<PAGE>
THE TOTAL NUMBER OF PAGES CONTAINED IN THIS DOCUMENT IS 18
FORM 6-K
--------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
For the month of November 1998
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
(Translation of registrant's name into English)
19-2, NISHI-SHINJUKU 3-CHOME
SHINJUKU-KU, TOKYO 163-19, JAPAN
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.
Form 20-F X Form 40-F
--- ---
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
--- ---
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b):
82-____________.
<PAGE>
2
INTERIM RESULTS:
Enclosed is information as to the registrant's financial condition and results
of operations at and for the six-month period ended September 30, 1998. The
financial information included in the enclosed discussion and analysis was
prepared on the basis of accounting principles generally accepted in the United
States.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NIPPON TELEGRAPH AND TELEPHONE
CORPORATION
By /s/ MOTOTANE MIYAZAKI
------------------------
Name: Mototane Miyazaki
Title: Executive Manager
General Affairs Department
Date: November 25, 1998
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SFAS 71 Write-Off
In its financial statements as of and for the six-month period ended
September 30, 1998, Nippon Telegraph and Telephone Corporation ("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" ("SFAS 71"). 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 Statement of
Financial Accounting Standards No. 101, "Regulated EnterprisesAccounting for the
Discontinuation of Application of FASB Statement No. 71" ("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 of (Yen)427 billion during the six-
month period ended September 30, 1998, and has eliminated (Yen)889 billion of
regulatory assets from its balance sheets as of September 30, 1998.
After assessing the recent revision of the Telecommunications Business Law
("Telecom Business Law"), which became effective as of November 1, 1998, 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. 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. 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 gains on
the sale and issuance of NTT DoCoMo's shares of approximately (Yen)1,565
billion.
RESULTS OF OPERATIONS
For the six-month period ended September 30, 1998, operating revenues
increased 1.6%. 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 and overcame the negative impact of the sluggish
Japanese economy and the rate reduction for long-distance services.
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 application of the
provisions of SFAS 71. Excluding this extraordinary one-time item, net income
increased 48.1% to (Yen)290 billion.
The following table sets forth a breakdown by category of the operating
revenues for NTT and its subsidiaries for the six-month period ended September
30, 1997 and 1998.
<PAGE>
<TABLE>
<CAPTION>
PERCENT INCREASE
SIX MONTHS
SIX MONTHS ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30,
---------------- ----------------
1997 1998 1998
---------------- ----------------
<S> <C> <C> <C>
(billions)
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.
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 moved from being primarily price-based to requiring companies to
promote 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
fulfill customer satisfaction.
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. 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 to (Yen)4,711,694
million, or 1.6%, 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. 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
Telephone subscriber service is NTT's principal business activity. 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.
2
<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.
(ii) 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, representing 40.1% growth since September 30,
1997. The number of NTT DoCoMo's subscribers reached nearly 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 the market.
(iii) PHS Services
NTT's PHS services are provided by NTT Personal Group. 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'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.
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
3
<PAGE>
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% to 195 thousand at the
end of the six-month period ended September 30, 1998, and the number of
conventional leased circuits decreased 7.9% to 866 thousand 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 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 from 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 the home. NTT's ISDN
services comprise INS-Net 64 and INS-Net 1500.
In June 1998, NTT introduced "INS Area Plus." "INS 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.
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 affecting this growth.
OTHER SERVICES
Operating revenues from other services (miscellaneous) 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.
4
<PAGE>
OCN
During the six-month period ended September 30, 1998, NTT's OCN subscribers
increased to 298 thousand, a 322.6% increase from the six-month period ended
September 30, 1997. Management attributes the increase to the strong demand for
Internet access. 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.
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 the application of
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.
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, an 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.
Net cash used in financing activities for the six-month period ended
September 30, 1998 was (Yen)226 billion as compared to (Yen)7 billion for the
six-month period ended September 30 of the preceding year. 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
5
<PAGE>
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.
6
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
------------------------------------------
AND ITS SUBSIDIARIES
--------------------
CONSOLIDATED BALANCE SHEET( UNAUDITED )
---------------------------------------
<TABLE>
<CAPTION>
Millions of
U.S. dollars
Millions of yen (Note 2)
--------------------------------------- --------------------
March 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1998
-----------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C>
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 417,900 374,237 2,772
(Note 4)
- ------------------------------------------------------------------------------------------------------------------
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
==================================================================================================================
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
------------------------------------------
AND ITS SUBSIDIARIES
--------------------
CONSOLIDATED BALANCE SHEET( UNAUDITED )
---------------------------------------
<TABLE>
<CAPTION>
Millions of
U.S. dollars
Millions of yen (Note 2)
--------------------------------- ------------------------
March 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1998
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C> <C>
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.
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
------------------------------------------
AND ITS SUBSIDIARIES
--------------------
CONSOLIDATED STATEMENT OF INCOME( UNAUDITED )
---------------------------------------------
SIX-MONTH PERIOD ENDED SEPTEMBER 30
-----------------------------------
<TABLE>
<CAPTION>
Millions of
U.S. dollars
Millions of yen (Note 2)
------------------------------ ----------------
1997 1998 1998
- -----------------------------------------------------------------------------------------------------
OPERATING REVENUES:
<S> <C> <C> <C>
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 1,491,252 1,541,795 11,421
and maintenance costs
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 (Note 7):
Current 202,973 210,476 1,559
Deferred 39,262 74,327 551
- -----------------------------------------------------------------------------------------------------
242,235 284,803 2,110
- -----------------------------------------------------------------------------------------------------
Income before extraordinary item, minority
interest and equity in earnings of affiliated
companies 205,964 288,144 2,134
Extraordinary item 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)
=====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
U.S. dollars
Yen (Note 2)
------------------------------ ---------------
PER SHARE OF COMMON STOCK:
<S> <C> <C> <C>
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.
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
------------------------------------------
AND ITS SUBSIDIARIES
--------------------
CONSOLIDATED STATEMENT OF CASH FLOWS( UNAUDITED )
-------------------------------------------------
SIX-MONTH PERIOD ENDED SEPTEMBER 30
-----------------------------------
<TABLE>
<CAPTION>
Millions
Of
U.S. dollars
Millions of yen (Note 2)
------------------------------ --------------
1997 1998 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) (Yen) 195,572 ((Yen)172,893) ($1,281)
Adjustments to reconcile net income to net cash
provided by operating activities -
Extraordinary item, 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 accurd
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 ACTIVITIES:
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 affiliates and
intangible and other assets (104,629) (86,944) (644)
Proceeds from sales of subsidiary stocks - 150,370 1,114
- -------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,537,122) (1,184,079) (8,771)
- -------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
------------------------------------------
AND ITS SUBSIDIARIES
--------------------
CONSOLIDATED STATEMENT OF CASH FLOWS(UNAUDITED)
-----------------------------------------------
SIX-MONTH PERIOD ENDED SEPTEMBER 30
-----------------------------------
<TABLE>
<CAPTION>
Millions
Of
U.S. dollars
Millions of yen (Note 2)
----------------------------- ----------------
1997 1998 1998
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Proceeds from issuance of long-term debt (Yen) 510,494 (Yen)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.
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
------------------------------------------
AND ITS SUBSIDIARIES
--------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
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 Form 20-F for the fiscal year ended March 31, 1998.
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.
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
<PAGE>
-2-
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.
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 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 SAFS 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:
Pretax After-tax
-------------------- --------------------
Billions Millions of Billions Millions of
of yen U.S. dollars of yen U.S. dollars
---------- ----------- ----------- ------------
Deferred compensated (Yen)105 $783 (Yen)55 $407
absences
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
========== ========== ========= =========
<PAGE>
-3-
The regulatory assets included in the accompanying consolidated balance sheet
as at March 31, 1998 were as follows:
Billions
of yen
------------
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
* 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.
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 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 are 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.
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 periods 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.
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.
<PAGE>
-4-
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.
