,983) (9,429)
-------------- -------------- -------
1,060,500 1,198,749 8,880
Deferred periodic pension
costs (See Note 10).......... 593,789 625,065 4,630
Prepaid pension costs (See
Note 10)..................... -- 80,689 597
-------------- -------------- -------
(Yen)1,654,289 (Yen)1,904,503 $14,107
============== ============== =======
</TABLE>
Computer software is recorded at cost and is amortized over an estimated
useful life of five years. Rights to use utility facilities are acquired for
lump-sum cash payments and mainly consist of cable tunnel and public use joint
tunnels. Such rights are recorded at cost and are amortized over their
estimated useful lives of eighteen years. Other intangibles are also recorded
at cost and amortized over their estimated useful lives averaging twelve years.
F-16
<PAGE>
9. SHORT-TERM BORROWINGS AND LONG-TERM DEBT:
Short-term borrowings at March 31, 1998 represented one year unsecured short-
term bank loans bearing interest and commercial paper at a weighted average
rate of 1.21 percent per annum.
Long-term debt at March 31, 1997 and 1998 comprised the following:
<TABLE>
<CAPTION>
1997 1998 1998
-------------- -------------- ------------
MILLIONS OF YEN MILLIONS OF
U.S. DOLLARS
<S> <C> <C> <C>
Debt denominated in Japanese
yen:
1.85%-7.2% coupon bonds due
1998-2010.................... (Yen)1,503,482 (Yen)1,647,100 $12,201
Unsecured indebtedness to
banks--
2.9% (weighted average)
loans due 1998-2022........ 2,779,645 2,998,440 22,210
1.3% (weighted average)
floating rate loans due
1998-2005.................. 152,172 58,042 430
-------------- -------------- -------
4,435,299 4,703,582 34,841
-------------- -------------- -------
Debt denominated in foreign
currencies:
6.0%-9 1/2% U.S. dollar notes
due 1998-2008................ 350,280 479,160 3,549
4.0%-6.0% Swiss franc bonds
and notes due 1999-2006...... 97,763 74,566 552
8 3/4% ECU notes due 1997..... 29,222 -- --
7 1/4%-10 1/4% Canadian dollar
notes due 1998-2001.......... 73,240 56,658 420
7 1/8% Deutsche mark bonds due
2000......................... 52,185 28,872 214
7 3/8%-10 7/8% Sterling pound
bonds due 2001-2003.......... 72,461 78,967 585
1.6%-5.4% yen notes due 1998-
2007......................... 85,000 167,000 1,237
Unsecured indebtedness to
banks--
10.67% Thai baht loan due
2000....................... 3,276 2,378 18
5.7% (weighted average) U.S.
dollar floating rate loans
due 2000-2004.............. 11,307 12,029 89
-------------- -------------- -------
774,734 899,630 6,664
-------------- -------------- -------
Total long-term debt principal.. 5,210,033 5,603,212 41,505
Less--Deferred bond discounts... 57 1,681 12
-------------- -------------- -------
5,209,976 5,601,531 41,493
Less--Current maturities........ 667,964 825,422 6,114
-------------- -------------- -------
Total long-term debt...... (Yen)4,542,012 (Yen)4,776,109 $35,379
============== ============== =======
</TABLE>
Interest rates and due dates are stated at March 31, 1998.
At March 31, 1998, buildings and land of certain consolidated subsidiaries,
with a book value of (Yen)13,630 million ($101 million), were mortgaged as
security for certain loans.
All the holders of the bonds and notes issued by the Company referred to in
the above table generally have a preferential right under the NTT Law to be
paid prior to other unsecured indebtedness subject to certain general
preferential rights provided for in the Japanese Civil Code, such as
preferential rights of employees to wages.
F-17
<PAGE>
The bond and note agreements as to the long-term debt at March 31, 1998
stipulate, among other things, the following:
(1) Swiss franc bonds of (Yen)175 million ($1 million) are subject to
annual redemption. The Company shall repurchase, at market value, a
prescribed amount of bonds if the price within 60 days prior to each
redemption installment date does not exceed the par value of the bonds.
(2) At the option of the Company on terms as defined, all the bonds and
notes are redeemable generally at the principal amount or repurchasable at
the current value.
In February and November 1996, debts totaling (Yen)50,000 million and
(Yen)50,000 million, respectively, were removed from the balance sheet through
placing cash in a bank. The principal and interest of the funds deposited in a
trust fund with the bank will be sufficient to fund the scheduled principal and
interest payments of these debt issues. The balance of these outstanding debts
at March 31, 1998 was (Yen)100,000 million ($741 million).
Under Statement of Financial Accounting Standards No. 125 ("SFAS 125"),
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," the Company and a certain subsidiary recognized debts of
(Yen)65,000 million ($481 million), which are not considered extinguished, in
the balance sheet with the related funds. These funds, which are included in
"Intangible and other assets" in the accompanying consolidated financial
statements, were subject to withdrawal restrictions.
The aggregate amounts of annual maturities of long-term debt during each of
the five years ending March 31, 2003 and thereafter are as follows:
<TABLE>
<CAPTION>
1998 1998
-------------- ------------
MILLIONS MILLIONS OF
OF YEN U.S. DOLLARS
<S> <C> <C>
Year ending March 31
1999........................................... (Yen) 825,422 $ 6,114
2000........................................... 874,918 6,481
2001........................................... 897,729 6,650
2002........................................... 851,401 6,307
2003........................................... 652,277 4,832
Thereafter..................................... 1,499,784 11,109
-------------- -------
(Yen)5,601,531 $41,493
============== =======
</TABLE>
F-18
<PAGE>
10. EMPLOYEES' SEVERANCE PAYMENTS:
The following tables presents reconciliation of the status of the NTT
Severance Payment Plan at March 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998 1998
-------------- -------------- --------
MILLIONS OF YEN MILLIONS
OF U.S.
DOLLARS
<S> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation........ (Yen)2,739,830 (Yen)2,992,165 $22,164
============== ============== =======
Accumulated benefit obligation... (Yen)3,174,125 (Yen)3,176,526 $23,530
============== ============== =======
Projected benefit obligation..... (Yen)4,052,192 (Yen)4,011,150 $29,712
Plan assets at fair value.......... 386,013 488,901 3,621
-------------- -------------- -------
Projected benefit obligation in
excess of plan assets............. 3,666,179 3,522,249 26,091
Unrecognized transition
obligation........................ (489,049) (419,697) (3,109)
Unrecognized prior service costs... (102,987) (93,327) (691)
Unrecognized net loss.............. (299,146) (140,192) (1,039)
Adjustment needed to recognize
minimum liability................. 20,092 21,728 161
-------------- -------------- -------
Liability for employees' severance
payments recognized in the
consolidated balance sheet........ (Yen)2,795,089 (Yen)2,890,761 $21,413
============== ============== =======
</TABLE>
The charges to income for employees' severance indemnities for each of the
three years in the period ended March 31, 1998 included the following
components:
<TABLE>
<CAPTION>
1996 1997 1998 1998
------------ ------------ ------------ ------------
MILLIONS OF YEN MILLIONS OF
U.S. DOLLARS
<S> <C> <C> <C> <C>
Service cost............ (Yen)152,761 (Yen)156,730 (Yen)157,153 $1,164
Interest cost on
projected benefit
obligation............. 177,662 171,278 164,229 1,217
Actual return on plan
assets................. (20,666) (5,756) (32,321) (239)
Net amortization and
deferral............... 88,332 72,597 98,324 728
------------ ------------ ------------ ------
Net periodic severance
payments under SFAS
87..................... 398,089 394,849 387,385 2,870
Deduct: Amounts
attributable to
regulatory accounting
practices under SFAS
71..................... (119,607) (148,812) (107,501) (797)
------------ ------------ ------------ ------
Total cost for
employees' severance
indemnities as recorded
in the consolidated
statement of income.... (Yen)278,482 (Yen)246,037 (Yen)279,884 $2,073
============ ============ ============ ======
Assumptions in
determination of net
pension cost:
Discount rate......... 4.5% 4.0% 3.5%
Long-term rate of
salary increases..... 4.5% 4.0% 3.5%
Long-term rate of
return on funded
assets............... 4.5% 4.0% 3.5%
</TABLE>
In 1995, the Company offered a voluntary early retirement program to certain
employees. Under the program, employees were entitled to receive special
termination benefits if they accepted the program which was offered during a
short period of time. The number of individuals to whom this program was
offered was limited to those employees between the ages of 40 to 57 years old
with 10 or more years of service with the Company. As the result, approximately
9,900 employees accepted the offer in 1995, at which time the special
termination program benefits, amounting to (Yen)33,707 million, were recognized
as an expense.
F-19
<PAGE>
As more fully described in Note 2, the Company established the NTT Kosei
Nenkin Kikin ("the NTT group companies' welfare pension plan"), a defined
benefit pension plan to which both the Company and the employees make
contributions and which is regulated by the Japanese Welfare Pension Insurance
Law.
<TABLE>
<CAPTION>
1998 1998
--------------- ------------
MILLIONS OF YEN MILLIONS OF
U.S. DOLLARS
<S> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation................... (Yen)442,778 $3,280
------------ ------
Accumulated benefit obligation.............. (Yen)462,582 $3,427
------------ ------
Projected benefit obligation................ (Yen)733,124 $5,430
Plan assets at fair value..................... 764,153 5,660
------------ ------
Plan assets in excess of projected benefit
obligation................................... 31,029 230
Unrecognized net gain......................... 49,660 368
------------ ------
Prepaid pension costs......................... (Yen) 80,689 $ 598
============ ======
</TABLE>
<TABLE>
<CAPTION>
1998 1998
--------------- ------------
MILLIONS OF YEN MILLIONS OF
U.S. DOLLARS
<S> <C> <C>
Service cost................................... (Yen)132,444 $ 981
Interest cost on projected benefit obligation.. 19,788 146
Actual return on plan assets................... (63,150) (468)
Net amortization and deferral.................. 36,556 271
Employee contributions......................... (31,362) (232)
------------ -----
Net periodic severance payments under SFAS 87.. 94,276 698
Gain on transferred plan assets in excess of
projected
benefit obligation as of April 1, 1997........ (133,951) (992)
Deduct: Amounts attributable to regulatory
accounting practices under SFAS 71............ 77,860 577
------------ -----
Total cost for employees' severance indemnities
as
recorded in the consolidated statement of in-
come.......................................... (Yen) 38,185 $283
============ =====
Assumptions in determination of net pension
cost:
Discount rate................................ 3.5%
Long-term rate of salary increases........... 3.5%
Long-term rate of return on funded assets.... 4.0%
</TABLE>
F-20
<PAGE>
11. INCOME TAXES:
The Company and its subsidiaries are subject to a number of different taxes,
based on income, which in the aggregate indicate a normal statutory tax rate of
approximately 51 percent. Due to a change in Japanese income tax regulations,
effective April 1, 1998, the statutory rate was reduced to approximately 48%
and such amount has been used in calculating the future expected tax effects of
temporary differences. However, there are certain deductions and credits
available and a limit on deductions of a certain nature. The effective tax
rates of the Company for the years ended March 31, 1996, 1997 and 1998 differ
from the normal statutory tax rates for the following reasons:
<TABLE>
<CAPTION>
PERCENT OF INCOME
BEFORE INCOME
TAXES
-------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Normal statutory tax rate............................. 51.00% 51.00% 51.00%
Tax credit primarily for expenditures for research and
development, and certain equipment................... (3.75) (0.40) (0.38)
Changes in income tax rate............................ -- -- 6.49
Provision for valuation allowance..................... -- -- 4.66
Other................................................. 2.82 0.58 2.04
----- ----- -----
Effective tax rate.................................... 50.07% 51.18% 63.81%
===== ===== =====
</TABLE>
Significant components of the deferred tax assets and liabilities at March
31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998 1998
------------ ------------ --------
MILLIONS OF YEN MILLIONS
OF U.S.
DOLLARS
<S> <C> <C> <C>
Deferred tax assets:
Liability for employees' severance
payments........................... (Yen)599,909 (Yen)569,678 $4,220
Advance received.................... 8,835 11,012 82
Accrued enterprise tax.............. 22,905 18,951 140
Depreciation........................ 20,287 23,268 172
Operating loss carryforwards for tax
purposes........................... 72,766 2,810 21
Financial assistance to subsidiary
companies.......................... -- 95,375 706
Other............................... 108,887 101,062 749
------------ ------------ ------
Total gross deferred tax assets..... 833,589 822,156 6,090
Less valuation allowance............ (1,479) (30,573) (226)
------------ ------------ ------
Total deferred tax assets........... 832,110 791,583 5,864
------------ ------------ ------
Deferred tax liabilities:
Valuation for securities............ 22,059 17,011 126
Special reserve for tax purposes.... 42,136 41,897 310
Gains on sales of subsidiary
stocks............................. 31,972 31,972 237
Other............................... 49,962 50,684 376
------------ ------------ ------
Total gross deferred tax
liabilities........................ 146,129 141,564 1,049
------------ ------------ ------
Net deferred tax assets............. (Yen)685,981 (Yen)650,019 $4,815
============ ============ ======
</TABLE>
The Company and NTT Mobile Communications Network, Inc., and its eight
regional subsidiaries (together, "NTT DoCoMo", a trademark which stands for "Do
Communications over the Mobile Network") are major shareholders of NTT Personal
Group, which consists of NTT Central Personal Communications Network Inc. and
eight other NTT subsidiaries. In May 1998 the Company decided to transfer its
PHS business to NTT DoCoMo by the end of fiscal year 1999 and to liquidate NTT
Personal Group following the transfer.
F-21
<PAGE>
Through the liquidation, the Company and NTT DoCoMo will provide financial
assistance to NTT Personal Group in the form of intercompany loans. The
proceeds of such loans, which may total up to approximately (Yen)200 billion,
will be used by NTT Personal Group to settle outstanding bank debt and other
liabilities. Although losses relating to the financial assistance have already
been recognized on a consolidated basis, they are not tax deductible until the
liquidation is completed. Therefore, the Company has recognized deferred tax
assets related to these losses.
The valuation allowance at March 31, 1997 mainly related to deferred tax
assets of consolidated subsidiaries with operating loss carryforwards for tax
purposes that are not expected to be realized. The valuation allowance at March
31, 1998 mainly related to deferred tax assets on the losses related to
financial assistance to subsidiary companies which are not expected to be tax
deductible. The net changes in the total valuation allowance for the years
ended March 31, 1997 and 1998 were a decrease of (Yen)1,862 million and an
increase of (Yen)29,094 million ($216 million), respectively.
Net deferred tax assets at March 31, 1997 and 1998 are included in the
consolidated balance sheet as follows:
<TABLE>
<CAPTION>
1997 1998 1998
------------ ------------ --------
MILLIONS OF YEN MILLIONS
OF U.S.
DOLLARS
<S> <C> <C> <C>
Prepaid expenses and other current
assets............................... (Yen)101,009 (Yen)138,686 $1,027
Deferred income taxes (investments and
other assets)........................ 586,020 511,334 3,788
Other long-term liabilities........... (1,048) (1) (0)
------------ ------------ ------
(Yen)685,981 (Yen)650,019 $4,815
============ ============ ======
</TABLE>
Operating loss carryforwards for tax purposes of consolidated subsidiaries at
March 31, 1998 amounted to approximately (Yen)227,391 million ($1,684 million)
and are available as an offset against future taxable income of such
subsidiaries. Theses carryforwards expire at various dates up to five years.
Realization is dependent on such subsidiaries generating sufficient taxable
income prior to expiration of loss carryforwards. Although realization is not
assured, management believes it is more likely than not that all of the
deferred tax assets, less valuation allowances, will be realized. The amount of
such net deferred tax assets considered realizable, however, could be reduced
in the near term if estimates of future taxable income during the carryforward
period are reduced.
12. CONSUMPTION TAX:
The consumption tax rate, with minor exceptions, for all taxable goods and
services is 3 percent. Effective April 1, 1997, the rate has been raised to 5
percent. A tax credit for consumption taxes incurred (which are included in the
cost of purchased goods and services) is available against consumption taxes
attributable to revenue in the same taxable period.
13. SHAREHOLDERS' EQUITY:
As noted previously, pursuant to the NTT Law as approved by the Japanese
Diet, the Company was incorporated on April 1, 1985, upon which all the assets
and liabilities of the Public Corporation were transferred to the Company. As
provided for in the supplementary provisions of the NTT Law, all the new shares
held by the Public Corporation were transferred to the Japanese government upon
the dissolution of the Public Corporation on April 1, 1985. The NTT Law
specifies, however, that such government ownership may eventually be reduced to
one-third. Since incorporation, the Government of Japan has sold 5,400 thousand
shares of the Company's common stock to the public. As a normal part of its
business operations, the Company provides various telecommunications and other
services to the Government of Japan.
F-22
<PAGE>
According to the NTT Law, the Company shall obtain authorization from the
Minister of Posts and Telecommunications for certain financial matters
including (1) new issue of shares, convertible debentures or debentures with
preemptive rights to acquire new shares; (2) any resolution for (i) change in
the Articles of Incorporation, (ii) appropriation of profits or (iii) merger or
dissolution; and (3) disposition of major telecommunications trunk lines and
equipment or providing mortgages on such properties.
The Japanese Commercial Code provides that (i) all appropriations of retained
earnings, including dividends, require approval at an ordinary general meeting
of shareholders, (ii) interim cash dividends can be distributed upon the
approval of the board of directors, if the Articles of Incorporation provide
for such interim cash dividends, subject to some restrictions in the amount,
and (iii) an amount equal to at least 10 percent of cash dividends and other
appropriations paid in cash be appropriated from retained earnings to a legal
reserve until the reserve equals 25 percent of stated capital.
On November 24, 1995, based upon the resolution of the Board of Directors'
Meeting held on April 28, 1995, the Company capitalized the aggregate amount of
(Yen)15,600 million ($116 million) of its additional paid-in capital to the
common stock account and made a free share distribution of 312,000 shares to
shareholders of record at September 30, 1995 representing 2 percent of
outstanding shares. In Japan, no accounting entry is required for such a free
share distribution. Had the distribution been accounted for in the manner
adopted by companies in the United States of America, (Yen)234,624 million
($1,738 million) would have been transferred from retained earnings to the
applicable capital accounts.
The amount of unrestricted consolidated retained earnings pursuant to
accounting principles generally accepted in Japan was (Yen)1,373,748 million
($10,176 million) at March 31, 1998.
In accordance with customary practice in Japan, the appropriations are not
accrued in the financial statements for the period to which they relate but are
recorded in the subsequent accounting period after shareholders' approval has
been obtained. Retained earnings at March 31, 1998 includes amounts
representing final cash dividends of (Yen)39,780 million ($295 million),
(Yen)2,500 ($19) per share, and the related transfer to the legal reserve of
(Yen)3,978 million ($29 million), which were approved at the shareholders'
meeting held on June 26, 1998.
14. BUSINESS SEGMENT AND GEOGRAPHIC AREA:
The Company and its subsidiaries are engaged predominantly in a single
industry, telecommunications services in Japan which include telephone,
telegraph, leased circuit, sale of telecommunication equipment and data
communications services.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information", which requires that public business enterprises report certain
information about operating segments in financial statements of the enterprise
and also requires that they report certain information about their products and
services, the geographic areas in which they operate, and their major
customers. In the case of the Company, SFAS 131 is effective for the fiscal
year beginning April 1, 1998. Management does not believe that the new standard
will have a material effect on the consolidated financial position or operating
results of the Company.
F-23
<PAGE>
15. LEASES:
The Company and its subsidiaries lease certain office space, employees'
residential facilities and other assets. Leases qualifying as capital leases at
March 31, 1997 and 1998 were as follows:
<TABLE>
<CAPTION>
CLASS OF PROPERTY 1997 1998 1998
----------------- ------------ ------------ ------------
MILLIONS OF YEN MILLIONS OF
U.S. DOLLARS
<S> <C> <C> <C>
Buildings........................... (Yen)394,288 (Yen)393,233 $ 2,913
Machinery, vessels and tools........ 169,369 305,545 2,263
Accumulated depreciation............ (95,943) (197,526) (1,463)
------------ ------------ -------
(Yen)467,714 (Yen)501,252 $ 3,713
============ ============ =======
</TABLE>
Future minimum lease payments by year under capital leases together with the
present value of the net minimum lease payments at March 31, 1998 are as
follows:
<TABLE>
<CAPTION>
MILLIONS OF MILLIONS OF
YEAR ENDING MARCH 31 YEN U.S. DOLLARS
-------------------- ------------ ------------
<S> <C> <C>
1999............................................... (Yen) 92,581 $ 686
2000............................................... 81,974 607
2001............................................... 68,209 505
2002............................................... 42,930 318
2003............................................... 35,151 261
Later years........................................ 1,182,740 8,761
------------ -------
Total minimum lease payments....................... 1,503,585 11,138
Less--Amount representing interest................. 976,036 7,230
------------ -------
Present value of net minimum lease payments........ 527,549 3,908
Less--Current obligation........................... 53,868 399
------------ -------
Long-term capital lease obligations................ (Yen)473,681 $ 3,509
============ =======
</TABLE>
Rental expenses under operating leases for land, buildings and equipment
under cancellable leases, which are generally renewed upon expiration, for the
years ended March 31, 1996, 1997 and 1998 were (Yen)173,223 million,
(Yen)178,519 million and (Yen)153,055 million ($1,134 million), respectively.
16. RESEARCH AND DEVELOPMENT EXPENSES AND ADVERTISING COSTS:
RESEARCH AND DEVELOPMENT EXPENSES--
Research and development expenses are charged to income as incurred and such
amounts charged to income for the years ended March 31, 1996, 1997 and 1998
were (Yen)318,105 million, (Yen)328,529 million and (Yen)288,931 million
($2,140 million), respectively.
ADVERTISING COSTS--
Advertising costs are expensed as incurred. Advertising costs included in
other operating expenses were (Yen)59,973 million, (Yen)75,244 million and
(Yen)83,452 million ($618 million) for the years ended March 31, 1996, 1997 and
1998, respectively.
17. GAINS ON SALES OF SUBSIDIARY STOCKS:
In April 1995, the Company sold 48,000 shares of NTT Data Corporation ("NTT
Data"), a consolidated subsidiary, to third parties for (Yen)49,866 million,
net of related expenses. In addition, on April 26, 1995 and February 14, 1996,
NTT Data issued 20,000 shares and 33,000 shares of common stock in a public
offering to third parties at a price of (Yen)1,040 thousand and (Yen)3,050
thousand per share, respectively, which were in excess of
F-24
<PAGE>
the Company's average per share carrying value. The issuances of these shares
for (Yen)20,800 million and (Yen)100,650 million are regarded as sales of a
part of the Company's interest in NTT Data. As a result of these issuances and
sales, the Company's shareholding in NTT Data declined from 100 percent to 60
percent. The resulting gains on these issuances and sales of subsidiary stock,
together with those on other similar transactions, amounting to approximately
(Yen)98,011 million were included in the consolidated statement of income for
the year ended March 31, 1996. In the consolidated statement of cash flows for
the year ended March 31, 1996, the gains on sales of subsidiary stocks are
excluded from the cash flows from operating activities and the related cash
proceeds of (Yen)178,770 million are included in the cash flows from investing
activities.
18. FOREIGN EXCHANGE GAIN AND LOSS:
Foreign exchange results (mainly arising from foreign currency borrowings)
for the years ended March 31, 1996, 1997 and 1998 were losses of (Yen)708
million, (Yen)2,120 million and (Yen)799 million ($6 million), respectively.
19. FINANCIAL INSTRUMENTS:
The carrying amounts and the estimated fair values of financial instruments
excluding debt and equity securities at March 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998 1998
-------------------------- -------------------------- --------------------
CARRYING CARRYING CARRYING
AMOUNTS FAIR VALUE AMOUNTS FAIR VALUE AMOUNTS FAIR VALUE
------------ ------------ ------------ ------------ -------- ----------
MILLIONS OF
MILLIONS OF YEN U.S. DOLLARS
<S> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ (Yen)821,140 (Yen)821,140 (Yen)913,236 (Yen)913,236 $ 6,765 $ 6,765
Notes and accounts
receivable, trade...... 930,792 930,792 1,085,381 1,085,381 8,040 8,040
Short-term borrowings... (387,544) (387,544) (456,995) (456,995) (3,385) (3,385)
Accounts payable, trade (1,115,840) (1,115,840) (1,131,444) (1,131,444) (8,381) (8,381)
Accrued payroll......... (427,276) (427,276) (494,387) (494,387) (3,662) (3,662)
Long-term debt including
current portion........ (5,209,976) (5,433,703) (5,601,531) (5,756,528) (41,493) (42,641)
Forward exchange
contracts.............. (11,813) (16,664) (52,473) 41,302 (389) 306
Interest rate and
currency swap
agreements............. -- -- (10,690) 9,425 (79) 70
</TABLE>
CASH AND CASH EQUIVALENTS, NOTES AND ACCOUNTS RECEIVABLE, TRADE, SHORT-TERM
BORROWINGS, ACCOUNTS PAYABLE, TRADE AND ACCRUED PAYROLL--
The carrying amounts approximate fair value because of the short maturities
of such instruments.
LONG-TERM DEBT INCLUDING CURRENT PORTION--
The fair value of long-term debt is estimated based on the discounted amounts
of future cash flows using the Company's current incremental rates of
borrowings for similar liabilities.
DERIVATIVE FINANCIAL INSTRUMENTS--
The fair values of forward exchange contracts, interest rate swap agreements
and currency swap agreements are estimated based on the amounts the Company and
certain subsidiaries would receive or pay to terminate the contracts at March
31, 1997 and 1998 with discounted amounts of net future cash flows.
F-25
<PAGE>
The table below shows the notional principal amounts of those derivative
financial instruments at March 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998 1998
------------ ------------ ------------
MILLIONS OF YEN MILLIONS
OF
U.S. DOLLARS
<S> <C> <C> <C>
Forward exchange contracts.......... (Yen)727,007 (Yen)499,056 $3,697
Interest rate and currency swap
agreements......................... 81,324 553,270 4,098
</TABLE>
CONCENTRATIONS OF CREDIT RISK--
The Company and certain subsidiaries do not have any significant
concentration of business transacted with an individual counterparty or groups
of counterparties that could, if suddenly eliminated, severely impact our
operations at March 31, 1998.
20. COMMITMENTS AND CONTINGENT LIABILITIES:
Commitments outstanding at March 31, 1998 for the purchase of property, plant
and equipment and other assets approximated (Yen)500,519 million ($3,708
million).
Contingent liabilities at March 31, 1998 for loans guaranteed amounted to
(Yen)19,356 million ($143 million).
At March 31, 1998, the Company and its subsidiaries had no material
litigation or claims outstanding, pending or threatened against it, which would
have a material adverse effect on the Company's consolidated financial position
or results of operations.
21. SUBSEQUENT EVENTS:
Subsequent to March 31, 1998, the Company issued (Yen)100,000 million ($741
million) coupon bonds.
On May 12, 1998, NTT Data issued 27,500 shares of common stock in a public
offering to third parties at a price of (Yen)5,468 thousand ($40,504) per
share, which was in excess of the Company's average per share carrying value.
The issuance of these shares of (Yen)150,370 million ($1,114 million) is
regarded as a sale of a part of the Company's interest in NTT Data. As a result
of the issuance, the Company's shareholding in NTT Data declined from 60% to
54% and gains on sales of subsidiary stocks in the aggregate amount of
approximately (Yen)69,106 million ($512 million) are expected to be recognized
in the consolidated financial statements for the year ending March 31, 1999.
F-26
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1998
--------------- --------------- -------------
MILLIONS OF
U.S. DOLLARS
MILLIONS OF YEN (NOTE 2)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.... (Yen) 913,236 (Yen) 686,750 $ 5,087
Notes and accounts
receivable, trade........... 1,085,381 1,032,964 7,652
Allowance for doubtful
accounts.................... (35,816) (36,277) (269)
Inventories.................. 223,776 288,919 2,140
Prepaid expenses and other
current assets (Note 4)..... 417,900 374,237 2,772
--------------- --------------- --------
Total current assets....... 2,604,477 2,346,593 17,382
--------------- --------------- --------
Property, plant and equipment:
Telecommunications
equipment................... 11,633,361 11,985,819 88,784
Telecommunications service
lines....................... 11,722,358 11,797,536 87,389
Buildings and structures..... 4,763,092 4,808,421 35,618
Machinery, vessels and
tools....................... 1,997,359 2,020,890 14,969
Land......................... 609,186 658,236 4,876
Construction in progress..... 639,262 759,338 5,625
--------------- --------------- --------
31,364,618 32,030,240 237,261
Accumulated depreciation
(Note 4).................... (19,359,256) (20,062,545) (148,611)
--------------- --------------- --------
12,005,362 11,967,695 88,650
--------------- --------------- --------
Investments and other assets:
Investments in affiliated
companies................... 201,945 239,451 1,774
Marketable securities and
other investments........... 124,910 100,243 743
Intangible and other assets
(Note 4).................... 1,904,503 1,314,095 9,734
Deferred income taxes (Note
4).......................... 511,334 866,105 6,415
--------------- --------------- --------
2,742,692 2,519,894 18,666
--------------- --------------- --------
(Yen)17,352,531 (Yen)16,834,182 $124,698
=============== =============== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-27
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1998
--------------- --------------- -------------
MILLIONS OF
U.S. DOLLARS
MILLIONS OF YEN (NOTE 2)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Short-term borrowings....... (Yen) 456,995 (Yen) 428,689 $ 3,175
Current portion of long-term
debt....................... 825,422 697,899 5,170
Accounts payable, trade..... 1,131,444 895,638 6,634
Accrued payroll............. 494,387 374,553 2,775
Accrued interest............ 55,976 57,830 428
Accrued taxes on income..... 188,616 210,807 1,562
Accrued consumption tax..... 99,813 47,891 355
Advances received........... 72,117 75,854 562
Other....................... 121,056 146,812 1,087
--------------- --------------- --------
Total current
liabilities.............. 3,445,826 2,935,973 21,748
--------------- --------------- --------
Long-term liabilities:
Long-term debt.............. 4,776,109 4,796,673 35,531
Obligations under capital
leases..................... 473,681 458,506 3,397
Liability for employees'
severance payments......... 2,890,761 2,988,212 22,135
Other....................... 166,186 196,851 1,458
--------------- --------------- --------
8,306,737 8,440,242 62,521
--------------- --------------- --------
Minority interest in
consolidated subsidiaries.... 136,040 219,909 1,629
--------------- --------------- --------
Shareholders' equity:
Common stock, (Yen)50,000
par value--
Authorized--62,400,000
shares
Issued and outstanding--
15,912,000 shares.......... 795,600 795,600 5,893
Additional paid-in capital.. 2,530,476 2,530,476 18,744
Legal reserve............... 102,678 107,094 793
Unrealized loss on
securities................. (20,061) (34,447) (255)
Foreign currency translation
adjustments................ 4,030 5,114 38
Retained earnings........... 2,051,205 1,834,221 13,587
--------------- --------------- --------
5,463,928 5,238,058 38,800
--------------- --------------- --------
Commitments and contingent
liabilities..................
--------------- --------------- --------
(Yen)17,352,531 (Yen)16,834,182 $124,698
=============== =============== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-28
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
SIX-MONTH PERIOD ENDED SEPTEMBER 30
<TABLE>
<CAPTION>
1997 1998 1998
-------------- -------------- ------------
MILLION OF
U.S. DOLLARS
MILLIONS OF YEN (NOTE 2)
<S> <C> <C> <C>
Operating revenues:
Telephone....................... (Yen)3,157,421 (Yen)3,161,571 $23,419
Telegraph....................... 44,823 40,966 303
Leased circuit.................. 237,386 250,785 1,858
Data communication facility..... 183,748 187,256 1,387
Sale of telecommunication
equipment...................... 446,648 460,077 3,408
Miscellaneous................... 567,120 611,039 4,526
-------------- -------------- -------
4,637,146 4,711,694 34,901
-------------- -------------- -------
Operating expenses:
Personnel....................... 1,158,680 1,103,619 8,175
Depreciation, amortization and
maintenance costs.............. 1,491,252 1,541,795 11,421
Other........................... 1,430,826 1,473,223 10,912
-------------- -------------- -------
4,080,758 4,118,637 30,508
-------------- -------------- -------
Operating income.................. 556,388 593,057 4,393
-------------- -------------- -------
Other expenses (income):
Interest and amortization of
bond discounts and issue
costs.......................... 120,298 108,979 807
Interest income................. (1,135) (1,471) (11)
Gain on sales of subsidiary
stocks (Note 5)................ -- (69,106) (512)
Other, net...................... (10,974) (18,292) (135)
-------------- -------------- -------
108,189 20,110 149
-------------- -------------- -------
Income before income taxes........ 448,199 572,947 4,244
-------------- -------------- -------
Income taxes:
Current......................... 202,973 210,476 1,559
Deferred........................ 39,262 74,327 551
-------------- -------------- -------
242,235 284,803 2,110
-------------- -------------- -------
Income before extraordinary loss,
minority interest and equity in
earnings of affiliated
companies........................ 205,964 288,144 2,134
Extraordinary loss for
discontinuance of regulatory
accounting principles, net of
taxes (Note 4)................... -- (462,508) (3,426)
-------------- -------------- -------
Income (loss) before minority
interest and equity in earnings
of affiliated companies.......... 205,964 (174,364) (1,292)
Minority interest in consolidated
subsidiaries..................... (14,651) (3,261) (24)
Equity in earnings of affiliated
companies........................ 4,259 4,732 35
-------------- -------------- -------
Net income (loss)................. (Yen) 195,572 ((Yen) 172,893) ($1,281)
============== ============== =======
<CAPTION>
U.S. DOLLARS
YEN (NOTE 2)
<S> <C> <C> <C>
Per share of common stock:
Net income (loss)............... (Yen) 12,291 ((Yen) 10,866) ($ 80)
-------------- -------------- -------
Cash dividends.................. (Yen) 2,500 (Yen) 2,500 $ 19
-------------- -------------- -------
</TABLE>
The accompanying notes are an integral part of this statement.
F-29
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
SIX-MONTH PERIOD ENDED SEPTEMBER 30
<TABLE>
<CAPTION>
1997 1998 1998
------------- ------------- ------------
MILLIONS OF YEN MILLIONS OF
U.S. DOLLARS
(NOTE 2)
<S> <C> <C> <C>
Cash flows from operating activi-
ties:
Net income (loss).................. (Yen) 195,572 ((Yen)172,893) ($1,281)
Adjustments to reconcile net income
to net cash provided
by operating activities--
Extraordinary loss, net of taxes
(Note 4).......................... -- 462,508 3,426
Depreciation and amortization...... 1,054,554 1,074,063 7,956
Deferred taxes..................... 39,262 74,327 551
Loss on sale or disposal of
property, plant and equipment..... 78,008 66,501 493
Gains on sales of subsidiary stocks
(Note 5).......................... -- (69,106) (512)
Decrease in notes and accounts
receivable, trade................. 20,642 52,878 392
Increase in inventories............ (46,468) (65,143) (483)
Increase in other current assets... (50,315) (9,451) (70)
Decrease in accounts payable, trade
and accrued payroll............... (154,740) (268,781) (1,991)
Increase (decrease) in accrued
consumption tax................... 51,111 (51,922) (385)
Increase in advances received...... 10,954 3,737 28
Increase (decrease) in accrued
taxes on income................... (22,253) 22,191 164
Increase in liabilities for
employees' severance payments..... 59,978 47,862 355
Increase (decrease) in other long-
term liabilities.................. (1,158) 1,848 14
Other.............................. (1,142) 15,422 114
------------- ------------- -------
Net cash provided by operating
activities....................... 1,234,005 1,184,041 8,771
------------- ------------- -------
Cash flows from investing activi-
ties:
Payments for property, plant and
equipment......................... (1,439,971) (1,253,879) (9,288)
Proceeds from sale of property,
plant and equipment............... 7,478 6,374 47
Acquisition of investments in af-
filiates and intangible and other
assets............................ (104,629) (86,944) (644)
Proceeds from sales of subsidiary
stocks (Note 5)................... -- 150,370 1,114
------------- ------------- -------
Net cash used in investing
activities....................... (1,537,122) (1,184,079) (8,771)
------------- ------------- -------
Cash flows from financing
activities:
Proceeds from issuance of long-term
debt.............................. 510,494 317,993 2,355
Payments for settlement of long-
term debt......................... (374,663) (446,503) (3,307)
Dividends paid..................... (39,779) (39,779) (295)
Net decrease in short-term
borrowings and other.............. (102,858) (58,159) (431)
------------- ------------- -------
Net cash used in financing
activities....................... (6,806) (226,448) (1,678)
------------- ------------- -------
Decrease in cash and cash
equivalents........................ (309,923) (226,486) (1,678)
Cash and cash equivalents at
beginning of period................ 821,140 913,236 6,765
------------- ------------- -------
Cash and cash equivalents at end of
period............................. (Yen) 511,217 (Yen) 686,750 $ 5,087
============= ============= =======
Cash paid during the period for:
Interest........................... (Yen) 113,352 (Yen) 107,125 $ 794
------------- ------------- -------
Income taxes....................... (Yen) 223,815 (Yen) 186,798 $ 1,384
------------- ------------- -------
Capital lease obligations incurred
during the period.................. (Yen) 26,453 (Yen) 17,632 $ 131
------------- ------------- -------
</TABLE>
The accompanying notes are an integral part of this statement.
F-30
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1
These consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States for interim
financial information and in accordance with the instructions to Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles in the United
States for annual financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating results for the
six-month period ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending March 31, 1999. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's consolidated financial statements which is
included in its Form 20-F for the fiscal year ended March 31, 1998.
NOTE 2
U.S. dollar amounts are included solely for convenience. These translations
should not be construed as representations that the yen amounts actually
represent, or have been or could be converted into, U.S. dollars. The rate of
(Yen)135= US$1, the approximate current rate at September 30, 1998, has been
used for the purpose of presentation of the U.S. dollar amounts in the
accompanying consolidated financial statements.
NOTE 3
In June 1997, the Japanese Diet passed the Law Concerning Partial Revision to
the Nippon Telegraph and Telephone Corporation Law ("the Revision Law"). This
Revision Law implements a plan proposed by the Ministry of Posts and
Telecommunications, and accepted in principle by the Company, to reorganize the
Company. Under the Revision Law, the Company will continue to exist but will
operate primarily as a holding company with its businesses reorganized into
three newly established companies, two regional telecommunications companies
and a long distance telecommunications company. The Revision Law also allows
the Company to enter, through one or more subsidiaries, the international
telecommunications business before the reorganization of the Company upon
approval of the Minister of Posts and Telecommunications ("the MPT").
In December 1997, the Ministry of Posts and Telecommunications announced "the
Basic Principles Concerning the Transfer of the Business Activities and
Succession of the Rights and Obligations of Nippon Telegraph and Telephone
Corporation." The Company will prepare "the Implementation Plans Concerning the
Transfer of the Business Activities and Succession of the Rights and
Obligations of Nippon Telegraph and Telephone Corporation" in accordance with
the Basic Principles. Matters concerning the transfer of business, which is the
precondition of reorganization, will be presented to shareholders at the
ordinary general meeting of shareholders in June 1999.
The Company plans to take advantage of the opportunities presented by the
Revision Law to effectively compete in extremely challenging international
markets, actively promote expansion of global telecommunications and multimedia
businesses, and further enhance its operations. At this time, however, the
ultimate effect of the implementation of the New Law on the financial position
and results of operations of the Company cannot be determined.
NOTE 4
In its financial statements as of and for the six-month period ended
September 30, 1998, the Company has discontinued the application of the
provisions of Statement of Financial Accounting Standards No. 71, "Accounting
for the Effects of Certain Types of Regulation" ("SFAS 71") for all of its
operations. Under SFAS 71, the Company had accounted for the effects of rate-
making process by establishing certain regulatory
F-31
<PAGE>
assets, including the deferral of certain costs. Pursuant to the requirements
of Statement of Financial Accounting Standards No. 101, "Regulated
Enterprises--Accounting for the Discontinuation of Application of FASB
Statement No. 71" ("SFAS 101"), the Company recorded an extraordinary non-cash
charge of (Yen)462 billion ($3,426 million), net of income taxes of (Yen)427
billion ($3,162 million) during the six-month period ended September 30, 1998
and has eliminated (Yen)889 billion ($6,588 million) of regulatory assets from
its balance sheet as of September 30, 1998.
After assessing the recent revision of the Telecom Business Law, which become
effective as of November 1, 1998, and proposed price-cap system, the Company
recognizes that it is required under SFAS 101 to change its accounting for
regulated operations. The Company's determination that it is no longer eligible
for the continued application of SFAS 71 is based on the belief that the
convergence of competition, technological change actual and potential
regulatory and legislative actions and other factors are creating open and
competitive markets.
The major components of the eliminated regulatory assets are as follows:
<TABLE>
<CAPTION>
PRETAX AFTER-TAX
---------------------- ---------------------
BILLIONS MILLIONS OF BILLIONS MILLIONS OF
OF YEN U.S. DOLLARS OF YEN U.S. DOLLARS
--------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Deferred compensated ab-
sences........................ (Yen) 105 $ 783 (Yen) 55 $ 407
Deferred pension costs........ 680 5,035 353 2,618
Unamortized purchases of the
leased assets................. 104 770 54 401
--------- ------ -------- ------
Total......................... (Yen) 889 $6,588 (Yen)462 $3,426
========= ====== ======== ======
</TABLE>
The regulatory assets included in the accompanying consolidated balance sheet
as at March 31, 1998 were as follows:
<TABLE>
<CAPTION>
BILLIONS
OF YEN
--------
<S> <C>
Regulatory assets due to:
Deferred compensated absences*...................................... (Yen)133
Deferred severance lump-sum and pension payments**.................. 603
Unamortized purchases of the leased assets under SFAS 13***......... 111
--------
(Yen)847
========
</TABLE>
--------
* Included in "Prepaid expenses and other current assets" in the
accompanying balance sheet as at March 31, 1998.
** Included in "Intangible and other assets" in the accompanying balance
sheet as at March 31, 1998.
*** Included in "Accumulated depreciation" in the accompanying balance
sheet as at March 31, 1998.
NOTE 5
On May 12, 1998, NTT Data Corporation ("NTT DATA"), a consolidated
subsidiary, issued 27,500 shares of common stock in a public offering to third
parties at a price of (Yen)5,468 thousand ($40,504) per share, which was in
excess of the Company's average per share carrying value. The issuance of these
shares of (Yen)150,370 million ($1,114 million) is regarded as a sale of a part
of the Company's interest in NTT DATA. As a result of the issuance, the
Company's shareholding in NTT DATA declined from 60 percent to 54 percent. The
resulting pre-tax gain on the sale of subsidiary stocks in the aggregate amount
of approximately (Yen)69,106 million ($512 million) is recognized in the
consolidated financial statements for the six-month period ended September 30,
1998 as well as applicable deferred taxes thereon. In the consolidated
statement of cash flows for the six-month period ended September 30, 1998, the
gain on sale of subsidiary stocks is excluded from the cash flows from
operating activities and the related cash proceeds of (Yen)150,370 million
($1,114 million) are included in the cash flows from investing activities.
F-32
<PAGE>
NOTE 6
Effective April 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". Comprehensive
Income is defined in this standard as the total changes in shareholders' equity
excluding capital transactions. The Company's comprehensive income comprises
net income plus other comprehensive income representing changes in unrealized
loss on securities and foreign currency translation adjustments. These changes
in shareholders' equity, including net income, for the six-month period ended
September 30, 1997 and 1998 were an increase of (Yen)191,719 million and
decrease of (Yen)186,195 million ($1,379 million), respectively, which included
the changes in unrealized loss on securities, representing an increase of
(Yen)3,853 million and (Yen)14,386 million ($107 million), respectively.
NOTE 7
Certain items for the six-month period ended September 30, 1997 and at that
date have been reclassified to conform to the 1998 presentation.
NOTE 8
At September 30, 1998 there were no material litigation or claims
outstanding, pending or threatened against the Company.
SUBSEQUENT EVENTS
On October 22, 1998, NTT Mobile Communications Network Inc. ("NTT Central
DoCoMo") completed its initial public offering and its stock on the First
Section of the Tokyo Stock Exchange. The Company sold 218,000 shares of NTT
Central DoCoMo's common stock, without par value, for total proceeds of
(Yen)826,140 million ($6,120 million), net of related expenses. In addition,
NTT Central DoCoMo issued 327,000 new shares of stock for total proceeds of
(Yen)1,236,500 million ($9,159 million), net of related expenses, to third
parties at a price of (Yen)3,900 thousand ($28,889) per share. As a result of
the offering, the Company's stake in NTT Central DoCoMo has been reduced from
94.68 percent to 67.13 percent. The resulting gains on sale and issuance of
subsidiary stocks in the aggregate amount of approximately (Yen)1,565,208
million ($11,594 million) are expected to be recognized in the consolidated
statement of income for the year ending March 31, 1999, as well as applicable
deferred taxes thereon.
F-33
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial statements
give effect to the initial public offering of NTT DoCoMo and the use of
proceeds therefrom. On October 22, 1998, NTT DoCoMo completed its initial
public offering and listed its stock on the first section of the Tokyo Stock
Exchange. NTT sold 218,000 shares of NTT DoCoMo's common stock, without par
value, for total proceeds of (Yen)826.1 billion and NTT DoCoMo issued 327,000
new shares of stock for total proceeds of (Yen)1,236.5 billion. As a result of
the offering, NTT's stake in NTT DoCoMo has been reduced to 67.13%. Following
shareholder approval at the next ordinary general meeting of shareholders in
June 1999, as well as an approval of MPT, NTT intends to use the proceeds from
its sale of NTT DoCoMo shares to repurchase approximately (Yen)120 billion of
NTT's outstanding common stock and to pay a special dividend of (Yen)5,000 per
share to NTT's shareholders of record on March 31, 1999, and for general
corporate purposes. NTT DoCoMo and its subsidiaries also expect to use the
proceeds from the issuance of NTT DoCoMo shares to repay debt and to fund
current and future capital expenditures and for general corporate purposes.
These unaudited pro forma financial statements should be read in conjunction
with the historical financial statements and notes thereto of NTT and its
subsidiaries included elsewhere in this prospectus.
P-1
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
AT MARCH 31, 1998
<TABLE>
<CAPTION>
ADJUSTMENTS ADJUSTMENTS
FOR THE SALE OF FOR THE ISSUANCE
218,000 SHARES OF 327,000
OF NTT SHARES BY NTT PRO FORMA, AS
HISTORICAL DOCOMO BY NTT PRO FORMA(1) DOCOMO ADJUSTED(2)
ASSETS --------------- --------------- --------------- ---------------- ---------------
MILLIONS OF YEN
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents.......... (Yen) 913,236 (Yen) 826,140(a) (Yen) 1,739,376 (Yen) 370,500(d) (Yen) 2,109,876
Notes and accounts
receivable, trade.... 1,085,381 1,085,381 1,085,381
Allowance for doubtful
accounts............. (35,816) (35,816) (35,816)
Inventories........... 223,776 223,776 223,776
Prepared expenses and
other current
assets............... 417,900 417,900 417,900
--------------- ------------- --------------- ------------- ---------------
Total current
assets............. 2,604,477 826,140 3,430,617 370,500 3,801,117
--------------- ------------- --------------- ------------- ---------------
Property, plant and
equipment:
Telecommunications
equipment............ 11,633,361 11,633,361 11,633,361
Telecommunications
service lines........ 11,722,358 11,722,358 11,722,358
Buildings and
structures........... 4,763,092 4,763,092 4,763,092
Machinery, vessels and
tools................ 1,997,359 1,997,359 1,997,359
Land.................. 609,186 609,186 609,186
Construction in
progress............. 639,262 639,262 639,262
--------------- ------------- --------------- ------------- ---------------
31,364,618 31,364,618 31,364,618
Accumulated
depreciation......... (19,359,256) (19,359,256) (19,359,256)
--------------- ------------- --------------- ------------- ---------------
12,005,362 12,005,362 12,005,362
--------------- ------------- --------------- ------------- ---------------
Investments and other
assets:
Investments in
affiliated
companies............ 201,945 201,945 201,945
Marketable securities
and other
investments.......... 124,910 124,910 124,910
Intangible and other
assets............... 1,904,503 1,904,503 1,904,503
Deferred income
taxes................ 511,334 511,334 (372,987)(d) 138,347
--------------- ------------- --------------- ------------- ---------------
2,742,692 2,742,692 (372,987) 2,369,705
--------------- ------------- --------------- ------------- ---------------
(Yen)17,352,531 (Yen) 826,140 (Yen)18,178,671 ((Yen) 2,487) (Yen)18,176,184
=============== ============= =============== ============= ===============
</TABLE>
- --------
(1) As adjusted for the sale of 218,000 shares of NTT DoCoMo by NTT.
(2) As adjusted for the sale of 218,000 shares of NTT DoCoMo by NTT and the
issuance of 327,000 shares by NTT DoCoMo.
P-2
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES
PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET
AT MARCH 31, 1998
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE SALE OF ADJUSTMENTS
218,000 SHARES FOR THE ISSUANCE
OF NTT OF 327,000
DOCOMO BY SHARES BY NTT PRO FORMA, AS
LIABILITIES AND HISTORICAL NTT PRO FORMA(1) DOCOMO ADJUSTED(2)
SHAREHOLDERS' EQUITY --------------- --------------- --------------- ---------------- ---------------
MILLIONS OF YEN
<S> <C> <C> <C> <C> <C>
Current liabilities:
Short-term borrowings... (Yen) 456,995 (Yen) 456,995 (Yen)(187,760)(d) (Yen) 269,235
Current portion of long-
term debt.............. 825,422 825,422 (174,930)(d) 650,492
Accounts payable,
trade.................. 1,131,444 1,131,444 1,131,444
Accrued payroll......... 494,387 494,387 494,387
Accrued interest........ 55,976 55,976 55,976
Accrued taxes on
income................. 188,616 435,000(b) 623,616 623,616
Accrued consumption
tax.................... 99,813 99,813 99,813
Advances received....... 72,117 72,117 72,117
Other................... 121,056 121,056 121,056
--------------- ------------ --------------- ------------- ---------------
Total current
liabilities............ 3,445,826 435,000 3,880,826 (362,690) 3,518,136
--------------- ------------ --------------- ------------- ---------------
Long-term liabilities:
Long-term debt.......... 4,776,109 4,776,109 (503,310)(d) 4,272,799
Obligations under
capital leases......... 473,681 473,681 473,681
Liability for employees'
severance payments..... 2,890,761 2,890,761 2,890,761
Other................... 166,186 166,186 166,186
--------------- ------------ --------------- ------------- ---------------
8,306,737 8,306,737 (503,310) 7,803,427
--------------- ------------ --------------- ------------- ---------------
Minority interest in
consolidated
subsidiaries............. 136,040 52,661(c) 188,701 459,444(e) 648,145
--------------- ------------ --------------- ------------- ---------------
Shareholders' equity:
Common stock,
(Yen)50,000 par value
Authorized--62,400,000
shares Issued and
outstanding--15,912,000
shares................. 795,600 795,600 795,600
Additional paid-in
capital................ 2,530,476 2,530,476 2,530,476
Legal reserve........... 102,678 102,678 102,678
Unrealized loss on
securities............. (20,061) (20,061) (20,061)
Foreign currency
translation
adjustments............ 4,030 4,030 4,030
Retained earnings....... 2,051,205 338,479(a)(b) 2,389,684 404,069(d) 2,793,753
--------------- ------------ --------------- ------------- ---------------
5,463,928 338,479 5,802,407 404,069 6,206,476
--------------- ------------ --------------- ------------- ---------------
Commitments and contingent
liabilities..............
--------------- ------------ --------------- ------------- ---------------
(Yen)17,352,531 (Yen)826,140 (Yen)18,178,671 (Yen) (2,487) (Yen)18,176,184
=============== ============ =============== ============= ===============
</TABLE>
- --------
(1) As adjusted for the sale of 218,000 shares of NTT DoCoMo by NTT.
(2) As adjusted for the sale of 218,000 shares of NTT DoCoMo by NTT and the
issuance of 327,000 shares by NTT DoCoMo.
P-3
<PAGE>
NOTE 1
The pro forma unaudited condensed consolidated balance sheet presents the
financial position of NTT and its subsidiaries as of March 31, 1998 assuming
that the initial public offering of NTT DoCoMo had occurred as of March 31,
1998. Such pro forma information is based upon the historical balance sheet
data of NTT and its subsidiaries on that date. Upon completion of such
offering, the ownership interest of NTT in NTT DoCoMo was reduced from 94.68%
to 67.13%.
Pro forma adjustments are made to reflect the following:
(a) The proceeds of the sale of NTT DoCoMo's shares by NTT are expected
to be used to repurchase approximately (Yen)120 billion of NTT's
outstanding common stock, to pay a special dividend of (Yen)5,000 per share
and for general corporate purposes. Prior to repurchasing the common stock,
NTT intends to use the proceeds from its sale of NTT DoCoMo shares to repay
short-term debt that will ultimately be re-borrowed in order to pay the
special dividend and repurchase NTT's outstanding common stock.
Accordingly, the proceeds from the sale of NTT DoCoMo's shares by NTT are
reflected in cash and cash equivalents without giving effect to the
proposed share repurchase or special dividend. The pre-tax gain of (Yen)773
billion on the sale of 218,000 shares is reflected in retained earnings in
the pro forma balance sheet, although in the pro forma statement of income
the gain is not reflected due to its non-recurring nature.
(b) Tax liability was accrued for NTT's sale of NTT DoCoMo's shares
although in the pro forma statement of income such tax provision is not
reflected due to its non-recurring nature.
(c) As a result of NTT's sale of NTT DoCoMo's shares, NTT's ownership was
reduced and, therefore, minority interest in NTT DoCoMo was increased.
(d) The proceeds of the issuance of shares by NTT DoCoMo are expected to
be used to repay certain short-term and long-term debts of NTT DoCoMo and
its subsidiaries and be held as cash and cash equivalents to fund NTT
DoCoMo's and its subsidiaries' current and future capital expenditures and
for general corporate purposes. The pre-tax gain of (Yen)777 billion on the
issuance and sale of 327,000 shares with the related deferred tax liability
is reflected on retained earnings in the pro forma balance sheet, although
in the pro forma statement of income the gain and the related deferred
taxes are not reflected due to their non-recurring nature. The deferred tax
liability accrued for the issuance by NTT DoCoMo of NTT DoCoMo's shares is
offset against "Deferred income taxes" under the caption "Investments and
other assets" in the balance sheet.
(e) As a result of the issuance by NTT DoCoMo of NTT DoCoMo shares,
minority interest in NTT DoCoMo was increased.
P-4
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE SALE OF
218,000 SHARES ADJUSTMENTS
OF NTT FOR THE ISSUANCE
DOCOMO BY OF 327,000 SHARES PRO FORMA, AS
HISTORICAL NTT PRO FORMA(1) BY NTT DOCOMO ADJUSTED(2)
-------------- --------------- -------------- ----------------- --------------
MILLIONS OF YEN
<S> <C> <C> <C> <C> <C>
Operating revenues:
Telephone............. (Yen)6,306,034 (Yen)6,306,034 (Yen)6,306,034
Telegraph............. 92,211 92,211 92,211
Leased circuit........ 488,160 488,160 488,160
Data communication
facility............. 372,765 372,765 372,765
Sale of
telecommunication
equipment............ 969,586 969,586 969,586
Miscellaneous 1,221,257 1,221,257 1,221,257
-------------- ------------ -------------- ------------ --------------
9,450,013 9,450,013 9,450,013
-------------- ------------ -------------- ------------ --------------
Operating expenses:
Personnel............. 2,345,609 2,345,609 2,345,609
Depreciation,
amortization and
maintenance costs.... 3,185,044 3,185,044 3,185,044
Other................. 3,047,315 3,047,315 3,047,315
-------------- ------------ -------------- ------------ --------------
8,577,968 8,577,968 8,577,968
-------------- ------------ -------------- ------------ --------------
Operation income........ 872,045 872,045 872,045
-------------- ------------ -------------- ------------ --------------
Other expenses (income):
Interest and
amortization of bond
discounts and issue
costs................ 235,363 235,363 (25,800)(b) 209,563
Interest income....... (2,086) (2,086) (2,086)
Other net............. (16,764) (16,764) (16,764)
-------------- ------------ -------------- ------------ --------------
216,513 216,513 (25,800) 190,713
-------------- ------------ -------------- ------------ --------------
Income before income
taxes.................. 655,532 655,532 25,800 681,332
-------------- ------------ -------------- ------------ --------------
Income taxes:
Current............... 362,910 362,910 13,200(c) 376,110
Deferred.............. 55,366 55,366 55,366
-------------- ------------ -------------- ------------ --------------
418,276 418,276 13,200 431,476
-------------- ------------ -------------- ------------ --------------
Income before minority
interest............... 237,256 237,256 12,600 249,856
Minority interest in
consolidated
subsidiaries........... (32,275) (27,248)(a) (59,523) (31,568)(d) (91,091)
Equity in earnings of
affiliated
companies.............. 9,479 9,479 9,479
-------------- ------------ -------------- ------------ --------------
Net Income.............. (Yen) 214,460 (Yen)(27,248) (Yen) 187,212 (Yen)(18,968) (Yen) 168,244
============== ============ ============== ============ ==============
Basic and diluted net
income per share
(yen).................. (Yen) 13,478 (Yen) 11,765 (Yen) 10,573
============== ============== ==============
Number of shares used in
computing basic and
diluted net income per
share (thousands)...... 15,912 15,912 15,912
============== ============== ==============
</TABLE>
- --------
(1) As adjusted for the sale of 218,000 shares of NTT DoCoMo by NTT.
(2) As adjusted for the sale of 218,000 shares of NTT DoCoMo by NTT and the
issuance of 327,000 shares by NTT DoCoMo.
P-5
<PAGE>
NOTE 1
The pro forma unaudited condensed consolidated statement of income gives
effect to the initial public offering of NTT DoCoMo for the year ended March
31, 1998 as if such offering had occurred as of April 1, 1997. This pro forma
unaudited condensed consolidated statement of income excludes the one-time gain
from the offering and taxes thereon.
Pro Forma adjustments are made to reflect:
(a) Transfer of a portion of NTT's interest in the net income of NTT
DoCoMo for the year ended March 31, 1998 to minority shareholders as a
result of the reduction of NTT's ownership due to NTT's sale of NTT
DoCoMo's shares;
(b) Reduction of interest expense on short-term and long-term debts to be
repaid from the proceeds of the issuance of NTT DoCoMo's shares;
(c) Increase in income taxes as a result of the increase in income before
income taxes due to the decrease in interest expenses; and
(d) Transfer of a portion of NTT's interest in the net income of NTT
DoCoMo for the year ended March 31, 1998 to minority shareholders as a
result of the reduction of NTT's ownership due to the issuance by NTT
DoCoMo of NTT DoCoMo's shares.
NOTE 2
During the twelve months ending March 31, 1999, NTT will recognize pre-tax
gains on the sale and on the issuance and sale of NTT DoCoMo's shares of
approximately (Yen)781 billion and (Yen)784 billion, respectively, as well as
applicable deferred taxes thereon. These non-recurring gains and taxes thereon
have been excluded from the pro forma unaudited statement of income.
NOTE 3
Prior to repurchasing the common stock, NTT intends to use the proceeds from
its sales of NTT DoCoMo shares to repay short-term debt that will ultimately be
re-borrowed in order to pay a special dividend and repurchase NTT's outstanding
common stock. Accordingly, the proceeds from the sales are reflected in cash
and cash equivalents without giving effect to the proposed share repurchase or
special dividend. The reduction in interest expense as a result of short-term
debt repayments pending the expected share repurchase and special dividend is
not material.
NOTE 4
Basic and diluted net income per share amounts are computed using net income
a divided by the weighted average number of shares of NTT's common stock that
were outstanding for the period presented. Basic and diluted net income per
share are the same for this period.
P-6
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
AT SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ADJUSTMENTS ADJUSTMENTS
FOR THE SALE OF FOR THE ISSUANCE
218,000 SHARES OF 327,000
OF NTT SHARES BY NTT PRO FORMA, AS
HISTORICAL DOCOMO BY NTT PRO FORMA(1) DOCOMO ADJUSTED(2)
ASSETS --------------- --------------- --------------- ---------------- ---------------
MILLIONS OF YEN
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents.......... (Yen) 686,750 (Yen) 826,140(a) (Yen) 1,512,890 (Yen) 370,500(d) (Yen) 1,883,390
Notes and accounts
receivable, trade.... 1,032,964 1,032,964 1,032,964
Allowance for doubtful
accounts............. (36,277) (36,277) (36,277)
Inventories........... 288,919 288,919 288,919
Prepared expenses and
other current
assets............... 374,237 374,237 374,237
--------------- ------------- --------------- ------------- ---------------
Total current
assets............. 2,346,593 826,140 3,172,733 370,500 3,543,233
--------------- ------------- --------------- ------------- ---------------
Property, plant and
equipment:
Telecommunications
equipment............ 11,985,819 11,985,819 11,985,819
Telecommunications
service lines........ 11,797,536 11,797,536 11,797,536
Buildings and
structures........... 4,808,421 4,808,421 4,808,421
Machinery, vessels and
tools................ 2,020,890 2,020,890 2,020,890
Land.................. 658,236 658,236 658,236
Construction in
progress............. 759,338 759,338 759,338
--------------- ------------- --------------- ------------- ---------------
32,030,240 32,030,240 32,030,240
Accumulated
depreciation......... (20,062,545) (20,062,545) (20,062,545)
--------------- ------------- --------------- ------------- ---------------
11,967,695 11,967,695 11,967,695
--------------- ------------- --------------- ------------- ---------------
Investments and other
assets:
Investments in
affiliated
companies............ 239,451 239,451 239,451
Marketable securities
and other
investments.......... 100,243 100,243 100,243
Intangible and other
assets............... 1,314,095 1,314,095 1,314,095
Deferred income
taxes................ 866,105 866,105 (371,609)(d) 494,496
--------------- ------------- --------------- ------------- ---------------
2,519,894 2,519,894 (371,609) 2,148,285
--------------- ------------- --------------- ------------- ---------------
(Yen)16,834,182 (Yen) 826,140 (Yen)17,660,322 ((Yen) 1,109) (Yen)17,659,213
=============== ============= =============== ============= ===============
</TABLE>
- --------
(1) As adjusted for the sale of 218,000 shares of NTT DoCoMo by NTT.
(2) As adjusted for the sale of 218,000 shares of NTT DoCoMo by NTT and the
issuance of 327,000 shares by NTT DoCoMo.
P-7
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES
PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET
AT SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE SALE OF ADJUSTMENTS
218,000 SHARES FOR THE ISSUANCE
OF NTT OF 327,000
DOCOMO BY SHARES BY NTT PRO FORMA, AS
LIABILITIES AND HISTORICAL NTT PRO FORMA(1) DOCOMO ADJUSTED(2)
SHAREHOLDERS' EQUITY --------------- --------------- --------------- ---------------- ---------------
MILLIONS OF YEN
<S> <C> <C> <C> <C> <C>
Current liabilities:
Short-term
borrowings........... (Yen) 428,689 (Yen) 428,689 ((Yen)329,350)(d) (Yen) 99,339
Current portion of
long-term debt....... 697,899 697,899 (228,057)(d) 469,842
Accounts payable,
trade................ 895,638 895,638 895,638
Accrued payroll....... 374,553 374,553 374,553
Accrued interest...... 57,830 57,830 57,830
Accrued taxes on
income............... 210,807 435,000(b) 645,807 645,807
Accrued consumption
tax.................. 47,891 47,891 47,891
Advance received...... 75,854 75,854 75,854
Other current
liabilities.......... 146,812 146,812 146,812
--------------- ------------ --------------- ------------- ---------------
Total current
liabilities........ 2,935,973 435,000 3,370,973 (557,407) 2,813,566
--------------- ------------ --------------- ------------- ---------------
Long-term liabilities:
Long-term debt........ 4,796,673 4,796,673 (308,593)(d) 4,488,080
Obligations under
capital leases....... 458,506 458,506 458,506
Liability for
employees' severance
payments............. 2,988,212 2,988,212 2,988,212
Other long-term
liabilities.......... 196,851 196,851 196,851
--------------- ------------ --------------- ------------- ---------------
8,440,242 8,440,242 (308,593) 8,131,649
--------------- ------------ --------------- ------------- ---------------
Minority interest in
consolidated
subsidiaries........... 219,909 55,513(c) 275,422 462,315(e) 737,737
--------------- ------------ --------------- ------------- ---------------
Shareholders' equity:
Common stock ......... 795,600 795,600 795,600
Additional paid-in
capital.............. 2,530,476 2,530,476 2,530,476
Legal reserve......... 107,094 107,094 107,094
Unrealized loss on
securities........... (34,447) (34,447) (34,447)
Foreign currency
translation
adjustments.......... 5,114 5,114 5,114
Retained earnings..... 1,834,221 335,627(a)(b) 2,169,848 402,576(d) 2,572,424
--------------- ------------ --------------- ------------- ---------------
5,238,058 335,627 5,573,685 402,576 5,976,261
--------------- ------------ --------------- ------------- ---------------
(Yen)16,834,182 (Yen)826,140 (Yen)17,660,322 ((Yen) 1,109) (Yen)17,659,213
=============== ============ =============== ============= ===============
</TABLE>
- --------
(1) As adjusted for the sale of 218,000 shares of NTT DoCoMo by NTT.
(2) As adjusted for the sale of 218,000 shares of NTT DoCoMo by NTT and the
issuance of 327,000 shares by NTT DoCoMo.
P-8
<PAGE>
NOTE 1
The pro forma unaudited condensed consolidated balance sheet presents the
financial position of NTT and its subsidiaries as of September 30, 1998
assuming that the initial public offering of NTT DoCoMo had occurred as of
September 30, 1998. Such pro forma information is based upon the historical
balance sheet data of NTT and its subsidiaries on that date. Upon completion of
such offering, the ownership interest of NTT in NTT DoCoMo was reduced from
94.68% to 67.13%.
Pro forma adjustments are made to reflect the following:
(a) The proceeds of the sale of NTT DoCoMo's shares by NTT are expected
to be used to repurchase approximately (Yen)120 billion of NTT's
outstanding common stock, to pay a special dividend of (Yen)5,000 per share
and for general corporate purposes. Prior to repurchasing the common stock,
NTT intends to use the proceeds from its sale of NTT DoCoMo shares to repay
short-term debt that will ultimately be re-borrowed in order to pay the
special dividend and repurchase NTT's outstanding common stock.
Accordingly, the proceeds from the sale of NTT DoCoMo's shares by NTT are
reflected in cash and cash equivalents without giving effect to the
proposed share repurchase or special dividend. The pre-tax gain of (Yen)771
billion on the sale of 218,000 shares is reflected in retained earnings in
the pro forma balance sheet, although in the pro forma statement of income
the gain is not reflected due to its non-recurring nature.
(b) Tax liability was accrued for NTT's sale of NTT DoCoMo's shares
although in the pro forma statement of income such tax provision is not
reflected due to its non-recurring nature.
(c) As a result of NTT's sale of NTT DoCoMo's shares, NTT's ownership was
reduced and, therefore, minority interest in NTT DoCoMo was increased.
(d) The proceeds of the issuance of shares by NTT DoCoMo are expected to
be used to repay certain short-term and long-term debts of NTT DoCoMo and
its subsidiaries and be held as cash and cash equivalents to fund NTT
DoCoMo's and its subsidiaries' current and future capital expenditures and
for general corporate purposes. The pre-tax gain of (Yen)774 billion on the
issuance and sale of 327,000 shares with the related deferred tax liability
is reflected on retained earnings in the pro forma balance sheet, although
in the pro forma statement of income the gain and the related deferred
taxes are not reflected due to their non-recurring nature. The deferred tax
liability accrued for the issuance by NTT DoCoMo of NTT DoCoMo's shares is
offset against "Deferred income taxes" under the caption of "Investments
and other assets" in the balance sheet.
(e) As a result of the issuance by NTT DoCoMo of NTT DoCoMo shares,
minority interest in NTT DoCoMo was increased.
P-9
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX-MONTH PERIOD ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE SALE OF
218,000 SHARES ADJUSTMENTS
OF NTT FOR THE ISSUANCE
DOCOMO BY OF 327,000 SHARES PRO FORMA, AS
HISTORICAL NTT PRO FORMA(1) BY NTT DOCOMO ADJUSTED(2)
-------------- --------------- -------------- ----------------- --------------
MILLIONS OF YEN
<S> <C> <C> <C> <C> <C>
Operating revenues:
Telephone............. (Yen)3,161,571 (Yen)3,161,571 (Yen)3,161,571
Telegraph............. 40,966 40,966 40,966
Leased circuit........ 250,785 250,785 250,785
Data communication
facility............. 187,256 187,256 187,256
Sale of
telecommunication
equipment............ 460,077 460,077 460,077
Miscellaneous......... 611,039 611,039 611,039
-------------- ------------ -------------- ------------ --------------
4,711,694 4,711,694 4,711,694
-------------- ------------ -------------- ------------ --------------
Operating expenses:
Personnel............. 1,103,619 1,103,619 1,103,619
Depreciation,
amortization and
maintenance costs.... 1,541,795 1,541,795 1,541,795
Other................. 1,473,223 1,473,223 1,473,223
-------------- ------------ -------------- ------------ --------------
4,118,637 4,118,637 4,118,637
-------------- ------------ -------------- ------------ --------------
Operating income........ 593,057 593,057 593,057
-------------- ------------ -------------- ------------ --------------
Other expenses (income):
Interest expenses..... 108,979 108,979 (11,700)(b) 97,279
Interest income....... (1,471) (1,471) (1,471)
Gain on sale of
subsidiary stocks.... (69,106) (69,106) (69,106)
Other net............. (18,292) (18,292) (18,292)
-------------- ------------ -------------- ------------ --------------
20,110 20,110 (11,700) 8,410
-------------- ------------ -------------- ------------ --------------
Income before income
taxes.................. 572,947 572,947 11,700 584,647
-------------- ------------ -------------- ------------ --------------
Income taxes:
Current............... 210,476 210,476 6,000(c) 216,476
Deferred.............. 74,327 74,327 74,327
-------------- ------------ -------------- ------------ --------------
284,803 284,803 6,000 290,803
-------------- ------------ -------------- ------------ --------------
Income before extraordi-
nary................... 288,144 288,144 5,700 293,844
Extraordinary loss, net
of taxes............... (462,508) (462,508) (462,508)
-------------- ------------ -------------- ------------ --------------
Loss before minority in-
terest................. (174,364) (174,364) 5,700 (168,664)
Minority interest in
consolidated
subsidiaries........... (3,261) (16,407)(a) (19,668) (18,389)(d) (38,057)
Equity in earnings of
affiliated companies... 4,732 4,732 4,732
-------------- ------------ -------------- ------------ --------------
Net loss................ ((Yen) 172,893) ((Yen)16,407) ((Yen) 189,300) ((Yen)12,689) ((Yen) 201,989)
============== ============ ============== ============ ==============
Basic and diluted net
loss per share (yen)... ((Yen) 10,866) ((Yen) 11,897) (Yen) (12,694)
============== ============== ==============
Number of shares used in
computing basic and
diluted net income per
share (thousands)...... 15,912 15,912 15,912
============== ============== ==============
</TABLE>
- --------
(1) As adjusted for the sale of 218,000 shares of NTT DoCoMo by NTT.
(2) As adjusted for the sale of 218,000 shares of NTT DoCoMo by NTT and the
issuance of 327,000 shares by NTT DoCoMo.
P-10
<PAGE>
NOTE 1
The pro forma unaudited condensed consolidated statement of income gives
effect to the initial public offering of NTT DoCoMo for the six-month period
ended September 30, 1998 as if such offering had occurred as of April 1, 1998.
This pro forma unaudited condensed consolidated statement of income excludes
the one-time gain from the offering and taxes thereon.
Pro Forma adjustments are made to reflect:
(a) Transfer of a portion of NTT's interest in the net income of NTT
DoCoMo for the year ended March 31, 1998 to minority shareholders as a
result of the reduction of NTT's ownership due to NTT's sale of NTT
DoCoMo's shares;
(b) Reduction of interest expense on short-term and long-term debts to be
repaid from the proceeds of the issuance of NTT DoCoMo's shares;
(c) Increase in income taxes as a result of the increase in income before
income taxes due to the decrease in interest expenses; and
(d) Transfer of a portion of NTT's interest in the net income of NTT
DoCoMo for the year ended March 31, 1998 to minority shareholders as a
result of the reduction of NTT's ownership due to the issuance by NTT
DoCoMo of NTT DoCoMo's shares.
NOTE 2
During the twelve months ending March 31, 1999, NTT will recognize pre-tax
gains on the sale and on the issuance and sale of NTT DoCoMo's shares of
approximately (Yen)781 billion and (Yen)784 billion, respectively, as well as
applicable deferred taxes thereon. These non-recurring gains and taxes thereon
have been excluded from the pro forma unaudited statement of income.
NOTE 3
Prior to repurchasing the common stock, NTT intends to use the proceeds from
its sales of NTT DoCoMo shares to repay short-term debt that will ultimately be
re-borrowed in order to pay a special dividend and repurchase NTT's outstanding
common stock. Accordingly, the proceeds from the sales are reflected in cash
and cash equivalents without giving effect to the proposed share repurchase or
special dividend. The reduction in interest expense as a result of short-term
debt repayments pending the expected share repurchase and special dividend is
not material.
NOTE 4
Basic and diluted net income per share amounts are computed using net income
a divided by the weighted average number of shares of NTT's common stock that
were outstanding for the period presented. Basic and diluted net income per
share are the same for this period.
P-11
<PAGE>
UNDERWRITING
The global offering consists of (i) the U.S. offering of an aggregate of
shares, in the form of shares or ADSs, in the United States and Canada, (ii)
the international offering of an aggregate of shares, in the form of
shares or ADSs, outside the United States, Canada and Japan, and (iii) the
Japanese offering of an aggregate of shares inside Japan. Daiwa Securities
Co. Ltd., Goldman Sachs International and UBS AG, acting through its division
Warburg Dillon Read, ("Warburg Dillon Read") are the joint global coordinators
and joint bookrunners of the global offering.
MOF, NTT and the underwriters for the U.S. offering named below have entered
into an underwriting agreement with respect to the shares being offered in the
U.S. offering. Subject to certain conditions, each U.S. underwriter has
severally agreed to purchase the number of shares indicated in the table below.
Goldman, Sachs & Co., Warburg Dillon Read LLC and Daiwa Securities America Inc.
are the representatives of the U.S. underwriters.
<TABLE>
<CAPTION>
U.S. UNDERWRITERS NUMBER OF SHARES
----------------- ----------------
<S> <C>
Goldman, Sachs & Co.........................................
Warburg Dillon Read LLC.....................................
Daiwa Securities America Inc................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................
Morgan Stanley & Co. Incorporated...........................
Salomon Smith Barney Inc....................................
-----
Total.......................................................
=====
</TABLE>
The following table shows the per share and total underwriting commissions to
be paid to the U.S. underwriters by MOF.
<TABLE>
<CAPTION>
PAID BY MOF
-----------
<S> <C>
Per Share......................................................... (Yen)
Total............................................................. (Yen)
</TABLE>
Shares and ADSs sold by the underwriters to the public will initially be
offered at the initial public offering prices set forth on the cover of this
prospectus. Any shares or ADSs sold by the underwriters to securities dealers
may be sold at a discount of up to (Yen) per share or $ per ADS from
the respective initial public offering price. Any such securities dealers may
resell any shares or ADSs purchased from the U.S. underwriters to certain other
brokers or dealers at a discount of up to (Yen) per Share or $ per ADS
from the respective initial public offering price. If all the shares and ADSs
are not sold at the initial offering price, the joint global coordinators may
change the offering prices and the other selling terms.
NTT and MOF have also entered into an underwriting agreement for the sale of
shares outside the United States, Canada and Japan. Warburg Dillon Read,
Daiwa Europe Limited and Goldman Sachs International are the joint lead
managers of the underwriters for the international offering. MOF and NTT have
also entered into an underwriting agreement with the underwriters for the
Japanese offering for the sale of shares in Japan. Daiwa Securities Co.
Ltd., Goldman Sachs (Japan) Limited and Warburg Dillon Read (Japan) Limited are
the lead managers of the underwriters for the Japanese offering. The U.S.,
international and Japanese offerings are conditioned on each other. The initial
offering price and underwriting commission per share for each of the U.S.
offering, the international offering and the Japanese offering are identical.
U-1
<PAGE>
The U.S. and international underwriting agreements provide that the
obligations of the U.S. and international underwriters are subject to certain
conditions precedent. In addition, under the terms and conditions of the U.S.
underwriting agreement, the U.S. underwriters are committed to take and pay for
all of the shares if any are purchased. However, in the event of a default by
one or more of the U.S. underwriters, the purchase commitments of the non-
defaulting U.S. underwriters will be increased and the amount of shares offered
in the United States may be decreased.
The underwriters for each of the offerings have entered into an agreement in
which they agree to restrictions on where and to whom they and any dealer
purchasing from them may offer shares or ADSs in connection with the global
offering. The U.S. and international underwriters also have agreed that they
may sell shares between their respective underwriting groups.
NTT and MOF have agreed with the underwriters not to dispose of or hedge any
of their shares of stock or securities convertible into or exchangeable for
shares during the period from the date of this prospectus continuing through
the date 180 days after the date of this prospectus, other than, with respect
to MOF's agreement, to NTT for repurchase and cancellation or to an entity
controlled by the Government of Japan that agrees to be bound by the foregoing
restrictions, except with the prior written consent of the joint global
coordinators. With respect to NTT's agreement with the underwriters, such
agreement does not apply to any existing employee or director benefit plans.
In connection with the U.S. and international offerings, the underwriters may
purchase and sell shares or ADSs in the open market. These transactions may
include short sales, stabilizing transactions and purchases to cover positions
created by short sales. Short sales involve the sale by the underwriters of a
greater number of shares or ADSs than they are required to purchase in the
offerings. Stabilizing transactions consist of certain bids or purchases made
for the purpose of preventing or retarding a decline in the market price of the
shares or ADSs while the global offering is in progress.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock or the ADSs. As a result, the price
of the common stock or the ADSs may be higher than the price that otherwise
might exist in the open market. If these activities are commenced, they may be
discontinued by the underwriters at any time. These transactions may be
effected on the London Stock Exchange, the New York Stock Exchange, in the
over-the-counter market or otherwise.
In addition, in connection with the Japanese offering, the Japanese
underwriters may engage in stabilizing transactions on the Tokyo Stock
Exchange, in accordance with applicable Japanese regulations and customary
practice in Japan. Under those regulations, a representative of the Japanese
underwriters may maintain a stabilizing bid on the Tokyo Stock Exchange at a
price above the initial public offering price for the global offering,
including a price as high as, but no higher than, the closing price of the
common stock on that exchange on the date of this prospectus, which was
(Yen) per share. However, any such stabilization will be permitted only
during the two trading days in Tokyo immediately following the date of this
prospectus. The underwriters are seeking exemptive relief from the U.S.
Securities and Exchange Commission to permit this stabilization in Japan.
NTT estimates that its total expenses for the global offering will be
approximately $ .
NTT has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
The underwriters expect to deliver certificates representing the shares
against payment therefor in yen in Tokyo through the central clearing system
(JASDEC) in Japan on December , 1998 (Tokyo time). The underwriters expect to
deliver ADSs against payment therefor in U.S. dollars in New York, New York
through the facilities of DTC on December , 1998.
U-2
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely
on any unauthorized information or representations. This prospectus is an
offer to sell only the shares offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Where To Find More Information........................................... 8
Forward Looking Statements............................................... 8
Use of Proceeds.......................................................... 9
Exchange Rates........................................................... 9
Capitalization........................................................... 10
Selected Financial Data.................................................. 11
Unaudited Pro Forma Financial Information................................ 13
Selected Operating Data.................................................. 14
Recent Developments...................................................... 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 31
Regulatory Developments.................................................. 43
Dividends and Price Range of Shares and ADSs............................. 45
Principal Shareholders and Selling Shareholder........................... 49
Description of the Shares................................................ 50
Description of ADRs and Deposit Agreement................................ 57
Certain Tax Considerations............................................... 63
Experts.................................................................. 66
Validity of Securities................................................... 66
Index to Financial Statements............................................ F-1
Underwriting............................................................. U-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
1,000,000 SHARES OF COMMON STOCK
(PAR VALUE (Yen)50,000 PER SHARE)
IN THE FORM OF SHARES AND AMERICAN DEPOSITARY SHARES
----------------
[LOGO]
NTT
----------------
GOLDMAN, SACHS & CO.
WARBURG DILLON READ LLC
DAIWA SECURITIES AMERICA INC.
Representatives of the U.S. Underwriters
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCES AND DISTRIBUTION.
The estimated expenses in connection with the issuance and sale of the ADSs
being registered hereunder (other than underwriting discounts) are set forth in
the following table:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 482,275
Accounting fees and expenses..................................... 65,000
Legal fees and expenses.......................................... 700,000
Printing expenses................................................ 350,000
Miscellaneous.................................................... 1,500,000
----------
Total........................................................ $3,097,275
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Articles 254 and 280 of the Commercial Code of Japan make the provisions of
Section 10, Chapter 2, Book III of the Civil Code applicable to the
relationship between NTT and its directors and corporate auditors,
respectively. Section 10, among other things, provides in effect that:
(1) If a director or a corporate auditor of a company has defrayed any
expenses which are considered necessary for the management of the affairs
of such company entrusted to him, he may demand reimbursement therefor from
the company;
(2) If a director or a corporate auditor has assumed an obligation
necessary for the management of the affairs entrusted to him, he may
require the company to perform it in his place or, if it is not due, to
furnish adequate security; and
(3) If a director or a corporate auditor, without any fault on his part,
sustains damage through the management of the affairs entrusted to him, he
may demand compensation therefor from the company.
ITEM 16. EXHIBITS.
See Exhibit Index on Page II-6.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item 15
above, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933, as amended, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933, as amended,
and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liabilities under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-1
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM F-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF TOKYO, JAPAN ON NOVEMBER 30, 1998.
Nippon Telegraph and Telephone
Corporation
*
By: _________________________________
(JUN-ICHIRO MIYAZU, PRESIDENT)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman and Director November 30, 1998
______________________________________
SHIGEO SAWADA
* President and Director November 30, 1998
______________________________________ (Principal Executive
JUN-ICHIRO MIYAZU Officer)
* Senior Executive Vice November 30, 1998
______________________________________ President and Director
HIDEKAZU INOUE
* Senior Executive Vice November 30, 1998
______________________________________ President and Director
TOSHIHARU AOKI
* Senior Executive Vice November 30, 1998
______________________________________ President and Director
KAZUO ASADA
* Executive Vice President November 30, 1998
______________________________________ and Director
MASANOBU SUZUKI
* Executive Vice President November 30, 1998
______________________________________ and Director
YUJI MATSUO
* Executive Vice President November 30, 1998
______________________________________ and Director
HIROSHI ISHIHARA
* Executive Vice President November 30, 1998
______________________________________ and Director (Principal
TOSHIYUKI MINESHIMA Financial and Accounting
Officer)
* Executive Vice President November 30, 1998
______________________________________ and Director
NORIO WADA
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Vice President November 30, 1998
______________________________________ and Director
TADAYUKI ARAI
* Executive Vice President November 30, 1998
______________________________________ and Director
KIYOSHI MITA
* Executive Vice President November 30, 1998
______________________________________ and Director
SATOSHI MIURA
* Executive Vice President November 30, 1998
______________________________________ and Director
MICHIO TAKEUCHI
* Executive Vice President November 30, 1998
______________________________________ and Director
KATSUYA OKIMI
* Senior Vice President and November 30, 1998
______________________________________ Director
HIROFUMI SHIMADA
* Senior Vice President and November 30, 1998
______________________________________ Director
MASAHIRO SHIBAO
* Senior Vice President and November 30, 1998
______________________________________ Director
RYUJI NUNOTANI
* Senior Vice President and November 30, 1998
______________________________________ Director
YOSHINORI UDA
* Senior Vice President and November 30, 1998
______________________________________ Director
SEIJI TAKASHIMA
* Senior Vice President and November 30, 1998
______________________________________ Director
MICHITOMO UENO
* Senior Vice President and November 30, 1998
______________________________________ Director
TOSHIAKI FUKUI
* Senior Vice President and November 30, 1998
______________________________________ Director
KUNIHIRO KATO
* Senior Vice President and November 30, 1998
______________________________________ Director
SHIN-ICHI AIZAWA
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Senior Vice President and November 30, 1998
______________________________________ Director
MASAAKI KASAHARA
* Senior Vice President and November 30, 1998
______________________________________ Director
KANJI KOIDE
* Senior Vice President and November 30, 1998
______________________________________ Director
YOSHIYUKI SUKEMUNE
* Senior Vice President and November 30, 1998
______________________________________ Director
YOSHIO BESSYO
* Senior Vice President and November 30, 1998
______________________________________ Director
JUN-ICHI YUKI
* Senior Vice President and November 30, 1998
______________________________________ Director
KIYOSHI FUJITA
* Senior Vice President and November 30, 1998
______________________________________ Director
SHUNZO MORISHITA
* Senior Vice President and November 30, 1998
______________________________________ Director
SHIGEHIKO SUZUKI
* Senior Vice President and November 30, 1998
______________________________________ Director
MAMORU ISHIDA
* Senior Vice President and November 30, 1998
______________________________________ Director
NOBUHARU ONO
* Senior Vice President and November 30, 1998
______________________________________ Director
SUSUMU FUKUZAWA
* Director and Counselor to November 30, 1998
______________________________________ the President
RYUZO SEJIMA
NTT AMERICA, INC.
* President and Chief November 30, 1998
By: __________________________________ Executive Officer
KEISUKE NAKASAKI
/s/ Mototane Miyazaki
*By: _________________________________
MOTOTANE MIYAZAKI, ATTORNEY-IN-FACT
</TABLE>
* Mototane Miyazaki, by signing his name hereto, does sign this document on
behalf of the person indicated above pursuant to a power of attorney duly
executed by such person and filed with the Securities and Exchange
Commission.
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
EXHIBIT NO.
------- ----
<C> <S> <C>
1. Form of Underwriting Agreement.*
2.1 Nippon Telegraph and Telephone Corporation Law (English
translation thereof) (incorporated by reference to Exhibit 1.4
to NTT's Registration Statement on Form 20-F (file
no. 1-8910)).
2.2 Law Concerning Partial Revision to the Nippon Telegraph and
Telephone Corporation Law (English translation thereof)
(incorporated by reference to NTT's Form 6-K dated June 30,
1997).
2.3 Supplemental Provisions for the Law Concerning Partial Revision
to the Nippon Telegraph and Telephone Corporation Law (English
translation thereof) (incorporated by reference to NTT's Form
6-K dated July 8, 1997).
3.1 Articles of Incorporation of NTT (English translation thereof)
(incorporated by reference to Exhibit 3.1 to NTT's Registration
Statement on Form F-3 (file no. 333-8264)).
3.2 Regulations of Board of Directors of NTT (English translation
thereof) (incorporated by reference to Exhibit 1.2 to NTT's
Registration Statement on Form 20-F (file no. 1-8910)).
3.3 Share Handling Regulations of NTT (English translation thereof)
(incorporated by reference to Exhibit 1.3 to NTT's Registration
Statement on Form 20-F (file no. 1-8910)).
4.1 Deposit Agreement, dated as of July 8, 1994, among NTT, Morgan
Guaranty Trust Company of New York, as Depositary, and all
holders from time to time of American Depositary Receipts
issued thereunder (incorporated by reference to Exhibit (a) to
Registration Statement on Form F-6 (file no. 33-81562)).
4.2 Form of ADR (included in Exhibit 4.1).
4.3 Specimen Certificate for shares of NTT's common stock, par
value (Yen)50,000 per share (English translation thereof)
(incorporated by reference to Exhibit 2.2 to NTT's Registration
Statement on Form 20-F (file no. 1-8910)).
5.1 Opinion and consent of Tomotsune Kimura & Mitomi, as to the
validity of the shares underlying the ADSs.**
8.1 Tax opinion and consent of Milbank, Tweed, Hadley & McCloy.**
23.1 Consent of Price Waterhouse.*
23.2 Consent of Tomotsune Kimura & Mitomi (included in Exhibit 5.1).
23.3 Consent of Milbank, Tweed, Hadley & McCloy (included in Exhibit
8.1).
24. Powers of Attorney.**
</TABLE>
- --------
* Filed herewith.
** Previously filed.
II-5
<PAGE>
EXHIBIT 1.1
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
Global Offering of 1,000,000 Shares of Common Stock
(Par Value (Yen)50,000 per Share)
U.S. Underwriting Agreement
---------------------------
THIS U.S. UNDERWRITING AGREEMENT (the "Underwriting Agreement") is
made on December __, 1998 by and among THE MINISTER OF FINANCE OF JAPAN,
representing the Government of Japan (the "Selling Shareholder"), NIPPON
TELEGRAPH AND TELEPHONE CORPORATION, a limited liability joint stock company
incorporated under the laws of Japan (the "Company") and GOLDMAN, SACHS & CO.,
WARBURG DILLON READ LLC and DAIWA SECURITIES AMERICA INC., as representatives
(the "Representatives") of the several Underwriters named in Schedule I hereto
(the "Underwriters").
The terms defined in this Agreement are also set forth in Schedule II
attached hereto.
The Selling Shareholder proposes, subject to the terms and conditions
stated herein, to sell to the Underwriters an aggregate of ............ shares
(the "U.S. Shares") of common stock, par value (Yen)50,000 per share ("NTT
Common Stock"), of the Company, for sale in the United States and Canada (the
"U.S. Offering").
The Underwriters propose to purchase the U.S. Shares from the Selling
Shareholder and offer the U.S. Shares, in the form of U.S. Shares or American
Depositary Shares ("ADSs"), in the U.S. Offering. The ADSs are to be issued
pursuant to a deposit agreement (the "Deposit Agreement"), dated as of July 8,
1994, among the Company, Morgan Guaranty Trust Company of New York, as
depositary (the "Depositary"), and holders from time to time of the American
Depositary Receipts (the "ADRs") issued by the Depositary and evidencing the
ADSs. Each ADS will initially represent the right to receive 1/200th of a share
of NTT Common Stock deposited pursuant to the Deposit Agreement. The ADSs
representing U.S. Shares are hereinafter called the "U.S. ADSs".
It is understood by all the parties that the Company and the Selling
Shareholder are concurrently entering into (i) an agreement (the "International
Underwriting Agreement") providing for the sale by the Selling Shareholder of a
total of ............ shares of NTT Common Stock (the "International Shares"),
through arrangements with certain underwriters outside the United States, Canada
and Japan (the "International Underwriters"), for whom UBS AG, acting through
its division Warburg Dillon Read, ("Warburg Dillon Read"), Daiwa Europe Limited
and Goldman Sachs International are acting as lead managers (the "International
Offering"), and (ii) an agreement (the "Japanese Underwriting Agreement")
providing for the sale by the Selling Shareholder of a total of
.................... shares of NTT Common Stock (the "Japanese Shares"), through
arrangements with certain underwriters in Japan (the "Japanese Underwriters"),
for whom Daiwa Securities Co. Ltd., Goldman Sachs (Japan) Ltd. and Warburg
Dillon Read (Japan) Limited are acting as lead
<PAGE>
managers (the "Japanese Offering"). The U.S. Shares, the International Shares
and the Japanese Shares are herein collectively called the "Offered Shares". The
U.S. Offering, the International Offering and the Japanese Offering are herein
collectively called the "Global Offering". Anything herein or therein to the
contrary notwithstanding, the closing under this Agreement is expressly
conditional on the closings under the Global Underwriting Agreements (defined
below).
The Underwriters hereunder, the International Underwriters and the
Japanese Underwriters are simultaneously entering into an Agreement among
Underwriting Syndicates (the "Agreement among Syndicates"), which provides,
among other things, that Daiwa Securities Co. Ltd., Goldman Sachs International
and Warburg Dillon Read shall act as the Joint Global Coordinators (the "Joint
Global Coordinators") for the Global Offering and for the transfer of Offered
Shares, if needed, among the U.S. and International syndicates.
Except as the context may otherwise require, the International
Underwriters and the Japanese Underwriters are referred to herein collectively
as the "Global Underwriters" and the International Underwriting Agreement and
the Japanese Underwriting Agreement are referred to herein collectively as the
"Global Underwriting Agreements".
Three forms of prospectus are to be used in connection with the
offering and sale of Offered Shares contemplated by the foregoing, one relating
to the U.S. Offering (the "U.S. Prospectus"), another relating to the
International Offering (the "International Prospectus") and another relating to
the Japanese Offering (the "Japanese Prospectus"). The International Prospectus
will be identical to the U.S. Prospectus except for certain substitute pages.
References hereinafter to the Offered Shares shall include Offered Shares to be
represented by ADSs.
1. (a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(i) A Registration Statement (as defined below) in respect of the Offered
Shares has been filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended, and the rules
and regulations of the Commission thereunder (collectively, the "Securities
Act"); the Registration Statement and any post-effective amendment thereto,
each in the form previously delivered to the Representatives, have been
declared effective by the Commission in such form (copies, including all
documents incorporated by reference in the prospectus contained therein but
excluding the exhibits thereto were also provided to the Representatives
for each of the other Underwriters); no other document (including exhibits)
relating to the Registration Statement or document incorporated by
reference in the Registration Statement has previously been filed or
transmitted for filing with the Commission; and no stop order suspending
the effectiveness of the Registration Statement or any post-effective
amendment thereto has been issued and no proceeding for that purpose has
been initiated or threatened by the Commission.
For the purposes of this Agreement, "Registration Statement" shall
mean the Registration Statement on Form F-3 (File No. 333-67603) and
Amendment No. 1 thereto including all exhibits thereto and including (i)
the information contained in the form of final prospectus filed with the
Commission pursuant to Rule 424(b) under the Securities Act in accordance
with Section 6(a) hereof and deemed by virtue of Rule 430A under the
Securities Act to be part of the Registration Statement at the time it was
declared effective and (ii) the documents incorporated by reference in the
prospectus contained in the Registration Statement at the time such part of
the Registration Statement became effective, each as amended at the time
such part of the Registration Statement became
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effective. Any reference to any amendment to the Registration Statement
shall be deemed to refer to and include any annual report of the Company
filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, and the rules and regulations of the Commission
thereunder (collectively, the "Exchange Act") after the effective date of
the Registration Statement that is incorporated by reference in the
Registration Statement.
Any preliminary prospectus included in the Registration Statement or
filed with the Commission pursuant to Rule 424(a) under the Securities Act,
including any version thereof prepared in connection with the International
Offering, is hereinafter called a "Preliminary Prospectus". The
prospectus, in the form first filed pursuant to Rule 424(b) under the
Securities Act, including the version thereof prepared in connection with
the International Offering, is hereinafter called the "Prospectus". Any
reference herein to any Preliminary Prospectus or the Prospectus shall be
deemed to refer to and include the documents incorporated by reference
therein pursuant to Item 12 of Form F-3 under the Securities Act, as of the
date of such Preliminary Prospectus or the Prospectus, as the case may be.
Any reference to any amendment or supplement to any Preliminary Prospectus
or the Prospectus shall be deemed to refer to and include any documents
filed after the date of such Preliminary Prospectus or the Prospectus, as
the case may be, under the Exchange Act, and incorporated by reference in
such Preliminary Prospectus or the Prospectus, as the case may be.
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission; each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Securities Act; and each Preliminary Prospectus, at the
time of filing did not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that this representation
and warranty shall not apply to any statements or omissions made in
reliance upon and in conformity with information furnished in writing to
the Company by an Underwriter through the Representatives expressly for use
therein;
(iii) The documents incorporated by reference in the Prospectus, when
they became effective or were filed with the Commission, as the case may
be, conformed in all material respects to the requirements of the
Securities Act or the Exchange Act, as applicable; none of the documents
incorporated by reference contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and any further
documents so filed and incorporated by reference in the Prospectus or any
further amendment or supplement thereto, when such documents become
effective or are filed with the Commission, as the case may be, will
conform in all material respects to the requirements of the Securities Act
or the Exchange Act, as applicable, and will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and warranty shall
not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through the Representatives expressly for use therein;
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(iv) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Securities Act and do not and will not, as of the applicable effective
date as to the Registration Statement and any amendment thereto and as of
the applicable filing date as to the Prospectus and any amendment or
supplement thereto, contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that this
representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in
writing to the Company by an Underwriter through the Representatives
expressly for use therein;
(v) A registration statement on Form F-6 (File No. 33-81562) in respect
of the ADSs has been filed with the Commission; such registration statement
in the form previously delivered to the Representatives and, excluding
exhibits, to the Representatives for each of the other Underwriters, has
been declared effective by the Commission in such form; no other document
with respect to such registration statement has previously been filed with
the Commission; no stop order suspending the effectiveness of such
registration statement has been issued and no proceeding for that purpose
has been initiated or threatened by the Commission (the various parts of
such registration statement, including all exhibits thereto, each as
amended at the time such part of the registration statement became
effective, being hereinafter called the "ADS Registration Statement"); and
the ADS Registration Statement when it became effective conformed, and any
further amendments thereto will conform, in all material respects to the
requirements of the Securities Act, and did not, as of the applicable
effective date, contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading;
(vi) Neither the Company nor its subsidiaries has sustained since the
date of the latest audited financial statements included or incorporated by
reference in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus
that would be material to the Company and its subsidiaries, taken as a
whole; and, since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been (A) any
change in the capital stock of the Company, (B) any increase in excess of
(Yen)400 billion in the long-term debt of the Company on a consolidated
basis, or (C) any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general affairs,
management, financial position, shareholders' equity or results of
operations of the Company and its subsidiaries taken as a whole, otherwise
than as set forth or contemplated in the Prospectus;
(vii) The Company has been duly incorporated and is validly existing as
a joint stock corporation under the laws of Japan, with power and authority
(corporate and other) to own its properties and conduct its business as
described in the Prospectus and has been duly qualified for the transaction
of business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties or conducts any business
so as to require such qualification, or is subject to no liability or
disability by reason of the failure to be so qualified in any such
jurisdiction, except where the failure to do so would not individually or
in the aggregate have a material adverse effect on the Company and its
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subsidiaries taken as a whole; and each subsidiary of the Company named in
the Prospectus has been duly incorporated and is validly existing as a
corporation under the laws of its jurisdiction of incorporation;
(viii) The Company has an authorized capital stock as set forth in the
Prospectus, and all of the issued shares of NTT Common Stock have been duly
and validly authorized and issued, and are fully paid and non-assessable
and conform to the description of the NTT Common Stock contained in the
Prospectus; all of the issued shares of capital stock of each subsidiary of
the Company named in the Prospectus have been duly and validly authorized
and issued, are fully paid and non-assessable and (except as set forth in
the Prospectus) are owned directly or indirectly by the Company, free and
clear of all liens (other than statutory preferences granted to the holders
of bonds issued by the Company provided under Article 8 of the Nippon
Telegraph and Telephone Corporation Law), encumbrances, equities or claims;
all of the NTT Common Stock (including the Offered Shares) have been or
will be duly listed and admitted for trading on the Tokyo Stock Exchange
(except for the NTT Common Stock which will continue to be held by the
Selling Shareholder) and the London Stock Exchange; the ADSs have been duly
listed and admitted for trading on the New York Stock Exchange; the holders
of outstanding shares of NTT Common Stock are not entitled pursuant to any
action taken by the Company or pursuant to Japanese law to preemptive or
other rights to acquire the Offered Shares; there are no outstanding
securities convertible into or exchangeable for, or warrants, rights or
options to purchase from the Company, or obligations of the Company to
issue, the NTT Common Stock or any other class of capital stock of the
Company; the Offered Shares may be freely deposited with the Depositary
against issuance of ADRs evidencing ADSs (except as described in the
Prospectus under "Description of the Shares -- Exchange Controls and Other
Limitations Affecting Security Holders"); the Offered Shares are freely
transferable by the Selling Shareholder to or for the account of the
several Underwriters and are freely transferable by the several
Underwriters to (to the extent described in the Prospectus) the initial
purchasers thereof; and there are no restrictions on subsequent transfers
of the Offered Shares or ADSs under the laws of Japan and of the United
States (except as described in the Prospectus under "Description of the
Shares -- Exchange Controls and Other Limitations Affecting Security
Holders");
(ix) The Offered Shares have been duly and validly authorized and issued,
are fully paid and non-assessable and conform to the description of the NTT
Common Stock contained in the Prospectus; the Selling Shareholder is the
sole registered holder of title to the Offered Shares on the register of
shareholders of the Company; and holders of the Offered Shares will be
entitled to all the rights of shareholders conferred by the Articles of
Incorporation of the Company and the Commercial Code of Japan;
(x) The Deposit Agreement has been duly authorized, executed and
delivered by the Company, and, assuming due authorization, execution and
delivery by the Depositary, constitutes a valid and legally binding
agreement of the Company, enforceable in accordance with its terms, except
as may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting the enforcement of creditors'
rights generally and except as the enforceability thereof is subject to the
application of general principles of equity (regardless of whether
considered in a proceeding in equity or at law), including, without
limitation, (i) the possible unavailability of specific performance,
injunctive relief or any other equitable remedy and (ii) concepts of
materiality, reasonableness, good faith and fair dealing;
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<PAGE>
(xi) Except as described in the Prospectus, all dividends and other
distributions declared and payable on NTT Common Stock (subject to the
approval of the Minister of Posts and Telecommunications) (including
payments to the Depositary in respect of ADSs) may under the current laws
and regulations of Japan be paid in Japanese yen that may be converted into
foreign currency that may be freely transferred out of Japan, and all such
dividends and other distributions will not be subject to withholding or
other taxes under the laws and regulations of Japan and are otherwise free
and clear of any other tax, withholding or deduction in Japan and without
the necessity of obtaining any consent, approval, authorization, order,
registration, clearance or qualification (hereinafter referred to as
"Governmental Authorizations") of or with any court or governmental agency
or body having jurisdiction over the Company or any of its subsidiaries or
any of their properties or any stock exchange authorities or self-
regulatory organizations (hereinafter referred to as a "Governmental
Agency") in Japan;
(xii) The deposit by the Underwriters of the Offered Shares being
deposited with the Depositary against issuance of the ADRs evidencing the
ADSs and the compliance by the Company with all of the provisions of this
Agreement, the Global Underwriting Agreements and the Deposit Agreement and
the consummation by the Company of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company is a party or by which the Company is bound
or to which any of the property or assets of the Company is subject, nor
will such action result in any violation by the Company of the provisions
of the Articles of Incorporation, Regulations of the Board of Directors or
Share Handling Regulations of the Company or any statute or any order, rule
or regulation of any Governmental Agency having jurisdiction over the
Company or any of its properties;
(xiii) No Governmental Authorization of any Governmental Agency is
required for the deposit of the Offered Shares being deposited with the
Depositary against issuance of ADRs evidencing the ADSs to be delivered or
the consummation of the transactions contemplated by this Agreement and the
Global Underwriting Agreements, except (A) the registration under the
Securities Act of the Offered Shares and the ADSs, (B) the Diet's approval
of the relevant national budget which authorizes the sale of the Offered
Shares, (C) such other Governmental Authorizations as have been duly
obtained and are in full force and effect and copies of which have been
furnished to the Representatives and (D) such Governmental Authorizations
as may be required under securities or Blue Sky laws of any state of the
United States or any laws of jurisdictions outside Japan and the United
States in connection with the purchase and distribution of the Offered
Shares and ADSs by or for the account of the Underwriters and the
International Underwriters;
(xiv) Each of this Agreement and the Global Underwriting Agreements has
been duly authorized executed and delivered by the Company and under the
laws of Japan, constitutes a valid and legally binding obligation of the
Company, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and similar laws of
general applicability relating to or affecting creditors' rights and to
general equity principles;
(xv) Each of this Agreement, the Global Underwriting Agreements, the
Deposit Agreement and the ADRs evidencing the ADSs is in proper form under
the laws of Japan to be enforced against the Company and the certificates
for the Offered Shares are in
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<PAGE>
proper form to be legal and valid under the laws of Japan, and to ensure
the legality, validity, enforceability or admissibility into evidence in
Japan of this Agreement, the Global Underwriting Agreements, the Deposit
Agreement, the ADRs or the Offered Shares, as the case may be, it is not
necessary that this Agreement, the Global Underwriting Agreements, the
Deposit Agreement, the ADRs or the Offered Shares or any other documents be
filed or recorded with any court or other authority in Japan or that any
Japanese stamp or similar tax be paid by the Underwriters or the Global
Underwriters or purchasers therefrom on or in respect of this Agreement,
the International Underwriting Agreement, the Deposit Agreement, the ADRs
or the Offered Shares or any other document to be furnished hereunder or
thereunder;
(xvi) The Company is not in violation of its Articles of Incorporation,
Regulations of the Board of Directors and Share Handling Regulations, or in
default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any indenture, mortgage, deed
of trust, loan agreement, lease or other agreement or instrument to which
it is a party or by which it or any of its properties may be bound;
(xvii) No stamp or other issuance or transfer taxes or duties and no
capital gains, income, withholding or other taxes are payable by or on
behalf of the Underwriters or the Global Underwriters in Japan in
connection with (A) the deposit with the Depositary of Offered Shares
against the issuance of ADRs evidencing ADSs, (B) the sale and delivery of
the Offered Shares and ADSs to or for the respective accounts of the
Underwriters or the International Underwriters, (C) the execution and
delivery of this Agreement or the Global Underwriting Agreements or (D) the
sale and delivery by the Underwriters or the International Underwriters of
the Offered Shares and ADSs to the initial purchasers thereof;
(xviii) Neither the Company nor any of its subsidiaries has taken,
directly or indirectly, any action which was designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Offered Shares and ADSs;
(xix) The statements set forth in the Prospectus under the captions
"Description of the Shares" and "Description of American Depositary
Receipts", insofar as they purport to constitute a summary of the terms of
the NTT Common Stock and the ADSs, respectively, and under the caption
"Certain Tax Considerations", insofar as they purport to describe the
provisions of the laws and documents referred to therein, are accurate,
complete and fair;
(xx) The Company and its subsidiaries named in the Prospectus have valid
title to all real property and valid title to all personal property owned
by them, in each case free and clear of all liens (other than statutory
preferences granted to the holders of bonds issued by the Company provided
under Article 8 of the Nippon Telegraph and Telephone Corporation Law),
encumbrances and defects except such as are described in the Prospectus or
such as do not and would not, in the aggregate, have a material adverse
effect on the current or future consolidated financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries, taken as a whole; and any real property and buildings held
under lease by the Company and such subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as do not and
would not, in the aggregate, have a material adverse effect on the current
or future consolidated financial position, shareholders' equity or results
of operations of the Company and its subsidiaries, taken as a whole;
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<PAGE>
(xxi) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any of
its subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate
have a material adverse effect on the financial position, shareholders'
equity or results of operations of the Company and its subsidiaries taken
as a whole; and, to the best of the Company's knowledge, no such
proceedings are threatened or contemplated by any Governmental Agency or
threatened by others;
(xxii) The Company is not and, after giving effect to the offering and
sale of the Offered Shares, will not be an "investment company" as defined
in the Investment Company Act of 1940, as amended (the "Investment Company
Act");
(xxiii) The Company and each of its subsidiaries named in the Prospectus
have all licenses, franchises, permits, authorizations, approvals and
orders and other concessions of and from all Governmental Agencies that are
necessary to own or lease their other properties and conduct their
businesses as described in the Prospectus with such exceptions as
individually or in the aggregate would not have a material adverse effect
on the financial position, shareholders' equity or results of operations of
the Company or such subsidiaries;
(xxiv) The Company has reviewed its operations and that of its
subsidiaries to evaluate the extent to which the business or operations of
the Company or any of its subsidiaries will be affected by the Year 2000
Problem. As a result of such review, the Company has no reason to believe,
and does not believe, that the Year 2000 Problem will have a material
adverse effect on the financial position, shareholders' equity or results
of operations of the Company and its subsidiaries or result in any material
loss or interference with the Company's business or operations. The "Year
2000 Problem" as used herein means any significant risk that computer
hardware or software used in the receipt, transmission, processing,
manipulation, storage, retrieval, retransmission or other utilization of
data or in the operation of mechanical or electrical systems of any kind
will not, in the case of dates or time periods occurring after December 31,
1999, function at least as effectively as in the case of dates or time
periods occurring prior to January 1, 2000; and
(xxv) Price Waterhouse, who have certified certain financial statements
of the Company and its subsidiaries, are independent public accountants as
required by the Securities Act.
(b) The Selling Shareholder represents and warrants to, and agrees with,
each of the Underwriters and the Company that:
(i) The sale and delivery of the Offered Shares by the Selling
Shareholder hereunder and under the Global Underwriting Agreements and the
compliance by the Selling Shareholder with all of the provisions of, and
the performance by the Selling Shareholder of his obligations under, this
Agreement and the Global Underwriting Agreements and the consummation by
the Selling Shareholder of the transactions herein and therein contemplated
will not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any agreement or
instrument to which the Selling Shareholder is a party or by which the
Selling Shareholder is bound, or to which any of the property or assets of
the Selling Shareholder are subject, nor will such action result in any
violation by the Selling Shareholder of the provisions of any statute or
any order, rule or regulation of any Governmental Agency in Japan;
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(ii) Each of this Agreement and the Global Underwriting Agreements has
been duly authorized, executed and delivered by the Selling Shareholder
and, under the laws of Japan, constitutes a valid and legally binding
obligation of the Selling Shareholder, enforceable in accordance with its
terms;
(iii) The Selling Shareholder has, and immediately prior to the Time of
Delivery (as defined in Section 4 hereof) the Selling Shareholder will
have, good and valid title to the Offered Shares to be sold by the Selling
Shareholder hereunder and under the Global Underwriting Agreements, free
and clear of all liens, encumbrances, equities or claims; and upon delivery
of the Offered Shares and payment therefor pursuant to this Agreement and
the Global Underwriting Agreements, good and valid title to the Offered
Shares, free and clear of all liens, encumbrances, equities or claims, will
pass to the Underwriters, or the Global Underwriters, as the case may be;
(iv) The Selling Shareholder has full right, power and authority to enter
into this Agreement and the Global Underwriting Agreements and to sell,
assign, transfer and deliver the Offered Shares to be sold by the Selling
Shareholder hereunder and under the International Underwriting Agreement;
(v) No Governmental Authorization of or with any Governmental Agency in
Japan is required to be obtained by the Selling Shareholder for the sale of
the Offered Shares by the Selling Shareholder hereunder or under the Global
Underwriting Agreements, the compliance by the Selling Shareholder with all
of the provisions of, and the performance by the Selling Shareholder of his
obligations under, this Agreement and the Global Underwriting Agreements,
the consummation by the Selling Shareholder of the transactions
contemplated by this Agreement and the Global Underwriting Agreements, or
for the execution and delivery by the Selling Shareholder of this Agreement
to be duly and validly authorized, except (A) the Diet's approval of the
relevant national budget which authorizes the sale of the Offered Shares
and (B) such Governmental Authorizations as have been duly obtained and are
in full force and effect and copies of which have been furnished to the
Representatives;
(vi) No stamp or other issuance or transfer taxes or duties and no
capital gains, income, withholding or other taxes are payable by or on
behalf of the Underwriters or the Global Underwriters in Japan in
connection with (A) the sale and delivery by the Selling Shareholder of the
Offered Shares to or for the respective accounts of the Underwriters or the
International Underwriters, (B) the execution and delivery of this
Agreement or the Global Underwriting Agreements or (C) the sale and
delivery by the Underwriters or the International Underwriters of the
Offered Shares and the ADSs to the initial purchasers thereof;
(vii) The statements set forth in the Prospectus with respect to the
number of Offered Shares to be offered and sold by the Selling Shareholder
and with respect to the number of shares of NTT Common Stock previously
sold and to be sold in the future by the Selling Shareholder are accurate;
and
(viii) The Selling Shareholder has not taken, directly or indirectly, any
action which is designed to or which has constituted or which might
reasonably be expected to cause or result in stabilization or manipulation
of the price of any security of the Company to facilitate the sale or
resale of the Offered Shares or ADSs in the Offering.
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2. Subject to the terms and conditions herein set forth, the Selling
Shareholder agrees to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Selling
Shareholder, at a purchase price per U.S. Share of (Yen)................... the
number of U.S. Shares set forth opposite the name of such Underwriter in
Schedule I hereto.
As compensation to the Underwriters for their commitments hereunder, the
Selling Shareholder will pay to Goldman, Sachs & Co., for the accounts of the
several Underwriters, an amount equal to (Yen)................. per U.S. Share
(the "Underwriting Commission") for the U.S. Shares to be delivered by the
Selling Shareholder hereunder at the Time of Delivery. The foregoing amount
shall be payable by the Selling Shareholder if and only if the U.S. Shares are
purchased by the Underwriters as provided herein.
3. Upon the authorization by the Representatives of the release of the
U.S. Shares and the U.S. ADSs, the several Underwriters propose to offer the
U.S. Shares and the U.S. ADSs for sale upon the terms and conditions set forth
in the U.S. Prospectus. Each Underwriter hereby represents and warrants to, and
agrees with, the Company and the Selling Shareholder that it and each of its
affiliates will not offer, sell or deliver any of the U.S. Shares or distribute
the Prospectus or any other offering material in any jurisdiction (including
Canada) outside the United States except in compliance with the applicable laws
thereof and in the manner contemplated by the Prospectus, including taking
whatever action is required to permit its purchase and resale of the U.S. Shares
in such jurisdiction at its own expense; provided, however, that with respect to
the Prospectus, the Underwriters make no representations as to compliance with
applicable laws with respect to the content of, including any misstatements or
omissions in, the Prospectus.
4. (a) Goldman, Sachs & Co. or its agent shall, on behalf of the
Underwriters (and the Underwriters hereby severally agree to cause such payment
to be made), make payment to the Selling Shareholder by using the payment form
supplied by the Selling Shareholder no later than 3:00 p.m., Tokyo time, on the
Tokyo business day immediately preceding the Delivery Date, or such other time
and date as the Joint Global Coordinators and the Selling Shareholder may agree
upon in writing (such time and date of payment for the U.S. Shares being herein
called the "Time of Payment"), of the purchase price therefor by settlement upon
delivery of a check drawn upon The Bank of Japan in same day funds; provided,
however, that the Selling Shareholder shall as soon as practicable return the
foregoing payment to Goldman, Sachs & Co. or its agent if the U.S. Shares are
not delivered at the Time of Delivery because of any provision of Section 8.
(b) Subject to confirmation of receipt of the purchase price referred to in
(a) above, the Selling Shareholder will make available for inspection by
Goldman, Sachs & Co. or its agent on behalf of the Underwriters the certificates
representing the U.S. Shares no later than 8:15 a.m., Tokyo time, on the
Delivery Date. The time and date of delivery of the U.S. Shares shall be 9:00
a.m., Tokyo time, on December ...., 1998 or such other time and date as the
Joint Global Coordinators and the Selling Shareholder may agree upon in writing.
Such time and date of delivery of the U.S. Shares are herein called the "Time of
Delivery" and such date of delivery is herein called the "Delivery Date". No
later than 9:00 a.m., Tokyo time, on the Delivery Date, the Selling Shareholder
shall deliver or cause to be delivered to Goldman, Sachs & Co. or its agent in
Japan acting as agent on behalf of the Underwriters for deposit with the Japan
Securities Depository Center ("JASDEC") system, certificates representing the
U.S. Shares. Goldman,
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Sachs & Co., or its agent shall issue a receipt for the U.S. Shares in a form
prescribed by the Selling Shareholder.
(c) A meeting will be held at the offices of Sullivan & Cromwell, Tokio
Kaijo Building Shinkan, 2-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-0005,
Japan (the "Closing Location") at or around 3:00 p.m., Tokyo time, two Tokyo
business days prior to the Delivery Date (or such other time and date as the
Joint Global Coordinators, the Company and the Selling Shareholder may agree
upon), at which meeting the final drafts of the documents to be delivered
pursuant to the next sentence will be available for review by the parties
hereto. The documents to be delivered at the Time of Payment by or on behalf of
the parties hereto pursuant to Section 8 hereof and any additional documents
requested by the Underwriters pursuant to Sections 8(l) and 8(m) hereof,
including the receipts for the U.S. Shares and the payment therefor, will be
delivered at the Closing Location at or prior to the Time of Payment, and the
U.S. Shares and the U.S. ADSs will be delivered as specified in Sections 4(b)
and 5(b), at the Time of Delivery and at or prior to the ADS Time of Delivery,
respectively. For the purposes of this Section 4, "Tokyo business day" shall
mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on
which banking institutions in Tokyo are generally authorized or obligated by law
or executive order to close.
(d) The Selling Shareholder shall, subject to receipt of invoice therefor,
pay to Goldman, Sachs & Co. or its agent, for the accounts of the several
Underwriters, into an account specified by Goldman, Sachs & Co. or its agent
the Underwriting Commission referred to in Section 2 above by the Tokyo business
day immediately succeeding the Delivery Date. However, the Selling Shareholder
shall make efforts to pay the Underwriting Commission as soon as practicable
after the Time of Delivery.
5. (a) With respect to all or a portion of the U.S. Shares to be
purchased from the Selling Shareholder and sold hereunder at the Time of
Delivery, Goldman Sachs International on behalf of the several Underwriters, may
elect to receive U.S. Shares delivered and paid for hereunder in the form of
U.S. ADSs. Notice of such election shall be given by Goldman Sachs
International to the Company no later than 5:00 p.m. (Tokyo time) on the Tokyo
business day prior to the Delivery Date (the "Notification Time").
(b) In the event and to the extent that the Underwriters shall have elected
to receive U.S. ADSs in accordance with Section 5(a), such U.S. ADSs shall be
registered in the name of Cede & Co., as nominee for The Depository Trust
Company ("DTC") on the books of the Depositary and delivered by or on behalf of
the Depositary to the DTC participant account of Goldman Sachs International,
for the account of the Underwriters, upon delivery for deposit with The Bank of
Tokyo-Mitsubishi, Ltd., as custodian under the Deposit Agreement, of
certificates representing the U.S. Shares deposited with the custodian for the
account of the Depositary against the issuance of the U.S. ADSs in accordance
with the terms of the Deposit Agreement. Subject to the satisfaction of the
terms of the Deposit Agreement and to receipt of payment therefor pursuant to
Section 4(a), the Company shall cause the U.S. ADSs to be delivered by the
Depositary to the purchasers thereof no later than 9:30 a.m., New York City
time, on December __, 1998 (the "ADS Time of Delivery").
6. (a) The Company agrees with each of the Underwriters:
(i) To prepare the Prospectus in a form approved by the Representatives
and to file such Prospectus pursuant to Rule 424(b) under the Securities
Act not later than the Commission's close of business on the second
business day following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by
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Rule 430A(a)(3) under the Securities Act; to make no further amendment or
any supplement to the Registration Statement or Prospectus prior to the
Time of Delivery which shall be reasonably disapproved by the
Representatives promptly after reasonable notice thereof; to advise the
Representatives, promptly after it receives notice thereof, of the time
when any amendment to the Registration Statement has been filed or becomes
effective or any supplement to the Prospectus or any amended Prospectus has
been filed and to furnish the Representatives copies thereof; to file
promptly all reports required to be filed by the Company with the
Commission pursuant to Section 13(a), 13(c) or 15(d) of the Exchange Act
subsequent to the date of the Prospectus and for so long as the delivery of
a prospectus is required in connection with the offering or sale of the
Offered Shares or ADSs; to advise the Representatives, promptly after it
receives notice thereof, of the issuance by the Commission of any stop
order or of any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus, of the suspension of the qualification of the
Offered Shares or ADSs for offering or sale in any jurisdiction, of the
initiation or threatening of any proceeding for any such purpose, or of any
request by the Commission for the amending or supplementing of the
Registration Statement or Prospectus or for additional information; and, in
the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or
suspending any such qualification, promptly to use its best efforts to
obtain the withdrawal of such order;
(ii) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Offered Shares or
ADSs for offering and sale under the securities laws of such jurisdictions
as the Representatives may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such jurisdictions
for as long as may be necessary to complete the distribution of the Offered
Shares or ADSs, provided that in connection therewith the Company shall not
be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction;
(iii) Prior to 10:00 a.m., New York City time, on the Business Day next
succeeding the date of this Agreement and from time to time, to furnish the
Underwriters with copies of the Prospectus in New York City in such
quantities as the Representatives may reasonably request, and, if the
delivery of a prospectus is required at any time prior to the expiration of
nine months after the time of issue of the Prospectus in connection with
the offering or sale of the Offered Shares or ADSs and if at such time any
events shall have occurred as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any
other reason it shall be necessary during such period to amend or
supplement the Prospectus or to file under the Exchange Act any document
incorporated by reference in the Prospectus in order to comply with the
Securities Act or the Exchange Act, to notify the Representatives and upon
their request to file such document and to prepare and furnish without
charge to each Underwriter as many copies as the Representatives may from
time to time reasonably request of an amended Prospectus or a supplement to
the Prospectus which will correct such statement or omission or effect such
compliance, and in case any Underwriter is required to deliver a prospectus
in connection with sales of the Offered Shares or ADS at any time nine
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months or more after the time of the issue of the Prospectus, upon such
Underwriters' request but not at the expense of such Underwriter, to
prepare and deliver to such Underwriter as many copies as it may request of
an amended or supplemented Prospectus complying with Section 10(a)(3) of
the Securities Act; provided that any failure to furnish the Underwriters
with copies of the Prospectus in New York City prior to 10:00 a.m., New
York City time, on the Business Day next succeeding the date of this
Agreement as a direct result of an event beyond the control of the Company
shall not result in a breach of this Clause (iii);
(iv) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Securities Act), an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a) of
the Securities Act (including, at the option of the Company, Rule 158);
(v) During the period beginning from the date hereof and continuing to
and including the date 180 days after the date of the Prospectus (which
will be dated the date of this Underwriting Agreement), not to directly or
indirectly offer, sell, contract to sell or otherwise dispose of, except as
provided hereunder and under the Global Underwriting Agreements, any
securities of the Company that are substantially similar to the Offered
Shares or ADSs, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to
receive, NTT Common Stock or any such substantially similar securities
(other than pursuant to employee stock option plans or other agreements
(copies of which have been previously provided to the Underwriters and
their counsel) existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of this
Agreement), without the prior written consent of the Joint Global
Coordinators;
(vi) To make available to its shareholders as soon as practicable after
the end of each fiscal year an annual report (in English) (including a
balance sheet and statements of income, shareholders' equity and cash flows
of the Company and its consolidated subsidiaries certified by independent
public accountants and prepared in conformity with generally accepted
accounting principles in the United States ("U.S. GAAP")) and, as soon as
practicable after the end of each of the first six months of each fiscal
year, consolidated summary financial information of the Company and its
subsidiaries for such interim period in reasonable detail prepared in
accordance with U.S. GAAP;
(vii) Not to (and to cause its subsidiaries not to) take, directly or
indirectly, any action which is designed to or which constitutes or which
might reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company or facilitate the
sale or resale of the Offered Shares and the ADSs;
(viii) To use its best efforts to obtain and maintain the listing of the
NTT Common Stock on the Tokyo Stock Exchange and the London Stock Exchange
and the listing of the ADSs on the New York Stock Exchange; and
(ix) To cooperate in procuring from the Depositary at the ADS Time of
Delivery certificates satisfactory to the Representatives evidencing the
deposit with the Depositary of the Offered Shares being so deposited
against issuance of ADRs evidencing the ADSs to be delivered, and the
execution, countersignature (if applicable),
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issuance and delivery of ADRs evidencing such ADSs pursuant to the Deposit
Agreement.
(b) The Selling Shareholder agrees with each of the Underwriters:
(i) During the period beginning from the date hereof and continuing to
and including the date 180 days after the date of the Prospectus (which
will be dated the date of this Underwriting Agreement), not to directly or
indirectly offer, sell, contract to sell or otherwise dispose of, except as
provided hereunder and under the Global Underwriting Agreements, any
securities of the Company that are substantially similar to the Offered
Shares or ADSs, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to
receive, NTT Common Stock or any such substantially similar securities
(other than to the Company for repurchase and cancellation or to an entity
controlled by the Government of Japan that agrees to be bound by the
restrictions of this section 6(b)(i); provided, however, that in either
case five Tokyo business days prior written notice shall be given to the
Joint Global Coordinators), without the prior written consent of the Joint
Global Coordinators;
(ii) To deliver or cause to be delivered to Goldman, Sachs & Co or its
agent acting as agent on behalf of the Underwriters no later than the Time
of Delivery certificates representing the U.S. Shares for deposit with
JASDEC; and
(iii) In connection with the Global Offering, not to (and to cause its
affiliates (excluding the Company and any person controlled by the Company)
not to) take, directly or indirectly, any action which is designed to or
which constitutes or which might reasonably be expected to cause or result
in stabilization or manipulation of the price of any security of the
Company or facilitate the sale or resale or the Offered Shares or the ADSs.
7. (a) The Company covenants and agrees with the Selling Shareholder and
the several Underwriters that it will pay or cause to be paid the following:
(i) the fees, disbursements and expenses of counsel to the Company and
the Company's accountants in connection with the registration of the
Offered Shares and ADSs under the Securities Act and all other expenses in
connection with the preparation, printing and filing of the Registration
Statement, the securities notice and the extraordinary securities report
filed in Japan, any Preliminary Prospectus, the Prospectus, the Japanese
Prospectus and amendments and supplements thereto and the mailing and
delivering of copies thereof to the Underwriters and the Global
Underwriters and dealers;
(ii) the cost of printing or producing any Agreement among Underwriters,
this Agreement, the Global Underwriting Agreements, the Agreement among
Syndicates, the Selling Agreements, any Blue Sky Memorandum and any other
documents in connection with the offering, purchase, sale and delivery of
the Offered Shares and ADSs;
(iii) all expenses in connection with the qualification of the Offered
Shares and ADSs for offering and sale under state securities laws as
provided in Section 6(a)(ii) hereof, including the fees and disbursements
of counsel for the Underwriters in connection with such qualification and
in connection with any Blue Sky survey;
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(iv) all fees and expenses in connection with listing the Offered Shares
on the Tokyo Stock Exchange, all other stock exchanges in Japan and the
London Stock Exchange and listing the ADSs on the New York Stock Exchanges;
(v) out-of-pocket expenses (including fees, disbursements and expenses
of counsel to the Underwriters) incurred by the Underwriters in connection
with the transactions contemplated herein in an amount to be separately
agreed by the Joint Global Coordinators and the Company;
(vi) all expenses and Japanese taxes arising as a result of (A) the
deposit of Offered Shares with the Depositary and the issuance and delivery
of the ADRs evidencing ADSs in exchange therefor by the Depositary, (B) the
sale and delivery of the Offered Shares by the Selling Shareholder to or
for the account of the Underwriters and the International Underwriters, (C)
the sale and delivery outside of Japan of the Offered Shares and the ADSs
by the Underwriters and the International Underwriters to each other and to
the initial purchasers thereof in the manner contemplated hereunder and
under the International Underwriting Agreement and (D) the reallocation of
the U.S. Shares and International Shares between the Underwriters and the
International Underwriters pursuant to the Agreement among Syndicates,
including, in any such case, any Japanese income, capital gains,
withholding, transfer or other tax asserted against an Underwriter or an
International Underwriter by reason of the purchase and sale of a Share or
an ADS pursuant to this Agreement, the International Underwriting Agreement
or the Agreement among Syndicates;
(vii) the fees and expenses (including fees and disbursements of
counsel), if any, of the Depositary and any custodian appointed under the
Deposit Agreement, other than the fees and expenses to be paid by holders
of ADRs (other than the Underwriters or the International Underwriters, in
connection with the initial purchase of ADSs and the Offered Shares);
(viii) the fees and expenses of the Authorized Agent (as defined in
Section 15 hereof);
(ix) the cost of preparing stock certificates;
(x) the cost and charges of any transfer agent or registrar;
(xi) all fees and expenses incurred in connection with the qualification
of the ADRs for deposit with DTC;
(xii) all expenses relating to the roadshows for the U.S. Offering and
the International Offering (including out-of-pocket expenses) in an amount
to be separately agreed by the Joint Global Coordinators and the Company;
(xiii) all costs of advertising and legal notices in connection with the
U.S. Offering and the International Offering; and
(xiv) all other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically provided for in
this Section; and
(b) The Selling Shareholder covenants and agrees with the Company and the
several Underwriters that it will pay or cause to be paid the fees,
disbursements and expenses of counsel to the Selling Shareholder.
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<PAGE>
8. The obligations of the Underwriters hereunder, as to the U.S. Shares to
be paid for at the Time of Payment and to be delivered at the Time of Delivery,
shall be subject, in the discretion of the Representatives on behalf of the
Underwriters, to the condition that all representations and warranties and other
statements of each of the Company and the Selling Shareholder herein are, at and
as of the Time of Payment, true and correct, the condition that each of the
Company and the Selling Shareholder shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions
provided, however, that only for the purpose of determining the satisfaction as
of the Time of Payment of the foregoing conditions, the references in clauses
(i) and (j) shall be deemed to refer to the Time of Payment and clauses (f), (l)
and (o) shall be disregarded:
(a) The Prospectus shall have been filed or transmitted for filing with the
Commission pursuant to Rule 424(b) under the Securities Act within the
applicable time period prescribed for such filing or transmission by the
rules and regulations under the Securities Act and in accordance with
Section 6(a) hereof; no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the
Commission; and all requests for additional information on the part of the
Commission shall have been complied with to the Representatives reasonable
satisfaction;
(b) Sullivan & Cromwell, United States counsel for the Underwriters, shall
have furnished to the Representatives such opinion or opinions, dated the
Time of Payment, with respect to the validity of the ADSs, the Registration
Statement, the Prospectus and other related matters as the Representatives
may reasonably request, and such counsel shall have received such papers
and information as they may reasonably request to enable them to pass upon
such matters;
(c) Milbank, Tweed, Hadley & McCloy, United States counsel for the Company,
shall have furnished to the Representatives their written opinion, dated
the Time of Payment, in form and substance satisfactory to the
Representatives, to the effect set forth in Annex I hereto and in giving
such opinion, may state that with respect to all matters of Japanese law
they have relied upon the opinion of Japanese counsel for the Company
delivered pursuant to paragraph (d) of this Section 8;
(d) Tomotsune Kimura & Mitomi, Japanese counsel for the Company, shall have
furnished to the Representatives their written opinion, dated the Time of
Payment, in form and substance satisfactory to the Representatives, to the
effect set forth in Annex II hereto, and in giving such opinion, may state
that with respect to all matters of United States federal and New York law
they have relied upon the opinions of United States counsel for the Company
delivered pursuant to paragraph (c) of this Section 8;
(e) Tsunematsu Yanase & Sekine, Japanese counsel for the Underwriters,
shall have furnished to the Representatives their written opinion, dated
the Time of Payment, in form and substance satisfactory to the
Representatives, to the effect set forth in Annex III hereto, and such
counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon the foregoing matters. In
addition, in giving such opinion, such counsel may state that with respect
to all matters of United States federal and New York law they have relied
upon the opinions of United States counsel for the Underwriters delivered
pursuant to paragraph (b) of this Section 8;
(f) Ziegler, Ziegler & Altman, United States counsel for the Depositary,
shall have furnished to the Representatives their written opinion, dated
the Time of Delivery, in form and substance satisfactory to the
Representatives, to the effect set forth in Annex IV hereto;
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(g) Davis Polk & Wardwell, United States counsel for the Selling
Shareholder, shall have furnished to the Representatives their written
opinion, dated the Time of Payment, in form and substance satisfactory to
the Representatives, to the effect set forth in Annex V hereto;
(h) On the date of the Prospectus at a time prior to the execution of this
Agreement, at 9:30 a.m., New York City time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to
the date of this Agreement and also at the Time of Payment, Price
Waterhouse shall have furnished to the Representatives a letter or letters,
dated the respective dates of delivery thereof, in form and substance
satisfactory to the Representatives, to the effect set forth in Annex VI
hereto;
(i) During the period beginning on the date hereof and ending on and
including the Time of Delivery, (i) neither the Company nor any of its
subsidiaries shall have sustained since the date of the latest audited
financial statements included or incorporated by reference in the
Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus, (ii) no downgrading
shall have occurred in the rating accorded the Company's debt securities
by any "nationally recognized statistical rating organization", as that
term is defined by the Commission for purposes of Rule 436(g)(2) under the
Securities Act, and (iii) since the respective dates as of which
information is given in the Prospectus there shall not have been (A) any
change in the capital stock of the Company, (B) any increase in excess of
(Yen)400 billion in the long-term debt of the Company on a consolidated
basis, or (C) any development involving a prospective change, in or
affecting the general affairs, management, financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case described in Clause (i),
(ii) or (iii), is in the judgment of the Representatives, after
consultation (which the Joint Global Coordinators will use good faith
efforts to make and consider) with the Selling Shareholder, so material and
adverse as to make it impracticable or inadvisable to proceed with the
public offering or the delivery of the Offered Shares and ADSs on the terms
and in the manner contemplated in the Prospectus;
(j) During the period beginning on the date hereof and ending on and
including the Time of Delivery, there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in the
Company's securities or in securities generally on the Tokyo Stock
Exchange, the London Stock Exchange or the New York Stock Exchange; (ii) a
general moratorium on commercial banking activities in Tokyo, London or New
York declared by the relevant authorities; (iii) a change or development
involving a prospective change in Japanese taxation affecting the Company,
the Offered Shares or the ADSs or the transfer thereof or in the exchange
controls in effect in Japan or the imposition of exchange controls by the
United States or the United Kingdom; (iv) the outbreak or escalation of
hostilities involving Japan, the United States or the United Kingdom or the
declaration by Japan, the United States or the United Kingdom of a national
emergency or war; or (v) the occurrence of any material adverse change in
the existing financial, political or economic conditions in Japan, the
United States, the United Kingdom or elsewhere which, in the case of
clauses (i) to (v), in the judgment of the Joint Global Coordinators, after
consultation (which the Joint Global Coordinators will
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<PAGE>
use good faith efforts to make and consider) with the Company and the
Selling Shareholder, makes it impracticable or inadvisable to proceed with
the offering or the delivery of the Offered Shares on the terms and in the
manner contemplated by this Underwriting Agreement and the Global
Underwriting Agreements and the Prospectus;
(k) The Offered Shares at the Time of Payment shall have been duly approved
for listing on the Tokyo Stock Exchange and the London Stock Exchange and
the ADSs to be sold shall have been duly approved for listing on the New
York Stock Exchange;
(l) The Company shall have furnished or caused to be furnished to the
Representatives at the Time of Delivery a certificate or certificates,
dated the Time of Delivery, of an officer or Director of the Company
satisfactory to the Representatives as to the accuracy of the
representations and warranties of the Company herein at and as of the Time
of Delivery, as to the performance by the Company of all of its obligations
hereunder to be performed at or prior to the Time of Delivery, as to the
matters set forth in subsections (a) and (j) of this Section, and as to
such other matters as the Representatives may reasonably request;
(m) The Selling Shareholder shall have furnished or caused to be furnished
to the Representatives at the Time of Payment a certificate or
certificates, dated the Time of Payment, of the Director General of the
Finance Bureau of the Ministry of Finance or any other official
satisfactory to the Representatives satisfactory to the Representatives as
to the accuracy of the representations and warranties of the Selling
Shareholder herein at and as of the Time of Payment, as to the performance
by the Selling Shareholder of all of its obligations hereunder to be
performed at or prior to the Time of Payment, and as to such other matters
as the Representatives may reasonably consider necessary for the
consummation of the transactions contemplated under this Agreement;
(n) The Company shall have complied with the provisions of Section
6(a)(iii) hereof with respect to the furnishing of prospectus on the New
York Business Day next succeeding the date of this Agreement;
(o) The action referred to in Section 6(b)(ii) shall have been taken by the
Selling Shareholder; and
(p) The Global Underwriting Agreements shall not have been terminated and
shall remain in full force and effect.
9. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement, the ADR Registration Statement, the Prospectus, or the
Japanese Prospectus or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter for any legal or other expenses
reasonably incurred by such Underwriter in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue
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statement or omission or alleged omission made in any Preliminary Prospectus,
the Registration Statement, the ADR Registration Statement, the Prospectus or
the Japanese Prospectus or any such amendment or supplement in reliance upon and
in conformity with written information furnished to the Company by any
Underwriter through the Representatives expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company and the
Selling Shareholder against any losses, claims, damages or liabilities to which
the Company or the Selling Shareholder may become subject, under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement, the ADR Registration Statement, the
Prospectus or the Japanese Prospectus, or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in any Preliminary Prospectus, the Registration
Statement, the ADR Registration Statement, the Prospectus or the Japanese
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through the Representatives expressly for use therein; and will reimburse the
Company and the Selling Shareholder for any legal or other expenses reasonably
incurred by the Company or the Selling Shareholder in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against an indemnifying party
under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (which shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. The indemnifying party shall not be liable for any
settlement of any action effected without its consent, but if settlement is made
with the consent of the indemnifying party, such indemnifying party shall
indemnify and hold harmless the indemnified party against any loss or liability
by reason of such settlement.
(d) If the indemnification provided for in this Section 9 is unavailable to
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company and
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the Selling Shareholder on the one hand and the Underwriters on the other from
the offering of the Offered Shares and ADSs. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and the Selling Shareholder on the one hand and the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Shareholder on the one hand and
the Underwriters on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering of the Offered Shares purchased under
this Agreement (before deducting expenses) received by the Company and the
Selling Shareholder bear to the total underwriting commissions received by the
Underwriters with respect to the Offered Shares purchased under this Agreement,
in each case as set forth in the table on the cover page of the U.S. Prospectus.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Shareholder on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Shareholder and the Underwriters agree that it would
not be just and equitable if contributions pursuant to this subsection (d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Offered Shares underwritten by it and distributed to the public were offered
to the public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this subsection
(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 9 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Securities Act; and the obligations of the
Underwriters under this Section 9 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and to each
person, if any, who controls the Company or the Selling Shareholder within the
meaning of the Securities Act.
10. (a) If any Underwriter shall default in its obligation to purchase the
U.S. Shares which it has agreed to purchase hereunder (a) the Representatives
will notify the Company and the
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Selling Shareholder promptly after becoming aware of such default and (b) the
Representatives and the Selling Shareholder may in their discretion arrange for
the Representatives or another party or other parties satisfactory to the
Representatives to purchase such U.S. Shares on the terms contained herein. In
the event that the Representatives notify the Selling Shareholder that they have
so arranged for the purchase of such U.S. Shares, or the Selling Shareholder
notifies the Representatives that it has so arranged for the purchase of such
U.S. Shares, the Representatives or the Selling Shareholder shall effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees to file promptly any amendments to the Registration Statement or the
Prospectus which in the Representatives' opinion may thereby be made necessary.
The term "Underwriter" as used in this Agreement shall include any person
substituted under this Section with like effect as if such person had originally
been a party to this Agreement with respect to such U.S. Shares.
(b) If, after giving effect to any arrangements for the purchase of the
U.S. Shares of a defaulting Underwriter or Underwriters by the Representatives
and the Selling Shareholder as provided in subsection (a) above, the aggregate
number of such U.S. Shares which remains unpurchased does not exceed three-
tenths of the aggregate number of all of the U.S. Shares, then the Selling
Shareholder shall have the right to require each non-defaulting Underwriter to
purchase the number of U.S. Shares which such Underwriter agreed to purchase
hereunder and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of U.S. Shares which such
Underwriter agreed to purchase hereunder) of the U.S. Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of the
U.S. Shares of a defaulting Underwriter or Underwriters by the Representatives
and the Selling Shareholder as provided in subsection (a) or (b) above, the
aggregate number of such U.S. Shares which remains unpurchased exceeds three-
tenths of the aggregate number of all of the U.S. Shares, then the Selling
Shareholder shall have the right to require each non-defaulting Underwriter to
purchase the number of U.S. Shares which such Underwriter agreed to purchase
hereunder and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of U.S. Shares which such
Underwriter agreed to purchase hereunder) of the U.S. Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made up to
a limit of three-tenths of all of the U.S. Shares after which this Agreement
shall thereupon be modified to reduce the total number of U.S. Shares to be sold
and purchased pursuant to this Agreement by the aggregate number of such U.S.
Shares which remain unpurchased, without liability on the part of any non-
defaulting Underwriter or the Company or the Selling Shareholder, except for the
expenses to be borne by the Company and the Selling Shareholder and the
Underwriters as provided in Section 7 hereof and the indemnity and contribution
agreements in Section 9 hereof; provided, however, that if the Selling
Shareholder does not exercise its right under this subsection (c), this
Agreement shall terminate without liability as stated immediately above; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
If the number of U.S. Shares to be sold and purchased is reduced pursuant
to this subsection (c), the Selling Shareholder shall as soon as practicable
return the portion of the payment made, if any, pursuant to Section 4(a)
relating to the reduced U.S. Shares. Additionally, if the Selling Shareholder
does not exercise its right under this subsection (c) and this Agreement is
terminated, the Selling Shareholder shall as soon as practicable return the
payment made, if any, pursuant to Section 4(a).
11. The respective indemnities, agreements, representations, warranties and
other statements of the Company, the Selling Shareholder and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the
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<PAGE>
results thereof) made by or on behalf of any Underwriter or any controlling
person of any Underwriter, or the Company, or the Selling Shareholder, or any
officer or director or controlling person of the Company, or any controlling
person of the Selling Shareholder, and shall survive delivery of and payment for
the Offered Shares.
12. If the Offered Shares are not delivered by or on behalf of the Selling
Shareholder as provided herein, the Company will reimburse the Underwriters
through the Representatives for all out-of-pocket expenses approved in writing
by the Representatives, including fees and disbursements of counsel, reasonably
incurred by the Underwriters in making preparations for the purchase, sale and
delivery of the Offered Shares, but the Company and the Selling Shareholder
shall then be under no further liability to any Underwriter in respect of the
Offered Shares except as provided in Sections 7 and 9 hereof.
13. In all dealings hereunder, the Representatives shall act on behalf of
each of the Underwriters, and the parties hereto shall be entitled to act and
rely upon any statement, request, notice or agreement on behalf of any
Underwriter made or given by the Representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail or
facsimile transmission to the Representatives in care of Goldman, Sachs & Co.,
32 Old Slip, 9th Floor, New York, NY 10005, Attention: Registration Department;
if to the Selling Shareholder shall be delivered or sent by mail, hand delivery
or facsimile transmission (with a Japanese translation attached; provided,
however, that the failure to provide a Japanese translation does not affect the
validity of such notice) to 1-1 Kasumigaseki 3-chome, Chiyoda-ku, Tokyo 100,
Japan, Attention: National Property Coordination Division, Finance Bureau; and
if to the Company shall be delivered or sent by mail, hand delivery or facsimile
transmission to the address of the Company set forth in the Registration
Statement, Attention: General Affairs Department; provided, however, that any
notice to an Underwriter pursuant to Section 9(c) hereof shall be delivered or
sent by mail, hand delivery or facsimile transmission to such Underwriter at its
address set forth in its Underwriters' Questionnaire or telex constituting such
Questionnaire, which address will be supplied to the Company or the Selling
Shareholder by the Representatives upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
14. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and the Selling Shareholder and, to the extent
provided in Sections 9 and 11 hereof, the officers and directors of the Company
and each person or entity that controls the Company, the Selling Shareholder or
any Underwriter, and their respective heirs, executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement; provided, however, that the Minister of
Finance shall sign this Agreement in his official and not his personal capacity
and as such, this Agreement shall not be binding upon the heirs, executors,
administrators, successors and assigns of the Minister of Finance and no
recourse shall be had against the Minister of Finance personally. No purchaser
of any of the Offered Shares from any Underwriter shall be deemed a successor or
assign by reason merely of such purchase.
15. Each of the Company and the Underwriters irrevocably (i) agrees that
any legal suit, action or proceeding against the Company brought by any
Underwriter or by any person who controls any Underwriter arising out of or
based upon this Agreement or the transactions contemplated hereby may be
instituted in any state or federal court located in the Borough of Manhattan,
The City of New York, New York (each a "New York Court"), (ii) waives, to the
fullest extent it may effectively do so, any objection which it may now or
hereafter have to the
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laying of venue of any such proceeding and (iii) submits to the exclusive
jurisdiction of such courts in any such suit, action or proceeding. The Company
irrevocably waives any immunity to jurisdiction to which it may otherwise be
entitled or become entitled (including sovereign immunity, immunity to pre-
judgment attachment, post-judgment attachment and execution) in any legal suit,
action or proceeding against it arising out of or based on this Agreement or the
transactions contemplated hereby which is instituted in any New York Court or in
any competent court in Japan. The Company has appointed C T Corporation System,
New York, New York, as its authorized agent (the "Authorized Agent") upon whom
process may be served in any such action arising out of or based on this
Agreement or the transactions contemplated hereby which may be instituted in any
New York Court by any Underwriter or by any person who controls any Underwriter,
expressly consents to the jurisdiction of any such court in respect of any such
action, and waives any other requirements of or objections to personal
jurisdiction with respect thereto. Such appointment shall be irrevocable. The
Company represents and warrants that the Authorized Agent has agreed to act as
such agent for service of process and agrees to take any and all action,
including the filing of any and all documents and instruments, that may be
necessary to continue such appointment in full force and effect as aforesaid.
Service of process upon the Authorized Agent and written notice of such service
mailed or delivered to the Company in Tokyo, Japan shall be deemed, in every
respect, effective service of process upon the Company.
16. In respect of any judgment or order given or made for any amount due
hereunder that is expressed and paid in a currency (the "judgment currency")
other than United States dollars, the Company will indemnify each Underwriter
against any loss incurred by such Underwriter as a result of any variation as
between (i) the rate of exchange at which the United States dollar amount is
converted into the judgment currency for the purpose of such judgment or order
and (ii) the rate of exchange at which an Underwriter is able to purchase United
States dollars with the amount of the judgment currency actually received by
such Underwriter. The foregoing indemnity shall constitute a separate and
independent obligation of the Company and shall continue in full force and
effect notwithstanding any such judgment or order as aforesaid. The term "rate
of exchange" shall include any premiums and costs of exchange payable in
connection with the purchase of or conversion into United States dollars.
17. (a) In connection with the global offering of the Offered Shares, the
Representatives for their own account at their discretion may, as principals and
not as agents of the Company or the Selling Shareholder and to the extent
permitted by applicable laws and regulations, effect transactions in relation to
the NTT Common Stock with a view to stabilizing or maintaining the market price
of the NTT Common Stock at levels other than those which might otherwise prevail
in the open market and such stabilization, if commenced, may be discontinued at
any time. Any loss resulting from such stabilization shall be borne, and any
profit arising therefrom shall be retained, by the Representatives.
(b) The Company undertakes with the Underwriters that, unless it has
received the prior consent thereto of the Representatives, it will not at any
time from the date hereof up to and including the Time of Delivery for such
Offered Shares effect or enter into, or cause or permit any other parties (other
than the Underwriters and the Global Underwriters) who may otherwise be
permitted under applicable laws and regulations to engage in stabilization
transactions to effect or enter into, any transactions (in the open market or
otherwise) or effect or enter into any other arrangements the object or effect
of which would be to stabilize or maintain the market price of NTT Common Stock
at levels which might not otherwise prevail.
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<PAGE>
18. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
19. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
20. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
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<PAGE>
The foregoing being in accordance with the Selling Shareholder, the
Company and the Representatives understanding, the parties hereto have duly
executed this Underwriting Agreement.
THE MINISTER OF FINANCE OF JAPAN
As representative of the Government of Japan
By: _________________________
Name:
Title:
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
By: _________________________
Name:
Title:
GOLDMAN, SACHS & CO.
____________________________
(Goldman, Sachs & Co.)
WARBURG DILLON READ LLC
By:____________________________
Name:
Title:
DAIWA SECURITIES AMERICA INC.
By:____________________________
Name:
Title:
On behalf of each of the Underwriters
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<PAGE>
SCHEDULE I
UNDERWRITER TOTAL NUMBER OF U.S. SHARES TO BE PURCHASED
- ----------- -------------------------------------------
Goldman, Sachs & Co. ..................
Warburg Dillon Read LLC................
Daiwa Securities America Inc. .........
Merrill Lynch, Pierce, Fenner & Smith..
Incorporated..............
Morgan Stanley & Co. Incorporated......
Salomon Smith Barney Inc. .............
Total.............................
<PAGE>
SCHEDULE II
In the Agreement, unless the context otherwise requires:
"ADRs" means American Depositary Receipts issued by the Depositary
pursuant to the Deposit Agreement and evidencing ADSs.
"ADSs" means American Depositary Shares issued pursuant to the Deposit
Agreement, each ADS initially representing the right to receive 1/200th of a
share of NTT Common Stock deposited pursuant to the Deposit Agreement.
"ADS Registration Statement" has the meaning specified in Section
1(a)(v).
"ADS Time of Delivery" has the meaning specified in Section 5(b).
"Agreement among Syndicates" means the Agreement among Underwriting
Syndicates, dated the date hereof, among the Underwriters, the International
Underwriters and the Japanese Underwriters.
"Authorized Agent" has the meaning specified in Section 15.
"Business Day" means any day when the Commission's office in
Washington, D.C. is open for business.
"Closing Location" means the offices of Sullivan & Cromwell, Tokio
Kaijo Building Shinkan, 2-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-0005,
Japan.
"Commission" means the United States Securities and Exchange
Commission.
"Company" means Nippon Telegraph and Telephone Corporation, a limited
liability joint stock company incorporated under the laws of Japan.
"Delivery Date" has the meaning specified in Section 4(b).
"Deposit Agreement" means the deposit agreement, dated as of July 8,
1994, among the Company, the Depositary and holders from time to time of the
ADRs issued thereunder.
"Depositary" means Morgan Guaranty Trust Company of New York, as
depositary under the Deposit Agreement.
"DTC" means The Depository Trust Company.
"Exchange Act" means the United States Securities Exchange Act of
1934, as amended, and the rules and regulations of the Commission thereunder.
"Global Offering" means the U.S. Offering, the International Offering
and the Japanese Offering.
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"Global Underwriters" means the International Underwriters and the
Japanese Underwriters.
"Global Underwriting Agreements" means the International Underwriting
Agreement and the Japanese Underwriting Agreement.
"Governmental Agency" has the meaning specified in Section 1(a)(xi).
"Governmental Authorizations" has the meaning specified in Section
1(a)(xi).
"International Offering" means the offering of the International
Shares by the International Underwriters outside the United States, Canada and
Japan.
"International Prospectus" means the prospectus used in connection
with the offering and sale of International Shares in the International
Offering.
"International Shares" means the ______ shares of NTT Common Stock to
be sold by the Selling Shareholder to the International Underwriters pursuant to
the International Underwriting Agreement.
"International Underwriters" means the underwriters named in Schedule
I to the International Underwriting Agreement, for whom Warburg Dillon Read,
Daiwa Europe Limited and Goldman Sachs International are acting as lead
managers.
"International Underwriting Agreement" means the International
Underwriting Agreement, dated the date hereof, among the Company, the Selling
Shareholder and the International Underwriters.
"Investment Company Act" means the United States Investment Company
Act of 1940, as amended.
"Japanese Offering" means the offering of the Japanese Shares by the
Japanese Underwriters in Japan.
"Japanese Prospectus" means the prospectus used in connection with the
offering and sale of Japanese Shares in the Japanese Offering.
"Japanese Shares" means the ______ shares of NTT Common Stock to be
sold by the Selling Shareholder to the Japanese Underwriters pursuant to the
Japanese Underwriting Agreement.
"Japanese Underwriters" means the underwriters named in the Japanese
Underwriting Agreement, for whom Daiwa Securities Co. Ltd., Goldman Sachs
(Japan) Ltd. and Warburg Dillon Read (Japan) Limited are acting as lead
managers.
"Japanese Underwriting Agreement" means the Japanese Underwriting
Agreement, dated the date hereof, among the Company, the Selling Shareholder and
the Japanese Underwriters.
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"JASDEC" means the Japan Securities Depository Center.
"Joint Global Coordinators" means Daiwa Securities Co. Ltd., Goldman
Sachs International and Warburg Dillon Read, as joint global coordinators for
the Global Offering.
"Judgment currency" has the meaning specified in Section 16.
"New York Business Day" means each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions in The City
of New York are generally authorized or obligated by law or executive order to
close.
"New York Court" means any state or federal court located in the
Borough of Manhattan, The City of New York, New York.
"Notification Time" has the meaning specified in Section 5(a).
"NTT Common Stock" means the common stock, par value (Yen)50,000 per
share, of the Company.
"Offered Shares" means the U.S. Shares, the International Shares and
the Japanese Shares.
"Preliminary Prospectus" has the meaning specified in Section 1(a)(i).
"Prospectus" has the meaning specified in Section 1(a)(i).
"Registration Statement" has the meaning specified in Section 1(a)(i).
"Representatives" means Goldman, Sachs & Co., Warburg Dillon Read LLC
and Daiwa Securities America Inc., as representatives of the several
Underwriters.
"Securities Act" means the United States Securities Act of 1933, as
amended, and the rules and regulations of the Commission thereunder.
"Selling Shareholder" means the Minister of Finance of Japan,
representing the Government of Japan.
"Time of Delivery" has the meaning specified in Section 4(b).
"Time of Payment" has the meaning specified in Section 4(a).
"Tokyo business day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in Tokyo are
generally authorized or obligated by law or executive order to close.
"Underwriting Commission" has the meaning specified in Section 2.
"Underwriters" means the several underwriters named in Schedule I
hereto.
3
<PAGE>
"U.S. ADSs" means ADSs representing U.S. Shares.
"U.S. GAAP" means generally accepted accounting principles in the
United States.
"U.S. Offering" means the offering of the U.S. Shares by the
Underwriters in the United States and Canada.
"U.S. Prospectus" means the prospectus used in connection with the
offering and sale of U.S. Shares in the U.S. Offering.
"U.S. Shares" means the shares of NTT Common Stock to be sold by the
Selling Shareholder to the Underwriters pursuant to this Agreement.
"Warburg Dillon Read" means UBS AG, acting through its division
Warburg Dillon Read.
"Year 2000 Problem" has the meaning specified in Section 1(a)(xxiv).
4
<PAGE>
ANNEX I
Pursuant to Section 8(c) of this Agreement, Milbank, Tweed, Hadley &
McCloy, United States counsel for the Company, shall furnish their written
opinion to the effect that:
(i) Assuming each of this Agreement and the International Underwriting
Agreement has been duly authorized, executed and delivered by the Company
under Japanese law, each of this Agreement and the International
Underwriting Agreement has been duly executed and delivered by the Company;
(ii) Assuming that the Deposit Agreement has been duly authorized,
executed and delivered by the Company under Japanese law, the Deposit
Agreement has been duly executed and delivered by the Company and, assuming
due authorization, execution and delivery of the Deposit Agreement by the
Depositary and that each of the Depositary and (under Japanese law) the
Company has full power, authority and legal right to enter into and perform
its obligations thereunder, constitutes a valid and legally binding
agreement of the Company, enforceable in accordance with its terms, ,
except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the enforcement
of creditors' rights generally and except as the enforceability thereof is
subject to the application of general principles of equity (regardless of
whether considered in a proceeding in equity or at law), including, without
limitation, (i) the possible unavailability of specific performance,
injunctive relief or any other equitable remedy and (ii) concepts of
materiality, reasonableness, good faith and fair dealing; and the
statements set forth under the heading "Description of American Depositary
Receipts" in the Prospectus, insofar as such statements purport to
summarize certain provisions of the Deposit Agreement, fairly summarize, in
all material respects, such provisions;
(iii) Upon due issuance of the ADRs evidencing ADSs being delivered at
the Time of Delivery against the deposit of Offered Shares in respect
thereof in accordance with the provisions of the Deposit Agreement, such
ADRs will be duly and validly issued and the person in whose name the ADR
is registered will be entitled to the rights specified therein and in the
Deposit Agreement;
(iv) Assuming each of this Agreement and the International Underwriting
Agreement has been duly authorized, executed and delivered by the Company
and is enforceable against the Company under Japanese law, and assuming
that each of this Agreement and the International Underwriting Agreement
have been duly authorized, executed and delivered by the other parties
thereto and are enforceable against such parties under applicable law,
under the laws of the State of New York relating to personal jurisdiction,
the Company has, pursuant to Section 15 of this Agreement and the
International Underwriting Agreement, validly and irrevocably submitted to
the personal jurisdiction of any state or federal court located in the
Borough of Manhattan, The City of New York, New York (each a "New York
Court") in any action arising out of or relating to this Agreement or the
International Underwriting Agreement or the transactions contemplated
hereby or thereby, has validly and irrevocably waived any objection to the
venue of a proceeding in any such court, and has validly and irrevocably
appointed the Authorized Agent (as defined herein) as its authorized agent
for the purpose described in Section 15 of this Agreement and the
International Underwriting Agreement; and service of process effected on
such agent in the manner set forth in Section 15 of this Agreement and the
International Underwriting Agreement will be effective to confer valid
personal jurisdiction over the Company;
I-1
<PAGE>
(v) The deposit of the Offered Shares being deposited with the Depositary
against issuance of the ADRs evidencing the ADSs and the compliance by the
Company with all of the provisions of this Agreement, the Global
Underwriting Agreements and the Deposit Agreement and the consummation of
the transactions herein or therein contemplated will not conflict with or
result in a breach or violation of any statute, rule or regulation of the
United States or the State of New York;
(vi) No Governmental Authorization of the United States or the State of
New York is required for the sale of the Offered Shares and the ADSs or the
consummation by the Company of the transactions contemplated by this
Agreement and the Global Underwriting Agreements, except the registration
under the Securities Act of the Offered Shares and the ADSs, and such
consents, approvals, authorizations, registrations or qualifications as may
be required under state securities or Blue Sky laws in connection with the
purchase and distribution of the Offered Shares and the ADSs by the
Underwriters and the Global Underwriters;
(vii) The statements set forth in the Prospectus under the captions
"Description of American Depositary Receipts", insofar as they purport to
constitute a summary of the terms of the ADRs, and with respect to U.S.
federal law under the caption "Certain Tax Considerations", insofar as they
purport to describe the provisions of the U.S. federal statutes, rules and
regulations and documents referred to therein, are accurate, complete and
fair;
(viii) The Company is not an "investment company" as such term is defined
in the Investment Company Act; and
(ix) The Registration Statement and the Prospectus and any further
amendments and supplements thereto made by the Company prior to the Time of
Delivery (other than the financial statements, financial data and related
schedules therein, as to which such counsel need express no opinion) comply
as to form in all material respects with the requirements of the Securities
Act; although they do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus, except for those referred to in the opinion in
subsection (vii) of this Annex I, they have no reason to believe that, as
of its effective date, the Registration Statement or any further amendment
thereto (including any documents incorporated by reference therein) made by
the Company prior to the Time of Delivery (other than the financial
statements, financial data and related schedules therein, as to which such
counsel need express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that,
as of its date, the Prospectus or any further amendment or supplement
thereto (including any documents incorporated by reference therein) made by
the Company prior to the Time of Delivery (other than the financial
statements, financial data and related schedules therein, as to which such
counsel need express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading or that, as of the Time of Delivery, either the
Registration Statement or the Prospectus or any further amendment or
supplement thereto (including any documents incorporated by reference
therein) made by the Company prior to the Time of Delivery (other than the
financial statements, financial data and related schedules therein, as to
which such counsel need express no opinion) contains an untrue statement
I-2
<PAGE>
of a material fact or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and they do not know of any amendment to the
Registration Statement required to be filed or of any contracts or other
documents of a character required to be filed as an exhibit to the
Registration Statement or required to be incorporated by reference into the
Prospectus or required to be described in the Registration Statement or the
Prospectus which are not filed or incorporated by reference or described as
required.
I-3
<PAGE>
ANNEX II
Pursuant to Section 8(d) of this Agreement, Tomotsune Kimura & Mitomi,
Japanese counsel for the Company, shall furnish their written opinion to the
effect that:
(i) The Company has been duly incorporated and is validly existing as a
joint stock corporation under the laws of Japan, with power and authority
(corporate and other) to own its properties and conduct its business as
described in the Prospectus;
(ii) The Company has an authorized capital stock as set forth in the
Prospectus, and all of the issued shares of NTT Common Stock (including the
Offered Shares) have been duly and validly authorized and issued and are
fully paid and non-assessable; all of the NTT Common Stock (including the
Offered Shares) have been duly listed and admitted for trading on the Tokyo
Stock Exchange (except for the NTT Common Stock which will continue to be
held by the Selling Shareholder); the holders of outstanding NTT Common
Stock are not entitled to preemptive or other rights to acquire the Offered
Shares; the Offered Shares may be freely deposited with the Depositary
against issuance of ADRs evidencing ADSs; the Offered Shares are freely
transferable by the Selling Shareholder to or for the account of the
several Underwriters and International Underwriters and are freely
transferable by the several Underwriters and International Underwriters to
(to the extent described in the Prospectus) the initial purchasers thereof;
there are no restrictions on subsequent transfers of the Offered Shares or
ADSs under the laws of Japan (except to the extent described in the
Prospectus); and the Offered Shares conform to the description of the NTT
Common Stock contained in the Prospectus;
(iii) The Selling Shareholder is the sole registered holder of title to
the Offered Shares on the register of shareholders of the Company; the
Selling Shareholder has good and valid title to the Offered Shares to be
sold at the Time of Delivery by the Selling Shareholder under this
Agreement and the Global Underwriting Agreements, free and clear of all
liens, encumbrances, equities or claims; the Selling Shareholder has full
right, power and authority to sell, assign, transfer and deliver the
Offered Shares to be sold hereunder and thereunder; and upon delivery of
the Offered Shares and payment therefor pursuant to this Agreement and the
International Underwriting Agreement, good and valid title to the Offered
Shares, free and clear of all liens, encumbrances, equities or claims, will
pass to the Underwriters or the International Underwriters, as the case may
be; and no persons are entitled to preemptive or other rights to acquire
the Offered Shares from the Selling Shareholder;
(iv) Each of this Agreement, the Global Underwriting Agreements and the
Deposit Agreement has been duly authorized, executed and delivered by the
Company and, in the case of this Agreement and the Global Underwriting
Agreements, the Selling Shareholder and, under the laws of Japan,
constitutes a valid and legally binding agreement of the Company and, in
the case of this Agreement and the Global Underwriting Agreements, the
Selling Shareholder, enforceable in accordance with its terms, subject, as
to enforcement, to bankruptcy, insolvency, reorganization and similar laws
of general applicability relating to or affecting creditors' rights, to
general equity principles and, in the case of the Selling Shareholder, to
any applicable sovereign immunity;
(v) Each of NTT Mobile Communications Network, Inc. and NTT Data
Corporation has been duly incorporated and is validly existing as a joint
II-1
<PAGE>
stock corporation under the laws of Japan; and all of the issued shares of
capital stock of each such subsidiary have been duly and validly authorized
and issued, are fully paid and non-assessable, and (except as otherwise set
forth in the Prospectus) are owned directly or indirectly by the Company,
free and clear of all liens (other than statutory preferences granted to
the holders of bonds issued by the Company provided under Article 8 of the
Nippon Telegraph and Telephone Corporation Law), encumbrances, equities or
claims;
(vi) To the best of such counsel's knowledge and other than as set forth
in the Prospectus, there are no legal or governmental proceedings pending
to which the Company or any of its subsidiaries is a party or of which any
property of the Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the
current or future consolidated financial position, shareholders' equity or
results of operations of the Company and its subsidiaries; and, to the best
of such counsel's knowledge, no such proceedings are threatened or
contemplated by any Governmental Agency or threatened by others;
(vii) The indemnification and contribution provisions set forth in
Section 9 of this Agreement and the International Underwriting Agreements
do not contravene the public policy or laws of Japan;
(viii) The deposit of the Offered Shares being deposited with the
Depositary against issuance of the ADRs evidencing the ADSs and the
compliance by the Company with all of the provisions of this Agreement, the
Global Underwriting Agreements and the Deposit Agreement and the
consummation of the transactions herein and therein contemplated will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument known to such
counsel to which the Company is a party or by which the Company is bound or
to which any of the property or assets of the Company is subject, nor will
such action result in any violation of the provisions of the Articles of
Incorporation, Regulations of the Board of Directors and Share Handling
Regulations of the Company or any statute or any order, rule or regulation
known to such counsel of any Governmental Agency in Japan having
jurisdiction over the Company or any of its properties;
(ix) The sale and delivery of the Offered Shares by the Selling
Shareholder hereunder and under the Global Underwriting Agreements and the
compliance by the Selling Shareholder with all of the provisions of, and
the performance by the Selling Shareholder of his obligations under, this
Agreement and the Global Underwriting Agreements and the consummation by
the Selling Shareholder of the transactions herein and therein contemplated
will not result in any violation by the Selling Shareholder of the
provisions of any statute or any order, rule or regulation of any
Governmental Agency in Japan;
(x) No Governmental Authorization of any Governmental Agency in Japan is
required for the sale of the Offered Shares by the Selling Shareholder, for
the deposit of the Offered Shares being deposited with the Depositary
against issuance of ADRs evidencing the ADSs to be delivered or the
consummation by the Company or by the Selling Shareholder of the
transactions contemplated by this Agreement and the Global Underwriting
Agreements, except the authorization by the relevant national budget of
the sale of the Offered Shares which have been duly obtained and are in
full force and effect;
II-2
<PAGE>
(xi) Each of this Agreement, the Global Underwriting Agreements, the
Deposit Agreement and the ADRs evidencing the ADSs is in proper form under
the laws of Japan to be enforced against the Company and the Selling
Shareholder and the certificates for the Offered Shares are in proper form
to be legal and valid under the laws of Japan, and to ensure the legality,
validity, enforceability or admissibility into evidence in Japan of this
Agreement, the Global Underwriting Agreements, the Deposit Agreement, the
ADRs or the Offered Shares, as the case may be, it is not necessary that
this Agreement, the Global Underwriting Agreements, the Deposit Agreement,
the ADRs or the Offered Shares or any other documents be filed or recorded
with any court or other authority in Japan or that any Japanese stamp or
similar tax be paid by the Underwriters or the Global Underwriters or
purchasers therefrom on or in respect of this Agreement, the Global
Underwriting Agreements, the Deposit Agreement, the ADRs or the Offered
Shares or any other document to be furnished hereunder or thereunder;
(xii) The statements in the Prospectus under the captions "Description of
the Shares", insofar as they purport to constitute a summary of the terms
of the NTT Common Stock and under the captions "Prospectus Summary", "The
Company", "Management's Discussion and Analysis of Financial Condition and
Results of Operations", "Business", "Regulatory Developments", "Principal
Shareholders and Selling Shareholder", "Description of American Depositary
Receipts--Restrictions on Foreign Ownership", "Certain Tax Considerations--
Japanese Taxation" and "Underwriting", to the extent such statements
relate to matters of Japanese law or regulation or to the provisions of
documents governed by Japanese law therein described, are true and accurate
in all material respects, and nothing has been omitted from such statements
which would make the same misleading in any material respect;
(xiii) No stamp or other issuance or transfer taxes or duties and no
capital gains, income, withholding or other taxes are payable by or on
behalf of the Underwriters or the Global Underwriters to Japan or to any
political subdivision or taxing authority thereof or therein in connection
with (A) the deposit with the Depositary of Offered Shares against the
issuance of ADRs evidencing the ADSs, (B) the sale and delivery by the
Selling Shareholder of the Offered Shares to or for the respective accounts
of the Underwriters or the International Underwriters, (C) the execution
and delivery of this Agreement or the Global Underwriting Agreements or (D)
the sale and delivery by the Underwriters or the Global Underwriters of the
Offered Shares and ADSs to the initial purchasers thereof in the manner
contemplated herein and in the Global Underwriting Agreements;
(xiv) Insofar as matters of Japanese law are concerned, the Registration
Statement and the filing of the Registration Statement with the Commission
have been duly authorized by and on behalf of the Company; and the
Registration Statement has been duly executed pursuant to such
authorization by and on behalf of the Company;
(xv) The Company's agreement to the choice of law provisions set forth in
Section 15 of this Agreement and the International Underwriting Agreement
will be recognized by the courts of Japan; the Company can sue and be sued
in its own name under the laws of Japan; the irrevocable submission of the
Company to the exclusive jurisdiction of a New York Court, the waiver by
the Company of any objection to the venue of a proceeding of a New York
Court and the agreement of the Company that this Agreement and the
International Underwriting Agreement shall be governed by and construed in
accordance with the laws of the State of New York are legal, valid and
binding; service of process
II-3
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effected in the manner set forth in Section 15 of this Agreement and the
International Underwriting Agreement will be effective, insofar as Japanese
law is concerned, to confer valid personal jurisdiction over the Company;
and judgment obtained in a New York Court arising out of or in relation to
the obligations of the Company under this Agreement would be enforceable
against the Company in the courts of Japan, provided that (A) the
jurisdiction of such New York Court is not denied under the laws of Japan
(as of the date of this opinion the laws of Japan would not deny the
jurisdiction over the Company of New York Courts in any such legal suit),
(B) the Company has received service of process otherwise than by public
notice or has appeared before such New York Court, (C) such judgment is not
repugnant to public policy as applied in Japan and (D) there exists
reciprocity as to the recognition by a New York Court of a final judgment
obtained in a Japanese court.;
(xvi) The Company is not entitled to any immunity on the basis of
sovereignty or otherwise in respect of its obligations under this Agreement
or the International Underwriting Agreement and could not successfully
interpose any such immunity as a defense to any suit or action brought or
maintained in respect of its obligations under this Agreement or the
International Underwriting Agreement; and the waiver by the Company of
immunity to jurisdiction (including the waiver of sovereign immunity to
which the Company may become entitled subsequent to the date of this
Agreement and the International Underwriting Agreement) and immunity to
pre-judgment attachment, post-judgment attachment and execution in any
suit, action or proceeding against it arising out of or based on this
Agreement and the International Underwriting Agreement is a valid and
binding obligation of the Company under Japanese law;
(xvii) All dividends and other distributions declared and payable on the
NTT Common Stock (subject to the approval of the Minister of Posts and
Telecommunications) (including any payments to the Depositary in respect of
ADSs) may under the current laws and regulations of Japan be paid in
Japanese yen that may be converted into foreign currency that may be freely
transferred out of Japan, and except as described in the Prospectus, all
such dividends and other distributions will not be subject to withholding
or other taxes under the laws and regulations of Japan and are otherwise
free and clear of any other tax, withholding or deduction in Japan and
without the necessity of obtaining any Governmental Authorization in Japan;
(xviii) To the best of such counsel's knowledge, the Company is not in
violation of its Articles of Incorporation, Regulations of the Board of
Directors or Share Handling Regulations or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement, lease
or other agreement or instrument to which it is a party or by which it or
any of its properties may be bound; and
(xix) Although they do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus, except for those referred to in the opinion in
subsection(xii) of this Annex II, they have no reason to believe that, as
of its effective date, the Registration Statement or any further amendment
thereto made by the Company prior to the Time of Delivery (other than the
financial statements, financial data and related schedules therein, as to
which such counsel need express no opinion) contained an untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements
II-4
<PAGE>
therein not misleading or that, as of its date, the Prospectus or any
further amendment or supplement thereto made by the Company prior to the
Time of Delivery (other than the financial statements, financial data and
related schedules therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading or
that, as of the Time of Delivery, either the Registration Statement or the
Prospectus or any further amendment or supplement thereto made by the
Company prior to the Time of Delivery (other than the financial statements,
financial data and related schedules therein, as to which such counsel need
express no opinion) contains an untrue statement of a material fact or
omits to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
II-5
<PAGE>
ANNEX III
Pursuant to Section 8(e) of this Agreement, Tsunematsu Yanase & Sekine,
Japanese counsel for the Underwriters, shall furnish their written opinion to
the effect that:
(i) The Company has been duly incorporated and is validly existing as a
joint stock corporation under the laws of Japan, with power and authority
(corporate and other) to own its properties and conduct its business as
described in the Prospectus;
(ii) The Company has an authorized capital stock as set forth in the
Prospectus, and all of the issued NTT Common Stock (including the Offered
Shares) have been duly and validly authorized and issued and are fully paid
and non-assessable; all of the shares of NTT Common Stock (including the
Offered Shares) have been duly listed and admitted for trading on the Tokyo
Stock Exchange (except for the NTT Common Stock which will continue to be
held by the Selling Shareholder); the holders of outstanding NTT Common
Stock are not entitled to preemptive or other rights to acquire the Offered
Shares; the Offered Shares may be freely deposited with the Depositary
against issuance of ADRs evidencing ADSs; the Offered Shares are freely
transferable by the Selling Shareholder to or for the account of the
several Underwriters and International Underwriters and are freely
transferable by the several Underwriters and International Underwriters to
or for the account of (to the extent described in the Prospectus) the
initial purchasers thereof; there are no restrictions on subsequent
transfers of the Offered Shares or ADSs under the laws of Japan (except to
the extent described in the Prospectus); and the Offered Shares conform to
the description of the NTT Common Stock contained in the Prospectus;
(iii) The Selling Shareholder is the sole registered holder of title to
the Offered Shares on the register of shareholders of the Company;
(iv) Each of this Agreement, the Global Underwriting Agreements and the
Deposit Agreement has been duly authorized, executed and delivered by the
Company and, under the laws of Japan, constitutes a valid and legally
binding agreement of the Company, enforceable in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency, reorganization and
similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles;
(v) Each of NTT Mobile Communications Network, Inc. and NTT Data
Corporation has been duly incorporated and is validly existing as a joint
stock corporation under the laws of Japan; and all of the issued shares of
capital stock of each such corporation have been duly and validly
authorized and issued, are fully paid and non-assessable, and (except as
otherwise set forth in the Prospectus) are owned directly or indirectly by
the Company, free and clear of all liens, encumbrances, equities or claims;
(vi) The indemnification and contribution provisions set forth in Section
9 of this Agreement and the International Underwriting Agreement do not
contravene the public policy or laws of Japan;
(vii) No Governmental Authorization of any Governmental Agency is
required in Japan for the deposit of the Offered Shares being deposited
with the Depositary against issuance of ADRs evidencing the ADSs to be
delivered or the consummation by the Company of the transactions
contemplated by this Agreement and the Global Underwriting Agreements,
except the authorization by the relevant national budget of the sale of the
Offered Shares which have been duly obtained and are in full force and
effect;
III-1
<PAGE>
(viii) Each of this Agreement, the Global Underwriting Agreements, the
Deposit Agreement and the ADRs evidencing the ADSs is in proper form under
the laws of Japan to be enforced against the Company and the Selling
Shareholder and the certificates for the Offered Shares are in proper form
to be legal and valid under the laws of Japan, and to ensure the legality,
validity, enforceability or admissibility into evidence in Japan of this
Agreement, the Global Underwriting Agreements, the Deposit Agreement, the
ADRs or the Offered Shares, as the case may be, it is not necessary that
this Agreement, the Global Underwriting Agreements, the Deposit Agreement,
the ADRs or the Offered Shares or any other documents be filed or recorded
with any court or other authority in Japan or that any Japanese stamp or
similar tax be paid by the Underwriters or the Global Underwriters or
purchasers therefrom on or in respect of this Agreement, the Global
Underwriting Agreements, the Deposit Agreement, the ADRs or the Offered
Shares or any other document to be furnished hereunder or thereunder;
(ix) The statements in the Prospectus under the captions "Description of
the Shares", insofar as they purport to constitute a summary of the terms
of the NTT Common Stock and under the captions "Prospectus Summary", "The
Company", "Management's Discussion and Analysis of Financial Condition and
Results of Operations", "Business", "Regulatory Developments", "Principal
Shareholders and Selling Shareholder", "Description of American Depositary
Receipts--Restrictions on Foreign Ownership", "Certain Tax Considerations--
Japanese Taxation" and "Underwriting", to the extent such statements
relate to matters of Japanese law or regulation or to the provisions of
documents governed by Japanese law therein described, are true and accurate
in all material respects, and nothing has been omitted from such statements
which would make the same misleading in any material respect;
(x) No stamp or other issuance or transfer taxes or duties and no capital
gains, income, withholding or other taxes are payable by or on behalf of
the Underwriters or the Global Underwriters to Japan or to any political
subdivision or taxing authority thereof or therein in connection with (A)
the deposit with the Depositary of Offered Shares against the issuance of
ADRs evidencing the ADSs, (B) the sale and delivery by the Selling
Shareholder of the Offered Shares to or for the respective accounts of the
U.S. Underwriters or the International Underwriters, (C) the execution and
delivery of this Agreement or the Global Underwriting Agreements or (D) the
sale and delivery by the Underwriters or the Global Underwriters of the
Offered Shares and ADSs to the initial purchasers thereof in the manner
contemplated herein and in the Global Underwriting Agreements;
(xi) Insofar as matters of Japanese law are concerned, the Registration
Statement and the filing of the Registration Statement with the Commission
have been duly authorized by and on behalf of the Company; and the
Registration Statement has been duly executed pursuant to such
authorization by and on behalf of the Company;
(xii) The Company's agreement to the choice of law provisions set forth
in Section 15 of this Agreement and the International Underwriting
Agreement will be recognized by the courts of Japan; the Company can sue
and be sued in its own name under the laws of Japan; the irrevocable
submission of the Company to the exclusive jurisdiction of a New York
Court, the waiver by the Company of any objection to the venue of a
proceeding of a New York Court and the agreement of the Company that this
Agreement and the International Underwriting Agreement shall be governed by
and construed in accordance
III-2
<PAGE>
with the laws of the State of New York are legal, valid and binding;
service of process effected in the manner set forth in Section 15 of this
Agreement and the International Underwriting Agreement will be effective,
insofar as Japanese law is concerned, to confer valid personal jurisdiction
over the Company; and under the laws of Japan currently in effect, Japanese
courts would recognize as a valid judgment and enforce without
reexamination of the merits of the action any final and conclusive civil
judgment for monetary claims obtained in a State or a Federal court, as the
case may be, sitting in New York City against the Company, in an action
arising out of or relating to this Agreement or the International
Underwriting Agreement and instituted by service of process (otherwise than
by public notice or a method comparable thereto) on the authorized agent in
New York City of the Company provided therein, provided that (i) the
jurisdiction of such State or Federal court is recognized under Japanese
laws, (ii) recognition of such judgment and the court procedures thereof
are not repugnant to public policy or good morals as applied in Japan and
(iii) a State or a Federal court, as the case may be, sitting in New York
City would recognize as a valid judgment without reexamination of the
merits of the Japanese action, any final and conclusive civil judgment for
monetary claims obtained in a Japanese court in an action based upon
certain indebtedness and instituted by service of process on the Company
(such indebtedness being comparable to the obligation of the Company under
this Agreement or the International Underwriting Agreement), when
recognition of such Japanese judgment is not repugnant to public policy as
applied in a State or a Federal court, as the case may be, sitting in New
York City. There is no reason known to them why the enforcement in Japan of
such a judgment and the court procedures thereof in respect of the
obligation of the Company under this Agreement or the International
Underwriting Agreement would be contrary to Japanese public policy or good
morals;
(xiii) The Company is not entitled to any immunity on the basis of
sovereignty or otherwise in respect of its obligations under this Agreement
or the International Underwriting Agreement and could not successfully
interpose any such immunity as a defense to any suit or action brought or
maintained in respect of its obligations under this Agreement or the
International Underwriting Agreement; and the waiver by the Company of
immunity to jurisdiction (including the waiver of sovereign immunity to
which the Company may become entitled subsequent to the date of this
Agreement and the International Underwriting Agreement) and immunity to
pre-judgment attachment, post-judgment attachment and execution in any
suit, action or proceeding against it arising out of or based on this
Agreement and the International Underwriting Agreement is a valid and
binding obligation of the Company under Japanese law;
(xiv) All dividends and other distributions declared and payable on the
NTT Common Stock (subject to the approval of the Minister of Posts and
Telecommunications) (including any payments to the Depositary in respect of
ADSs) may under the current laws and regulations of Japan be paid in
Japanese yen that may be converted into foreign currency that may be freely
transferred out of Japan, and except as described in the Prospectus, all
such dividends and other distributions will not be subject to withholding
or other taxes under the laws and regulations of Japan and are otherwise
free and clear of any other tax, withholding or deduction in Japan and
without the necessity of obtaining any Governmental Authorization in Japan;
and
(xv) Although they do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus, except for those referred to in the opinion in
subsection (ix) of this Annex III, they have no
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<PAGE>
reason to believe that, as of its effective date, the Registration
Statement or any further amendment thereto made by the Company prior to the
Time of Delivery (other than the financial statements, financial data and
related schedules therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading or that, as of its date, the
Prospectus or any further amendment or supplement thereto made by the
Company prior to the Time of Delivery (other than the financial statements,
financial data and related schedules therein, as to which such counsel need
express no opinion) contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading or that, as of the Time of Delivery, either the Registration
Statement or the Prospectus or any further amendment or supplement thereto
made by the Company prior to the Time of Delivery (other than the financial
statements, financial data and related schedules therein, as to which such
counsel need express no opinion) contains an untrue statement of a material
fact or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
III-4
<PAGE>
ANNEX IV
Pursuant to Section 8(f) of this Agreement, Ziegler, Ziegler & Altman,
counsel to the Depositary, shall furnish their written opinion to the effect
that:
(i) The Deposit Agreement has been duly authorized, executed and
delivered by the Depositary and constitutes a valid and legally binding
obligation of the Depositary, enforceable in accordance with its terms,
except insofar as enforceability may be limited by (A) applicable
bankruptcy, insolvency, moratorium or other laws relating to creditors'
rights generally and (B) general principles of equity (whether considered
in an action at law or in equity); and
(ii) The ADRs will be validly issued and will entitle the holder thereof
to the rights specified therein and in the Deposit Agreement, assuming that
the ADRs evidencing ADSs are issued in accordance with the Deposit
Agreement against the deposit, pursuant to the terms of the Deposit
Agreement, of duly authorized, validly issued, fully paid and nonassessable
Offered Shares and that the preemptive rights, if any, with respect to the
Offered Shares have been validly waived or exercised.
IV-1
<PAGE>
ANNEX V
Pursuant to Section 8(g) of this Agreement, Davis Polk & Wardwell, United
States counsel for the Selling Shareholder, shall furnish their written opinion
to the effect that:
(i) Each of this Agreement and the International Underwriting Agreement
has been duly executed and delivered by the Selling Shareholder;
(ii) The sale of the Offered Shares by the Selling Shareholder and the
compliance by the Selling Shareholder with all of the provisions of this
Agreement and the International Underwriting Agreement and the consummation
of the transactions herein contemplated will not conflict with or result in
a breach or violation of any statute, rule or regulation of the United
States or the State of New York;
(iii) No Governmental Authorization of the United States or the State of
New York is required for the sale of the Offered Shares by the Selling
Shareholder, the deposit of the Offered Shares being deposited with the
Depositary against issuance of the ADRs evidencing the ADSs or the
consummation by the Selling Shareholder of the transactions contemplated by
this Agreement and the International Underwriting Agreement, except the
registration under the Securities Act of the Offered Shares and the ADSs,
and such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky laws
in connection with the purchase and distribution of the Offered Shares and
the ADSs by the Underwriters and the International Underwriters; and
(iv) The Registration Statement and the Prospectus and any further
amendments and supplements thereto made by the Company prior to the Time of
Delivery (other than the financial statements, financial data and related
schedules therein, as to which such counsel need express no opinion) comply
as to form in all material respects with the requirements of the Securities
Act; although they do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus, they have no reason to believe that, as of its
effective date, the Registration Statement or any further amendment thereto
(including any documents incorporated by reference therein) made by the
Company prior to the Time of Delivery (other than the financial statements,
financial data and related schedules therein, as to which such counsel need
express no opinion) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or that, as of its date, the
Prospectus or any further amendment or supplement thereto (including any
documents incorporated by reference therein) made by the Company prior to
the Time of Delivery (other than the financial statements, financial data
and related schedules therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading or
that, as of the Time of Delivery, either the Registration Statement or the
Prospectus or any further amendment or supplement thereto (including any
documents incorporated by reference therein) made by the Company prior to
the Time of Delivery (other than the financial statements, financial data
and related schedules therein, as to which such counsel need express no
opinion) contains an untrue statement of a material fact or omits to state
a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and they do
not know of any amendment to the Registration Statement required to be
filed or of any contracts or other documents of a character required to be
filed as an
V-1
<PAGE>
exhibit to the Registration Statement or required to be incorporated by
reference into the Prospectus or required to be described in the
Registration Statement or the Prospectus which are not filed or
incorporated by reference or described as required.
V-2
<PAGE>
ANNEX VI
Pursuant to Section 8(h) of this Agreement, Price Waterhouse shall furnish
letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to the
Company and its subsidiaries within the meaning of the Securities Act and
the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial
forecasts and/or pro forma financial information) examined by them and
included or incorporated by reference in the Registration Statement or the
Prospectus comply as to form in all material respects with the applicable
accounting requirements of the Securities Act or the Exchange Act, as
applicable, and the related published rules and regulations thereunder;
and, if applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the consolidated interim financial statements, selected financial data, pro
forma financial information, financial forecasts and/or condensed financial
statements derived from audited financial statements of the Company for the
periods specified in such letter, as indicated in their reports thereon,
copies of which have been furnished to the Representatives;
(iii) They have made a review in accordance with standards established by
the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets
and consolidated statements of cash flows included in the Prospectus and/or
included in the Company's interim report on Form 6-K incorporated by
reference into the Prospectus as indicated in their reports thereon copies
of which are attached hereto; and on the basis of specified procedures
including inquiries of officials of the Company who have responsibility for
financial and accounting matters regarding whether the unaudited condensed
consolidated financial statements referred to in paragraph (vi)(A)(i) below
comply as to form in all material respects with the applicable accounting
requirements of the Securities Act and the related published rules and
regulations, nothing came to their attention that caused them to believe
that the unaudited condensed consolidated financial statements do not
comply as to form in all material respects with the applicable accounting
requirements of the Securities Act and the related published rules and
regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company
for the five most recent fiscal years included in the Prospectus and
included or incorporated by reference in Item 8 of the Company's Annual
Report on Form 20-F for the most recent fiscal year agrees with the
corresponding amounts (after restatement where applicable) in the audited
consolidated financial statements for such five fiscal years which were
included or incorporated by reference in the Company's Annual Reports on
Form 20-F for such fiscal years;
(v) They have compared the information in the Prospectus under selected
captions with the disclosure requirements of Regulation S-K and on the
basis of limited procedures specified in such letter nothing came to their
attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects
with the disclosure requirements of Items 8 and 11 of Form 20-F and of
Regulation S-K;
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<PAGE>
(vi) On the basis of limited procedures, not constituting an examination
in accordance with generally accepted auditing standards, consisting of a
reading of the unaudited financial statements and other information
referred to below, a reading of the latest available interim financial
statements of the Company and its subsidiaries, inspection of the minute
books of the Company and its subsidiaries since the date of the latest
audited financial statements included or incorporated by reference in the
Prospectus, inquiries of officials of the Company and its subsidiaries
responsible for financial and accounting matters and such other inquiries
and procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that:
(A) (i) the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus and/or included or incorporated by reference
in an interim report on Form 6-K incorporated by reference in the
Prospectus do not comply as to form in all material respects with the
applicable accounting requirements of the Securities Act, or the
Exchange Act, as applicable and the related published rules and
regulations, or (ii) any material modifications should be made to the
unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in
the Prospectus or included in an interim report on Form 6-K
incorporated by reference in the Prospectus, for them to be in
conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding
items in the unaudited consolidated financial statements from which
such data and items were derived, and any such unaudited data and items
were not determined on a basis substantially consistent with the basis
for the corresponding amounts in the audited consolidated financial
statements included or incorporated by reference in the Company's
Annual Report on Form 20-F for the most recent fiscal year;
(C) the unaudited financial statements which were not included in
the Prospectus but from which were derived the unaudited condensed
financial statements referred to in Clause (A) and any unaudited income
statement data and balance sheet items included in the Prospectus and
referred to in Clause (B) were not determined on a basis substantially
consistent with the basis for the audited financial statements included
or incorporated by reference in the Company's Annual Report on Form 20-
F for the most recent fiscal year;
(D) any unaudited pro forma consolidated condensed financial
statements included or incorporated by reference in the Prospectus do
not comply as to form in all material respects with the applicable
accounting requirements of the Securities Act and the published rules
and regulations thereunder or the pro forma adjustments have not been
properly applied to the historical amounts in the compilation of those
statements; and
(vii) In addition to the examination referred to in their report(s)
included or incorporated by reference in the Prospectus and the limited
procedures, inspection of minute books, inquiries and other procedures
referred to in paragraphs (iii) and (vi) above, they have carried out
certain specified procedures, not constituting an examination in accordance
with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the
Representatives which are derived
VI-2
<PAGE>
from the general accounting records of the Company and its subsidiaries,
which appear in the Prospectus (excluding documents incorporated by
reference) or in Part II of, or in exhibits and schedules to, the
Registration Statement specified by the Representatives or in documents
incorporated by reference in the Prospectus specified by the
Representatives, and have compared certain of such amounts, percentages and
financial information with the accounting records of the Company and its
subsidiaries and have found them to be in agreement.
VI-3
<PAGE>
EXHIBIT 23.1
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form F-3 of our report dated June 26, 1998, except for
Note 3 as to which the date is October 1, 1998, relating to the consolidated
financial statements of Nippon Telegraph and Telephone Corporation as of March
31, 1998 and 1997 and for each of the three years in the period ended March 31,
1998, which appears in such Prospectus. We also consent to this incorporation by
reference in the Prospectus constituting part of this Registration Statement on
Form F-3 of Nippon Telegraph and Telephone Corporation of our report dated June
26, 1998 relating to the consolidated financial statements of Nippon Telegraph
and Telephone Corporation as of March 31, 1998 and 1997 and for each of the
three years in the period ended March 31, 1998, appearing on page F-2 of Nippon
Telegraph and Telephone Corporation's Annual Report on Form 20-F for the year
ended March 31, 1998. We also consent to the reference to us under the heading
"Experts", "Summary Financial Information" and "SELECTED FINANCIAL DATA" in such
Prospectus. However, it should be noted that Price Waterhouse has not prepared
or certified such "Summary Financial Information" and SELECTED FINANCIAL DATA".
Price Waterhouse
Tokyo, Japan
November 30, 1998
