<PAGE>
As filed with the Securities and Exchange Commission on October 15, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
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)
3-1, Otemachi 2-chome
Chiyoda-ku, Tokyo 100-8116
Japan
813-5205-5581
(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. Robert G. DeLaMater
Davis Polk & Wardwell Milbank, Tweed, Hadley & Sullivan & Cromwell
Akasaka Twin Tower East McCloy LLP Otemachi First Square
11F 1 Chase Manhattan Plaza 5-1, Otemachi 1-chome
17-22, Akasaka 2-chome New York, New York 10005 Chiyoda-ku, Tokyo 100-
Minato-ku, Tokyo 107-0052 U.S.A. 0004 Japan
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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, par value
(Yen)50,000 per
share(3)............ 185,000 shares $12,301.96 $2,275,862,069 $632,690
</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).
--------------
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 October 15, 1999.
[LOGO] NTT
Nippon Telegraph and Telephone Corporation
952,000 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 952,000 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. NTT will apply to list the
shares offered in the global offering on the First Section of the Tokyo Stock
Exchange and on all other stock exchanges in Japan. 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 October 12, 1999, the closing sale price of
the common stock on the TSE was (Yen)1,400,000 per share. On October 12, 1999,
the closing sale price of the ADSs on the New York Stock Exchange was $66.00
per ADS.
-----------
Neither the Securities and Exchange Commission nor any other regulatory body
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>
<CAPTION>
Proceeds, before
Initial Public Underwriting expenses, to the
Offering Price Commissions Minister of Finance
-------------- ------------ -------------------
<S> <C> <C> <C>
Per Share........................ (Yen) (Yen) (Yen)
Per ADS.......................... $ $ $
Total............................ (Yen) (Yen) (Yen)
Total (U.S. Dollar
Equivalent)(/1/)................ $ $ $
</TABLE>
- -----
(1) The rate used for such translation was $1 = (Yen) , the Noon Buying Rate
on November , 1999.
-----------
The underwriters expect to deliver the shares against payment in Yen and the
ADSs against payment in U.S. Dollars on November , 1999.
-----------
Joint Global Coordinators and Joint Bookrunners
Goldman Sachs International
NikkoSalomonSmithBarney Warburg Dillon Read
-----------
Goldman, Sachs & Co. Warburg Dillon Read LLC
Nikko SalomonSmithBarney
Americas
Daiwa Securities America Inc. _________________________________J.P. Morgan & Co.
Merrill Lynch & Co. __________________________________Morgan Stanley Dean Witter
Nomura Securities International, Inc.
-----------
Prospectus dated November , 1999.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary may 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.
NTT
NTT is the largest provider of wireline and wireless voice, data, Internet
and related 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, representing
approximately 64.8%, or (Yen)6.3 trillion, of total operating revenues of
approximately (Yen)9.7 trillion in fiscal year 1999. Sale of telecommunication
equipment contributed 10.4% of operating revenues. Other services, which
include multimedia-related services and system development services,
contributed 9.1%, ISDN services 5.7%, leased circuit services 5.2%, data
communication facility services 3.9% and telegraph services 0.9% of operating
revenues.
NTT's 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 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 58
million subscribers.
NTT provides cellular telephone services and PHS services through NTT DoCoMo.
NTT DoCoMo, together with its subsidiaries, is the largest provider of cellular
telephone services in Japan and is one of the largest cellular operators in the
world as measured by the number of subscribers, with approximately 24 million
subscribers as of March 31, 1999. NTT DoCoMo is 67.1% owned by NTT. The balance
of NTT DoCoMo is owned by public investors.
NTT provides data communication facility services through NTT DATA. NTT DATA
is the leading provider of information communication systems and computer
networking in Japan. NTT DATA primarily engages in strategic planning, systems
planning and systems design, and installation of information communication
systems and computer networks. NTT DATA is 54.2% owned by NTT. The balance of
NTT DATA is owned by public investors.
On July 1, 1999, NTT was reorganized into a holding company structure. The
NTT parent company transferred its local and long-distance businesses to three
new wholly-owned subsidiaries: Nippon Telegraph and Telephone East Corporation,
Nippon Telegraph and Telephone West Corporation, and NTT Communications
Corporation. NTT East and NTT West operate the regional telecommunications
services in eastern Japan and western Japan, respectively, and NTT
Communications operates the long distance telecommunications and other network
services throughout Japan. NTT Communications has also started offering
international telecommunications services.
3
<PAGE>
As the holding company, the NTT parent is directly responsible for the
overall strategy of the NTT group. The NTT parent is also responsible for basic
research and development. The NTT parent will receive dividends when declared
by its subsidiaries and will receive compensation from its subsidiaries for
providing management services and the results of its R&D activities. The
reorganized NTT has the following structure:
[CHART APPEARS HERE]
--------
NTT
Parent
--------
100% 100% 100% 67.1% 54.2%
----- ---- -------------- ------- ---- ------------
Other
NTT NTT NTT NTT NTT NTT
East West Communications DoCoMo DATA Subsidiaries
----- ---- -------------- ------- ---- ------------
Competitive Strengths
. Dominant market position in local, long distance and wireless markets
. Extensive customer base in each market segment
. Most extensive and advanced telecommunications networks and platforms in
Japan, including nationwide wireline, wireless and Internet Protocol
(IP) networks
. Leader in the research and development of wireline and wireless data
transmission, Internet and other related technology
. Largest beneficiary of increasing demand for Internet and data
transmission
. Extensive wireless telecommunications businesses with dominant market
share in Japan
. Strong systems integration and information technology (IT) services
. Strong consolidated financial performance
Strategy
. Maximize shareholder value and enhance overall NTT group value by
establishing an overall NTT group strategy, setting clear mission and
performance criteria, including financial targets, and reviewing and
supervising the operations and performance of each group company
. Promote the development of Internet and data transmission related
businesses or what NTT refers to as "Information Sharing" by:
. offering attractive services and pricing options for ISDN, OCN,
dedicated line and i-mode services
. extending optic fiber network to nationwide local networks
. expanding value-added networks
. providing attractive user systems, such as i-mode terminals, to
increase customers and network revenues
4
<PAGE>
. capturing increasing corporate demand for information technology
services
. developing related platforms and content
. offering further improved cellular technology, products and services
to provide mobile Internet and data communications services
. continuing comprehensive research and development activities
. Strengthen the competitiveness of core voice transmission business by
reducing costs, diversifying pricing and service options in line with
customer demand and improving the quality of wireless transmission
. Improve efficiency by focusing capital investment in demand-driven
customer services to reduce overall consolidated capital investment and
by reducing personnel costs and other operational expenses through
various means
. Strengthen international operations by expanding international data
transmission and global solutions businesses and by making investments
in and forming alliances with IP service-related companies and other
international carriers in North America and Asia-Pacific areas
Challenges
. Increasing competition in local, long distance, international, wireless
and Internet related services markets
. Further deregulation of telecommunication rates
. Effects of implementation of Long-run Incremental Cost Methodology and
other measures to reduce interconnection charges
. Maximize the benefits of the new holding company structure (i.e., making
it work)
. 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
. Decline in fixed line subscribers and fixed line traffic
5
<PAGE>
The Global Offering
Global Offering:............ Up to 952,000 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 shares in the form of shares or ADSs.
Offering:...............
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 March 31, 1999, the Government owned
9,419,339.24 shares or approximately 59% of NTT's
outstanding shares and after the global offering
the Government will own approximately 53% 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. Shares represented by ADSs 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 without the
consent of the global coordinators, subject to
the following two exceptions. The Minister of
Finance may engage in these kinds of transactions
(a) with NTT for repurchase and cancellation of
its shares, or (b) with an entity controlled by
the Government of Japan that agrees to be bound
by the above restrictions. The second exception
is that NTT is not bound by this lock-up
agreement in connection with 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 November ,
1999 (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 November , 1999.
Security Codes:
Shares.................. Tokyo Stock Exchange Securities Identification
Code: 9432
ISIN: JP3735400008
Common Code: 002364085
SEDOL: 6641373
ADSs.................... CUSIP: 654624105
ISIN: US6546241059
SEDOL: 2639996
6
<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 which have been prepared in conformity with
accounting principles generally accepted in the United States. The consolidated
financial statements of NTT as of and for the years ended March 31, 1995, 1996,
1997, 1998 and 1999 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
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this prospectus.
<TABLE>
<CAPTION>
As of and for the years ended March 31,
-----------------------------------------------------------------------------------------
1995 1996 1997 1998 1999 1999
-------------- -------------- -------------- -------------- -------------- ---------
(Millions except per share amounts, percentages or ratios) (Millions
of U.S.
dollars)
<S> <C> <C> <C> <C> <C> <C>
Statement of Income
Data:
Operating revenues...... (Yen)7,043,822 (Yen)7,908,643 (Yen)8,821,782 (Yen)9,450,013 (Yen)9,729,673 $ 80,411
Telephone.............. 5,039,474 5,557,674 6,038,146 6,306,034 6,300,460 52,070
Telegraph.............. 90,559 96,746 98,683 92,211 85,521 707
Leased circuit......... 400,103 393,415 428,715 488,160 507,163 4,191
Data communication
facility.............. 259,520 301,365 337,934 372,765 383,455 3,169
ISDN................... 91,415 126,905 190,403 367,826 555,976 4,595
Sale of
telecommunication
equipment............. 401,957 606,102 889,834 969,586 1,008,589 8,336
Miscellaneous.......... 760,794 826,436 838,067 853,431 888,509 7,343
Operating expenses...... 6,653,588 7,212,492 8,052,307 8,577,968 9,018,238 74,531
Operating income........ 390,234 696,151 769,475 872,045 711,435 5,880
Gains on sales of
subsidiary stock....... -- (98,011) -- -- (1,634,314) (13,507)
Extraordinary loss, net
of taxes............... -- -- -- -- (462,508) (3,822)
Net income ............. 85,443 273,646 251,457 214,460 554,431 4,582
Net income per share of
common stock........... 5,370 17,197 15,803 13,478 34,844 288
Balance Sheet Data:
Cash and cash
equivalents............ (Yen) 582,447 (Yen) 638,642 (Yen) 821,140 (Yen) 913,236 (Yen)1,656,672 $ 13,692
Property, plant and
equipment, net......... 10,857,314 11,136,221 11,655,768 12,005,362 12,161,818 100,511
Total assets............ 14,397,961 15,399,448 16,475,094 17,352,531 18,573,248 153,498
Total liabilities....... 9,397,524 10,203,329 11,134,684 11,888,603 12,662,478 104,649
Total interest bearing
debt................... 4,720,401 4,986,208 5,597,520 6,058,526 5,642,084 46,629
Total shareholders'
equity................. 5,000,437 5,196,119 5,340,410 5,463,928 5,910,770 48,849
Other Financial Data:
Capital expenditures.... (Yen)1,994,775 (Yen)2,244,576 (Yen)2,612,878 (Yen)2,685,961 (Yen)2,789,342 $ 23,052
Depreciation and
amortization........... 1,832,063 1,909,768 2,093,314 2,281,843 2,439,957 20,165
Net cash provided by
operating activities... 1,920,627 2,306,778 2,650,708 2,730,607 2,365,231 19,547
Net cash used in
investing activities... 2,228,459 2,286,593 2,861,484 2,908,947 631,967 5,223
Adjusted EBITDA(1) ..... 2,430,881 2,816,093 3,075,829 3,318,579 3,326,078 27,488
Adjusted EBITDA
margin(1)(2)........... 34.5% 35.6% 34.9% 35.1% 34.2%
Net income margin(2).... 1.2 3.5 2.9 2.3 5.7
Return on equity(3)..... 1.71 5.37 4.77 3.97 9.75
Return on assets(4)..... 2.74 4.67 4.83 5.16 3.96
Return on capital
employed(5)............ 2.0 3.4 3.6 3.8 3.2
</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. Adjusted EBITDA should not be construed as an
alternative to operating income or any other measure of performance
determined in accordance with U.S. generally accepted accounted principles
or as an indicator of operating performance, liquidity or cash flows from
operating, investing and financing activities. Information concerning
Adjusted EBITDA is included because NTT believes it is a useful supplement
to cash flow data as a measure of its performance.
(2) Calculated as a percentage of operating revenues.
(3) Calculated as net income 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) for the years 1995-1998, and 1 minus 48% (the marginal tax rate)
for 1999) as a percentage of the sum of average total interest bearing
debt and average total shareholders' equity.
7
<PAGE>
Summary Operating and Other Data
The following table sets forth certain operating and other data for the five
years ended March 31, 1999.
<TABLE>
<CAPTION>
As of and for the years ended March 31,
------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Japanese Demographic and
Economic Data:
Population
(millions)(1).......... 125.0 125.6 125.9 126.2 126.5
GDP (trillions)(1)...... (Yen)478.8 (Yen)489.7 (Yen)503.8 (Yen)505.0 (Yen)494.4
GDP per capita
(millions)(1).......... 3.8 3.9 4.0 4.0 3.9
Japanese
Telecommunications
Market Data:
Fixed line:
Total number of
telephone subscriber
lines of NTT
(millions)............ 59.6 60.8 61.2 60.2 58.3
Telephone subscriber
line penetration rate
(%)................... 47.7 48.4 48.6 47.7 46.1
Total ISDN subscribers
of NTT (millions)..... 0.4 0.6 1.3 2.6 4.4
Local market share
(%)(2)................ 98.7 98.6 97.7 97.1 N/A
Long distance market
share (%)(2).......... 68.7 68.1 64.3 59.4 N/A
Cellular:
Total cellular
subscribers in Japan
(millions)............ 4.3 10.2 20.9 31.5 41.5
Cellular penetration
rate (%).............. 3.5 8.2 16.6 25.0 32.8
Cellular subscribers
of NTT DoCoMo and its
subsidiaries
(millions)............ 2.2 4.9 11.0 18.0 23.9
Market share of NTT
DoCoMo and its
subsidiaries (%)(3)... 50.9 48.4 52.5 57.0 57.5
PHS:
Total PHS subscribers
in Japan (millions)... -- 1.5 6.0 6.7 5.8
PHS penetration rate
(%)................... -- 1.2 4.8 5.3 4.6
PHS subscribers of NTT
DoCoMo and its
subsidiaries
(millions)............ -- 0.4 1.9 1.9 1.3
Market share of NTT
DoCoMo and its
subsidiaries (%)(3)... -- 26.1 30.7 28.3 23.3
Traffic Data of NTT and
its Subsidiaries:
Number of calls
(millions):
Fixed line tele-
phone(4)............. 77,278 78,201 79,891 73,668 61,074
ISDN (voice and digi-
tal)(4).............. 1,082 1,662 2,890 5,721 10,349
Hours of use (millions):
Fixed line tele-
phone(4)............. 3,610 3,535 3,441 3,240 2,952
ISDN (voice and digi-
tal)(4).............. 34 56 121 290 575
Cellular.............. 61 121 252 448 784
Employees (thousands):.. 235 231 230 226 224
</TABLE>
- -------
N/A: Not Available.
(1) Based on the 1999 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.
8
<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, 1999 (File No. 1-8910) filed with
the SEC pursuant to the Securities Exchange Act of 1934.
In addition, any reports on Form 20-F, including any amendments to those
reports, 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 3-1, Otemachi 2-chome, Chiyoda-ku, Tokyo 100-
8116 Japan, Attention: Department IV, telephone number: 813-5205-5581.
FORWARD LOOKING STATEMENTS
Some of the statements made in this prospectus and in documents incorporated
by reference are forward looking statements. These include statements with
respect to NTT's 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
. 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 the forward
looking statements. Potential risks and uncertainties include:
. risks and uncertainties associated with the pricing of services;
. the effects of deregulation of the telecommunications market,
including Long-run Incremental Cost Methodology, and increased
competition;
. the impact 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.
9
<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)121 equal to $1.00, which was the
approximate exchange rate on March 31, 1999. 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 October 12, 1999 was $1=(Yen)106.28. 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,
-----------------------------------------------------------------------
1995 1996 1997 1998 1999 2000(1)
----------- ----------- ----------- ----------- ----------- -----------
Yen exchange rates per
U.S. dollar:
<S> <C> <C> <C> <C> <C> <C>
High.................... (Yen)105.38 (Yen)107.29 (Yen)124.54 (Yen)133.99 (Yen)147.14 (Yen)124.45
Low..................... 86.85 81.12 104.49 111.42 108.83 103.78
Average(2).............. 98.48 96.95 113.20 123.57 127.86 115.35
At period-end........... 86.85 107.00 123.72 133.29 118.43 106.28
</TABLE>
- --------
(1) Through October 12, 1999.
(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."
10
<PAGE>
CAPITALIZATION
The following table, which should be read in conjunction with NTT's
consolidated financial statements included in this prospectus, sets forth the
unaudited consolidated capitalization of NTT as of March 31, 1999. Except as
disclosed below, there has been no material change in the consolidated
capitalization of NTT since March 31, 1999.
<TABLE>
<CAPTION>
As of March 31, 1999
-----------------------------
(millions of (millions of
yen) dollars)
<S> <C> <C>
Short-term Debt
Total short-term debt (including short-term
borrowings and current portion of long-term
debt).......................................... (Yen) 1,083,726 $ 8,956
=============== =======
Long-term Debt
Long-term debt.................................. (Yen) 4,558,358 $37,672
--------------- -------
Shareholders' Equity
Common stock, (Yen)50,000 par value............. 795,600 6,575
Authorized: 62,400,000 shares
Issued and outstanding: 15,912,000 shares(/1/)
Additional paid-in capital...................... 2,530,476 20,913
Retained earnings............................... 2,628,272 21,721
Accumulated other comprehensive loss............ (43,578) (360)
--------------- -------
Total shareholders' equity...................... 5,910,770 48,849
--------------- -------
Total capitalization............................ (Yen)10,469,128 $86,522
=============== =======
</TABLE>
- --------
(1) As a result of a repurchase of shares on July 13, 1999, the number of
issued and outstanding shares was reduced to 15,863,102.
11
<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 which have been prepared in conformity with accounting
principles generally accepted in the United States. The consolidated financial
statements of NTT as of and for the years ended March 31, 1995, 1996, 1997,
1998 and 1999 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 "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in this prospectus.
<TABLE>
<CAPTION>
As of and for the years ended March 31,
-----------------------------------------------------------------------------------------
1995 1996 1997 1998 1999 1999
-------------- -------------- -------------- -------------- -------------- ---------
(Millions except per share amounts) (Millions
of U.S.
dollars)
<S> <C> <C> <C> <C> <C> <C>
Statement of Income Da-
ta:
Operating revenues...... (Yen)7,043,822 (Yen)7,908,643 (Yen)8,821,782 (Yen)9,450,013 (Yen)9,729,673 $80,411
Telephone.............. 5,039,474 5,557,674 6,038,146 6,306,034 6,300,460 52,070
Telegraph.............. 90,559 96,746 98,683 92,211 85,521 707
Leased circuit......... 400,103 393,415 428,715 488,160 507,163 4,191
Data communication
facility.............. 259,520 301,365 337,934 372,765 383,455 3,169
ISDN................... 91,415 126,905 190,403 367,826 555,976 4,595
Sale of
telecommunication
equipment............. 401,957 606,102 889,834 969,586 1,008,589 8,336
Miscellaneous.......... 760,794 826,436 838,067 853,431 888,509 7,343
Operating expenses...... 6,653,588 7,212,492 8,052,307 8,577,968 9,018,238 74,531
Personnel.............. 2,328,917 2,285,502 2,266,599 2,345,609 2,367,449 19,566
Depreciation,
amortization and
maintenance costs..... 2,624,199 2,809,602 2,998,550 3,185,044 3,435,522 28,393
Other.................. 1,700,472 2,117,388 2,787,158 3,047,315 3,215,267 26,572
Operating income........ 390,234 696,151 769,475 872,045 711,435 5,880
Other expenses
(income)............... 225,524 151,012 259,702 216,513 (1,402,526) (11,591)
Interest and
amortization of bond
discounts and issue
costs................. 277,544 268,032 253,950 235,363 216,038 1,786
Interest income........ (5,967) (2,066) (1,839) (2,086) (6,881) (57)
Gains on sales of
subsidiary stock...... -- (98,011) -- -- (1,634,314) (13,507)
Other, net............. (46,053) (16,943) 7,591 (16,764) 22,631 187
Income before income
taxes ................. 164,710 545,139 509,773 655,532 2,113,961 17,471
Income taxes............ 82,429 272,974 260,927 418,276 1,081,917 8,942
Extraordinary loss, net
of taxes............... -- -- -- -- (462,508) (3,822)
Income before minority
interest and equity in
earnings of affiliated
companies.............. 82,281 272,165 248,846 237,256 569,536 4,707
Minority interest in
consolidated
subsidiaries........... (2,433) (6,124) (11,718) (32,275) (24,148) (200)
Equity in earnings of
affiliated companies... 5,595 7,605 14,329 9,479 9,043 75
Net income.............. 85,443 273,646 251,457 214,460 554,431 4,582
Net income per share of
common stock........... 5,370 17,197 15,803 13,478 34,844 288
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
As of and for the years ended March 31,
-----------------------------------------------------------------------------------------
1995 1996 1997 1998 1999 1999
-------------- -------------- -------------- -------------- -------------- ---------
(Millions except per share amounts, percentages or ratios) (Millions
of U.S.
dollars)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ (Yen) 582,447 (Yen) 638,642 (Yen) 821,140 (Yen) 913,236 (Yen)1,656,672 $13,692
Notes and accounts
receivable, trade...... 700,932 1,058,308 930,792 1,085,381 1,463,777 12,097
Inventories............. 128,527 164,490 231,407 223,776 195,843 1,618
Property, plant and
equipment, net......... 10,857,314 11,136,221 11,655,768 12,005,362 12,161,818 100,511
Investments in
affiliated companies... 79,013 86,900 113,762 201,945 300,420 2,483
Marketable securities
and other investments.. 175,506 195,345 154,947 124,910 163,754 1,353
Intangible and other
assets................. 1,118,326 1,324,893 1,654,289 1,904,503 1,527,113 12,621
Total assets............ 14,397,961 15,399,448 16,475,094 17,352,531 18,573,248 153,498
Accounts payable,
trade.................. 669,036 903,579 1,115,840 1,131,444 1,416,615 11,708
Total interest bearing
debt................... 4,720,401 4,986,208 5,597,520 6,058,526 5,642,084 46,629
Short term borrowings... 147,265 208,438 387,544 456,995 235,180 1,944
Current portion of long-
term debt.............. 669,104 671,948 667,964 825,422 848,546 7,013
Long-term debt.......... 3,904,032 4,105,822 4,542,012 4,776,109 4,558,358 37,672
Total liabilities....... 9,397,524 10,203,329 11,134,684 11,888,603 12,662,478 104,649
Total shareholders'
equity................. 5,000,437 5,196,119 5,340,410 5,463,928 5,910,770 48,849
Other Financial Data:
Capital expenditures.... (Yen)1,994,775 (Yen)2,244,576 (Yen)2,612,878 (Yen)2,685,961 (Yen)2,789,342 $23,052
Depreciation and
amortization........... 1,832,063 1,909,768 2,093,314 2,281,843 2,439,957 20,165
Net cash provided by
operating activities... 1,920,627 2,306,778 2,650,708 2,730,607 2,365,231 19,547
Net cash used in
investing activities .. 2,228,459 2,286,593 2,861,484 2,908,947 631,967 5,223
Research and development
expenses............... 313,918 318,105 328,529 288,931 381,776 3,155
Adjusted EBITDA(1)...... 2,430,881 2,816,093 3,075,829 3,318,579 3,326,078 27,488
Adjusted EBITDA
margin(1)(2)........... 34.5% 35.6% 34.9% 35.1% 34.2%
Net income margin(2).... 1.2 3.5 2.9 2.3 5.7
Return on equity(3)..... 1.71 5.37 4.77 3.97 9.75
Return on assets(4)..... 2.74 4.67 4.83 5.16 3.96
Return on capital
employed(5)............ 2.0 3.4 3.6 3.8 3.2
</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. Adjusted EBITDA should not be construed as an
alternative to operating income or any other measure of performance
determined in accordance with U.S. generally accepted accounted principles
or as an indicator of operating performance, liquidity or cash flows from
operating, investing and financing activities. Information concerning
Adjusted EBITDA is included because NTT believes it is a useful supplement
to cash flow data as a measure of its performance.
(2) Calculated as a percentage of operating revenues.
(3) Calculated as net income 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) for the years 1995-1998, and 1 minus 48% (the marginal tax rate) for
1999) as a percentage of the sum of average total interest bearing debt and
average total shareholders' equity.
13
<PAGE>
SELECTED OPERATING AND OTHER DATA
The following table sets forth certain operating and other data for the five
years ended March 31, 1999.
<TABLE>
<CAPTION>
As of and for the years
ended March 31,
------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Japanese Demographic and
Economic Data:
Population
(millions)(1).......... 125.0 125.6 125.9 126.2 126.5
GDP (trillions)(1)...... (Yen)478.8 (Yen)489.7 (Yen)503.8 (Yen)505.0 (Yen)494.4
GDP per capita
(millions)(1).......... 3.8 3.9 4.0 4.0 3.9
Japanese
Telecommunications
Market Data:
Fixed line:
Total number of
telephone subscriber
lines of NTT
(millions)............ 59.6 60.8 61.2 60.2 58.3
Telephone subscriber
line penetration
rate(%)............... 47.7 48.4 48.6 47.7 46.1
Total ISDN subscribers
of NTT (millions)..... 0.4 0.6 1.3 2.6 4.4
Local market share
(%)(2)................ 98.7 98.6 97.7 97.1 N/A
Long distance market
share (%)(2).......... 68.7 68.1 64.3 59.4 N/A
Cellular:
Total cellular
subscribers in Japan
(millions)............ 4.3 10.2 20.9 31.5 41.5
Cellular penetration
rate (%).............. 3.5 8.2 16.6 25.0 32.8
Cellular subscribers of
NTT DoCoMo and its
subsidiaries
(millions)............ 2.2 4.9 11.0 18.0 23.9
Market share of NTT
DoCoMo and its
subsidiaries (%)(3)... 50.9 48.4 52.5 57.0 57.5
PHS:
Total PHS subscribers
in Japan (millions)... -- 1.5 6.0 6.7 5.8
PHS penetration rate
(%)................... -- 1.2 4.8 5.3 4.6
PHS subscribers of NTT
DoCoMo and its
subsidiaries
(millions)............ -- 0.4 1.9 1.9 1.3
Market share of NTT
DoCoMo and its
subsidiaries (%)(3)... -- 26.1 30.7 28.3 23.3
Traffic Data of NTT and
its Subsidiaries:
Number of calls
(millions):
Fixed line
telephone(4).......... 77,278 78,201 79,891 73,668 61,074
ISDN (voice and
digital)(4)........... 1,082 1,662 2,890 5,721 10,349
Hours of use (millions):
Fixed line
telephone(4).......... 3,610 3,535 3,441 3,240 2,952
ISDN (voice and
digital)(4)........... 34 56 121 290 575
Cellular............... 61 121 252 448 784
Employees (thousands):.. 235 231 230 226 224
</TABLE>
- --------
N/A: Not Available.
(1) Based on the 1999 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>
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 the Ministry of Posts and Telecommunications, and accepted in
principle by NTT, to reorganize NTT. On July 1, 1999, the relevant NTT business
activities were transferred to NTT's respective wholly-owned subsidiaries, NTT
East, NTT West and NTT Communications. After the transfer of business, the NTT
parent company continues to exist but operates primarily as a holding company.
The principal sources of the NTT parent company's cash revenues consist of
three categories. The NTT parent company will receive:
. dividends from its subsidiaries;
. payment for providing management services through contracts with its
subsidiaries; and
. payment for its fundamental R&D activities through contracts with each
of its subsidiaries which use the results of the R&D activities.
NTT believes that the costs of implementing the reorganization will not be
material to its financial position or results of operations.
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 and became effective on November 1, 1998. Pursuant to these revisions,
rates for certain services provided by NTT East and NTT West will generally be
subject to a price-cap system. See "Regulatory Developments--Price-Cap System."
At this time, NTT cannot predict the impact of the price-cap system on its
financial position or results of operations.
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, especially to the local networks, is
offered are of great significance to the development of the Japanese
telecommunications market. The cost of interconnection to the local networks of
NTT East and NTT West 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 intention to introduce
"Long-run Incremental Cost Methodology" for the setting of interconnection
charges. A study group for Long-run Incremental Cost Methodology of the
Ministry of Posts and Telecommunications on September 20, 1999 announced a
model for Long-run Incremental Cost Methodology. The model was adopted
following publication by the study group of the Ministry of Posts and
Telecommunications on July 30, 1999 and receipt by the Ministry of Posts and
Telecommunications of public comments thereon. The model contains two
alternative assumptions with respect to the allocation of certain costs. These
costs relate to feeder Remote Terminals. Under one assumption, these costs are
included in the costs of GCs (Group Centers, or local switching offices),
resulting in a higher allocation of costs to parties interconnecting with GCs.
This is the assumption used by NTT in its current cost allocation methodology.
Under the other assumption, these costs are excluded from the costs of GCs.
Under the first assumption, compared to the current interconnection charges of
NTT, the cost of interconnection charges for the regional companies' ZCs (Zone
Centers, or toll switching offices) would be reduced by 57.3% and the cost of
interconnection charges for the regional companies' GCs would be reduced by
16.7%. Under the second assumption, the cost of interconnection charges for the
regional companies' ZCs would be reduced by 69.2% and the cost of
interconnection charges for the regional companies' GCs would be reduced by
41.1%.
15
<PAGE>
The Ministry of Posts and Telecommunications is currently consulting with the
Telecommunications Council as to the implementation of Long-run Incremental
Cost Methodology. In this connection the Ministry of Posts and
Telecommunications indicated it is paying due consideration to ensure that the
implementation of Long-run Incremental Cost Methodology causes no disruption to
the provision of universal service and that it would not prove destructive to
end user rates and the business operations of existing local exchange carriers.
As the implementation will result in reduced revenue from interconnection, it
may have a material adverse effect on NTT's financial position and results of
operations. 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 cannot be determined. See "Regulatory Developments--
Interconnection."
These and other regulatory developments have contributed to an increase in
competition in the Japanese telecommunications industry. The more competitive
environment affects and will continue to affect NTT's results of operations.
NTT believes that competition in telecommunications markets is based on price
and the quality and variety of services provided. To compete more effectively,
NTT has introduced a range of new services, including Internet and data
communications related services as well as discount services designed to
provide optional calling plans to different customer segments. In addition, NTT
has continued to take steps to enhance operational efficiency and customer
satisfaction. NTT has taken steps to enhance quality through its network
upgrades and R&D activities.
Japanese Economy
During fiscal year 1999, 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 fiscal year 1999. 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 fiscal year 1999 increased
3.0% to (Yen)9,729,673 million from (Yen)9,450,013 million in fiscal year 1998.
The sluggish Japanese economy also had a negative impact on NTT's fixed-line
telephone traffic. In fiscal year 1999, sluggish economic conditions, as well
as an increase in competition and the shift to cellular telephone services,
contributed to a decrease in wireline services revenue from (Yen)6,322,344
million in fiscal year 1998 to (Yen)6,137,004 million in fiscal year 1999.
These conditions, together with the shift to ISDN services, contributed to a
decrease in NTT's end-to-end fixed-line telephone traffic from 73,668 million
calls in fiscal year 1998 to 61,074 million calls in fiscal year 1999 and 3,240
million hours of use in fiscal year 1998 to 2,952 million hours of use in
fiscal year 1999.
SFAS 71 Write-Off
In fiscal year 1999, NTT discontinued accounting for all of its consolidated
operations in accordance with the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation," in its financial statements. 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,"
NTT recorded an extraordinary non-cash charge of approximately (Yen)462
billion, net of income taxes in the amount of (Yen)427 billion, in fiscal year
1999 and eliminated approximately (Yen)889 billion of regulatory assets from
its balance sheet as of March 31, 1999.
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 based on approvals received from regulators. After assessing the revision
of the Telecom Business Law and proposed price-cap system, NTT recognized that
it was required under SFAS 101 to change its accounting for regulated
operations. NTT's determination that it was no longer eligible for the
continued application of SFAS 7l was based on the belief that the convergence
of competition, technological change, actual and potential regulatory and
legislative actions, and other factors were creating open and competitive
markets. In this environment, NTT did not believe that it can be assured that
prices could be maintained at a level that will recover the regulatory assets
recorded. In addition, changes from cost-based regulation to various forms of
incentive regulation, such as the price-cap system specified in
16
<PAGE>
the Ministry of Posts and Telecommunications' ordinance, contributed to the
determination that the continued application of SFAS 71 is no longer
appropriate.
NTT DoCoMo Offering
On October 22, 1998, NTT DoCoMo completed its initial public offering and
listed its common stock on the First Section of the Tokyo Stock Exchange. NTT
sold 218,000 shares of NTT DoCoMo's common stock 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 was reduced from 94.7% to 67.1%. During fiscal year 1999, NTT
recognized 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. NTT intends to use a portion of the proceeds
from its sale of NTT DoCoMo shares to repurchase up to (Yen)120 billion of
NTT's outstanding common stock before its next ordinary general meeting of
shareholders in June 2000. On July 13, 1999, NTT repurchased 48,898 shares of
its common stock through transactions executed through the Tokyo Stock Exchange
(pursuant to special procedures not used for ordinary trading) at a price of
(Yen)1,500,000 per share or an aggregate of (Yen)73,347 million. As a result of
the repurchase, the number of outstanding shares was reduced to 15,863,102. NTT
also paid a special dividend of (Yen)5,000 per share to NTT's shareholders of
record on March 31, 1999, or an aggregate of (Yen)79,560 million, using a
portion of the proceeds of the sale of NTT DoCoMo stock and intends to use the
remaining proceeds for general corporate purposes. NTT DoCoMo expects to use
the proceeds from its issuance of new shares to repay debt, to fund current and
future capital expenditures and for general corporate purposes.
Year 2000 Problem
NTT recognizes the potential for the Year 2000 Problem to disrupt the smooth
operation of computer systems. To mitigate this risk, NTT 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 is 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 NTT's total costs related to the
Year 2000 Problem will be approximately (Yen)6.8 billion. However, this
estimate may be revised should problems occur from outside sources or due to
unforeseen circumstances. NTT presently believes 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 NTT's systems and operations rely
are not converted on a timely basis, the Year 2000 Problem could have an
adverse effect on NTT's operations.
To the extent NTT has not already implemented a four digit century on its
computer systems, NTT has completed renovation and begun final testing and
validation on the majority of its computer systems. NTT has already completed
changes determined to be necessary on a smaller number of its computer systems,
and these systems, as modified, are currently in use. NTT completed renovating
the remaining portion of its network infrastructure and intracompany support
systems by June 1999.
NTT is 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 NTT's computer systems or
operations will not be affected by mistakes, if any, of third parties or third
party failures to complete necessary Year 2000 modifications on a timely basis.
NTT recognizes the importance of readiness for potential worst case
scenarios. As a result, NTT prepared its own Year 2000 contingency plans based
on existing contingency plans and procedures, but with special
17
<PAGE>
consideration to the unique factors characteristic to this problem. These
contingency plans were completed by the end of June 1999.
Results of Operations
In fiscal year 1999 and 1998, operating revenues increased 3.0% and 7.1%,
respectively. In both fiscal year 1999 and 1998, growth in cellular telephone
services and data-related demand, including ISDN services, high-speed digital
leased circuit services and OCN services caused by increased demand for
Internet access, overcame the negative impact of rate reductions for long-
distance in February 1998 and reduction in interconnection charges paid by
certain competing Type I Carriers (so called "NCCs"--New Common Carriers) for
network access. Making use of its digitized network, NTT improved computer-
based communications services compatible with the Internet and other networks.
These services include ISDN, OCN, high speed digital circuit, digital data
exchange (DDX) services and system integration. As a result of this effort,
Internet and other data communications related revenues increased 22.7% to
(Yen)1,633 billion in fiscal year 1999. As a result of increased operating
expenses (as described further below), operating income decreased 18.4% in
fiscal year 1999, following an increase of 13.3% in fiscal year 1998. Net
income increased 158.5% in fiscal year 1999 primarily as a result of the sale
and issuance of NTT DoCoMo shares which more than offset the one time
extraordinary loss of (Yen)462 billion as a result of the discontinuance of the
application of SFAS 71. Net income declined 14.7% in fiscal year 1998.
The following table sets forth a breakdown by category of NTT's operating
revenues for fiscal years 1997, 1998 and 1999.
<TABLE>
<CAPTION>
Percent increase
Years ended
Years ended March 31, March 31,
------------------------------------------ ------------------
1997 1998 1999 1999 1998 1999
---------- ---------- ---------- --------- -------- --------
(billions of yen) (billions
of U.S.
Dollars)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues
Telephone............... (Yen)6,038 (Yen)6,306 (Yen)6,300 $52.1 4.4% (0.1%)
Telegraph............... 99 92 86 0.7 (6.6) (7.3)
Leased circuit.......... 429 488 507 4.2 13.9 3.9
Data communication
facility............... 338 373 383 3.2 10.3 2.9
ISDN.................... 190 368 556 4.6 93.2 51.2
Sale of
telecommunication
equipment.............. 890 970 1,009 8.3 9.0 4.0
Other................... 838 853 889 7.3 1.8 4.1
---------- ---------- ---------- ----- -------- --------
(Yen)8,822 (Yen)9,450 (Yen)9,730 $80.4 7.1% 3.0%
========== ========== ========== ===== ======== ========
</TABLE>
In fiscal years 1999 and 1998, operating expenses increased 5.1% and 6.5%,
respectively. Operating expenses in fiscal year 1999 increased because of a
rise in depreciation, amortization and maintenance costs due in part to a
greater amount of telecommunications equipment for cellular telephone and PHS
services needed to accommodate high NTT DoCoMo subscriber growth and other
factors. In addition, the disposal of metal cables following NTT's conversion
to an optical network increased expenses. Other operating expenses also
increased due in part to growth in agency commissions and sales expenses for
terminals as a result of high NTT DoCoMo subscriber growth. Operating expenses
in fiscal year 1998 increased because of a rise in depreciation, amortization
and maintenance costs due to greater depreciation at NTT DoCoMo, reflecting
aggressive capital investment to meet strong demand. Other operating expenses
also increased due in part to growth in agency commissions and expenses for
terminal equipment as a result of high subscriber growth at NTT DoCoMo.
18
<PAGE>
Fiscal Year 1999 compared with Fiscal Year 1998
Operating Revenues
NTT's operating revenues 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.
Telephone Services
Operating revenues from telephone services decreased 0.1% in fiscal year 1999
to (Yen)6,300 billion, or 64.8% of operating revenues. Telephone services
include telephone subscriber services, cellular telephone services, PHS, public
telephones and other services. Subscribers for cellular telephone services grew
substantially, leading to an increase in total network traffic. However, the
shift to cellular and INS-Net services among users, combined with the effects
of the sluggish Japanese economy, caused the number of telephone subscriber
lines to decline.
Telephone subscriber services
Telephone subscriber service is NTT's principal business activity. Due to an
increase in sales of INS-Net services and cellular telephones and the sluggish
economy, the number of subscriber lines in use decreased 1.91 million from the
previous fiscal year to 58.28 million subscriber lines at the end of fiscal
year 1999, marking the second consecutive year of a decrease in subscriber
lines. Management believes that about 85% of the increase in ISDN subscribers
during the fiscal year is attributable to a shift from telephone subscribers.
The penetration rate at the end of the fiscal year was approximately 46.1
subscriber lines per 100 inhabitants compared to 47.7 subscriber lines per 100
inhabitants the year before.
In fiscal year 1999, NTT's end-to-end telephone traffic decreased from the
previous fiscal year in terms of the number of calls as well as hours of use.
The primary reasons for this decrease were the ongoing economic downturn, the
shift to cellular telephone services and INS-Net and an increase in
competition. Even when combined with ISDN traffic, the number of calls and
hours of use decreased.
A rate reduction for long-distance calls implemented in February 1998
resulted in a negative impact on operating revenues in fiscal year 1999 of
(Yen)80 billion.
Revisions to directory assistance service charges, implemented in May 1998
and May 1999, are expected to increase NTT's revenues by (Yen)15 billion per
12-month period.
Interconnection charges were reduced further in January 1999, with the
reduction applicable to calls made from April 1998. The adverse effect on
interconnection charge revenues during fiscal year 1999 was approximately
(Yen)68 billion.
Cellular Telephone Services
The market in Japan for cellular telephone services continued to expand
vigorously, and the total number of cellular telephone subscribers increased by
31.7% during fiscal year 1999 to reach a new high of 41.5 million. While NTT
DoCoMo subscriber growth was not as rapid as in recent years, the number of NTT
DoCoMo's subscribers rose to 23.9 million, a 32.9% increase over the previous
fiscal year. In fiscal year 1999, traffic increased in terms of both the number
of calls and total hours of use.
PHS Services
On December 1, 1998, NTT's PHS services business that had been operated
formerly by NTT Personal Group was transferred to NTT DoCoMo. The PHS services
business had suffered a loss of customers and the
19
<PAGE>
liabilities of NTT Personal Group had exceeded its assets. NTT believes that
the transfer to NTT DoCoMo has created synergistic effects and allows NTT
DoCoMo to provide a comprehensive set of mobile communications services.
Telegraph Services
Operating revenues from telegraph services fell 7.3% to (Yen)86 billion in
fiscal year 1999, accounting for 0.9% of operating revenues.
The total number of telegrams sent dropped 3.7% in fiscal year 1999, from
37.6 million to 36.2 million. Although the number of communications made by "D-
MAIL," a telegram service that makes use of the Internet, increased steadily
during fiscal 1999, this could not fully offset a decline of 32.1% in the use
of telegrams for weddings and condolences, to 32.1 million. These telegrams
made up 88.8% of the total.
Leased Circuit Services
Operating revenues from leased circuit services increased 3.9% in fiscal year
1999 to (Yen)507 billion, accounting for 5.2% of operating revenues. This
service category includes conventional leased circuits, high-speed digital
circuits, ATM Megalink, ATM Share Link and other related services.
Driven by the increasing complexity and sophistication of corporate
telecommunications systems and widespread construction of LANs and WANs in the
corporate sector, the user base for other services, particularly "Digital
Access 64/128," continued to grow favorably. "ATM Megalink services" became
much more popular with corporations as the telecommunications backbone for
their internal networks.
The number of high-speed digital circuits increased by 34.9% to 228,000.
However, the number of conventional leased circuits decreased 8.8% to 822,000
as customers continued to switch to high-speed communications services.
NTT implemented regular tariff revisions designed to keep a competitive rate
structure for its leased circuit services. These took effect in September 1995,
April 1996, April 1997, and April 1998. These revisions are collectively
estimated to have had 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 increased 2.9%
in fiscal year 1999 to (Yen)383 billion, or 3.9% of operating revenues. NTT,
through its subsidiary NTT DATA, launched a number of new services for national
and local government institutions.
Integrated Services Digital Network (ISDN)
Operating revenues from ISDN services increased 51.2% in fiscal year 1999 to
(Yen)556 billion or 5.7% of operating revenues. Growth in ISDN services
continued to be driven by rising demand for Internet access and connection
lines for LANs. The ISDN services provided by NTT comprise INS-Net 64 and INS-
Net 1500.
Continuing the rapid growth seen in fiscal year 1999, the number of INS-Net
64 subscribers increased by 73.1% to 3.96 million, and the number of INS-Net
1500 subscribers increased by 42.0% to approximately 47,700. ISDN traffic also
recorded strong growth.
Sale of Telecommunications Equipment
Operating revenues from the sale of telecommunication equipment rose 4.0% to
(Yen)1,009 billion, accounting for 10.4% of operating revenues.
20
<PAGE>
Due to the effects of the long-standing domestic recession and other factors,
total sales of business telephones and other terminal equipment to companies
were down. However, sales volumes for cellular telephone terminals and products
compatible with LANs, ISDN networks and Number Display (Caller ID) rose over
fiscal year 1999.
As a result of the shift to cellular telephones, sales of PHS terminals fell
73.9%. Sales of cellular telephone terminals increased 9.4% in fiscal year
1999.
Other Services
Operating revenues from other services rose 4.1% to (Yen)889 billion,
accounting for 9.1% of total revenues. The other services category consists of
digital data exchange, facsimile network (F-Net), OCN services, pocket pager,
system development services and other services.
OCN
Reflecting a substantial increase in Internet usage, the number of
subscribers for NTT's "OCN Dial Access" services rose dramatically during
fiscal year 1999, with the number of installations rising over 400,000. As a
result, the total number of OCN subscribers increased by 201.4% to 478,000.
During the fiscal year, NTT moved to expand the market for OCN by introducing
"Super OCN," a service that is ideal for companies, universities and other
high-volume users to help them cope with a large volume of Internet traffic.
Digital Data Exchange Services
Within its frame relay services, NTT launched a new "Dial-Up FR" service that
makes data exchange possible between a frame relay network and an ordinary
analog or ISDN fixed line. Thanks to the success of this service and other
marketing initiatives, the number of frame relay subscribers increased by
180.0% to 43,959.
Operating Expenses
Operating expenses increased 5.1% in fiscal year 1999 to (Yen)9,018 billion.
Although the total number of employees continued to decline to 224,000, an
increase in severance-related expenses and the accrual of compensated absences
resulting from SFAS 71 no longer being applied led to an increase in personnel
expenses of (Yen)22 billion to (Yen)2,367 billion.
Depreciation, amortization and maintenance costs increased by (Yen)250
billion to (Yen)3,436 billion. This reflected primarily the increase of
telecommunications equipment for cellular telephone and PHS services to
accommodate high NTT DoCoMo subscriber growth, as well as an increase in the
disposition of metal cables following NTT's conversion to an optical access
network.
Other operating expenses increased by (Yen)168 billion to (Yen)3,215 billion
due in part to growth in agency commissions and sales expenses for terminals as
a result of high NTT DoCoMo subscriber growth. Other operating expenses also
increased because usage fees for telecommunications equipment increased as a
result of higher interconnection charges for cellular telephones.
As a result of the above factors, operating income decreased (Yen)161
billion, or 18.4%, to (Yen)711 billion.
Net Income
Net income in fiscal year 1999 increased 158.5% to (Yen)554.4 billion as a
result of the sale of NTT DoCoMo shares, despite a decrease in operating income
and the extraordinary one-time loss of (Yen)462 billion stemming from NTT
discontinuing its application of SFAS 71 for all of its operations.
21
<PAGE>
Due to a change in Japanese income tax regulations, effective April 1, 1999,
the statutory rate was reduced to approximately 41% and this amount has been
used in calculating the future expected tax effects of temporary differences.
In addition, the valuation allowance at March 31, 1998, which mainly related to
deferred tax assets on the losses related to financial assistance to subsidiary
companies which are not expected to be tax deductible, was reversed because the
tax losses of NTT Personal Group have been realized in fiscal year 1999. As a
result, the effective tax rate in fiscal year 1999 decreased to 51.18%,
compared with 63.81% in fiscal year 1998, which had a positive impact on net
income.
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. 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 services like 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." The penetration rate at the end of the fiscal year was
approximately 47.7 subscriber lines per 100 inhabitants compared with 48.6 a
year before.
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.
Revisions to directory assistance service charges implemented in May 1998 and
May 1999 are 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 GCs, 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.
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.
22
<PAGE>
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.
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 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.
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.
23
<PAGE>
"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 increased 1.8% in fiscal year 1998 to
(Yen)853 billion, or 9.0% of operating revenues.
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 factors including 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)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.
24
<PAGE>
Liquidity and Capital Resources
Fiscal Year 1999 compared with Fiscal Year 1998
Financing
Net cash provided by operating activities in fiscal year 1999 amounted to
(Yen)2,365 billion, compared with (Yen)2,731 billion in fiscal year 1998. With
this cash and with the proceeds from sales of subsidiary stock (NTT DoCoMo and
NTT DATA), NTT invested in property, plant and equipment, paid back interest-
bearing debt, made investments in subsidiaries and affiliates and paid
dividends.
Net cash used in investing activities in fiscal year 1999 was (Yen)632
billion compared to (Yen)2,909 billion in fiscal year 1998 primarily as a
result of the proceeds from sales of subsidiary stock, which amounted to
(Yen)2,213 billion.
Capital investments for property, plant and equipment and intangible assets,
computed on the basis of all cash investments and other considerations, during
fiscal year 1999 were (Yen)3,088 billion, compared with (Yen)2,962 billion in
the fiscal year 1998, and consisted principally of the expansion and upgrading
of infrastructure for mobile communications, ISDN, OCN, frame relay and other
services, together with various investments to enhance the quality of other
services.
Since the completion of the digitization of its main high-speed network
infrastructure in December 1997, NTT has shifted its capital investment focus
from planned infrastructure development to a strategy of investing in services
according to demand. Since investment in fixed-line telephone services is
projected to decrease in fiscal year 2000, NTT expects total capital investment
to decline in the coming year.
Net cash used in financing activities in fiscal year 1999 amounted to
(Yen)990 billion, compared with net cash of (Yen)270 billion provided by
financing activities in fiscal year 1998. NTT's policy is to control
outstanding debt while realizing more efficient sources of funds in domestic
and overseas capital markets.
The total amount of capital raised in fiscal year 1999 from issues of long-
term debt was (Yen)653 billion. This sum included corporate bond offerings
denominated in both Japanese yen and U.S. dollars. For a further description of
NTT's debt, see Note 9 of the Notes to Consolidated Financial Statements.
Capital Resources
As of March 31, 1999, NTT had cash and cash equivalents (short-term
investments with principal maturities of less than three months) of (Yen)1,657
billion, compared with (Yen)913 billion a year earlier. Cash equivalents
represent a temporary cash surplus used to repay debts, make tax payments and
capital investments, and as working capital. Accordingly, the balance of cash
equivalents will fluctuate each 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 stood at 95.5% on March
31, 1999, compared with 110.9% at the previous fiscal year-end.
Capital Investments
Capital investment in fiscal year 1999 totaled (Yen)3,088 billion. The
majority of this sum was used to make investments in high-speed, digitized
networks to meet the increasingly diverse and international needs of customers.
NTT also invested in research and development activities and the renewal and
upgrading of the existing network infrastructure.
As of March 31, 1999, NTT had outstanding commitments for the purchase of
property, plant and equipment and other assets of approximately (Yen)578
billion, principally reflecting capital investment expenditures for fiscal year
2000. NTT expects the funds needed for these commitments to be met from net
cash provided by operating activities.
25
<PAGE>
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.
Capital Resources
As of March 31, 1998, NTT 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 had outstanding commitments for the purchase of
property, plant, equipment and other assets of approximately (Yen)501 billion.
SFAS 131 Segment Information
On April 1, 1998, NTT adopted Statement of Financial Accounting Standards No.
131: "Disclosures about Segments of an Enterprise and Related Information."
SFAS 131 requires public business enterprises to report certain information
about operating segments in their financial statements and also requires that
they report certain information about their products and services, the
geographic areas in which they operate and their major customers. As a result
of the application of SFAS 131, NTT's results are now segmented according to
four primary lines of business: wireline services, wireless services, data
communication services and other services.
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<PAGE>
The wireline segment includes:
.telephone services (excluding cellular services and PHS services);
.telegraph services;
.leased circuit services;
.ISDN services; and
.other related services.
The wireless segment, provided by NTT DoCoMo and its subsidiaries, includes:
.cellular services;
.PHS services;
.pocket pager services; and
.other related services.
The data communication segment, provided by NTT DATA, includes:
.data communication facility services;
.systems integration services; and
.other related services.
The other services segment, provided by other NTT consolidated subsidiaries,
includes:
.the management of telecommunications facilities;
.the sale and maintenance of telecommunications equipment;
.the loan of real estate;
.the sale of telephone cards; and
.certain other services.
See Note 14 to the Notes to Consolidated Financial Statements. In future years,
NTT expects to present its business operations in accordance with these or
similar segments.
In fiscal year 1999, NTT's operating revenues increased 3.0% to (Yen)9,730
billion and its operating income decreased 18.4% to (Yen)711 billion. Operating
revenues from wireline services decreased 2.9% to (Yen)6,137 billion, as the
increase of ISDN subscribers and usage could not offset a decline in telephone
subscriber lines and usage. Operating income from wireline services decreased
82.2% to (Yen)83 billion as a result of the decrease in operating revenues as
well as an increase in expenses associated with SFAS 71 no longer being applied
and temporary depreciation expense increases for research and development
facilities. Operating revenues from wireless services increased 14.2% to
(Yen)3,356 billion due to a substantial increase in the number of cellular
telephone subscribers. Operating income from wireless services increased 42.9%
to (Yen)468 billion as a result of the increase in operating revenues offset
partially by an increase in expenses associated with adding new subscribers.
Operating revenues from the data communications segment and from the other
services segment increased 5.4% to (Yen)705 billion and 37.5% to (Yen)1,475
billion, respectively. Operating income from data communication services
decreased 31.4% to (Yen)30 billion, due in part to a lump-sum expense in
accordance with a change in accounting for NTT's software, and operating income
from other services increased to (Yen)52 billion.
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<PAGE>
BUSINESS
NTT is the largest provider of wireline and wireless voice, data, Internet
and related telecommunications services in Japan and operates one of the
largest telephone networks in the world. Its predominant business is providing
nationwide telephone service. The 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 last fiscal three years are as follows:
<TABLE>
<CAPTION>
For the years ended March 31,
----------------------------------------------------
1997 1998 1999
---------------- ---------------- ----------------
(billions of yen)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues
Telephone............... (Yen)6,038 68.4% (Yen)6,306 66.7% (Yen)6,300 64.8%
Telegraph............... 99 1.1 92 1.0 86 0.9
Leased circuit.......... 429 4.9 488 5.2 507 5.2
Data communication fa-
cility................. 338 3.8 373 3.9 383 3.9
ISDN.................... 190 2.2 368 3.9 556 5.7
Sale of telecommunica-
tion equipment......... 890 10.1 970 10.3 1,009 10.4
Other................... 838 9.5 853 9.0 889 9.1
---------- ----- ---------- ----- ---------- -----
Total............... (Yen)8,822 100.0% (Yen)9,450 100.0% (Yen)9,730 100.0%
========== ===== ========== ===== ========== =====
</TABLE>
NTT has experienced compound annual growth in operating revenues of 7.2%
during the last three fiscal years. For the fiscal year ended March 31, 1999,
NTT reported operating revenues of (Yen)9,730 billion, operating income of
(Yen)711 billion and net income of (Yen)554 billion.
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 its research. Each of the NTT parent company, NTT East and NTT West
are subject to regulation of certain aspects of its management under the NTT
Law. NTT East, NTT West, NTT Communications and NTT DoCoMo, together with other
Type I Carriers (defined as companies which provide telecommunications services
through their own network facilities), are regulated by MPT under the Telecom
Business Law.
Competitive Strengths
NTT believes that the following are its principal competitive strengths:
Dominant Market Position
NTT is the dominant telecommunications services provider in each of its
principal domestic telecommunications 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 charges from other telecommunications operators
which provide domestic long distance, wireless and international
telecommunications services.
Extensive Customer Base in Each Market Segment
NTT has an extensive customer base in each of its principal domestic
telecommunications services markets. As of March 31, 1999, NTT had 58.3 million
fixed lines subscribers, 4.4 million ISDN subscribers and 25.2 million wireless
subscribers. NTT is able to leverage these extensive customer bases to gain new
subscribers to, and increase sales of, Internet and data transmission related
services such as NTT's ISDN, OCN and i-mode services.
28
<PAGE>
Most Extensive and Advanced Networks
NTT has the most extensive and advanced telecommunications infrastructure and
networks in Japan. NTT has nationwide wireline, wireless and IP networks. NTT
continually expands and upgrades these networks. For instance, NTT made
extensive investment in upgrading and modernizing its fixed line networks and
completed full digitization of its fixed line networks in December 1997.
Additionally, NTT has almost completed the conversion of its trunklines for
long-distance and IP services into optic fiber cables.
Leader in Research and Development of Wireline and Wireless Data
Transmission, Internet and Related Technology
With its modern digital networks, NTT is able to provide high-speed data
transmission service, Internet related service, information communication
services and other related services required for the development of these
businesses such as E-commerce businesses. Also, with the introduction of
advanced optic fiber technologies, NTT believes that it can continue to provide
Internet and data transmission in a cost-effective manner. NTT is well
positioned to focus on the development of future core technologies with
research and development activities centralized at the holding company level.
Largest Beneficiary of Increasing Demand for Internet and Data Transmission
NTT has experienced strong growth in Internet and data transmission related
businesses. With the rapidly expanding demand for Internet and high-speed data
transmission related services in Japan, NTT believes that its advanced
technologies and modern networks, including the last mile to customers, have
positioned it to be the largest beneficiary of the growth in this market.
Extensive Wireless Businesses with Dominant Market Share in Japan
NTT DoCoMo together with its subsidiaries is one of the largest cellular
services providers in the world with approximately 23.9 million subscribers and
a market share in Japan of approximately 57.5% as of March 31, 1999. Japan is
the second largest cellular market in the world in terms of the number of
subscribers. During fiscal year 1999, total cellular subscribers in Japan
increased approximately 32% to 41.5 million as of March 31, 1999. 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. In response to increasing
demand for wireless Internet and data transmission services, NTT DoCoMo
introduced its i-mode service in February 1999. i-mode services, which provide
users with various types of wireless Internet services including mobile
banking, have gained over 1.3 million subscribers to date. 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 to NTT
DoCoMo's subscribers of a full range of sophisticated new services including
full-motion wireless video and other mobile multimedia services such as mobile
computing.
Strong Systems Integration and IT services
NTT DATA is the leading provider of information communication 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, with an emphasis on outsourcing services in recent periods. 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 Internet and high-speed data transmission
network services.
Strong Consolidated Financial Performance
NTT has shown strong and stable growth in consolidated operating revenue for
the past five years with revenue of (Yen)9.73 trillion for the fiscal year
ended March 31, 1999. For the same fiscal year, NTT's consolidated operating
income was (Yen)711 billion and adjusted EBITDA was (Yen)3.33 trillion.
29
<PAGE>
Strategy
NTT's goal is to maximize shareholder value by developing from a domestic
provider of conventional telecommunications services to a global provider of
comprehensive telecommunications 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 optic fiber networks. As a result, NTT expects that there will be
increased demand for networks that provide value-added services and
information, 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 contents
carried through these networks, including music, books and other media. NTT
calls this expansion of communications services, both in terms of functions and
media as well as the explosive increase in the quality and quantity of
information, "Information Sharing." NTT intends to maximize the business
opportunities presented by trends related to Information Sharing by expanding
its business to include the construction of value-added networks and the
development of related equipment platforms and content.
In connection with its goal of becoming a global information and
communications service provider, NTT also intends to bring its business
management practices, including competitive strategy, research and development
strategy and financial management, in line with international management
standards.
NTT completed its reorganization on July 1, 1999. In connection therewith,
NTT categorized its group companies into three broad categories:
. the regulated companies--NTT East and NTT West
. the competitive companies--NTT Communications, NTT DoCoMo and NTT DATA
. the other companies that utilize resources to support the above main
group companies
The NTT parent has established missions for each of the categories of
companies. The regulated companies, which provide local telecommunication
services and are subject to regulation under the NTT Law, are to reduce costs,
provide stable telecommunication services, and promote Information Sharing
businesses as a local access provider. The competitive companies, general Type
I carriers that are not subject to the NTT Law, are to strengthen their
competitiveness against their competitors and to lead the development of
Information Sharing services. The support and resource utilization companies
are to pursue efficiency and to develop related business opportunities.
The NTT parent company has also set clear consolidated financial targets
based on EBITDA margin, free cash flow and return on capital employed (ROCE).
In order to achieve these financial targets, the NTT parent plans to set
management goals for each company that are in line with the missions for each
category of group companies. The NTT parent will also regularly review and
supervise the operations and performance of, and provide feedback to, each
group company.
To achieve its goal of developing from a domestic provider of conventional
telecommunications services to a global provider of comprehensive information
and communications services and to maximize the benefits of the reorganization
and strengthen the competitive position of each of the group companies, NTT's
business strategy includes the following:
Promote Development of Information Sharing Businesses
NTT seeks to promote Information Sharing businesses by
. leveraging its advanced networks and extensive customer base by actively
expanding ISDN, OCN, dedicated line, and i-mode services through
attractive service menus and pricing options
. extending optic fiber network from long distance trunk lines to local
telephone poles which will allow NTT to provide Internet and data
communications related services to end users in a cost-effective manner
. further expanding its Internet and data communications related
businesses by, among others, expanding and upgrading value-added
networks and developing related platforms and content
. providing attractive user systems such as i-mode terminals to further
increase customers and network revenues
30
<PAGE>
. capturing increasing corporate demand for information technology
services using its capacity to offer total solutions and full-line
network services
. offering customers further improved cellular technology, products and
services to provide full-scale, high-quality mobile Internet and data
communications related services using i-mode and W-CDMA technology
. continuing comprehensive research and development activities
Strengthen the Competitiveness of Traditional Voice Businesses
NTT seeks to strengthen the local, long distance and wireless voice
communications businesses by
. adopting flexible and effective pricing strategies that are responsive
to the competitive conditions in the local, long distance, international
and wireless communications markets, in particular, maintaining cost
competitiveness through the operation of the unregulated group companies
that are in sound financial condition and have relatively few employees
. diversifying pricing and service options in line with customer demand
. improving the quality of wireless transmission
Improve Efficiency
NTT seeks to improve efficiency by
. shifting focus of capital investment from infrastructure investment to
demand-driven customer services to reduce overall consolidated capital
investment
. reducing high personnel costs associated with the current size and age
structure of its workforce by efficiently reallocating personnel among
the group companies and reducing the number of new hires, thus raising
operating revenue per employee and reducing personnel cost as a
percentage of operating revenue
. reducing other operating expenses through various means
Strengthen International Operations
NTT seeks to strengthen international operations by
. expanding value-added international data transmission and global
solutions businesses aimed at multinational corporations by promoting
NTT's Arcstar services and through future collaborations with other
communications carriers
. making investments in and forming alliances with IP service-related
companies in North America and Asia-Pacific areas
. investing in overseas communications carriers and mobile operators,
especially in the Asia-Pacific region
. obtaining leadership positions in the development of W-CDMA technology
and providing global roaming services and other multimedia services to
NTT DoCoMo subscribers
Reorganization
On July 1, 1999, NTT was reorganized into a holding company structure with
NTT's local and long distance business being transferred to three new wholly-
owned subsidiaries: NTT East, NTT West and NTT Communications. NTT East
provides regional telecommunications services in the Hokkaido, Tohoku, Kanto,
Tokyo and Shinetsu regions of Japan and related services. NTT West provides
regional telecommunications services in the Tokai, Hokuriku, Kansai, Chugoku,
Shikoku and Kyushu regions of Japan and related services. NTT Communications
provides domestic inter-prefectural telecommunications, other network services
and data transmission services and commenced offering international
telecommunications services on a full-scale basis on October 1, 1999.
31
<PAGE>
After the transfer of business, the NTT parent company continues to exist but
operates primarily as a holding company. The principal sources of the NTT
parent company's cash revenues consist of three categories. The NTT parent
company will receive:
.dividends from its subsidiaries;
.payment for providing management services through contracts with its
subsidiaries; and
. payment for its fundamental R&D activities through contracts with each
of its subsidiaries which use the results of the R&D activities.
The NTT parent company will be directly responsible for formulating and
promoting to group companies the overall strategy of NTT, for setting financial
targets and for basic research and development for the group. NTT anticipates
that the presidents of NTT East, NTT West, NTT Communications, NTT DoCoMo, NTT
DATA and the NTT parent company will meet monthly to discuss strategy for the
group. Each of the companies within NTT will operate autonomously, subject to
certain fundamental business decisions such as entry into new material lines of
business and the fundamental conditions of financings from financial
institutions that must be discussed with the NTT parent company.
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.
NTT's reorganization was effected pursuant to amendments to the NTT Law
passed by the Diet in June 1997 implementing a plan proposed by MPT, and
accepted in principle by NTT. The Basic Principles for the reorganization
announced by the Ministry of Posts and Telecommunications pursuant to these
amendments provide for certain conditions to ensure fair competition with which
NTT has to comply following the reorganization, including a requirement that
NTT East and NTT West shall have separate directors from NTT Communications,
NTT Communications may not procure equipment jointly with the holding company
and NTT East and NTT West, and NTT East and NTT West deal on the same terms
with NTT Communications as they would with other telecommunications companies.
Pursuant to the amendments to the NTT Law, NTT is required to hold all of the
shares of NTT East and NTT West and, for the time being, will need MPT approval
(subject to consultation with the Minister of Finance) for the disposal of
shares originally issued by NTT Communications in connection with the
reorganization.
NTT believes that the reorganization will bolster the collective strength of
the international telecommunications businesses of NTT and enhance growth.
Under the reorganization:
. NTT continues its existence as a holding company with no change in share
ownership;
. NTT's shares continue to be listed on stock exchanges and the conditions
of share ownership will remain unchanged; and
. NTT will be able to avoid potential adverse tax consequences that would
result if NTT East has profits and NTT West has losses through the
introduction of an expense sharing arrangement for three fiscal years
after the reorganization.
32
<PAGE>
Moreover, NTT believes that the amendments enable:
. NTT to maintain service level, because the three companies under NTT
would continue to cooperate in this regard;
. NTT to retain current research and development capabilities through the
unification of fundamental research activities in NTT; and
. NTT Communications to enter the international telecommunications
business and provide global end-to-end services, consequently promoting
synergies within the overall NTT group and bolstering its global
competitiveness.
Principal Business Activities
The following table sets forth certain information concerning NTT's principal
facilities and operations as of the dates and for the periods indicated.
<TABLE>
<CAPTION>
As of or for the year ended March 31,
---------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Telephone services:
- -------------------
Telephone subscriber lines
(thousands).......................... 59,583 60,774 61,223 60,186 58,277
Cellular telephone subscribers
(thousands).......................... 2,206 4,936 10,960 17,984 23,897
PHS subscribers (thousands)........... -- 384 1,851 1,906 1,349
Public telephones (thousands)......... 801 799 794 777 754
Telegraph services:
- -------------------
Telegrams (thousands)................. 43,288 41,385 40,198 37,564 36,180
Telex subscribers (thousands)......... 18 15 12 10 8
Leased circuit services:
- ------------------------
Conventional circuits (thousands)..... 1,025 1,001 967 902 822
High-speed digital circuits
(thousands).......................... 31 57 107 169 228
Integrated Services Digital Network
(ISDN) services:
- -----------------------------------
ISDN subscribers:
INS-Net 64 (thousands).............. 337 510 1,037 2,286 3,955
INS-Net 1500 (thousands)............ 6 10 22 34 48
Other services:
- ---------------
Open Computer Network (OCN) service
subscribers (thousands).............. -- -- 1 159 478
Digital data exchange (DDX) service
subscribers:
Digital Data Exchange-Packet (DDX-
P)................................. 36,740 33,424 31,821 30,625 26,643
Digital Data Exchange-Telephone
Packet (DDX-TP).................... 410,739 432,457 444,788 446,522 436,427
Frame Relay (Super Relay FR)........ 28 565 3,942 15,701 43,959
Cell Relay.......................... -- -- 0 4 6
Pocket pager subscribers (thousands).. 5,355 6,328 5,836 3,908 2,111
Facsimile network subscribers
(thousands).......................... 678 812 1,015 1,127 1,212
Employees (thousands)................. 235 231 230 226 224
</TABLE>
Telephone Services
NTT is currently the largest provider of telecommunications services in
Japan. Revenues from telephone services were 64.8% of operating revenues in
fiscal year 1999. Telephone services consist of telephone subscriber, cellular
telephone, PHS, public telephone and other services.
33
<PAGE>
Telephone Subscriber Services
Telephone subscriber service is NTT's principal business activity. 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 and KDD. Owing to an increase in sales of
INS-Net services and cellular telephones and the sluggish economy in Japan, the
number of NTT's telephone subscriber lines in use decreased 1.91 million from
the end of fiscal year 1998 to 58.28 million subscriber lines at the end of
fiscal year 1999.
NTT believes that Japanese fixed-line penetration and utilization are low
when compared with the United States and other developed countries. NTT is
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.
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 1997 1998 1999
--------------- ------- ------- -------
(Million calls)
<S> <C> <C> <C>
Fixed line telephone................................. 79,891 73,668 61,074
ISDN (Voice mode).................................... 1,613 3,569 7,150
ISDN (Digital mode).................................. 1,277 2,152 3,199
------- ------- -------
Fixed line telephone and ISDN total.................. 82,781 79,389 71,423
======= ======= =======
<CAPTION>
Years ended March 31,
-----------------------
Hours of use 1997 1998 1999
------------ ------- ------- -------
(Million hours)
<S> <C> <C> <C>
Fixed line telephone................................. 3,441 3,240 2,952
ISDN (Voice mode).................................... 56 122 241
ISDN (Digital mode).................................. 65 168 334
------- ------- -------
Fixed line telephone and ISDN total.................. 3,562 3,531 3,526
======= ======= =======
</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 one of 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 41.5 million in fiscal year 1999. The number of
NTT DoCoMo subscribers was approximately 23.9 million at March 31, 1999.
The following table sets forth information regarding subscribers and market
share of NTT DoCoMo and its subsidiaries:
<TABLE>
<CAPTION>
As of March 31,
------------------------------------
1995 1996 1997 1998 1999
----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Cellular telephone subscribers
(thousands)............................ 2,206 4,936 10,960 17,984 23,897
Cellular subscribers to digital service
(thousands)............................ 380 2,556 9,445 17,706 23,895*
Market share............................ 50.9% 48.4% 52.5% 57.0% 57.5%
</TABLE>
- --------
* NTT DoCoMo terminated its analog service on April 1, 1999.
34
<PAGE>
The following table sets forth information regarding NTT DoCoMo's cellular
telephone traffic:
<TABLE>
<CAPTION>
Years ended March 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Hours of use (millions).............................. 252 448 784
</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.
NTT's PHS services were provided by NTT Personal Group, which consisted of
NTT Central Personal Communications Network Inc. and eight other subsidiaries.
Since October 1997, the number of NTT Personal Group's PHS customers declined
steadily. On December 1, 1998, NTT's PHS businesses were transferred from NTT
Personal Group to NTT DoCoMo. NTT believes that the integration of the PHS
business enables NTT DoCoMo to provide a comprehensive set of mobile
communications services. As an example, NTT DoCoMo has recently introduced
"Doccimo," the world's first dual-use mobile telephone compatible with both
cellular and PHS modes.
The following table sets forth information regarding NTT DoCoMo's PHS
subscribers and its market share:
<TABLE>
<CAPTION>
As of March 31,
-------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
PHS subscribers (thousands).............................. 1,851 1,906 1,349
Market share............................................. 30.7% 28.3% 23.3%
</TABLE>
Telegraph Services
Under the Telecom Business Law, NTT East and NTT West have sole
responsibility for domestic telegram services. Although the number of
communications made by "D-MAIL," a telegram service that makes use of the
Internet, increased steadily during the fiscal year, this could not fully
offset the continued decline in the use of telegrams for weddings and
condolences. In telex services, the number of subscribers continued to decline
during fiscal year 1999, 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 networks, 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
35
<PAGE>
services in the home, ISDN services, which are comprised of INS-Net 64 and
INS-Net 1500, have recorded strong growth. To further stimulate the demand for
ISDN services, NTT plans to begin testing the feasibility of a fixed charge
pricing service in certain areas of Tokyo and Osaka in November 1999. This
service will allow unlimited usage of the Internet within a local calling area
for a set monthly fee.
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 DATA issued
27,500 new shares 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 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.
NTT is also preparing to offer access lines with ADSL technology, which is a
high-speed transmission technology using existing copper wires. These ADSL
access lines are expected to be available beginning around December 1999 and
will be available for a flat fixed rate.
Internet and Data Communications Related Businesses
NTT has experienced strong growth in Internet and data communications related
revenues. NTT's Internet and data communications related business includes high
speed data transmission services and multimedia telecommunications services,
such as video conferencing, full motion video and mobile computing.
The following table sets forth NTT's Internet and data communications related
service revenue:
<TABLE>
<CAPTION>
Years ended March 31,
--------------------------------
1997 1998 1999
---------- ---------- ----------
(billions of yen)
<S> <C> <C> <C>
OCN........................................ (Yen) 0 (Yen) 6 (Yen) 24
Digital data exchange...................... 44 55 67
High-speed digital circuit................. 128 192 223
ISDN....................................... 190 368 556
Systems Integration (SI)................... 639 710 763
---------- ---------- ----------
Total.................................... (Yen)1,001 (Yen)1,331 (Yen)1,633
========== ========== ==========
</TABLE>
As part of its Internet and data communications related growth strategy, NTT
completed the upgrade of its network to digital technology in December 1997.
NTT's digital network allows it to offer Internet and data communications
related services such as ISDN, high-speed data transmission services and frame-
relay and cell-relay services.
36
<PAGE>
NTT believes that deployment of fiber optic cables is important for the
future provision of Internet and data communications related services due to
the superior data transmission capabilities of fiber optic cables. NTT plans to
provide coverage of fiber optic cables in the access network to the feeder
point for approximately 100% of major business areas by 2000 followed by a goal
of 100% nationwide by 2010. The feeder point is the point where a bundle of
cable is separated and normally where the underground cable is exposed to the
ground. Currently, NTT has approximately 220,000 kilometers of fiber optic
cables extending throughout Japan and covering approximately 95% of major
business areas and over 60% of all business areas with a population of over
100,000. 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 these services.
NTT believes that its modern networks and its investment in research and
development have positioned it to exploit opportunities for growth in the
Internet and data communications related market.
International Telecommunications Businesses
NTT first launched its global end-to-end telecommunications services in
September 1997 pursuant to amendments to the NTT Law adopted in June 1997.
These services were limited to data communications services provided to
multinational corporations. NTT began offering global end-to-end
telecommunications services, including voice, on a full-scale basis on October
1, 1999. These services are provided by NTT's subsidiary, NTT Communications.
NTT is conducting its global telecommunications activities under the name
"Arcstar." As of March 31, 1999, NTT's Arcstar-brand global communications
services were provided in 16 countries and areas.
Prior to the launch of international end-to-end telecommunications services,
NTT was actively involved in establishing carrier businesses and infrastructure
operations in Asia. Since 1992, NTT has invested in and provided technological
know-how to projects in Thailand, the Philippines, Indonesia, Sri Lanka,
Vietnam, Singapore and Malaysia.
In June 1998, NTT and IBM Corporation agreed to provide international data
transmission network services. NTT also formed a strategic partnership by
investing in Verio Inc., a U.S.-based Internet service provider.
StarHub, a consortium formed by NTT, British Telecom (BT) 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 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.
NTT also provides facility-based international leased circuit services and
international telephone services. NTT 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.
In April 1999, NTT and AT&T agreed to collaborate in the fast-growing global
market of corporate network solutions. Under the terms of a Memorandum of
Understanding, NTT and AT&T immediately began working together to develop
definitive agreements and business ventures that provide value-added networking
solutions for large and mid-sized multinational businesses and industries. AT&T
Solutions, as the managed professional services unit of AT&T, will represent
AT&T in working with NTT.
In December 1999, NTT Communications and IBM will begin providing the "OCN
Aptiva Pack" service to customers. For a set fee, this service will provide
customers with an IBM personal computer, NTT's fixed rate Internet access and
support services for a contractual period.
37
<PAGE>
Competition
NTT faces competition in virtually all aspects of its 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.
NTT currently faces significant competition in the long distance market from
each of Japan Telecom, DDI Corporation and KDD. This competition resulted in a
drop in inter-prefecture calls between all prefectures in Japan for NTT's fixed
line telephone services in fiscal year 1999. 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.
Until recently, NTT faced little or no competition in the market for local
telecommunications services. NTT currently has one principal competitor for
local services in the Tokyo metropolitan area: Tokyo Telecommunications
Network, or TTNet. At May 31, 1999, TTNet had 2.0 million subscribers. NTT has
one principal competitor for local services in the Kyushu area of Japan, Kyushu
Telecommunications Network, or QTNet, which entered the local telephone market
on April 1, 1999. NTT believes that the entry of TTNet and QTNet into the local
telephone market will have the effect of increasing competition. To compete
more effectively, NTT introduced a new "Telechoice" pricing plan and extended
its "Time Plus" discount service to the whole of Japan. Telechoice is a
discount plan for toll calls to specified area codes. With "Time Plus," local
calls can be made at a cost of (Yen)10 for five minutes within a certain local
calling area ((Yen)10 for seven minutes during late night hours and early
mornings) if customers pay a fixed monthly fee.
Currently, NTT's ISDN services seek to accommodate and stimulate demand for
Internet and data communication related services in the local Japanese market.
NTT expects to face significant competition for market share in the growing
Internet services market from cable television (CATV) operators and cellular
telephone operators. CATV operators such as Titus Communications, J-COM Tokyo
and Tokyo Cable Network intend to bundle cable television, telephony and high-
quality Internet services. NTT may also face Internet-related competition from
global alliances, such as the recently announced joint venture, SpeedNet Inc.,
between Softbank Corp., Microsoft Corp. and Tokyo Electric Power Co. (TEPCO).
In addition, AT&T and BT recently entered the Japanese market through a 30%
equity interest in Japan Telecom (JT), which will be the sole distributor of
combined AT&T/BT global services in Japan. AT&T, BT and JT are jointly
developing a high-speed global Internet network for corporate users. Also, a
consortium of 15 different Japanese companies, including KDD, Mitsui & Co.,
Ltd. and DDI have recently formed the "DSL Basic Access Committee." This
committee's goal is the creation of a joint investment company that will
interconnect with NTT's local lines and use ADSL technology to compete with NTT
in the fixed rate Internet market.
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
57.5% market share of cellular subscribers as of March 31, 1999. 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 IDO. Reportedly, DDI, KDD and IDO are in merger discussions, the
successful completion of which would create an integrated telecommunications
company providing international, domestic long-distance, cellular and PHS
services.
NTT DoCoMo's competitors in the PHS market are DDI Pocket group, ASTEL group
and TTNet (merged with ASTEL Tokyo on April 1, 1999). DDI Pocket group is the
leader among the three PHS group operators with approximately 59.8% market
share, NTT DoCoMo had approximately 23.3% market share and ASTEL group had
approximately 16.8% market share of PHS subscribers as of March 31, 1999.
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, 1999, 1998 and 1997, research and development
expenses amounted to (Yen)381.8 billion, (Yen)288.9 billion and (Yen)328.5
billion, or 3.9%, 3.1% and 3.7% of operating revenues, respectively.
38
<PAGE>
In the field of telecommunications, demand in the Internet and data
communication related services market appears to be set to maintain high
growth rates well into the future, fueled by the spread of cellular telephones
and personal computers (PCs) and the sharp rise in use of the Internet and
other computer-based communications networks. The structure of the Internet
and data communication related services networks is also changing across a
wide variety of areas - for example, news can now be received by e-mail, and
tickets can be booked over the Internet. In response to these developments,
NTT has vigorously engaged in research and development programs that aim,
first, to create convenience and secure multimedia services, and, second, to
develop the basic technologies that will support the future of
telecommunications.
To this end, 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 is 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, a
third-generation wireless communication platform for the next century.
Capital Investments
NTT's 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,
-------------------------------- -----------
1997 1998 1999 1999
---------- ---------- ---------- -----------
(billions of yen) (millions
of dollars)
<S> <C> <C> <C> <C>
Expansion and improvement of
services:
Fixed-line telephone .......... (Yen)1,334 (Yen)1,322 (Yen)1,129 $ 9,329
Mobile ........................ 609 544 571 4,713
ISDN .......................... 166 165 153 1,263
Leased circuit ................ 148 97 79 655
Data communication facility ... 155 132 163 1,349
Research and development ........ 147 158 200 1,654
Construction, improvement and
renovation of office building,
etc............................. 519 544 793 6,556
---------- ---------- ---------- -------
Total ......................... (Yen)3,078 (Yen)2,962 (Yen)3,088 $25,519
========== ========== ========== =======
</TABLE>
NTT is shifting capital investment strategy from investment in
infrastructure to investment in demand-oriented customer services. 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 its
fixed-line network in December 1997. This digitization allows NTT to offer
various digital-related services such as ISDN, high-speed digital circuits and
frame relay.
In fiscal year 2000, NTT expects to make capital investments in an amount
below the levels of the past three fiscal years. NTT plans to provide optical
fiber cables in the access network for approximately 100% of business areas by
2000 and 100% nationwide by 2010. NTT developed "New Optical Access System,"
which enables low-cost deployment of optical fiber cables 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 one step closer to the full introduction of high-speed broadband networks.
Procurement
NTT has no manufacturing divisions and, accordingly, it procures finished
products from outside suppliers. Therefore, NTT is continually seeking
opportunities to develop relationships with high-quality, cost-efficient
39
<PAGE>
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, MOF sold 5.4
million shares to a variety of individual and institutional investors. As of
November 24, 1995, as a result of a 1.02-to-1 stock split on that date, the
number of outstanding shares amounted to 15,912,000 and MOF owned 10,419,289.24
shares, representing approximately 66% of the outstanding shares.
On December 18, 1998, MOF sold 1.0 million shares to a variety of individual
and institutional investors in a global offering. Shares sold in the United
States were registered with the United States Securities and Exchange
Commission. The global offering consisted of 981,560 shares and 3,688,000 ADSs
(representing 18,440 shares), and reduced MOF's ownership to 9,419,339.24
shares, or approximately 59%, of NTT as of March 31, 1999. At the general
shareholders meeting on June 29, 1999, it was approved that NTT would
repurchase up to (Yen)120 billion of its shares of common stock from time to
time until the next ordinary general meeting of shareholders in June 2000. On
July 12, 1999, NTT announced in Tokyo it would repurchase up to 80,000 shares
of its common stock at a set time on the following day through transactions
executed on the Tokyo Stock Exchange in accordance with applicable Japanese law
at a price per share equal to the closing price on that exchange on July 12. On
July 13, 1999, NTT acquired 48,898 shares of its common stock through such
transactions. Of the shares it repurchased, 48,000 were bought from MOF. Due to
the fact that repurchases conducted in the manner described take place at a set
time during the trading day in Tokyo, it may not be practicable for non-
Japanese holders of NTT shares to participate in these repurchases.
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 these
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. Until
December 1998, no 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,
2000, of which 48,000 shares were sold by MOF to NTT pursuant to NTT's share
repurchase plan. MOF is selling the remaining 952,000 shares permitted to be
sold in the fiscal year ending March 31, 2000 in this global offering. Upon
consummation of sale of all the shares proposed to be sold in this global
offering, two million shares will have been sold by the Government since the
announcement of the sales plan in December 1990. This will constitute most of
the shares proposed to be sold pursuant to the plan. 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,
2001. The Government generally proposes its annual budget to the Diet in
January of each year. The fiscal year of the Government begins April 1.
As a result of the July 13, 1999 share repurchase, the number of outstanding
shares was reduced to 15,863,102. As of September 1, 1999, no other shareholder
owned more than 10% of the outstanding shares.
Relationship with Government
Prior to the global offering, the Government, through the Minister of
Finance, owned approximately 59%, and after the global offering will own
approximately 53%, 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 and certain of its subsidiaries. See "Regulatory
Developments." In addition, the Government is one of NTT's largest customers.
NTT transacts
40
<PAGE>
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 these 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 NTT's networks 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 in this prospectus) reside in Japan. Substantially all of the assets of
these 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 these 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.
41
<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 East
and NTT West, 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 "designated telecommunications
facilities." Certain of the facilities of NTT East and NTT West have been
designated as "designated telecommunications facilities" due to their dominant
position in the local telecommunications market. Currently, NTT East and NTT
West are the only companies which are 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 this 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. Until the
initial index is determined, rates for regional telecommunications services
provided by NTT East and NTT West are subject to MPT approval, not the price-
cap system.
Interconnection
The Telecom Business Law requires that every Type I Carrier, such as NTT East
and NTT West, 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 East and NTT West are the
only Type I Carriers obligated to make this submission. MPT will issue approval
if the technical requirements at standard points of interconnection and
interconnection charge by individual function are specified correctly and
distinctly, 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. Each Type I Carrier installing a "designated
telecommunications facility" is required to publish each interconnection tariff
in accordance with rules to be promulgated by MPT, to compile and publish
accounts concerning the income and disbursements relating to interconnections
to its "designated telecommunications facilities" and to recalculate its
interconnection charges annually so that they are "fair and impartial" in light
of the costs as calculated in the accounts. In November 1998, NTT submitted its
interconnection tariffs in connection with its "designated telecommunications
facilities" now operated by NTT East and NTT West, including, principally,
local exchanges, and these tariffs were approved in January 1999.
42
<PAGE>
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 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.
In a joint statement by the governments of the United States and Japan in May
1999, it was stated that, in the process of calculating interconnection charges
for fiscal year 2000, the Government of Japan will continue its policy of
promoting reductions of the interconnection charges as much as possible, within
the scope of its existing authority, and ensure that the relationship between
retail rates and interconnection charges would not impair local competition. A
study group for Long-run Incremental Cost Methodology of the Ministry of Posts
and Telecommunications on September 20, 1999 announced a model for Long-run
Incremental Cost Methodology. The model was adopted following publication by
the study group of the Ministry of Posts and Telecommunications on July 30,
1999 and receipt by the Ministry of Posts and Telecommunications of public
comments thereon. The model contains two alternative assumptions with respect
to the allocation of certain costs. These costs relate to feeder Remote
Terminals. Under one assumption, these costs are included in the costs of GCs,
resulting in a higher allocation of costs to parties interconnecting with GCs.
This is the assumption used by NTT in its current cost allocation methodology.
Under the other assumption, these costs are excluded from the costs of GCs.
Under the first assumption, compared to the current interconnection charges of
NTT, the cost of interconnection charges for the regional companies' ZCs would
be reduced by 57.3% and the cost of interconnection charges for the regional
companies' GCs would be reduced by 16.7%. Under the second assumption, the cost
of interconnection charges for the regional companies' ZCs would be reduced by
69.2% and the cost of interconnection charges for the regional companies' GCs
would be reduced by 41.1%.
The Ministry of Posts and Telecommunications is currently consulting with the
Telecommunications Council as to the implementation of Long-run Incremental
Cost Methodology. In this connection the Ministry of Posts and
Telecommunications indicated it is paying due consideration to ensure that the
implementation of Long-run Incremental Cost Methodology causes no disruption to
the provision of universal service and that it would not prove destructive to
end user rates and the business operations of existing local exchange carriers.
Although the model has been finalized, NTT believes that the ensuing
discussions regarding the actual pricing of access charges may take several
months to complete. Therefore, at this time, the ultimate results of the
introduction of Long-run Incremental Cost Methodology on NTT's financial
position and results of operations cannot be determined. As the implementation
will result in reduced revenue from interconnection, it may have a material
adverse effect on NTT's financial position and results of operations. 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,
NTT East and NTT West under the NTT Law. The report concluded that certain
telephone services are indispensable to the national welfare and should be
deemed
43
<PAGE>
"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, NTT East and NTT
West 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, NTT East and NTT West should be subsidized for the costs
incurred to provide these 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 planning to
estimate costs of universal services and conduct an overall review of the need
for a Universal Services Fund and the timetable for its possible introduction.
Number Portability
The Ministry of Posts and Telecommunications discussed the introduction of
local number portability, which will enable subscribers to change their
telephone companies without changing their phone numbers. The Ministry of Posts
and Telecommunications publicized its study group's reports (a) in May 1998
regarding the realization of number portability and (b) in March 1999 regarding
the division of costs in implementing this new system. Local number portability
will be introduced as early as possible around fiscal year 2000.
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 that service provider. In November 1998, the Ministry of
Posts and Telecommunications announced that presubscription shall be introduced
in the spring of 2001. As of December 1998, under the auspices of the Committee
on Standards for the Introduction of Presubscription, research had been
conducted among service providers with an eye towards the introduction of
presubscription.
Deregulation Committee
The Deregulation Committee, an advisory committee set up by the Japanese
Cabinet Decision of December 20, 1997, issued a report on December 15, 1998,
with respect to government deregulation in a number of sectors of the Japanese
economy. The report reflected a desire for NTT's complete privatization at some
point in the future, together with the elimination of monopolies in the
regional telecommunications markets, and recommended that effective action
should be taken to promote substantive competition between NTT East and NTT
West. This report also included a recommendation that in the future the
reorganized NTT be required to reduce its ownership of NTT DoCoMo to the level
where competition between NTT DoCoMo and NTT's two regional telephone companies
is facilitated. On March 30, 1999, the Government of Japan revised its Three-
year Program for Promoting Deregulation stating, among other things, that,
based on the Deregulation Committee's report and in connection with NTT's
ownership of NTT DoCoMo, it will watch carefully competition between NTT DoCoMo
and NTT's two regional telephone companies. On July 13, 1999, the Ministerial
Conference on Industrial Structural Reform and Employment Policies issued a
report concerning regulatory reform to create employment opportunities and
strengthen industrial competitiveness. This report stated that NTT's ownership
of NTT DoCoMo will be considered, taking into account the competition among
cellular phone companies and the competition between NTT DoCoMo and NTT's two
regional telephone companies. It has not been decided at this time what action,
if any, may be taken by the Government and it is not clear at this time to what
level NTT's shareholding of NTT DoCoMo might be required to be reduced.
NTT stated that its ownership of NTT DoCoMo does not have any adverse effects
on fair competition, and continues to maintain that view. In addition, in 1991
NTT stated that it would aim to list NTT DoCoMo shares after approximately five
years from its establishment, and that it would reduce its shareholding in NTT
DoCoMo in conjunction with opportunities such as the listing. Following this
statement, on October 22, 1998, NTT listed NTT DoCoMo shares and reduced its
shareholding from 94.7% to 67.1%.
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 is 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. In general, 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
certain specified variations 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 1998 on the TSE was 123.2 billion shares, with a
daily average of 498.8 million shares.
45
<PAGE>
The following table sets forth for the periods indicated the reported high
and low sales prices and the average daily trading volumes 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, 1999, stocks of 1,338 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>
1997
First quarter.......... 914,000 808,000 6,940 1,480.86 1,326.60 19,446.00 17,303.65
Second quarter......... 1,110,000 836,000 15,156 1,560.28 1,320.82 20,681.07 17,485.75
Third quarter.......... 1,240,000 999,000 8,486 1,555.16 1,373.97 20,575.26 17,683.27
Fourth quarter......... 1,150,000 920,000 7,564 1,391.06 1,130.00 17,842.16 14,775.22
1998
First quarter.......... 1,230,000 1,050,000 7,883 1,300.30 1,120.61 17,264.34 14,664.44
Second quarter......... 1,170,000 996,000 5,627 1,254.74 1,156.47 16,536.66 14,715.38
Third quarter.......... 1,280,000 995,000 8,146 1,280.73 1,043.57 16,731.92 13,406.39
Fourth quarter......... 1,080,000 819,000 9,549 1,164.59 980.11 15,207.77 12,879.97
1999
First quarter.......... 1,200,000 854,000 14,434 1,269.76 1,048.33 16,378.78 13,232.74
Second quarter......... 1,440,000 1,130,000 18,885 1,425.64 1,292.07 17,782.79 15,972.68
Third quarter.......... 1,600,000 1,180,000 13,894 1,535.23 1,420.64 18,532.58 16,821.06
Fourth quarter (through
October 12, 1999)..... 1,400,000 1,290,000 13,721 1,542.80 1,510.06 18,136.55 17,712.56
</TABLE>
On October 12, 1999, the last reported sale price of the shares on the TSE
was (Yen)1,400,000 per share, and the closing TOPIX and Nikkei Stock Average on
that date were 1,542.80 and (Yen)18,090.81, 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.
On December 19, 1998, the Government sold one million shares to a variety of
individual and institutional investors in a global offering in the form of
981,560 shares and 3,688,000 American depositary shares (representing 18,440
shares). A portion of the global offering was registered with the United States
Securities and Exchange Commission.
46
<PAGE>
On June 30, 1999, approximately 10,964,600 ADSs (equivalent to 55,823 shares,
or approximately 0.34% of the total number of shares outstanding on that date)
were outstanding and were held by 218 record holders of ADRs (including 212
record holders in the United States holding 10,963,766 ADSs). The following
table sets forth for the periods indicated the high and low sales prices 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>
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.................................. 44.38 34.69 13,732
Third quarter................................... 45.44 35.63 14,689
Fourth quarter.................................. 45.25 31.00 31,264
1999
First quarter................................... 49.88 36.00 41,234
Second quarter.................................. 64.94 47.00 49,233
Third quarter................................... 67.25 53.75 84,450
Fourth quarter (through October 12, 1999)....... 66.75 60.25 53,875
</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 is subject to approval 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 subject to approval by 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 $21.98
March 31, 1997.......... June 27, 1997 June 30, 1997 (Yen)2,500 $21.78
September 30, 1997...... November 21, 1997 December 12, 1997 (Yen)2,500 $20.50
March 31, 1998.......... June 26, 1998 June 29, 1998 (Yen)2,500 $19.24
September 30, 1998...... November 20, 1998 December 11, 1998 (Yen)2,500 $21.41
March 31, 1999.......... June 29, 1999 June 30, 1999 (Yen)7,500 $52.26
</TABLE>
47
<PAGE>
NTT paid an annual dividend of (Yen)7,500 per share in respect of fiscal year
1999. This dividend consisted of a special dividend of (Yen)5,000 per share and
an ordinary dividend of (Yen)2,500 per share paid to shareholders of record on
March 31, 1999 following the approval of shareholders and MPT. The special
dividend was announced in October 1998 in conjunction with NTT's sale of a
portion of its interest in NTT DoCoMo.
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 and approval by
shareholders and MPT.
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 53% 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 issued shares.
However, any increase in the number of issued 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 the NTT Law, as of March 31, 1999, the maximum
number of shares permitted to be sold by the Government was 4.1 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 July 31, 1999, 15,863,102 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.
In Japan, the Law Concerning Central Clearing of Share Certificates and Other
Securities was enacted in May 1984 to provide for a centralized securities
depository system. The Japan Securities Depository Center (JASDEC) was
established in December 1984 to be the core of this depositary system. JASDEC
was designated as the depository under the securities depository system by the
Minister of Justice and the Minister of Finance in May 1985 and commenced
operation in October 1991. To date, JASDEC is the only securities depository in
Japan.
The purpose of the securities depository system is to provide efficient and
rational custody and delivery of certificates for securities such as shares of
stock in order to facilitate trading in the secondary securities market. Under
the system, securities are centrally held at the depository and transactions
are settled by transfer between accounts held at the depository instead of
physical delivery and receipt of securities certificates. In addition, holders
of securities can exercise their rights without withdrawing securities from the
depository. This kind of system is adopted in other countries and most
countries that have securities exchanges use the depository system.
A holder of shares may choose, at its discretion, to participate in this
system. Only participants (such as a securities company or a bank having an
account with the depository) can deposit certificates for shares with the
depository and holders of certificates for shares deposit their certificates
through participants. Each participant maintains balances of securities with
the depository in separate accounts designated as a participant account and a
client account, and at specified times identifies to the depositary (which
informs the issuer) the persons holding shares in the client's account. A
participant holding shares in a participant's account or a person identified as
holding shares in a client's account is considered to be a holder of shares,
proportionate to the number of shares in the account.
Each issuer whose shares are held through the securities depository system
maintains two registers: a register of shareholders and a register of
beneficial shareholders. Each participant holding shares in a participant's
account or person identified as holding shares in a client's account is
registered as a beneficial owner of deposited shares in the issuer's register
of beneficial shareholders. Beneficial owners of deposited shares may exercise
the same shareholder's rights, such as voting rights, as the holders of shares
registered in the register of shareholders, and is entitled to receive
dividends in the same way as holders of shares registered in the register of
shareholders.
50
<PAGE>
New shares issued in respect of deposited shares, including those issued upon
a merger or a stock split, automatically become deposited shares. Beneficial
owners may withdraw their shares from the depository and receive share
certificates, except on certain days specified by the depository.
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.
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
51
<PAGE>
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, 1999, the net assets of NTT
determined in accordance with the Commercial Code were (Yen)4,907.6 billion
(U.S. $40,559 million), its stated capital was (Yen)795.6 billion (U.S. $6,575
million), its additional paid-in capital was (Yen)2,530 billion (U.S. $20,913
million) and its legal reserve was (Yen)107.5 billion (U.S. $888 million).
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
52
<PAGE>
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.
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.
53
<PAGE>
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.
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.
54
<PAGE>
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 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 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.
55
<PAGE>
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 substituted it with
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 investor's holding directly
or indirectly 10% or more of the total issued shares of such corporation or (if
such foreign investor already holds 10% or more of the total issued 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 cabinet ministers having jurisdiction over the
business of NTT 30 days prior to such transaction. When a prior notification is
required, the said ministers 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 issued 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.
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<PAGE>
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.
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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.
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;
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. 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.
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;
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. 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.
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.
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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
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ADSs, such reduced rate is applicable if the depositary or its agent submits
two Application Forms for Income 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 or ADSs 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.
United States Federal Income Taxation
The following discussion includes the opinion of Milbank, Tweed, Hadley &
McCloy LLP 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:
.a United States citizen or resident for United States federal income tax
purposes;
.a domestic corporation or partnership;
. a trust subject to the control of one or more U.S. persons and the
primary supervision of a U.S. court; or
. 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 beneficial owner 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 must be included 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 (or the U.S. holder's
agent), in the case of shares. 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 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 to shares that are made as part of a pro rata
distribution to all shareholders of NTT (including holders of ADSs)
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generally will not be subject to United States federal income tax. However,
such distributions of additional shares or rights will generally be subject to
United States 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.
Subject to significant limitations and restrictions, a U.S. holder will be
eligible to claim a credit against its United States federal income tax
liabilities for Japanese taxes withheld from dividend distributions at the
rates specified under the Convention. The limitations on foreign taxes eligible
for credit are generally calculated separately for specific classes of income.
For this purpose, dividends paid with respect to the ADSs or shares will
generally constitute "passive income" or, for some providers of financial
services, "financial services income."
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 Japanese tax, if any, imposed
on the gain unless it can apply the credit against tax due on income from
foreign sources. Loss recognized by a U.S. holder generally will be treated as
United States source loss. A U.S. holder may, however, be required to treat all
or any part of such loss as foreign source loss in certain circumstances,
including if (a) the company has paid dividends within the 24-month period
preceding the loss and (b) the U.S. holder included the dividends in the
"financial services income" basket for foreign tax credit limitation 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 (a) 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 (b) 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.
Estate and Gift Tax
As discussed in "--Japanese Taxation," certain Japanese inheritance and gift
taxes may be imposed on holders of ADSs or shares. An individual U.S. holder of
ADSs or shares who is a citizen or resident of the United States for United
States federal estate tax purposes will have the value of ADSs or shares owned
by such U.S. holder included in his or her gross estate for United States
federal estate tax purposes. U.S. holders should consult their tax advisors
with respect to the creditability of any Japanese inheritance and gift taxes
and the potential application of the Estate and Gift Tax Treaty between the
United States and Japan.
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 holder will
be allowed as a credit against the 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, 2000.
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EXPERTS
The financial statements of Nippon Telegraph and Telephone Corporation as of
March 31, 1999 and 1998 and for each of the three years in the period ended
March 31, 1999, 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, 1999, 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 LLP and the underwriters by Sullivan & Cromwell. The
validity of the shares underlying the ADSs will be passed upon by Tomotsune
Kimura & Mitomi, Japanese counsel to NTT, and Tsunematsu Yanase & Sekine,
Japanese counsel to the underwriters. Certain legal matters will be passed upon
on behalf of MOF by Davis Polk & Wardwell. In giving their opinions, Milbank,
Tweed, Hadley & McCloy LLP 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 LLP 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 LLP and are
stated herein on their authority.
67
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION AND ITS SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of independent accountants........................................ F-2
Consolidated balance sheets at March 31, 1998 and 1999................... F-3
Consolidated statement of income for the three years ended March 31,
1999.................................................................... F-5
Consolidated statement of shareholders' equity for the three years ended
March 31, 1999.......................................................... F-6
Consolidated statement of cash flows for the three years ended March 31,
1999.................................................................... F-7
Notes to consolidated financial statements............................... F-8
</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, 1998 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1999, 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.
/s/ Price Waterhouse
Tokyo, Japan
June 29, 1999, except for paragraph 2 of Note 21 as to which the date is August
30, 1999
F-2
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31
<TABLE>
<CAPTION>
1998 1999 1999
--------------- --------------- ------------
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) 913,236 (Yen) 1,656,672 $ 13,692
Notes and accounts receivable,
trade (Notes 4 and 19)....... 1,085,381 1,463,777 12,097
Allowance for doubtful
accounts..................... (35,816) (40,287) (333)
Inventories (Note 6).......... 223,776 195,843 1,618
Prepaid expenses and other
current assets (Note 11)..... 417,900 641,745 5,304
--------------- --------------- --------
Total current assets........ 2,604,477 3,917,750 32,378
--------------- --------------- --------
Property, plant and equipment
(Notes 9 and 15):
Telecommunications equipment.. 11,633,361 11,843,092 97,877
Telecommunications service
lines........................ 11,722,358 11,823,529 97,715
Buildings and structures...... 4,763,092 5,000,443 41,326
Machinery, vessels and tools.. 1,997,359 2,140,526 17,691
Land.......................... 609,186 697,938 5,768
Construction in progress...... 639,262 859,526 7,103
--------------- --------------- --------
31,364,618 32,365,054 267,480
Accumulated depreciation...... (19,359,256) (20,203,236) (166,969)
--------------- --------------- --------
12,005,362 12,161,818 100,511
--------------- --------------- --------
Investments and other assets:
Investments in affiliated
companies.................... 201,945 300,420 2,483
Marketable securities and
other investments (Note 7)... 124,910 163,754 1,353
Intangible and other assets
(Note 8)..................... 1,904,503 1,527,113 12,621
Deferred income taxes (Note
11).......................... 511,334 502,393 4,152
--------------- --------------- --------
2,742,692 2,493,680 20,609
--------------- --------------- --------
(Yen)17,352,531 (Yen)18,573,248 $153,498
=============== =============== ========
</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--(Continued)
March 31
<TABLE>
<CAPTION>
1998 1999 1999
--------------- --------------- ------------
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) 456,995 (Yen) 235,180 $ 1,944
Current portion of long-term
debt (Notes 9 and 19)........ 825,422 848,546 7,013
Accounts payable, trade (Notes
4 and 19).................... 1,131,444 1,416,615 11,708
Accrued payroll (Note 19)..... 494,387 516,188 4,266
Accrued interest.............. 55,976 44,586 368
Accrued taxes on income....... 188,616 491,803 4,064
Accrued consumption tax (Note
12).......................... 99,813 22,370 185
Advances received............. 72,117 72,008 595
Other (Note 11)............... 121,056 96,684 799
--------------- --------------- --------
Total current liabilities... 3,445,826 3,743,980 30,942
--------------- --------------- --------
Long-term liabilities:
Long-term debt (Notes 9 and
19).......................... 4,776,109 4,558,358 37,672
Obligations under capital
leases (Note 15)............. 473,681 378,083 3,125
Liability for employees'
severance payments (Note
10).......................... 2,890,761 2,977,403 24,607
Other (Note 11)............... 166,186 211,635 1,749
--------------- --------------- --------
8,306,737 8,125,479 67,153
--------------- --------------- --------
Minority interest in
consolidated subsidiaries...... 136,040 793,019 6,554
--------------- --------------- --------
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 6,575
Additional paid-in capital.... 2,530,476 2,530,476 20,913
Retained earnings............. 2,153,883 2,628,272 21,721
Accumulated other
comprehensive loss........... (16,031) (43,578) (360)
--------------- --------------- --------
5,463,928 5,910,770 48,849
--------------- --------------- --------
Commitments and contingent
liabilities (Note 20)..........
(Yen)17,352,531 (Yen)18,573,248 $153,498
=============== =============== ========
</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>
1997 1998 1999 1999
-------------- -------------- -------------- ------------
Millions of yen Millions of
U.S. dollars
(Note 3)
<S> <C> <C> <C> <C>
Operating revenues (Note
4):
Telephone.............. (Yen)6,038,146 (Yen)6,306,034 (Yen)6,300,460 $52,070
Telegraph.............. 98,683 92,211 85,521 707
Leased circuit......... 428,715 488,160 507,163 4,191
Data communication
facility.............. 337,934 372,765 383,455 3,169
ISDN services.......... 190,403 367,826 555,976 4,595
Sale of
telecommunication
equipment............. 889,834 969,586 1,008,589 8,336
Miscellaneous.......... 838,067 853,431 888,509 7,343
-------------- -------------- -------------- -------
8,821,782 9,450,013 9,729,673 80,411
-------------- -------------- -------------- -------
Operating expenses
(Notes 4 and 16):
Personnel.............. 2,266,599 2,345,609 2,367,449 19,566
Depreciation,
amortization and
maintenance costs..... 2,998,550 3,185,044 3,435,522 28,393
Other.................. 2,787,158 3,047,315 3,215,267 26,572
-------------- -------------- -------------- -------
8,052,307 8,577,968 9,018,238 74,531
-------------- -------------- -------------- -------
Operating income........ 769,475 872,045 711,435 5,880
-------------- -------------- -------------- -------
Other expenses (income):
Interest and
amortization of bond
discounts and issue
costs................. 253,950 235,363 216,038 1,786
Interest income........ (1,839) (2,086) (6,881) (57)
Gains on sales of
subsidiary stock (Note
17)................... -- -- (1,634,314) (13,507)
Other, net............. 7,591 (16,764) 22,631 187
-------------- -------------- -------------- -------
259,702 216,513 (1,402,526) (11,591)
-------------- -------------- -------------- -------
Income before income
taxes.................. 509,773 655,532 2,113,961 17,471
-------------- -------------- -------------- -------
Income taxes (Note 11):
Current................ 359,005 362,910 659,082 5,447
Deferred............... (98,078) 55,366 422,835 3,495
-------------- -------------- -------------- -------
260,927 418,276 1,081,917 8,942
-------------- -------------- -------------- -------
Income before
extraordinary loss,
minority interest and
equity in earnings of
affiliated companies... 248,846 237,256 1,032,044 8,529
Extraordinary loss for
discontinuance of
regulatory accounting
principles (Note 2).... -- -- (462,508) (3,822)
Income before minority
interest and equity in
earnings of affiliated
companies.............. 248,846 237,256 569,536 4,707
Minority interest in
consolidated
subsidiaries........... (11,718) (32,275) (24,148) (200)
Equity in earnings of
affiliated companies... 14,329 9,479 9,043 75
-------------- -------------- -------------- -------
Net Income.............. (Yen) 251,457 (Yen) 214,460 (Yen) 554,431 $ 4,582
============== ============== ============== =======
<CAPTION>
U.S. dollars
Yen (Note 3)
---------------------------------------------- ------------
<S> <C> <C> <C> <C>
Per share of common
stock:
Extraordinary loss..... -- -- (Yen)(29,067) $(240)
-------------- -------------- -------------- -------
Net income............. (Yen)15,803 (Yen)13,478 (Yen)34,844 $288
-------------- -------------- -------------- -------
Cash dividends,
applicable to earnings
for the year (Note
13)................... (Yen)5,000 (Yen)5,000 (Yen)5,000 $41
-------------- -------------- -------------- -------
</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>
1997 1998 1999 1999
----------------------- ----------------------- ----------------------- --------------
Millions of yen Millions of
U.S. dollars
(Note 3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock (Note 13):
At beginning of year... (Yen)795,600 (Yen) 795,600 (Yen) 795,600 $ 6,575
Capitalization of
additional paid-in
capital............... -- -- -- --
-------------- -------------- -------------- -------
At end of year......... 795,600 795,600 795,600 6,575
-------------- -------------- -------------- -------
Additional paid-in
capital (Note 13):
At beginning of year... 2,530,476 2,530,476 2,530,476 20,913
Transfer to common
stock................. -- -- -- --
-------------- -------------- -------------- -------
At end of year......... 2,530,476 2,530,476 2,530,476 20,913
-------------- -------------- -------------- -------
Retained earnings (Note
13):
At beginning of year... 1,847,084 2,018,982 2,153,883 17,801
Appropriations--
Cash dividends
((Yen)2,500 in 1997,
(Yen)2,500 in 1998
and (Yen)2,500--$21
in 1999 per share).... (39,780) (39,780) (39,780) (329)
Interim distribution--
Cash dividends
((Yen)2,500 in 1997,
(Yen)2,500 in 1998
and (Yen)2,500--$21
in 1999 per share).... (39,779) (39,779) (39,779) (329)
Net income............. 251,457 251,457 214,460 214,460 554,431 554,431 4,582 4,582
Other change........... -- -- (483) (4)
-------------- -------------- -------------- -------
At end of year......... 2,018,982 2,153,883 2,628,272 21,721
-------------- -------------- -------------- -------
Accumulated
comprehensive income
(loss) (Note 13):
At beginning of year... 22,959 (4,648) (16,031) (133)
Other comprehensive
income................ (27,607) (27,607) (11,383) (11,383) (27,547) (27,547) (227) (227)
Total comprehensive
income................ 223,850 203,077 526,884 4,355
-------------- ------- -------------- ------- -------------- ------- ------- -----
At end of year......... (4,648) (16,031) (43,578) (360)
-------------- -------------- -------------- -------
Shareholders' equity at
end of year............ (Yen)5,340,410 (Yen)5,463,928 (Yen)5,910,770 $48,849
============== ============== ============== =======
</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>
1997 1998 1999 1999
-------------- -------------- -------------- ------------
Millions of yen Millions of
U.S. dollars
(Note 3)
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............ (Yen)251,457 (Yen)214,460 (Yen)554,431 $ 4,582
Adjustments to
reconcile net income
to net cash provided
by operating
activities--
Extraordinary item,
net of taxes......... -- -- 462,508 3,822
Depreciation and
amortization......... 2,093,314 2,281,843 2,439,957 20,165
Deferred taxes........ (98,078) 55,366 422,835 3,495
Loss on sale or
disposal of property,
plant and equipment.. 213,040 164,691 174,686 1,444
Gains on sales of
subsidiary stock
(Note 17)............ -- -- (1,634,314) (13,507)
(Increase) decrease in
notes and accounts
receivable, trade.... 131,339 (145,136) (182,732) (1,510)
(Increase) decrease in
inventories.......... (66,917) 7,631 27,955 231
(Increase) decrease in
other current
assets............... 3,724 (11,712) (211,880) (1,751)
Increase (decrease) in
accounts payable,
trade and accrued
payroll.............. 140,919 125,000 25,419 210
Increase (decrease) in
accrued consumption
tax.................. 515 72,518 (77,665) (642)
Increase (decrease) in
accrued interest..... (4,528) 1,922 (11,594) (96)
Increase (decrease) in
advances received.... 12,762 22,596 (1,631) (13)
Increase (decrease) in
accrued taxes on
income............... (7,995) (36,290) 300,609 2,484
Increase (decrease) in
liability for
employees' severance
payments, net of
deferred pension
costs................ 22,394 (16,293) 84,267 696
Increase (decrease) in
other long-term
liabilities.......... (56,968) 1,054 (1,330) (11)
Other................. 15,730 (7,043) (6,290) (52)
-------------- -------------- -------------- -------
Net cash provided by
operating
activities.......... 2,650,708 2,730,607 2,365,231 19,547
-------------- -------------- -------------- -------
Cash flows from
investing activities:
Payments for property,
plant and equipment.. (2,612,878) (2,685,961) (2,789,342) (23,052)
Proceeds from sale of
property, plant and
equipment............ 9,517 10,827 20,707 171
Acquisition of
investments in
affiliates and
intangible and other
assets............... (258,123) (233,813) (76,342) (631)
Proceeds from sales of
subsidiary stock
(Note 17)............ -- -- 2,213,010 18,289
-------------- -------------- -------------- -------
Net cash used in
investing
activities.......... (2,861,484) (2,908,947) (631,967) (5,223)
-------------- -------------- -------------- -------
Cash flows from
financing activities:
Proceeds from issuance
of long-term debt.... (Yen)1,136,896 (Yen)1,047,974 (Yen)653,435 $ 5,400
Payments for
settlement of long-
term debt............ (804,385) (706,388) (1,170,912) (9,677)
Dividends paid........ (79,559) (79,559) (79,559) (657)
Net increase
(decrease) in short-
term borrowings and
other................ 140,322 8,409 (392,792) (3,246)
-------------- -------------- -------------- -------
Net cash provided
(used) by financing
activities.......... 393,274 270,436 (989,828) (8,180)
-------------- -------------- -------------- -------
Net increase in cash
and cash equivalents.. 182,498 92,096 743,436 6,144
Cash and cash
equivalents at
beginning of year..... 638,642 821,140 913,236 7,548
-------------- -------------- -------------- -------
Cash and cash
equivalents at end of
year.................. (Yen)821,140 (Yen)913,236 (Yen)1,656,672 $13,692
============== ============== ============== =======
Cash paid during the
year for:
Interest.............. (Yen)258,748 (Yen)233,344 (Yen)232,099 $ 1,918
-------------- -------------- -------------- -------
Income taxes.......... (Yen)361,641 (Yen)400,860 (Yen)364,176 $ 3,010
-------------- -------------- -------------- -------
Capital lease
obligations incurred
during the year....... (Yen)56,631 (Yen)99,975 (Yen)32,881 $ 272
-------------- -------------- -------------- -------
</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 (hereinafter referred to as "NTT")
is primarily engaged in the provision of nationwide telecommunications services
in Japan. NTT and its subsidiaries' services fall into seven major classes:
telephone services, telegraph services, leased circuit services, data
communication facility services, ISDN (Integrated Services Digital Network)
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"), which
was promulgated and partially implemented on June 20, 1997.
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."
On May 10, 1999, NTT applied for approval from the Minister of Posts and
Telecommunications for "the Implementation Plans Concerning the Transfer of the
Business Activities and Succession of the Rights and Obligations of Nippon
Telegraph and Telephone Corporation", which were prepared in accordance with
"the Basic Principles Concerning the Transfer of the Business Activities and
Succession of the Rights and Obligations of Nippon Telegraph and Telephone
Corporation" as drawn up in accordance with the provisions of the
aforementioned legislation. On May 21, 1999, NTT received the Minister of Posts
and Telecommunications' approval for the plans. In conjunction with these
approved implementation plans that set out how the business transfer will
occur, reorganization will be implemented in which NTT will become a holding
company holding all the shares in two regional companies (Nippon Telegraph and
Telephone East Corporation and Nippon Telegraph and Telephone West Corporation)
and one long-distance company (NTT Communications Corporation).
The transfers of businesses will be accomplished by transferring at 0:00
a.m., on July 1, 1999, NTT's relevant business activities to the respective
wholly-owned subsidiaries, Nippon Telegraph and Telephone East Corporation,
Nippon Telegraph and Telephone West Corporation, and NTT Communications
Corporation.
Nippon Telegraph and Telephone East Corporation will inherit the intra-
prefectural telecommunications services in the Hokkaido, Tohoku, Kanto, Tokyo
and Shinetsu regions and related services. Nippon Telegraph and Telephone West
Corporation will inherit the intra-prefectural telecommunications services in
the Tokai, Hokuriku, Kansai, Chugoku, Shikoku and Kyushu regions and related
services.
NTT Communications Corporation will inherit all the business activities
comprising the domestic inter-prefecture telecommunications and multimedia
network services and related services and is allowed to enter the
international.
2. Summary of significant accounting policies:
NTT 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).
NTT, 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) capital leases, (4) unrealized gains and losses on debt and
equity securities and certain
F-8
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 adjustments for the above,
are as follows:
Basis of consolidation and accounting for investments in affiliated companies
- --
The consolidated financial statements include the accounts of NTT and those
of its majority-owned subsidiaries. All significant intercompany transactions
and accounts are eliminated in consolidation.
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 NTT'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.
Discontinuance of regulation accounting principles--
During the fiscal year ended March 31, 1999, NTT discontinued the
application of the provisions of Statement of Financial Accounting Standards
No. 71 ("SFAS 71"), "Accounting for the Effects of Certain Types of
Regulation" for all of its operations. Under SFAS 71, NTT 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"), NTT recorded an extraordinary non-cash charge of (Yen)462,508
million ($3,822 million), net of income taxes of (Yen)426,931 million ($3,528
million) during the six-month period ended September 30, 1998 and eliminated
(Yen)889,439 million ($7,351 million) of regulatory assets from its balance
sheet as of September 30, 1998.
After assessing the recent revision of the Telecom Business Law, which
became effective as of November 1, 1998, and the proposed price-cap system,
NTT recognized that it was required under SFAS 101 to change its accounting
for regulated operations. NTT's determination that it was no longer eligible
for the continued application of SFAS 71 was 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
------------------------- -------------------------
Millions of Millions of Millions of Millions of
yen U.S. dollars yen U.S. dollars
<S> <C> <C> <C> <C>
Deferred compensated
absences............... (Yen)105,693 $ 873 (Yen)54,960 $ 454
Deferred pension costs.. 679,722 5,618 353,456 2,921
Unamortized purchases of
the leased assets...... 104,024 860 54,092 447
------------ ------ ------------ ------
Total................. (Yen)889,439 $7,351 (Yen)462,508 $3,822
============ ====== ============ ======
</TABLE>
F-9
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The regulatory assets included in the accompanying consolidated balance
sheet as at March 31, 1998 were as follows:
<TABLE>
<CAPTION>
Millions of
yen
------------
<S> <C>
Regulatory assets due to:
Deferred compensated absences (*)........................... (Yen)132,538
Deferred severance lump-sum and pension payments (**)....... 603,337
Unamortized purchases of the leased assets under SFAS 13
(***)...................................................... 110,995
------------
Total..................................................... (Yen)846,870
============
</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.
Estimates--
The preparation of NTT'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, including telegraph service, leased circuit service and data
communication facility service, 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 accumulated comprehensive
income.
F-10
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Marketable securities--
Unrealized gains and losses on equity securities designated as available-for-
sale, whose fair values are readily determinable, are reported as a component
of accumulated comprehensive income, 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 consist of telecommunications terminals to be sold, projects in
progress and materials and supplies. Telecommunications terminals to be sold
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. Materials and supplies are valued at cost,
not in excess of market, cost being determined on a first-in first-out basis.
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 NTT 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.
Accounting for the impairment of long-lived assets--
NTT Group's long-lived assets, including property, plant and equipment,
software and other intangibles are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. If the total of the expected future undiscounted cash flows is
less than the carrying amount of the asset, a loss is recognized for the
difference between the fair value and carrying value of the asset.
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.
F-11
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Derivative financial instruments--
NTT and certain subsidiaries enter into several derivative financial
instruments, such as forward exchange contracts, currency swap agreements,
interest rate swap agreements and interest rate option contracts, in order to
limit their main exposure to loss in relation to underlying debt instruments or
underlying assets resulting from adverse fluctuations in foreign currency
exchange rates and interest rates. NTT and its subsidiaries do not use
derivative financial instruments for trading 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 creditworthy 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.
NTT and certain subsidiaries entered into interest rate swap agreements which
are fully integrated with underlying debt obligations or financial assets and
designed to convert floating rate debt into fixed rate debt, or vice versa, and
interest rate option agreements are also arranged so that exposures to losses
resulting from fluctuations in interest rates are managed. As the purpose of
entering into the swap transaction is mainly to change the nature of debt, NTT
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.
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, NTT 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.
F-12
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Comprehensive income--
NTT adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income" in the six-month period ended September 30,
1998. Comprehensive income is defined in this standard as total change in
stockholders' equity excluding capital transactions. NTT's comprehensive income
comprises net income plus other comprehensive income representing changes in
foreign currency translation adjustments, unrealized gains/losses on securities
and minimum pension liability adjustment. NTT has elected to disclose
comprehensive income and its components in the statement of shareholders'
equity.
Recent pronouncements--
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 NTT's internal needs. NTT is now in the process of
assessing the impact that this SOP will have on NTT's results of operations and
consolidated financial position.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." This standard, which is effective for
fiscal years beginning after June 15, 2000, requires all derivatives to be
recognized in the statement of financial position as either assets or
liabilities and measured at fair value. To implement this standard, all hedging
relationships must be reassessed. At this stage, it is not possible to estimate
the impact of the adoption of SFAS 133 on NTT's financial position or results
of operations.
Reclassifications--
Certain items for prior years' financial statements have been reclassified to
conform to the 1999 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)121 =
US$1, the approximate current rate at March 31, 1999, has been used for the
purpose of presentation of the U.S. dollar amounts in the accompanying
consolidated financial statements.
4. Related party transactions:
NTT and its subsidiaries have entered into a number of different types of
transactions with affiliated companies, the most significant of which are the
sales of telecommunications terminal equipment, the purchases of terminal
equipment and materials and the receipt of certain services.
F-13
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Transactions with affiliated companies for each of the three years in the
period ended March 31, 1999 and the related balances at March 31, 1998 and 1999
were as follows:
<TABLE>
<CAPTION>
1997 1998 1999 1999
------------ ------------ ------------ ------------
Millions of yen Millions of
U.S. dollars
<S> <C> <C> <C> <C>
Sales..................... (Yen)193,856 (Yen)169,347 (Yen)120,243 $ 994
============ ============ ============ ======
Purchases................. (Yen)365,910 (Yen)423,998 (Yen)461,009 $3,810
============ ============ ============ ======
Receivables............... (Yen)45,339 (Yen)54,085 $ 447
============ ============ ======
Payables.................. (Yen)147,718 (Yen)177,274 $1,465
============ ============ ======
</TABLE>
Dividends from affiliated companies accounted for by the equity method for
the years ended March 31, 1997, 1998 and 1999 were (Yen)522 million, (Yen)592
million and (Yen)752 million ($6 million), respectively.
5. Cash and cash equivalents:
Cash and cash equivalents at March 31, 1998 and 1999 comprised the following:
<TABLE>
<CAPTION>
1998 1999 1999
------------ -------------- ------------
Millions of yen Millions of
U.S. dollars
<S> <C> <C> <C>
Cash................................ (Yen)573,995 (Yen)517,379 $ 4,276
Certificates of deposit, commercial
paper and marketable securities
purchased under agreements to
resell............................. 74,539 559,068 4,620
Time deposits, certificates of
deposit and other.................. 264,702 580,225 4,796
------------ -------------- -------
(Yen)913,236 (Yen)1,656,672 $13,692
============ ============== =======
</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, 1998 and 1999 comprised the following:
<TABLE>
<CAPTION>
1998 1999 1999
------------ ------------ ------------
Millions of yen Millions of
U.S. dollars
<S> <C> <C> <C>
Telecommunications terminals to be
sold.............................. (Yen)109,689 (Yen)106,368 $ 879
Projects in progress............... 100,456 76,686 634
Materials and supplies............. 13,631 12,789 105
------------ ------------ ------
(Yen)223,776 (Yen)195,843 $1,618
============ ============ ======
</TABLE>
F-14
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, 1998 and 1999 are as follows:
<TABLE>
<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, 1999
-------------------------------------------------
Gross Gross
Carrying unrealized unrealized
amounts gains losses Fair value
------------ ----------- ----------- ------------
Millions of yen
<S> <C> <C> <C> <C>
Available-for-sale:
Equity securities....... (Yen)115,366 (Yen)35,088 (Yen)72,681 (Yen) 77,773
Held-to-maturity:
Debt securities......... 49,761 872 265 50,368
------------ ----------- ----------- ------------
Total................. (Yen)165,127 (Yen)35,960 (Yen)72,946 (Yen)128,141
============ =========== =========== ============
<CAPTION>
March 31, 1999
-------------------------------------------------
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....... $ 953 $ 290 $ 600 $ 643
Held-to-maturity:
Debt securities......... 411 7 2 416
------------ ----------- ----------- ------------
Total................. $ 1,364 $ 297 $ 602 $ 1,059
============ =========== =========== ============
</TABLE>
During the years ended March 31, 1997, 1998 and 1999, the net unrealized gain
or loss on available-for-sale securities included in the separate component of
shareholders' equity, net of applicable taxes, decreased by (Yen)27,607
million, (Yen)15,413 million and (Yen)2,120 million ($17 million),
respectively.
Maturities of debt securities classified as held-to-maturity at March 31,
1999 are as follows:
<TABLE>
<CAPTION>
1999 1999
----------------------- ---------------------------
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)31,777 (Yen)32,414 $ 262 $ 268
Due after 5 years
through 10 years....... 17,984 17,954 149 148
----------- ----------- ------------ ------------
Total................. (Yen)49,761 (Yen)50,368 $ 411 $ 416
=========== =========== ============ ============
</TABLE>
F-15
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Proceeds from sales of available-for-sale securities for the years ended
March 31, 1997, 1998 and 1999 were immaterial.
In the ordinary course of business, NTT 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)40,945 million and
(Yen)36,220 million ($299 million) at March 31, 1998 and 1999, 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, 1998 and 1999 were as follows:
<TABLE>
<CAPTION>
1998 1999 1999
-------------- -------------- ------------
Millions Of Yen Millions Of
U.S. Dollars
<S> <C> <C> <C>
Computer software........... (Yen)1,881,423 (Yen)1,811,746 $14,973
Rights to use utility
facilities and other....... 590,309 753,216 6,225
-------------- -------------- -------
2,471,732 2,564,962 21,198
Accumulated amortization.... (1,272,983) (1,074,524) (8,880)
-------------- -------------- -------
1,198,749 1,490,438 12,318
Deferred periodic pension
costs (See Note 2)......... 603,337 -- --
Minimum pension liability
(See Note 10).............. 21,728 8,154 67
Prepaid pension costs (See
Note 10)................... 80,689 28,521 236
-------------- -------------- -------
(Yen)1,904,503 (Yen)1,527,113 $12,621
============== ============== =======
</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.
9. Short-term borrowings and long-term debt:
Short-term borrowings at March 31, 1998 and 1999 comprised the following:
<TABLE>
<CAPTION>
1998 1999 1999
------------ ------------ ------------
Millions of yen Millions of
U.S. dollars
<S> <C> <C> <C>
Unsecured short-term bank loans
bearing interest at a weighted
average rates of 1.28% and 1.07%
per annum at March 31, 1998 and
1999, respectively................. (Yen)341,995 (Yen)232,180 $1,919
Commercial paper of 1.01% and 0.59%
per annum at March 31, 1998 and
1999, respectively................. 115,000 3,000 25
------------ ------------ ------
(Yen)456,995 (Yen)235,180 $1,944
============ ============ ======
</TABLE>
F-16
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Long-term debt at March 31, 1998 and 1999 comprised the following:
<TABLE>
<CAPTION>
1998 1999 1999
-------------- -------------- ------------
Millions of yen Millions of
U.S. dollars
<S> <C> <C> <C>
Debt denominated in Japanese
yen:
1.72%--6.8% coupon bonds due
1999--2010................... (Yen)1,647,100 (Yen)1,647,700 $13,617
Unsecured indebtedness to
banks--
2.8% (weighted average)
loans due 1999--2022....... 2,998,440 2,790,101 23,059
1.2% (weighted average)
floating rate loans due
1999--2007................. 58,042 159,800 1,321
-------------- -------------- -------
4,703,582 4,597,601 37,997
-------------- -------------- -------
Debt denominated in foreign
currencies:
6.0%--9.0% U.S. dollar notes
due 1999--2008............... 479,160 407,193 3,365
4.0%--6.0% Swiss franc bonds
and notes due 1999--2006..... 74,566 69,283 573
10 1/4% Canadian dollar notes
due 1999--2001............... 56,658 32,564 269
7 1/8% Deutsche mark bonds due
2000......................... 28,872 26,752 221
7 3/8%--10 7/8% Sterling pound
bonds due 2001--2003......... 78,967 69,419 574
1.6%--5.4% yen notes due
1999--2007................... 167,000 164,000 1,355
Unsecured indebtedness to
banks--
10.67% Thai baht loan due
2000....................... 2,378 2,209 18
5.4% (weighted average) U.S.
dollar floating rate loans
due 1999--2006............. 12,029 39,599 327
-------------- -------------- -------
899,630 811,019 6,702
-------------- -------------- -------
Total long-term debt principal.. 5,603,212 5,408,620 44,699
Less--Deferred bond discounts... 1,681 1,716 14
-------------- -------------- -------
5,601,531 5,406,904 44,685
Less--Current maturities........ 825,422 848,546 7,013
-------------- -------------- -------
Total long-term debt............ (Yen)4,776,109 (Yen)4,558,358 $37,672
============== ============== =======
</TABLE>
Interest rates and due dates are stated at March 31, 1999.
At March 31, 1999, buildings and land of certain consolidated subsidiaries,
with a book value of (Yen)12,295 million ($102 million), were mortgaged as
security for certain loans.
In addition, loan agreements relating to an aggregate of (Yen)249,630 million
($2,063 million) of short-term and long-term debt from commercial banks of a
consolidated subsidiary provide that certain minimum lease payments and
installment receivables are subject to pledges as collateral against these
debts at any time if requested by the lenders. To date, the subsidiary has not
received any such requests from the lenders.
All the holders of the bonds and notes issued by NTT 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>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The bond and note agreements relating to NTT's long-term debt at March 31,
1999 stipulate, among other things, that certain of the bonds and notes are
redeemable at the option of NTT generally at the principal amount.
Additionally, such agreements generally provide that the bonds and notes may
be purchased by NTT 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, 1999 was (Yen)100,000 million ($826 million).
Under Statement of Financial Accounting Standards No. 125 ("SFAS 125"),
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," NTT and one of its subsidiaries recognized
debts of (Yen)55,000 million ($455 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, 2004 and thereafter are as follows:
<TABLE>
<CAPTION>
Year ending March 31, 1999 1999
--------------------- -------------- ------------
Millions of Millions of
yen U.S. dollars
<S> <C> <C>
2000............................................. (Yen) 848,546 $ 7,013
2001............................................. 873,503 7,219
2002............................................. 862,353 7,127
2003............................................. 690,396 5,706
2004............................................. 606,234 5,010
Thereafter....................................... 1,525,872 12,610
-------------- -------
(Yen)5,406,904 $44,685
============== =======
</TABLE>
10.Employees' severance payments:
Employees whose services with NTT 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 NTT.
In the fiscal year ended March 31, 1993, NTT 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.
F-18
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following tables presents reconciliation of the changes in the plan's
benefit obligations and fair value of assets of the NTT Severance Payment Plan
at March 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999 1999
--------------- --------------- ------------
Millions of yen Millions of
U.S. dollars
<S> <C> <C> <C>
Change in benefit
obligations:
Benefit obligation,
beginning of year........ (Yen) 4,052,192 (Yen) 4,011,150 $ 33,150
Service cost.............. 157,153 156,047 1,290
Interest cost............. 164,229 140,217 1,159
Benefit payments.......... (222,772) (217,259) (1,796)
Settlements............... (139,652) (34,158) (282)
--------------- --------------- --------
Benefit obligation, end of
year..................... 4,011,150 4,055,997 33,521
--------------- --------------- --------
Change in fair value of plan
assets:
Fair value of plan assets,
beginning of year........ 386,013 488,901 4,041
Actual return on plan
assets................... 32,321 (14,929) (123)
Employer contributions.... 83,863 88,987 735
Benefits payments......... (13,296) (16,221) (134)
--------------- --------------- --------
Fair value of plan assets,
end of year.............. 488,901 546,738 4,519
--------------- --------------- --------
At March 31:
Funded status............. (3,522,249) (3,509,259) (29,002)
Unrecognized net loss..... 140,192 141,822 1,172
Unrecognized transition
obligation............... 419,697 350,344 2,895
Unrecognized prior service
cost..................... 93,327 83,668 691
--------------- --------------- --------
Net amount recognized..... (Yen)(2,869,033) (Yen)(2,933,425) $(24,244)
=============== =============== ========
</TABLE>
The following table provides the amounts recognized in NTT's consolidated
balance sheets:
<TABLE>
<CAPTION>
1998 1999 1999
--------------- --------------- ------------
Millions of yen Millions of
U.S. dollars
<S> <C> <C> <C>
At March 31:
Liability for employees'
severance payments....... (Yen)(2,890,761) (Yen)(2,977,403) $(24,607)
Intangible and other
assets................... 21,728 8,154 67
Accumulated other
comprehensive loss....... -- 35,824 296
--------------- --------------- --------
Net amount recognized..... (Yen)(2,869,033) (Yen)(2,933,425) $(24,244)
=============== =============== ========
</TABLE>
F-19
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The charges to income for employees' severance indemnities for each of the
three years in the period ended March 31, 1999 included the following
components:
<TABLE>
<CAPTION>
1997 1998 1999 1999
------------ ------------ ------------ ------------
Millions of yen Millions of
U.S. dollars
<S> <C> <C> <C> <C>
Service cost............ (Yen)156,730 (Yen)157,153 (Yen)156,047 $1,290
Interest cost on
projected benefit
obligation............. 171,278 164,229 140,217 1,159
Expected return on plan
assets................. (14,061) (15,233) (20,030) (166)
Net amortization and
deferral............... 80,902 81,236 81,466 673
------------ ------------ ------------ ------
Net periodic severance
payments under
SFAS 87................ 394,849 387,385 357,700 2,956
Deduct: Amounts
attributable to
regulatory accounting
practices under SFAS
71..................... (148,812) (107,501) (52,197) (431)
------------ ------------ ------------ ------
Total cost for
employees' severance
indemnities as recorded
in the consolidated
statement of income.... (Yen)246,037 (Yen)279,884 (Yen)305,503 $2,525
============ ============ ============ ======
Assumptions in
determination of net
pension cost:
Discount rate......... 4.0% 3.5% 3.5%
Long-term rate of
salary increases..... 4.0% 3.5% 3.5%
Long-term rate of
return on funded
assets............... 4.0% 4.0% 4.0%
</TABLE>
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, NTT established welfare pension plans or NTT Kosei Nenkin Kikin, a
defined benefit pension plan to which both NTT 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 Japanese government's obligation
under the NTT Mutual Aid Plan and related assets of the NTT Mutual Aid Plan
were assigned to NTT's welfare pension plans 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 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, NTT 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 assigned to NTT's welfare pension plans 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.
F-20
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following tables presents a reconciliation of the changes in NTT's
welfare pension plans' benefit obligations and fair value of assets of NTT's
welfare pension plans at March 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999 1999
------------ ------------ ------------
Millions of yen Millions of
U.S. dollars
<S> <C> <C> <C>
Change in benefit obligations:
Benefit obligation, beginning of
year........................... (Yen)494,747 (Yen)733,124 $6,059
Service cost.................... 132,444 132,573 1,096
Interest cost................... 19,788 25,651 212
Benefit payments................ (71) (468) (4)
Settlements..................... 86,216 (16,415) (136)
------------ ------------ ------
Benefit obligation, end of
year........................... 733,124 874,465 7,227
------------ ------------ ------
Change in fair value of plan as-
sets:
Fair value of plan assets,
beginning of year.............. 628,698 764,153 6,315
Actual return on plan assets.... 63,151 1,733 15
Employer contributions.......... 72,375 74,018 612
Benefits payments............... (71) (468) (4)
------------ ------------ ------
Fair value of plan assets, end
of year........................ 764,153 839,436 6,938
------------ ------------ ------
At March 31:
Funded status................... 31,029 (35,029) (289)
Unrecognized net gain........... 49,660 63,550 525
------------ ------------ ------
Net amount recognized........... (Yen) 80,689 (Yen) 28,521 $ 236
============ ============ ======
</TABLE>
The following table provides the amounts recognized in NTT's consolidated
balance sheets:
<TABLE>
<CAPTION>
1998 1999 1999
----------- ----------- ------------
Millions of yen Millions of
At March 31: U.S. dollars
<S> <C> <C> <C>
Intangible and other assets........... (Yen)80,689 (Yen)28,521 $236
----------- ----------- ----
Net amount recognized................. (Yen)80,689 (Yen)28,521 $236
=========== =========== ====
</TABLE>
F-21
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The charges to income for employees' severance indemnities for each of the
two years in the period ended March 31, 1999 included the following components:
<TABLE>
<CAPTION>
1998 1999 1999
------------ ------------ ------------
Millions of yen Millions of
U.S. dollars
<S> <C> <C> <C>
Service cost....................... (Yen)132,444 (Yen)132,573 $1,096
Interest cost on projected benefit
obligation........................ 19,788 25,651 212
Expected return on plan assets..... (26,594) (32,037) (265)
Employee contributions............. (31,362) (32,071) (265)
------------ ------------ ------
Net periodic severance payments
under SFAS 87..................... 94,276 94,116 778
Gain on transferred plan assets in
excess of projected benefit
obligation as of April 1, 1997.... (133,951) -- --
Deduct: Amounts attributable to
regulatory accounting practices
under SFAS 71..................... 77,860 (24,187) (200)
------------ ------------ ------
Total cost for employees' severance
indemnities as recorded in the
consolidated statement of income.. (Yen) 38,185 (Yen) 69,929 $ 578
============ ============ ======
Assumptions in determination of net
pension cost:
Discount rate.................... 3.5% 3.5%
Long-term rate of salary
increases....................... 3.5% 3.5%
Long-term rate of return on
funded assets................... 4.0% 4.0%
</TABLE>
11. Income taxes:
NTT and its subsidiaries are subject to a number of different taxes, based on
income with an aggregate normal statutory tax rate of approximately 51 percent
(1997 and 1998) and 48 percent (1999). Due to a change in Japanese income tax
regulations, effective April 1, 1999, the statutory rate was reduced to
approximately 41% 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 NTT for the years ended March 31, 1997, 1998 and
1999 differ from the normal statutory tax rates for the following reasons:
<TABLE>
<CAPTION>
Percent of income
before income taxes
----------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Normal statutory tax rate............................ 51.00% 51.00% 48.00%
Changes in income tax rate........................... -- 6.49 4.59
Provision (reversal) of valuation allowance.......... -- 4.66 (1.45)
Other................................................ 0.18 1.66 0.04
------ ------ ------
Effective tax rate................................... 51.18% 63.81% 51.18%
====== ====== ======
</TABLE>
F-22
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant components of the deferred tax assets and liabilities at March
31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
1998 1999 1999
------------ ------------ ------------
Millions of yen Millions of
U.S. dollars
<S> <C> <C> <C>
Deferred tax assets:
Liability for employees'
severance payments.............. (Yen)569,678 (Yen)786,851 $6,503
Advance received................. 11,012 8,069 67
Accrued enterprise tax........... 18,951 42,957 355
Depreciation..................... 23,268 80,832 668
Financial assistance to
subsidiary companies............ 95,375 -- --
Compensated absences............. 38,239 95,557 790
Unamortized purchases of the
leased assets................... 12,623 37,976 314
Other............................ 53,010 65,522 541
------------ ------------ ------
Total gross deferred tax assets.. 822,156 1,117,764 9,238
Less valuation allowance......... (30,573) -- --
------------ ------------ ------
Total deferred tax assets........ 791,583 1,117,764 9,238
------------ ------------ ------
Deferred tax liabilities:
Valuation for securities......... 17,011 13,098 108
Special reserve for tax
purposes........................ 41,897 30,903 255
Gains on sales of subsidiary
stocks.......................... 31,972 358,099 2,960
Other............................ 50,684 61,217 506
------------ ------------ ------
Total gross deferred tax
liabilities..................... 141,564 463,317 3,829
------------ ------------ ------
Net deferred tax assets.......... (Yen)650,019 (Yen)654,447 $5,409
============ ============ ======
</TABLE>
NTT Mobile Communications Network Inc., and its eight regional subsidiaries
(together, "NTT DoCoMo", a trademark which stands for "Do Communications over
the Mobile Network") and NTT were major shareholders of NTT Personal Group,
which operated NTT's PHS business. In May 1998 NTT 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. Through the liquidation, NTT and NTT
DoCoMo provided financial assistance to NTT Personal Group in the form of
intercompany loans. Although losses relating to the financial assistance had
already been recognized on a consolidated basis, they were not tax deductible
until the liquidation was completed. Therefore, NTT recognized deferred tax
assets related to these losses in the fiscal year ended March 31, 1998. The
liquidation of NTT Personal Group was completed in March 1999. Because the tax
losses of NTT Personal Group have been realized in the fiscal year ended March
31, 1999, the valuation allowance at March 31, 1998, which mainly related to
deferred tax assets on the losses related to financial assistance to subsidiary
companies which are not expected to be tax deductible, was reversed. The net
changes in the total valuation allowance for the fiscal years ended March 31,
1998 and 1999 were an increase of (Yen)29,094 million and a decrease of
(Yen)30,573 million ($253 million), respectively.
F-23
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net deferred tax assets at March 31, 1998 and 1999 are included in the
consolidated balance sheet as follows:
<TABLE>
<CAPTION>
1998 1999 1999
------------ ------------ ------------
Millions of yen Millions of
U.S. dollars
<S> <C> <C> <C>
Prepaid expenses and other current
assets........................... (Yen)138,686 (Yen)166,355 $1,375
Deferred income taxes (investments
and other assets)................ 511,334 502,393 4,152
Other current liabilities......... -- (7,684) (63)
Other long-term liabilities....... (1) (6,617) (55)
------------ ------------ ------
(Yen)650,019 (Yen)654,447 $5,409
============ ============ ======
</TABLE>
Operating loss carryforwards for tax purposes of consolidated subsidiaries
at March 31, 1999 amounted to approximately (Yen)3,561 million ($29 million)
and are available as an offset against future taxable income of such
subsidiaries. These carryforwards expire at various dates up to five years.
Realization is dependent on such subsidiaries generating sufficient taxable
income prior to expiration of the loss carryforwards. Although realization is
not assured, management believes it is more likely than not that all of the
deferred tax assets 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 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, NTT was incorporated on April 1, 1985, upon which all the assets and
liabilities of the Public Corporation were transferred to NTT. 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 6,400 thousand
shares of NTT's common stock to the public. As a normal part of its business
operations, NTT provides various telecommunications and other services to the
Government of Japan.
According to the NTT Law, NTT must obtain authorization from the Minister of
Posts and Telecommunications for certain financial matters including (1) any
new issue of shares, convertible debentures or debentures with preemptive
rights to acquire new shares; (2) any resolution for (i) a change in the
Articles of Incorporation, (ii) an appropriation of profits or (iii) any
merger or dissolution; and (3) any 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 computed in accordance with generally accepted accounting
principles in Japan.
F-24
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On November 24, 1995, based upon the resolution of the Board of Directors'
Meeting held on April 28, 1995, NTT capitalized the aggregate amount of
(Yen)15,600 million ($129 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. Under generally accepted accounting principles 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 ($1,939 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)2,888,757 million
($23,874 million) at March 31, 1999.
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, 1999 includes amounts
representing final cash dividends of (Yen)119,339 million ($986 million),
(Yen)7,500 ($62) per share, and the related transfer to the legal reserve of
(Yen)11,934 million ($99 million), which were approved at the shareholders'
meeting held on June 29, 1999.
Accumulated other comprehensive income (loss)--
An analysis of the changes for the years ended March 31, 1997, 1998 and 1999
in accumulated other comprehensive income (loss) is shown below:
<TABLE>
<CAPTION>
1997 1998 1999 1999
----------- ------------ ------------ ------------------------
Millions of yen Millions of U.S. dollars
<S> <C> <C> <C> <C>
Unrealized gain on
securities:
At beginning of year.. (Yen)22,959 (Yen) (4,648) (Yen)(20,061) $(166)
Change during the
year................. (27,607) (15,413) (2,120) (17)
----------- ------------ ------------ -----
At end of year...... (Yen)(4,648) (Yen)(20,061) (Yen)(22,181) $(183)
=========== ============ ============ =====
Foreign currency
translation
adjustments:
At beginning of year.. (Yen) -- (Yen) -- (Yen) 4,030 $ 33
Change during the
year................. -- 4,030 (4,291) (35)
----------- ------------ ------------ -----
At end of year...... (Yen) -- (Yen) 4,030 (Yen) (261) $ (2)
=========== ============ ============ =====
Minimum pension
liability adjustments:
At beginning of year.. (Yen) -- (Yen) -- (Yen)---- $ --
Change during the
year................. -- -- (21,136) (175)
----------- ------------ ------------ -----
At end of year...... (Yen) -- (Yen) -- (Yen)(21,136) $(175)
=========== ============ ============ =====
Total accumulated other
comprehensive income
(loss):
At beginning of year.. (Yen)22,959 (Yen) (4,648) (Yen)(16,031) $(133)
Change during the
year................. (27,607) (11,383) (27,547) (227)
----------- ------------ ------------ -----
At end of year...... (Yen)(4,648) (Yen)(16,031) (Yen)(43,578) $(360)
=========== ============ ============ =====
</TABLE>
F-25
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Tax effects allocated to each component of other comprehensive income (loss)
for the years ended March 31, 1997, 1998 and 1999 is shown below:
<TABLE>
<CAPTION>
Pre-tax Net-of-tax
amount Tax expense amount
------------ ----------- ------------
Millions of yen
<S> <C> <C> <C>
For the year ended March 31, 1997:
Unrealized gain on securities... (Yen)(56,442) (Yen)28,835 (Yen)(27,607)
------------ ----------- ------------
Other comprehensive income
(loss)....................... (Yen)(56,442) (Yen)28,835 (Yen)(27,607)
============ =========== ============
For the year ended March 31, 1998:
Unrealized gain on securities... (Yen)(29,090) (Yen)13,677 (Yen)(15,413)
Foreign currency translation
adjustments.................... 7,750 (3,720) 4,030
------------ ----------- ------------
Other comprehensive income
(loss)....................... (Yen)(21,340) (Yen) 9,957 (Yen)(11,383)
============ =========== ============
For the year ended March 31, 1999:
Unrealized gain on securities... (Yen) (5,210) (Yen) 3,090 (Yen) (2,120)
Foreign currency translation
adjustments.................... (8,192) 3,901 (4,291)
Minimum pension liability
adjustment..................... (35,824) 14,688 (21,136)
------------ ----------- ------------
Other comprehensive income
(loss)....................... (Yen)(49,226) (Yen)21,679 (Yen)(27,547)
============ =========== ============
<CAPTION>
Pre-tax Net-of-tax
amount Tax expense amount
------------ ----------- ------------
Millions of U.S. dollars
<S> <C> <C> <C>
For the year ended March 31, 1999:
Unrealized gain on securities... $ (43) $ 26 $ (17)
Foreign currency translation
adjustments.................... (68) 33 (35)
Minimum pension liability
adjustment..................... (296) 121 (175)
------------ ----------- ------------
Other comprehensive income
(loss)....................... $ (407) $ 180 $ (227)
============ =========== ============
</TABLE>
14. Business segment and geographic area:
Effective for the fiscal year ended March 31, 1999, NTT adopted Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information" which requires disclosure of
financial and descriptive information about NTT Group's reportable operating
segments. The operation segments reported below are the segments of NTT for
which separate financial information is available and for operating profit/loss
amounts are evaluated regularly by executive management in deciding how to
allocate resources and in assessing performance.
NTT Group's results are segmented according to its four primary lines of
business: wireline services, wireless services, data communication services and
other services. NTT Group's wireline services segment, provided by NTT,
includes telephone services (excluding cellular services and PHS services),
telegraph services, leased circuit services, ISDN services and other related
services. NTT Group's wireless services segment, provided by NTT DoCoMo,
includes cellular services, PHS services and other related services. NTT
Group's data communication services segment, provided by NTT DATA, includes
data communication facility services, System Integration services and other
related services. The other services segment includes the management of
telecommunications facilities, sale and maintenance of telecommunications
equipment, the loan of real estate, sale of telephone cards and certain other
services, primarily within the NTT Group itself.
F-26
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Business segments--
Sales and operating revenue:
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------------------------------------------
1997 1998 1999 1999
-------------- -------------- -------------- ------------
Millions of yen Millions of
U.S. dollars
<S> <C> <C> <C> <C>
Sales and operating
revenue:
Wireline services--
Customers........... (Yen)6,141,658 (Yen)6,046,334 (Yen)5,752,301 $ 47,540
Intersegment........ 229,755 276,010 384,703 3,179
-------------- -------------- -------------- --------
Total............... 6,371,413 6,322,344 6,137,004 50,719
Wireless services--
Customer............ 2,038,311 2,682,658 3,206,829 26,503
Intersegment........ 119,217 257,384 149,317 1,234
-------------- -------------- -------------- --------
Total............... 2,157,528 2,940,042 3,356,146 27,737
Data communication
services--
Customers........... 547,962 609,118 633,909 5,239
Intersegment........ 54,875 60,111 71,556 591
-------------- -------------- -------------- --------
Total............... 602,837 669,229 705,465 5,830
Other--
Customers........... 93,851 111,903 136,634 1,129
Intersegment........ 555,502 960,654 1,338,100 11,059
-------------- -------------- -------------- --------
Total............... 649,353 1,072,557 1,474,734 12,188
Elimination........... (959,349) (1,554,159) (1,943,676) (16,063)
-------------- -------------- -------------- --------
Consolidated total.... (Yen)8,821,782 (Yen)9,450,013 (Yen)9,729,673 $ 80,411
============== ============== ============== ========
</TABLE>
F-27
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Segment profit or loss:
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------------------------------
1997 1998 1999 1999
------------ ------------ -------------- ------------
Millions of yen Millions of
U.S. dollars
<S> <C> <C> <C> <C>
Operating income:
Wireline services..... (Yen)562,742 (Yen)467,228 (Yen) 83,283 $ 688
Wireless services..... 106,873 327,154 467,521 3,864
Data communication
services............. 41,436 43,217 29,626 245
Other................. 34,131 2,584 52,535 434
------------ ------------ -------------- -------
Total................. 745,182 840,183 632,965 5,231
Elimination........... 24,293 31,862 78,470 649
------------ ------------ -------------- -------
Consolidated operating
income................. 769,475 872,045 711,435 5,880
Other income............ 82,871 66,511 1,716,115 14,183
Other expenses.......... 342,573 283,024 313,589 2,592
------------ ------------ -------------- -------
Consolidated income
before income taxes.... (Yen)509,773 (Yen)655,532 (Yen)2,113,961 $17,471
============ ============ ============== =======
Equity in earnings
(losses) in other
income:
Wireline services..... (Yen) 9,731 (Yen) 6,076 (Yen) 3,427 $ 28
Wireless services..... 4,486 2,057 7,834 65
Data communication
services............. 171 1,353 1,156 10
Other................. (59) (7) (3,374) (28)
------------ ------------ -------------- -------
Consolidated total...... (Yen) 14,329 (Yen) 9,479 (Yen) 9,043 $ 75
============ ============ ============== =======
</TABLE>
Assets:
<TABLE>
<CAPTION>
At March 31,
---------------------------------------------------------------
1997 1998 1999 1999
--------------- --------------- --------------- ------------
Millions of yen Millions of
U.S. dollars
<S> <C> <C> <C> <C>
Total Assets:
Wireline services..... (Yen)13,026,768 (Yen)12,774,420 (Yen)12,489,103 $103,216
Wireless services..... 2,281,953 2,845,854 4,124,605 34,087
Data communication
services............. 903,609 964,329 1,038,138 8,580
Other................. 786,577 1,512,152 2,290,675 18,931
--------------- --------------- --------------- --------
Total................. 16,998,907 18,096,755 19,942,521 164,814
Elimination........... (523,813) (744,224) (1,369,273) (11,316)
--------------- --------------- --------------- --------
Consolidated total...... (Yen)16,475,094 (Yen)17,352,531 (Yen)18,573,248 $153,498
=============== =============== =============== ========
</TABLE>
F-28
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Other significant items:
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------------------------------
1997 1998 1999 1999
-------------- -------------- -------------- ------------
Millions of yen Millions of
U.S. dollars
<S> <C> <C> <C> <C>
Depreciation and
amortization:
Wireline services..... (Yen)1,625,641 (Yen)1,593,176 (Yen)1,620,457 $13,392
Wireless services..... 292,926 422,419 492,402 4,069
Data communication
services............. 140,173 148,398 147,553 1,220
Other................. 34,574 117,850 179,545 1,484
-------------- -------------- -------------- -------
Consolidated total...... (Yen)2,093,314 (Yen)2,281,843 (Yen)2,439,957 $20,165
============== ============== ============== =======
Capital expenditures for
segment assets:
Wireline services .... (Yen)1,991,196 (Yen)1,886,969 (Yen)1,727,901 $14,280
Wireless services .... 808,810 791,845 870,417 7,194
Data communication
services ............ 190,164 161,705 236,098 1,951
Other................. 87,478 121,807 253,443 2,095
-------------- -------------- -------------- -------
Consolidated total...... (Yen)3,077,648 (Yen)2,962,326 (Yen)3,087,859 $25,520
============== ============== ============== =======
</TABLE>
The capital expenditures in the above table represent the additions to fixed
assets of each segment.
Transfers between reportable business are made at arms-length prices.
Operating income is sales and operating revenue less costs and operating
expenses.
There has been no sales and operating revenue from transactions with a single
external customer amounting to 10 percent or more of NTT's revenues for the
years ended March 31, 1997, 1998 and 1999.
15. Leases:
NTT and its subsidiaries lease certain office space, employees' residential
facilities and other assets. Leases qualifying as capital leases at March 31,
1998 and 1999 were as follows:
<TABLE>
<CAPTION>
Class of property 1998 1999 1999
----------------- ------------ ------------ ------------
Millions of yen Millions of
U.S. dollars
<S> <C> <C> <C>
Buildings........................... (Yen)393,233 (Yen)381,663 $ 3,154
Machinery, vessels and tools........ 305,545 287,824 2,379
Accumulated depreciation............ (197,526) (308,581) (2,550)
------------ ------------ -------
(Yen)501,252 (Yen)360,906 $ 2,983
============ ============ =======
</TABLE>
F-29
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future minimum lease payments by year under capital leases together with the
present value of the net minimum lease payments at March 31, 1999 are as
follows:
<TABLE>
<CAPTION>
Millions of Millions of
Year ending March 31 yen U.S. dollars
-------------------- ------------ ------------
<S> <C> <C>
2000............................................... (Yen)41,241 $ 341
2001............................................... 40,175 332
2002............................................... 32,927 272
2003............................................... 29,937 248
2004............................................... 29,564 244
Later years........................................ 1,121,401 9,268
------------ ------
Total minimum lease payments....................... 1,295,245 10,705
Less--Amount representing interest................. 904,091 7,472
------------ ------
Present value of net minimum lease payments........ 391,154 3,233
Less--Current obligation........................... 13,071 108
------------ ------
Long-term capital lease obligations................ (Yen)378,083 $3,125
============ ======
</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, 1997, 1998 and 1999 were (Yen)178,519 million,
(Yen)153,055 million and (Yen)146,443 million ($1,210 million), respectively.
Certain consolidated subsidiaries undertake direct financing lease
operations. Direct financing leases consist of full-payout leases relating to
various equipment, including office equipment, medical equipment, transport
equipment and other equipment. The excess of aggregate leases rentals plus the
estimated residual value over the cost of the leased equipment constitutes the
unearned lease income to be taken into income over the lease term. The
estimated residual values represent estimated proceeds from the disposition of
equipment at the time the lease is terminated. Amortization of unearned lease
income is computed using the interest method.
Finance lease receivables at March 31, 1999 comprise the following:
<TABLE>
<CAPTION>
Millions of Millions of
yen U.S. dollars
------------ ------------
<S> <C> <C>
Investment in financing leases:
Total minimum lease payments receivable......... (Yen)394,687 $3,262
Unearned income................................. (44,301) (366)
Estimated residual values....................... 507 4
------------ ------
350,893 2,900
Less--Allowance for doubtful accounts............. 3,416 28
------------ ------
347,477 2,872
Less--Current portion............................. 136,270 1,126
------------ ------
(Yen)211,207 $1,746
============ ======
</TABLE>
F-30
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At March 31, 1999, the contractual maturities of minimum lease payments of
the investment in financing leases are as follows:
<TABLE>
<CAPTION>
Millions of Millions of
Year ending March 31 yen U.S. dollars
-------------------- ------------ ------------
<S> <C> <C>
2000............................................... (Yen)167,850 $1,387
2001............................................... 111,141 918
2002............................................... 64,175 530
2003............................................... 30,924 256
2004............................................... 12,057 100
Thereafter......................................... 8,540 71
------------ ------
(Yen)394,687 $3,262
============ ======
</TABLE>
Allowance for doubtful accounts is based upon past loss experience and an
estimation of mortgaged asset values.
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, 1997, 1998 and 1999
were (Yen)328,529 million, (Yen)288,931 million and (Yen)381,776 million
($3,155 million), respectively.
Advertising costs--
Advertising costs are expensed as incurred. Advertising costs included in
other operating expenses were (Yen)75,244 million, (Yen)83,452 million and
(Yen)89,956 million ($743 million) for the years ended March 31, 1997, 1998 and
1999, respectively.
17. Gains on sales of subsidiary stock:
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 ($45,190) per share, which was in
excess of NTT's average per share carrying value. The issuance of these shares
at an aggregate issuance price of (Yen)150,370 million ($1,243 million) is
regarded as a sale of a part of NTT's interest in NTT DATA. As a result of the
issuance, NTT's shareholding in NTT DATA declined from 60 percent to 54
percent.
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 at a price of (Yen)3,900 thousand ($32,231)
per share. NTT sold 218,000 shares of NTT Central DoCoMo's common stock,
without par value, for total proceeds of (Yen)826,140 million ($6,828 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 ($10,219 million),
net of related expenses. As a result of the offering, NTT's stake in NTT
Central DoCoMo has been reduced from 94.68 percent to 67.13 percent.
The resulting pretax gains on these issuances and sales of subsidiary stock
amounting to approximately (Yen)1,634,314 million ($13,507 million) are
recognized in the consolidated statement of income for the year ended March 31,
1999 together with applicable deferred taxes thereon. In the consolidated
statement of cash flows for
F-31
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the year ended March 31, 1999, the gains on sales of subsidiary stock are
excluded from the cash flows from operating activities and the related cash
proceeds of (Yen)2,213,010 million ($18,289 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, 1997, 1998 and 1999 were losses of (Yen)2,120
million, (Yen)799 million and gain of (Yen)1,368 million ($11 million),
respectively.
19. Financial instruments:
The carrying amounts and the estimated fair values of financial instruments
excluding debt and equity securities at March 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
1998 1999 1999
---------------------- ---------------------- -----------------
Carrying Carrying Carrying Fair
amounts Fair value amounts Fair value amounts value
---------- ---------- ---------- ---------- -------- -------
Millions of yen Millions of
U.S. dollars
<S> <C> <C> <C> <C> <C> <C>
Long-term debt including
current portion........ (5,601,531) (5,756,528) (5,406,904) (5,523,304) (44,685) (45,647)
Forward exchange
contracts.............. (52,473) 41,302 (10,492) 1,255 (87) 10
Interest rate and
currency swap
agreements............. (10,690) 9,425 6,654 (6,344) 55 (52)
Option contracts
purchased.............. -- -- 155 0 1 0
Option contracts
written................ -- -- (267) (267) (2) (2)
</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 NTT's current incremental rates of borrowings for
similar liabilities.
Derivative financial instruments--
The fair values of forward exchange contracts, interest rate swap agreements,
currency swap agreements and interest rate option contracts are estimated based
on the amounts NTT and certain subsidiaries would receive or pay to terminate
the contracts at March 31, 1998 and 1999 with discounted amounts of net future
cash flows.
F-32
<PAGE>
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The table below shows the notional principal amounts of those derivative
financial instruments at March 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999 1999
------------ ------------ ------------
Millions of yen Millions of
U.S. dollars
<S> <C> <C> <C>
Forward exchange contracts.......... (Yen)499,056 (Yen)396,679 $3,278
Interest rate and currency swap
agreements......................... 553,270 850,074 7,025
Option contracts purchased.......... -- 30,000 248
Option contracts written............ -- 21,600 179
</TABLE>
Concentrations of credit risk--
NTT 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,
1999.
20. Commitments and contingent liabilities:
Commitments outstanding at March 31, 1999 for the purchase of property, plant
and equipment and other assets approximated (Yen)578,054 million ($4,777
million).
Contingent liabilities at March 31, 1999 for loans guaranteed amounted to
(Yen)46,814 million ($387 million).
At March 31, 1999, NTT and its subsidiaries had no material litigation or
claims outstanding, pending or threatened against it, which would have a
material adverse effect on NTT's consolidated financial position or results of
operations.
21. Subsequent events:
Subsequent to March 31, 1999, NTT issued (Yen)120,000 million ($992 million)
coupon yen-denominated bonds and (Yen)95,363 million ($788 million) Euro-
denominated Eurobonds.
In accordance with the Commercial Law of Japan, the Board of Directors has
obtained the approval of shareholders to acquire and retire stock of NTT during
the period beginning from June 29, 1999 and continuing to the conclusion of the
next Ordinary General Meeting of Shareholders at a cost not to exceed
(Yen)120,000 million ($992 million) with funds derived from retained profits of
NTT. On July 13, 1999, NTT repurchased 48,898 shares through transaction
executed on the Tokyo Stock Exchange at the price of (Yen)1,500,000 per share.
As a result of the repurchase, the number of outstanding shares was reduced to
15,863,102 and retained earnings was reduced by (Yen)73,347 million ($606
million).
NTT DoCoMo announced the revision of its fixed monthly charges for cellular
telephone services and the introduction of a new charge plan (O-Hanashi Plus
Big) which was effective on June 1, 1999 and will be effective on July 1, 1999,
respectively.
Also, NTT DoCoMo announced the introduction of a new fee-based volume
discount (Ichinen Waribiki) which will be effective on July 1, 1999.
F-33
<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. Goldman Sachs
International, Nikko Salomon Smith Barney Limited 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., Salomon Smith Barney Inc. and Warburg Dillon Read LLC are
the representatives of the U.S. offering.
<TABLE>
<CAPTION>
U.S. Underwriters Number of Shares
----------------- ----------------
<S> <C>
Goldman, Sachs & Co.........................................
Salomon Smith Barney Inc. ..................................
Warburg Dillon Read LLC.....................................
Daiwa Securities America Inc................................
J.P. Morgan Securities Inc..................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................
Morgan Stanley & Co. Incorporated...........................
Nomura Securities International, Inc........................
------
Total.......................................................
======
</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 with the
underwriters for the international offering for the sale of shares outside
the United States, Canada and Japan. Warburg Dillon Read, Goldman Sachs
International and Salomon Brothers International Limited are the joint lead
managers of 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. Nikko Salomon Smith Barney Limited, Warburg Dillon
Read (Japan) Limited and Goldman Sachs (Japan) Ltd. are the lead managers of
the Japanese offering. The U.S. and international offerings are conditioned
upon the Japanese offering. 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.
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.
U-1
<PAGE>
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 (Yen) .
NTT has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
This prospectus may be used by the underwriters and other dealers in
connection with offers and sales of the shares, including sales of shares
initially sold by the underwriters in the offerings being made outside of the
United States, to persons located in the United States.
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 November , 1999 (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 November , 1999.
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....................................................... 3
Where To Find More Information........................................... 9
Forward Looking Statements............................................... 9
Use of Proceeds.......................................................... 10
Exchange Rates........................................................... 10
Capitalization........................................................... 11
Selected Financial Data.................................................. 12
Selected Operating and Other Data........................................ 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 15
Business................................................................. 28
Regulatory Developments.................................................. 42
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................................ 58
Certain Tax Considerations............................................... 64
Experts.................................................................. 67
Validity of Securities................................................... 67
Index to Financial Statements............................................ F-1
Underwriting............................................................. U-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Nippon Telegraph and Telephone Corporation
952,000 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.
Nikko SalomonSmithBarney
Americas
Warburg Dillon Read LLC
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............. $ 632,690
Accounting fees and expenses.................................... 60,000
Legal fees and expenses......................................... 1,690,000
Printing expenses............................................... 1,900,000
Miscellaneous................................................... 5,900,000
-----------
Total....................................................... $10,182,690
===========
</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-4.
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 October 15, 1999.
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 October 15, 1999
______________________________________
Shigeo Sawada
* President and Director October 15, 1999
______________________________________ (Principal Executive
Jun-ichiro Miyazu Officer)
* Senior Executive Vice October 15, 1999
______________________________________ President and Director
Norio Wada
* Senior Executive Vice October 15, 1999
______________________________________ President and Director
Yusuke Tachibana
* Executive Vice President October 15, 1999
______________________________________ and Director (Principal
Toshiyuki Mineshima Financial and Accounting
Officer)
* Senior Vice President and October 15, 1999
______________________________________ Director
Kunihiro Kato
* Senior Vice President and October 15, 1999
______________________________________ Director
Kanji Koide
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Senior Vice President and October 15, 1999
______________________________________ Director
Shigehiko Suzuki
* Senior Vice President and October 15, 1999
______________________________________ Director
Hiromi Wasai
* Senior Vice President and October 15, 1999
______________________________________ Director
Toyohiko Takabe
Senior Vice President and
______________________________________ Director
Takashi Imai
Senior Vice President and
______________________________________ Director
Yotaro Kobayashi
NTT AMERICA, INC.
* President and Chief October 15, 1999
By: __________________________________ Executive Officer
Keisuke Nakasaki
/s/ Masayuki Hirata
*By: _________________________________
Masayuki Hirata, attorney-in-fact
</TABLE>
* Masayuki Hirata, 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-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
Exhibit No.
------- ----
<C> <S> <C>
1. Form of Underwriting Agreement.
2.1 The Law Concerning Nippon Telegraph and Telephone Corporation,
etc. (English translation thereof).
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).
2.4 Plan concerning the reorganization of NTT approved by the
shareholders of NTT on June 29, 1999 (incorporated by reference
to NTT's Form 6-K dated June 14, 1999).
3.1 Articles of Incorporation of NTT (English translation thereof)
(incorporated by reference to NTT's Form 6-K dated September
29, 1999).
3.2 Regulations of Board of Directors of NTT (English translation
thereof) (incorporated by reference to NTT's Form 6-K dated
September 29, 1999).
3.3 Share Handling Regulations of NTT (English translation thereof)
(incorporated by reference to NTT's Form 6-K dated September
29, 1999).
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 LLP.
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 LLP (included in
Exhibit 8.1).
24. Powers of Attorney.
</TABLE>
II-4
<PAGE>
EXHIBIT 1
Nippon Telegraph and Telephone Corporation
Global Offering of 952,000 Shares of Common Stock
(Par Value (Yen)50,000 per Share)
U.S. Underwriting Agreement
---------------------------
THIS U.S. UNDERWRITING AGREEMENT (this "Agreement") is made on
November [ ], 1999 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., SALOMON SMITH
BARNEY INC. and WARBURG DILLON READ LLC, 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"), Goldman Sachs
International and Salomon Brothers International Limited 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 Nikko Salomon Smith Barney Limited, Warburg Dillon Read (Japan) Limited
and Goldman Sachs (Japan) Ltd. are acting as lead 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 closing under the Japanese Underwriting Agreement (defined below).
<PAGE>
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 Goldman Sachs International, Nikko Salomon Smith Barney
Limited 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 thereof,
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-[ ]) 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 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
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"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;
(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
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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 any of the Company, NTT East Corporation,
NTT West Corporation or NTT Communications Corporation (together the "NTT
Core Group"), except for the capital increase to (Yen)72 billion effected
on July 2, 1999 by NTT Communications Corporation, (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) Each company in the NTT Core Group has been duly incorporated and is
validly existing as a joint stock company 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
subsidiaries taken as a whole; and each other 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 9 of The Law
Concerning Nippon Telegraph and Telephone Corporation, etc.), encumbrances,
equities or claims; all of the shares of 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
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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;
(xi) Except as described in the Prospectus, (i) 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 NTT Common Stock represented by
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 (ii) 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
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<PAGE>
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 by the Company 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 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) No company in the NTT Core Group is (i) in violation of its Articles
of Incorporation, Regulations of the Board of Directors and Share Handling
Regulations, or (ii) 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 with such exceptions in the case of this clause
(ii) 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;
(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
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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 ADRs and Deposit
Agreement", 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 9 of The Law Concerning Nippon Telegraph and Telephone
Corporation, etc.), 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;
(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
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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;
(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,
subject, as to enforcement, to any applicable sovereign immunity;
(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 Global Underwriting Agreements;
(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
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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.
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 [ ], 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 [ ] 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 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 the Underwriters make no representations as to
compliance with applicable laws with respect to the content of, including any
misstatements or omissions in, the Registration Statement or any prospectus.
Each Representative further represents and warrants to the Company and the
Selling Shareholder that (1) it has all corporate authority necessary to enter
into this Agreement, (2) that each Underwriter has authorized it, pursuant to
the terms of the Agreement Among U.S. Underwriters, for the account of such
Underwriter, to accept delivery of and receipt for, and to make payment of the
purchase price for, the U.S. Shares or U.S. ADSs, which it has agreed to
purchase, and (3) it has all requisite authority, pursuant to the terms of the
Agreement Among U.S. Underwriters, in order to receive on behalf of the
Underwriters the amount referred to in the second paragraph of Section 2 hereof.
4. (a) No later than two Tokyo Business Days prior to the Delivery Date
(as defined below), the Selling Shareholder shall deliver the certificates
representing the U.S. Shares to Goldman Sachs
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(Japan) Ltd. ("GSJ") as custodian, for safekeeping in accordance with and on
terms set out in a custody agreement separately entered into between the Selling
Shareholder and GSJ, for deposit with the Japan Securities Depository Center
("JASDEC"). Such Shares will be held by GSJ in its account at JASDEC, and upon
receipt of the certificates for the U.S. Shares, GSJ shall issue a certificate
("Share Custody Certificate") to the Selling Shareholder in a pre-agreed form,
confirming credit of the U.S. Shares in the account of the Selling Shareholder
at GSJ. The safe custody arrangements set forth in this clause (a) will not
affect good and valid title of the Selling Shareholder to the U.S. Shares.
(b) 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 aggregate purchase price for the U.S.
Shares 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.
(c) The time and date of delivery of the U.S. Shares shall be 9:00 a.m.,
Tokyo time, on November [ ], 1999 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". At the
Time of Delivery, the Selling Shareholder shall return the Share Custody
Certificate to GSJ which shall be deemed to be an instruction by the Selling
Shareholder to deliver or cause to be delivered the U.S. Shares to Goldman,
Sachs & Co. or its agent in Japan acting as agent on behalf of the Underwriters
by transfer of the U.S. Shares into the account of Goldman, Sachs & Co. through
GSJ's account at JASDEC. Goldman, Sachs & Co., or its agent shall issue a
receipt for the U.S. Shares in a form prescribed by the Selling Shareholder.
(d) A meeting will be held at the offices of Sullivan & Cromwell, Otemachi
First Square East 16F, 5-1, Otemachi 1-chome, Chiyoda-ku, Tokyo 100-0004, 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(c) and 5(b), at the Time of
Delivery and at or prior to the ADS Time of Delivery (as defined below),
respectively. For the purposes of this Section 4, "Tokyo business day" and "New
York business day" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in Tokyo or New York,
respectively, are generally authorized or obligated by law or executive order to
close.
(e) 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 or such other time and date as the
Selling Shareholder and the Representatives may agree upon in writing. However,
the Selling
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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.
(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(b), 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 November [ ], 1999 (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 New York
business day following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by 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;
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(iii) Prior to 10:00 a.m., New York City time, on the New York 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
months or more after the time of the issue of the Prospectus, upon such
Underwriters' request but 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 New York 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 twenty-four 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 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
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summary financial information of the Company and its subsidiaries for such
interim period in reasonable detail prepared in accordance with U.S. GAAP;
(vii) In connection with the Global Offering, 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 to facilitate the sale or resale of the Offered
Shares and the ADSs or would maintain the market price of NTT Common Stock
at levels which might not otherwise prevail;
(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), 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 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) If all of the conditions specified in Section 8 have been satisfied
or waived by the Underwriters, to return the Share Custody Certificate to
GSJ no later than the Time of Delivery; 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 to facilitate the sale or resale of 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
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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;
(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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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 to Time of
Delivery 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 LLP, 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;
(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
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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 and (ii) 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 any company in
the NTT Core Group, (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) or (ii) is in the judgment of the Joint Global
Coordinators material and if so, after consultation with the Selling
Shareholder (which the Joint Global Coordinators will use good faith
efforts to make and consider and where they will make good faith efforts to
obtain the concurrence of the Selling Shareholder), is in the further
judgment of the Joint Global Coordinators 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 with the Company and the Selling Shareholder (which the Joint
Global Coordinators will use good faith efforts to make and consider and
where they will make good faith efforts to obtain the concurrence of 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 Agreement and the Global Underwriting
Agreements and the Prospectus;
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(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 (i) 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 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 Japanese Underwriting Agreement 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 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,
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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 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,
18
<PAGE>
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 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
19
<PAGE>
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) 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 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
20
<PAGE>
provide a Japanese translation does not affect the validity of such notice) to
1-1 Kasumigaseki 3-chome, Chiyoda-ku, Tokyo 100-8940, Japan, Attention: National
Property Coordination Division, Finance Bureau, the Ministry of Finance; 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: Investor Relations Group, Department IV; 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
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
21
<PAGE>
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. 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 Underwriters in the manner
agreed between them.
18. Time shall be of the essence of this Agreement.
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.
22
<PAGE>
The foregoing being in accordance with the understanding of the
Selling Shareholder, the Company and the Representatives, the parties hereto
have duly executed this Agreement.
THE MINISTER OF FINANCE OF JAPAN
As representative of the Government of Japan
By:
Name: Masaharu Nakagawa
Title: Contracting Officer
Director General of the Finance Bureau
The Ministry of Finance of Japan
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
By:
Name: Jun-ichiro Miyazu
Title: President
GOLDMAN, SACHS & CO.
(Goldman, Sachs & Co.)
SALOMON SMITH BARNEY INC.
By:
Name:
Title: Attorney-in-fact
WARBURG DILLON READ LLC
By:
Name:
Title: Attorney-in-fact
On behalf of each of the Underwriters
23
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Underwriter Total Number of U.S. Shares to be Purchased
- ----------- -------------------------------------------
<S> <C>
Goldman, Sachs & Co. ................................
Salomon Smith Barney Inc. ...........................
Warburg Dillon Read LLC..............................
Daiwa Securities America Inc. .......................
J.P. Morgan Securities Inc. .........................
Merrill Lynch, Pierce, Fenner & Smith Incorporated... ----------
Morgan Stanley & Co. Incorporated....................
Nomura Securities International, Inc. ...............
Total...........................................
</TABLE>
<PAGE>
SCHEDULE II
In this 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" means this U.S. Underwriting Agreement.
"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.
"Closing Location" means the offices of Sullivan & Cromwell, Otemachi
First Square East 16F, 5-1, Otemachi 1-chome, Chiyoda-ku, Tokyo 100-0004, 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.
"Global Underwriters" means the International Underwriters and the
Japanese Underwriters.
1
<PAGE>
"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).
"GSJ" means Goldman Sachs (Japan) Ltd.
"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,
Goldman Sachs International and Salomon Brothers International Limited 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 Nikko Salomon Smith Barney Limited, Warburg
Dillon Read (Japan) Limited and Goldman Sachs (Japan) Ltd. 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.
"JASDEC" means the Japan Securities Depository Center.
2
<PAGE>
"Joint Global Coordinators" means, Goldman Sachs International, Nikko
Salomon Smith Barney Limited 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.
"NTT Common Stock" means the common stock, par value (Yen)50,000 per
share, of the Company.
"NTT Core Group" means the Company, NTT East Corporation, NTT West
Corporation and NTT Communications Corporation.
"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., Salomon Smith Barney
Inc. and Warburg Dillon Read LLC, 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.
"Share Custody Certificate" has the meaning specified in Section 4(a).
"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.
"U.S. ADSs" means ADSs representing U.S. Shares.
3
<PAGE>
"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
LLP, 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 ADRs and Deposit
Agreement" 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
ADS 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 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 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;
(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
I-1
<PAGE>
Agreement and the consummation by the Company of the transactions
contemplated by this Agreement, the Global Underwriting Agreements and the
Deposit Agreement 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 ADRs and Deposit Agreement", 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
Payment (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 Payment (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 Payment (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 Payment, 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 Payment (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 exhibit to the
Registration Statement or required to be incorporated by reference into the
Prospectus or required to be
I-2
<PAGE>
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 company 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 shares of 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 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 agreement
of the Selling Shareholder, enforceable in accordance with its terms,
subject, as to enforcement, to any applicable sovereign immunity;
(v) 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, to general equity principles;
(vi) Each of NTT East Corporation, NTT West Corporation, NTT Communications
Corporation, NTT Mobile Communications Network, Inc. and NTT Data
Corporation has been duly incorporated and is validly existing as a joint
stock company 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
II-1
<PAGE>
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 9 of The Law Concerning Nippon Telegraph and Telephone Corporation,
etc.), encumbrances, equities or claims;
(vii) 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;
(viii) 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;
(ix) 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;
(x) 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;
(xi) No Governmental Authorization of any Governmental Agency in Japan
is required for the consummation by the Company of the transactions
contemplated by this Agreement and the Global Underwriting Agreements or
for the deposit of the Offered Shares being deposited with the Depositary
against issuance of ADRs evidencing the ADSs to be delivered;
(xii) No Governmental Authorization of any Governmental Agency in Japan
is required for the sale of the Offered Shares by the Selling Shareholder
or the consummation 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 has been duly obtained and is in full force and
effect;
(xiii) 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 each of this
Agreement and the Global Underwriting Agreements is in proper form under
the laws of Japan to be enforced against
II-2
<PAGE>
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;
(xiv) 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",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Business", "Regulatory Developments", "Principal Shareholders
and Selling Shareholder", "Description of ADRs and Deposit Agreement--
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;
(xv) 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 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 International Underwriters of
the Offered Shares and ADSs to the initial purchasers thereof in the manner
contemplated herein and in the International Underwriting Agreement;
(xvi) 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;
(xvii) 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 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
II-3
<PAGE>
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;
(xviii) 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;
(xix) 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;
(xx) To the best of such counsel's knowledge, no company in the NTT Core
Group is 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
(xxi) 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(xiv) 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 Payment (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 Payment (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
Payment, either the Registration Statement or the Prospectus or any further
amendment or supplement thereto made by the Company prior to the Time of
Payment (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-4
<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 company 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 East Corporation, NTT West Corporation, NTT Communications
Corporation, NTT Mobile Communications Network, Inc. and NTT Data
Corporation has been duly incorporated and is validly existing as a joint
stock company 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;
(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 certificates
for the Offered Shares are in proper
III-1
<PAGE>
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",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Business", "Regulatory Developments", "Principal Shareholders
and Selling Shareholder", "Description of ADRs and Deposit Agreement--
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 in Japan 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 International Underwriters of
the Offered Shares and ADSs to the initial purchasers thereof in the manner
contemplated herein and in the International Underwriting Agreement;
(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 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
III-2
<PAGE>
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 a U.S. 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 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 Payment (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 Payment (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
Payment, either the Registration Statement or the Prospectus or any further
amendment or supplement thereto
III-3
<PAGE>
made by the Company prior to the Time of Payment (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) Assuming each of this Agreement and the International Underwriting
Agreement has been duly authorized, executed and delivered by the Selling
Shareholder under Japanese law, 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
by the Selling Shareholder of the transactions herein contemplated will not
conflict with or result in a breach or violation of any laws, rules and
regulations of the State of New York and of the United States of America
(except for United States federal securities law), which, in Davis Polk &
Wardwell's experience, are normally applicable to transactions of the type
contemplated by this Agreement, but without having made any special
investigation concerning any other law, rule or regulation except as
specified in the opinion;
(iii) No Governmental Authorization under the federal laws 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) Nothing has come to their attention that causes them to believe
that (i) the Registration Statement and the Prospectus (except for
financial statements and financial schedules and other financial data
included therein, as to which such counsel need not express any belief) do
not comply as to form in all material respects with the requirements of the
Securities Act and the applicable rules and regulations of the Commission
thereunder, (ii) the Registration Statement and the prospectus included
therein (except as stated) at the time the Registration Statement became
effective 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 (iii) the Prospectus (except as
stated) as of its date and as of the date hereof contained or contains an
untrue statement of a material fact or omitted or omits to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
With respect to Section (iv) above, Davis Polk & Wardwell may state that
they have not checked the accuracy, completeness or fairness of, or otherwise
verified, the information furnished in the Registration Statement or the
Prospectus but that they have generally reviewed and discussed with the
Underwriters and the International Underwriters and their representatives, and
with certain officers and employees of, and counsel and independent public
accountants for, the Company, and with certain officials of the Government of
Japan, the information furnished, whether or not subject to their check and
verification.
V-1
<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, to the extent applicable, 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;
(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
VI-1
<PAGE>
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) any 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) any 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 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
VI-2
<PAGE>
accounting records of the Company and its subsidiaries and have found them
to be in agreement.
VI-3
<PAGE>
Exhibit 2.1
THE LAW CONCERNING NIPPON
TELEGRAPH AND TELEPHONE
CORPORATION, ETC
(Law No. 85 of December 25, 1984)
As amended last by :
Law No. 98 of June 20, 1997
1
<PAGE>
(Purpose)
Article l.
(1) The Nippon Telegraph and Telephone Corporation (hereinafter referred to as
"the Company") shall be a company limited (Kabushiki Kaisha) whose purpose
is to own all the shares issued by East Nippon Telegraph and Telephone
Corporation and West Nippon Telegraph and Telephone Corporation, to ensure
proper and stable delivery of telecommunication services supplied by the
latter two companies as well as to engage in research and study of
telecommunication technologies that would constitute the basis of
telecommunications.
(2) East Nippon Telegraph and Telephone Corporation and West Nippon Telegraph
and Telephone Corporation (hereinafter referred to as "the Regional
Companies") shall be companies whose purpose is to operate local
telecommunications businesses.
(Business Activities)
Article 2.
(1) The Company shall, in order to accomplish its corporate objectives, engage
in the following business activities:
i) To accept and hold the shares issued by the Regional Companies and to
execute the rights of shareholder of relative equity;
ii) To offer necessary advice and assistance in the form of mediation,
etc;
iii) To conduct research studies related to telecommunication technologies
that would constitute the basis of telecommunications;
iv) Business activities related to the preceding three stipulations.
(2) The Company can engage in the business activities necessary for execution
of its objective, subject to the approval of the Minister of Posts and
Telecommunications, in addition to the carrying out of preceding
operational activities.
(3) The Regional Companies shall, in order to execute their corporate
objectives, conduct following business activities:
i) Local telecommunication business (referring to the type of
telecommunication services, of which communications are limited within
a prefecture that can be delivered without intermediary facilities of
other telecommunication service operators. The same will apply
hereinafter) to be delivered in the following prefectures (Area to be
specified separately by Ministerial Ordinance of Posts and
Telecommunications when there is a need for it in view of the usage of
telecommunication services at the point of time. The same will apply
hereinafter);
2
<PAGE>
a) As for East Nippon Telegraph and Telephone Corporation, Hokkaido,
Aomori Prefecture, Iwate Prefecture, Miyagi Prefecture, Akita
Prefecture, Yamagata Prefecture, Fukushima Prefecture, Ibaraki
Prefecture, Tochigi Prefecture, Gunma Prefecture, Saitama Prefecture,
Chiba Prefecture, Tokyo Metropolis, Kanagawa Prefecture, Niigata
Prefecture, Yamanashi Prefecture and Nagano Prefecture:
b) As for West Nippon Telegraph and Telephone Corporation, Kyoto
Prefecture, Osaka Prefecture and other prefectures than those
stipulated in a):
ii) Business activities related to the preceding item.
(4) The Regional Companies can, based on the approval of the Minister of Posts
and Telecommunications, engage in the following business activities:
i) In addition to the items listed in the preceding stipulations, those
business and activities necessary for the execution of corporate objectives
of the Regional Companies;
ii) Local telecommunication services to be delivered by them respectively in
the municipal area other than those where they are supposed to conduct
local telecommunication business based on the stipulations in the first
sub-item of prior items.
(Obligations)
Article 3.
The Company and the Regional Companies shall, in managing their own
businesses, give consideration to the maintenance of its proper and efficient
management and shall contribute to the securement of appropriate, fair and
stable provision of nationwide telephone services by providing such services
indispensable to the people's life appropriately and impartially. In addition,
the Company shall endeavor, in view of the importance of the role which
telecommunications will play in the future progress of society and economy, to
contribute to the creative advancement and development of telecommunications
technologies in Japan through promoting research and study regarding
activities in telecommunications technology and through disseminating the
results thereof, and thereby promote the interests of the public.
3
<PAGE>
(Shares)
Article 4.
(1) The Government shall always hold one-third or more of the total number of
the outstanding shares of the Company.
(2) The Company shall obtain authorization from the Minister of Posts and
Telecommunications in order to issue new shares. The same shall apply to
the issuance of convertible debentures or debentures with preemptive rights
to take new shares.
Article 5.
(1) The Company shall always hold all the shares of each of the Regional
Companies.
(2) The Regional Companies shall obtain authorization from the Minister of
Posts and Telecommunications in order to issue new shares. The same shall
apply to the issuance of convertible debentures or debentures with
preemptive rights to take new shares.
(Treatment of Shares Acquired by Foreign Nationals Etc.)
Article 6.
(1) When the Company has received a request to enter the name and address in
its register of shareholders from those persons set forth in any of the
following items who have acquired its shares, the Company shall not do so
if the aggregate of the ratio of the voting rights directly held by the
persons set forth in the item i) through iii) and the ratio prescribed in
the provisions of the applicable ordinance of the Ministry of Posts and
Telecommunications as the ratio of voting right indirectly held by such
persons through controlling the persons set forth in item iv) (such an
aggregate will be referred to as the "ratio of voting rights of foreign
nationals etc.) in this Article reaches or exceeds one fifth by accepting
of the request:
i) Any person who does not have Japanese nationality;
ii) Any foreign government or its representative;
iii) Any foreign juridical person or association;
iv) Any juridical person or association whose voting rights directly held
by the persons set forth in the preceding three items exceed the
ratio prescribed in the applicable ordinance of the Ministry of Posts
and Telecommunications.
4
<PAGE>
(2) In cases when it makes the "ratio of voting rights of foreign nationals
etc." reach or exceed one fifth to register all Article 30 paragraph (1) of
the Law Concerning Central Depository and Book-entry Delivery for Share
Certificate Central Depository Securities (Law No. 30 of 1984), by those
persons set forth in any of the items in the preceding paragraph who are
the beneficiary in the notice prescribed in Article 31 paragraph (1) of
the Law, on the Company's beneficial owners list in accordance with the
provision of Article 32 paragraph (1) of the Law as listed in the notice
prescribed in Article 31 paragraph (1) of the Law, on the Company's
beneficial owners list in accordance with the provision of Article 32
paragraph (2) of the Law, the Company shall not register on its beneficial
owners list, regardless of the provision of Article 32 paragraph (2) of the
Law, the Law, those shares except such shares which may be registered in
the manner stipulated in the applicable ordinance of the Ministry of Posts
and Telecommunications by which only part of such shares are entered on its
beneficial owners list so that the "ratio of voting rights of foreign
nationals etc." does not reach or exceed one fifth.
(3) In the case, other than in those cases provided in the preceding two
paragraphs, when the total number of the Company's outstanding shares
changes, the Company shall take necessary measures to ensure that the
"ratio of voting rights of foreign nationals etc." does not reach or exceed
one fifth.
(4) The Company shall give public notice of the "ratio of voting rights of
foreign nationals etc." before such days as stipulated in the applicable
ordinance of the Ministry of Posts and Telecommunications in advance of the
first day of the period stipulated in Article 224-3 paragraph (1) of the
Commercial Code (Law No. 48 of 1899) or the date in the same paragraph in
the manner stipulated in the applicable ordinance of the Ministry of Posts
and Telecommunications.
(Disposal of Shares Owned by the Government)
Article 7.
Disposal of shares owned by the Government shall be within the limitation on
the number of shares decided by the Diet in the relevant annual budget.
(Restriction on Use of Trade Name)
Article 8.
No person other than the Company or the Regional Companies shall use the term,
"Nippon Telegraph and Telephone Corporation", "East Nippon Telegraph and
Telephone Corporation" or "West Nippon Telegraph and Telephone Corporation" in
his or her trade name.
5
<PAGE>
(General Mortgage)
Article 9.
(1) A holder of debentures of the Company shall, with respect to the property
of the Company, have the right to have his or her claim satisfied, in
preference to other creditors. A holder of debentures of the Regional
Company shall, with respect to the property of the Regional Company, have
the right to have his or her claim satisfied, in preference to other
creditors.
(2) The order of the preferential right referred to in the preceding paragraph
shall be next to the general preferential rights under the provision of the
Civil Code (Law No. 89 of 1896).
(Directors and Auditors)
Article 10.
(1) Any person who does not have Japanese nationality shall not assume the
office of director or auditor of the Company or the Regional Companies.
(2) Any resolution for the appointment or dismissal of directors or auditors of
the Company shall not take effect unless authorized by the Minister of
Posts and Telecommunications.
(Change of Articles of Incorporation, Etc.)
Article 11.
(1) Any resolution for change in the articles of incorporation, or for merger
or dissolution of the Company and the Regional Companies or for disposal of
profits of the company shall not take effect unless authorized by the
Minister of Posts and Telecommunications.
(2) The authorization from the Minster of Posts and Telecommunications for the
resolution for merger of the Regional Companies referred to in the
preceding paragraph (excluding those resolutions for merger, after which
the Regional Company/Companies continues/continue to exist, between the
Regional Company/Companies and a juridical person who does not operate Type
I Telecommunications business (which is stipulated in Article 6 paragraph
(2) of the Telecommunications Business Law (Law No.86 of 1985)) shall be
regarded as the authorization under the provisions of Article 16 paragraph
(2) of the same law with respect to the application of the same paragraph.
6
<PAGE>
(Business Program)
Article 12.
The Company and the Regional Companies shall formulate its business program
for each business year and shall obtain authorization from the Minister of
Posts and Telecommunications before the commencement of that business year.
The same shall apply when such program is to be amended.
(Financial Statements)
Article 13.
The Company and the Regional Companies shall submit to the Minster of Posts
and Telecommunications, within three months after the end of each business
year, its balance sheet, profit and loss account and business report for that
business year.
(Transfer Etc. of Important Facilities)
Article 14.
The Regional Companies shall obtain authorization from the Minister of Posts
and Telecommunications in order to transfer or mortgage their
telecommunications trunk lines or other important telecommunications
facilities.
(Order Etc. for Audit)
Article 15.
(1) The Minister of Posts and Telecommunications may, if the Minister
determines it to be necessary in enforcing this Law, appoint auditors of
the Company and the Regional Companies and have them audit specific items
and report to him the audit results.
(2) The auditor of the Company and the Regional Companies may, if he or she
determines it to be necessary, submit to the Minister of Posts and
Telecommunications his or her opinions based on the audit results.
(Supervision)
Article 16.
(1) The Company and the Regional Companies shall be placed under supervision of
the Minister of Posts and Telecommunications in accordance with the
provisions of this Law.
(2) The Minister of Posts and Telecommunications may, if the Minister
determines it to be necessary in enforcing this Law, issue to the Company
and the Regional Companies orders necessary for the supervision with
respect to its business activities.
7
<PAGE>
(Report)
Article 17.
The Minister of Posts and Telecommunications may, to the extent necessary to
enforce this Law, require the Company and the Regional Companies to make
reports relating to its business activities.
(Consultation with the Minster of Finance)
Article 18.
The Minister of Posts and Telecommunications shall consult with the
Minister of Finance before:
i) the Minister of Posts and Telecommunications grants the Company
authorizations under Article 4 paragraph (2), Article 11 paragraph (1)
(with respect to authorization, this Article shall apply only to those
relating to resolutions for change in the total number of shares to be
issued by the Company), or Article 12;
ii) the Minister of Posts and Telecommunications grants the Regional Companies
under Article 11 paragraph (1), (with respect to authorization, this
Article shall apply only to those relating to resolutions for merger and
dissolution), Article 12 or Article 14.
(Penal Provision)
Article 19.
(1) When a director, auditor or employee of the Company and the Regional
Companies has received, demanded or promised to receive a bribe in
connection with this person's functions, this person shall be guilty of an
offense and liable to penal servitude for a term not exceeding three years.
Anyone who has committed an improper action or has omitted a proper action
thereby shall be guilty of an offense and liable to penal servitude for a
term not exceeding seven years.
(2) When a person who intends to become a director, auditor or employee of the
Company or one of the Regional Companies has received, demanded or promised
to receive a bribe in response to a solicitation in connection with the
functions such person will assume after such person's appointment, such
person shall, upon such person's becoming such director, auditor or
employee, be guilty of an offense and liable to penal servitude for a term
not exceeding two years.
8
<PAGE>
(3) When a person who was a director, auditor or employee of the Company or one
of the Regional Companies has received, demanded or promised to receive a
bribe in response to a solicitation in connection with such person's having
committed an improper action or having omitted a proper action in the
course of performing such person's functions while such person was in
office, such person shall be guilty of an offense and liable to penal
servitude for a term not exceeding two years.
Article 20.
In the case specified in each paragraph of the preceding Article, the bribe
which the offender has received shall be confiscated. Where it is unable to
confiscate any part or the whole part of the bribe, the amount of money
equivalent thereto shall be sought and collected.
Article 21.
(1) Any person who has given, offered or promised to give a bribe as stipulated
in each paragraph of Article 19 shall be guilty of an offense and liable to
penal servitude for a term not exceeding three years or a fine not
exceeding two million and five hundred thousand yen.
(2) When a person who has committed any offense stipulated in the preceding
paragraph denounces himself or herself to the authorities, the sentence
thereof may be reduced or remitted.
Article 22.
The provisions of Article 4 of the Penal Code(Law No. 45 of 2907) shall apply,
mutatis mutandis, to the offenses specified in Article 19 of this Law.
Article 23.
When any of the violations enumerated in the following items has occurred, a
direct auditor of the Company and the Regional Companies who has committed
the violation shall be guilty of an offense and liable to a fine not exceeding
one million yen:
i) When the Company or a Regional Company performed business activities
without obtaining the authorization approval specified in Article 2
paragraph (2) or Article 4;
ii) When the Company or a Regional Company performed business activities other
than those stipulated in Article 2;
9
<PAGE>
iii) When the Company or a Regional Company issued new shares, convertible
debentures or debentures with preemptive rights to take new shares in
contravention of the provisions of in Article 4 paragraph(2) or Article 5
paragraph (2);
iv) When the Company or a Regional Company disposed of the shares of the
Regional companies in contravention of the provisions of Article 5
paragraph (1);
v) When the Company or a Regional Company have failed to submit application
for authorization prior to the start of business year or prior to the
implementation of business program which is subject to change in
contravention of the provision of Article 12;
vi) When the Company or a Regional Company, in contravention of the
provisions of Article 13, have failed to submit their balance sheet,
profit and loss statements, account or business report, or have submitted
such documents containing an untrue statement;
vii) When the Company or a Regional Company, in contravention of the
provisions of Article 14, have alienated or collateralized their own
equipment and/or facilities;
viii)When the Company or a Regional Company have contravened any order issued
under the provisions of Article 16 paragraph (2);
ix) When the Company has failed to make the report under the provisions of
Article 17 or has made any false report.
Article 24.
In cases when any violations to the provisions of Article 6 paragraphs (1)
or (2) has occurred, the employee of the Company and the Regional Companies
or share transfer agent ( where the share transfer agent is a juridical
person, its employee) who has committed the violation shall be guilty of an
offense and liable to fine not exceeding five hundred thousand yen.
Article 25.
(1) Any person who has violated the provisions of Article 8 shall be guilty of
an offense and liable to a fine not exceeding two hundred thousand yen.
(2) When a representative of a juridical person, or proxy, employee or any
other person in the employ of a juridical or natural person has committed
the violation referred to in the preceding paragraph in connection with the
business activities of the juridical or natural person, the juridical or
natural person shall, in addition to the punishment of the offender, be
guilty of an offense and liable to the fine stipulated in the same
paragraph.
Article 26.
A director who neglects to give public notice or gives false public notice in
contravention of the provisions of Article 6 paragraph (4) shall be liable to
a non-penal fine not exceeding one million yen.
10
<PAGE>
Supplementary Provisions
- ------------------------
(Date of Enforcement)
Article 1.
This Law shall come into force as from the date of promulgation. The
provisions of Articles 11 and 12 of the Supplementary Provisions shall,
however, come into force as from April l, 1985.
(Review of the Nature of the Company)
Article 2.
The Government shall, within five years after the date of the incorporation of
the Company, review the nature of the Company, taking into account the
situation under which this Law is enforced and changes in circumstances after
the enforcement of this Law, etc., and shall take necessary measures based
upon the conclusion of the review.
(Incorporation of the Company)
Article 3.
(1) The Minister of Posts and Telecommunications shall appoint members of an
organizing committee and shall have them function as promoters of the
Company.
(2) The organizing committee shall prepare the articles of incorporation and
shall obtain authorization thereof from the Minister of Posts and
Telecommunications.
(3) The Minister of Posts and Telecommunications shall consult with the
Minister of Finance before granting authorization under the preceding
paragraph.
(4) The matters specified in each item of Article 168-2 of the Commercial Code
with respect to shares to be issued at the time of incorporation of the
Company shall be stipulated in the articles of incorporation of the
Company.
(5) With respect to shares to be issued at the time of incorporation of the
Company, more than one half of the total amount of the issue-prices of the
shares may not, regardless of the main provisions of Article 284-2
paragraph (2) of the Commercial Code, not be credited to the capital. In
this case, "this Code" in paragraph (1) of the same Article shall be read
as "this Code or the Nippon Telegraph and Telephone Corporation Law".
11
<PAGE>
(6) The Nippon Telegraph and Telephone Public Corporation (hereinafter referred
to as "the Public Corporation") shall accept all shares to be issued at
the time of incorporation of the Company, and the organizing committee
shall allot all the shares to the Public Corporation.
(7) The government shall exercise the rights, relating to the incorporation of
the Company, as the accepter of the shares allotted under the provisions of
the preceding paragraph.
(8) The Public Corporation shall contribute the whole of its assets to the
Company at the time of incorporation of the Company. In this case, the
provisions of Article 68 of the Nippon Telegraph and Telephone Public
Corporation Law (Law No. 250 of 1952) shall not apply.
(9) With respect to the application of the provisions of Article 180 paragraph
(1) of the Commercial Code in connection with the incorporation of the
Company, "payment and contribution in the form of property other than
money under the provisions of Article 177" in the same paragraph shall be
read as "allotment of shares under the provisions of Article 3 paragraph
(6) of the Supplementary Provisions of the Nippon Telegraph and Telephone
Corporation Law".
(10) The performance with respect to the contribution by the Public Corporation
under the provisions of paragraph (8) above shall be made at the time of
enforcement of the provisions of Article 11 of the Supplementary
Provisions, and the Company shall be incorporated at such time regardless
of the provisions of Article 57 of the Commercial Code.
(11) Regardless of the provisions of Article 188 paragraph (1) of the Commercial
Code, the Company shall, upon incorporation, effect the registration of
incorporation without delay.
(12) Shares of the Company acquired by the Public Corporation as a result of the
contribution shall be transferred gratuitously to the government at the
time of incorporation of the Company.
(13) The provisions of Article 167, Article 168 paragraph (2) and Article 181 of
the Commercial Code shall not apply to the incorporation of the Company.
12
<PAGE>
(Dissolution Etc. of the Public Corporation)
Article 4.
(1) The Public Corporation shall be dissolved at the time of incorporation of
the Company, and all rights and liabilities of the Public Corporation
shall, at such time, be succeeded to by the Company.
(2) With respect to the settlement accounts, inventory, balance sheet and
profit and loss account of the Public Corporation for the business year
commencing on April 1, 1984, precedent shall continue to apply, except for
parts related to Article 10 paragraph (2) item ii) and Article 58 paragraph
(1) (limited to part related to the audit report to be submitted by the
auditor) of the Nippon Telegraph and Telephone Public Corporation Law.
(3) The registration of dissolution of the Public Corporation under the
provisions of paragraph (1) above shall be stipulated in the applicable
cabinet ordinance.
(Transitional Measures for Succession of Rights and Liabilities)
Article 5.
(1) Guarantee contracts which the government has made under the Law Concerning
Special Measures with Respect to the Acceptance of Foreign Capital from the
International Bank for Reconstruction and Development Etc. (Law No. 51 of
1953) with respect to the Public Corporation obligations concerning its
telegraph and telephone bonds to be succeeded to by the Company under the
provisions of paragraph (1) of the preceding Article shall continue to be
effective, even after the succession, on the precedent terms and conditions
with respect to the obligations relating to such bonds. Precedent shall
continue to apply with respect to taxes or other imposts on interests of
telegraph and telephone bonds related to said guarantee contracts or on
gains from redemption of these bonds.
(2) With respect to the obligations, which are to be succeeded to by the
Company under paragraph (1) of the preceding Article, of the telegraph and
telephone bonds subscribed by or borrowings loaned from the Trust Fund
Bureau Fund, the Company shall be deemed a juridical person stipulated in
item 3 or 4 of the same paragraph in applying Article 7 paragraph (1) of
the Trust Fund Bureau Fund Law (Law No. 100 of 1941).
13
<PAGE>
(3) With respect to the obligations, which are to be assumed by the Company
under the provisions of paragraph (1) of the preceding Article, of the
telegraph and telephone bonds subscribed by the Postal Life Insurance and
the Postal Annuity Special Account stipulated in Article 1 of the Postal
Life Insurance and the Postal Annuity Special Account Law (Law No. 12 of
1944) prior to its amendment under the provision of Article 10 of the
Supplementary Provisions of the Law Amending a Part of the Postal Life
Insurance Law (Law No. 50 of 1990), the Company shall be deemed a juridical
person stipulated in Article 3 paragraph (1) item iv) of the Law Concerning
the Operation of the Funds of Postal Life Insurance (Law No. 210 of 1952)
in the application of the same paragraph.
(Transitional Measures Concerning Employees)
Article 6.
(1) Those who are actually the employees of the Public Corporation at the time
of incorporation of the Company shall become the employees of the Company
upon incorporation of the Company.
(2) No retirement allowance prescribed in the National Government Employees
Etc. Retirement Allowance Law (Law No. 182 of 1953) shall be payable to the
employees of the Public Corporation who become those of the Company in
accordance with the provisions of the preceding paragraph.
(3) When the Company intends to pay a retirement allowance to the employees of
the Company to whom the provisions of the preceding paragraph are applied,
the continued period during which they served the Public Corporation shall
be regarded and treated as their service period with the Company.
Article 7.
Deleted
Article 8.
Deleted
Article 9.
(1) No real property acquisition taxes, special land holding taxes to be
imposed on acquisition of land, or automobile acquisition taxes shall be
imposed on the Company's acquisition of real property and / or automobiles
related to the contribution by the Public Corporation pursuant to the
provisions of Article 3 paragraph 8 of the Supplemental Provisions.
14
<PAGE>
(2) With respect to the land which is acquired and continuously held by the
Company and is related to the contribution by the Public Corporation under
the provisions of Article 3 paragraph (8) of the Supplemental Provisions,
no special land holding taxes shall be imposed on the land which was
acquired by the Public Corporation prior to January 1, 1969 ( with respect
to the land located in Okinawa Prefecture, prior to April 1, 1972 ).
(3) With respect to the land which is acquired and continuously held by the
Company and is related to the contribution by the Public Corporation under
the provisions of Article 3 paragraph (8) of the Supplementary Provisions (
limited to the land which the Public Corporation acquired on April 1, 1982
or later), no special land holding taxes shall be imposed on the land if
more than ten years have elapsed as of January 1 of the year during which
the Company is required to pay the tax by self-assessment under the
provisions of Article 599 paragraph (1) of the Local Tax Law (Law No. 226
of 1950) after the Public Corporation acquired the said land.
(4) With respect to the land which is acquired and continuously held by the
Company as a result of the contribution by the Public Corporation under the
provisions of Article 3 paragraph (8) of the Supplementary Provisions
(limited to the land which the Public Corporation acquired during the
period from January 1, 1969 (with respect to the land located in Okinawa
Prefecture, from April 1, 1972) to March 31, 1982), no special land holding
taxes shall be imposed on the land other than those which are located in
"urbanized areas" as stipulated in Article 7 paragraph (1) of the City
Planning Law (Law No. 100 of 1968) as of January 1 of the year during which
the Company is required to pay the tax by self-assessment under the
provisions of Article 599 paragraph (1) of the Local Taxes Law if more than
ten years have elapsed since the Public Corporation acquired the said land.
(5) The performance related to the contribution of share certificates
(including the equity stipulated in the provisions of Article 4 paragraph
(2) of the Security Transaction Tax Law (Law No. 102 of 1953)) by the
Public Corporation under the provisions of Article 3 paragraph (8) of the
Supplementary Provisions herein shall not fall under the transfer of
securities stipulated in Article l of the same law.
(6) No registration and license taxes shall be imposed on the registration of
incorporation required to the Company under the provisions of Article 3
paragraph (11) of the Supplementary Provisions and on the registrations
required to the Company with respect to the transfer of the property
related to the contribution by the Public Corporation under the provisions
of Article 3 paragraph (8) of the same Supplementary Provisions.
15
<PAGE>
(7) With respect to the amount of expenses for test and research for the
business year to which the date of incorporation of the Company belongs,
the main provisions of Article 42-4 paragraph (1) of the Special Taxation
Measures Law (Law No. 26 of 1957) shall apply: Provided that "the amount
of expenses for test and research of each business year to be included in
the amount of loss in the calculation of income for the respective business
year during the period from the business year (in this Article referred to
as "the basic year") immediately prior to the business year of the
juridical person including January 1, 1967 to the business year immediately
prior to the concerned applicable business year" in the same paragraph
shall read "the amount of expenses for test and research for the business
year including April 1, 1984 of the Nippon Telegraph and Telephone Public
Corporation*, and that "in the case of exceeding the largest amount of"
in the same paragraph shall read "in the case of exceeding the amount of"
and that the proviso of the same paragraph shall not be applicable.
(8) In addition to those stipulated in the preceding paragraph, matters
necessary for the application of laws and ordinances relating to the
corporation tax to be imposed on the Company in connection with the
incorporation of the Company shall be stipulated in the applicable cabinet
ordinance.
(Entrustment to Cabinet Ordinance)
Article 10.
In addition to the provisions of Article 3 through the preceding Article of
the Supplementary Provisions, matters necessary for the incorporation of the
Company and the dissolution of the Public Corporation shall be stipulated in
the applicable cabinet ordinance.
(Repeal of Nippon Telegraph and Telephone Public Corporation Law Etc.)
Article 11.
The following laws shall be repealed:
i) The Nippon Telegraph and Telephone Public Corporation Law;
ii) The Nippon Telegraph and Telephone Public Corporation Enforcement Law (Law
No. 251 of 1952).
16
<PAGE>
(Transitional Measures Concerning Repeal of Nippon Telegraph & Telephone Public
Corporation Law)
Article 12.
(1) Administrative dispositions, procedures and other acts made before the
enforcement of the preceding Article in accordance with the provisions of
the Nippon Telegraph and Telephone Public Corporation Law prior to its
repeal under the provisions of the preceding Article (hereinafter referred
to as "the Old Law") shall be deemed administrative dispositions,
procedures and other acts made under the corresponding provisions of this
Law.
(2) With respect to the application of the provisions of the Old Law to the
emoluments payable to the employees of the Public Corporation for the
period prior to the enforcement of the preceding Article, precedent shall
continue to apply.
(3) With respect to the disciplinary punishments to the employees to whom the
provisions of Article 6 paragraph (1) of the Supplementary Provisions
apply, which are imposed under the provisions of Article 33 of the Old Law,
prior to the enforcement of the preceding Article and disciplinary
punishments related to cases prior to the enforcement of the preceding
Article, precedent shall continue to apply. In this case, if such
disciplinary punishments are to be imposed after the enforcement of the
preceding Article, a person who represents the Company or its delegate
shall execute such disciplinary punishments.
(4) With respect to the obligation to indemnify for any matter prior to the
enforcement of the preceding Article by an employee in charge of handling
cash as stipulated in Article 69 of the Old Law or a person designated by
the President of the Public Corporation as an employee in charge of the
control of goods under the provisions of Article 70 of the Old Law,
precedent shall continue to apply.
(5) With respect to the audit of the accounting of the Public Corporation by
the Board of Audit under the provisions of Article 73 of the Old Law,
precedent shall continue to apply.
(6) With respect to the compensation to the employees of the Public Corporation
for casualties on duty or accidents in commutation, which occurred prior to
the date of enforcement of the preceding Article, precedent shall continue
to apply.
(7) With respect to the application of penal provisions to an act committed
prior to the enforcement of the preceding Article, precedent shall continue
to apply.
(8) In addition to the provisions of the preceding paragraphs, necessary
transitional measures in connection with the repeal of the Nippon Telegraph
and Telephone Public Corporation Law shall be stipulated in the applicable
cabinet ordinance.
17
<PAGE>
(Exception of Manner of Counting Total Number of Outstanding Shares)
Article 13.
(1) With respect to the application of the provision of Article 4 paragraph
(1), for the time being, the number of increased shares (referred to as
"the number of uncounted shares" in the succeeding paragraph) in cases
where issuance of new shares in accordance with the provision of Article
280-2 of the Commercial Code, issuance of new shares by exercise of
preemptive rights of debentures with preemptive rights to take new shares,
conversion of convertible shares or conversion to shares from debentures
has occurred shall not respectively be counted in the total number of
outstanding shares in the provision.
(2) In cases where division or union of shares has occurred after the increase
of shares stipulated in the preceding paragraph, the number calculated by
the number of uncounted shares multiplied by the ratio of division or union
(where division or union of shares has occurred more than two times, the
ratio corresponding to multiplied ration of each time) shall be the number
of shares uncounted in the total number of outstanding shares in the
provision.
18
<PAGE>
EXHIBIT 5.1
TOMOTSUNE KIMURA & MITOMI
SANNO GRAND BUILDING TELEPHONE: 81-3-3580-0800
14-2, NAGATACHO 2-CHOME, CHIYODA-KU TELEX: J28596 TKANDM
TOKYO 100-0014, JAPAN FACSIMILE: 81-3-3693-3336
October 15, 1999
Nippon Telegraph and Telephone Corporation
3-1, Otemachi 2-chome
Chiyoda-ku, Tokyo 100-8116
Dear Sirs:
In connection with the Registration Statement (together with any
amendments, including pre- and post-effective amendments and supplements
thereto, the "Registration Statement") which you have filed to register under
the United States Securities Act of 1933, 952,000 shares of your Common Stock,
par value 50,000 Japanese yen per Share ("Shares"), in the form of shares or
American Depositary Shares, you have asked that we furnish our opinion to be
filed as Exhibit 5.1 to the Registration Statement. For such purpose we have
reviewed the provisions of your Articles of Incorporation and such other
documents and such questions of law as we have deemed necessary or advisable. On
the basis of such review we advise you that in our opinion the Shares, when
sold, will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and we also consent to the reference made to us under the
captions "Validity of Securities" and "Certain Tax Considerations" in the
Prospectus contained in the Registration Statement.
Very truly yours,
/s/ Tomotsune Kimura & Mitomi
<PAGE>
EXHIBIT 8.1
October 15, 1999
Nippon Telegraph and Telephone Corporation
3-1, Otemachi 2-chome
Chiyoda-ku, Tokyo 100-8116
Japan
Ladies and Gentlemen:
We have acted as United States tax counsel for Nippon Telegraph and
Telephone Corporation (the "Company"), in connection with the sale of American
Depositary Shares ("ADSs") each representing 1/200th of one share of common
stock (a "Share") of the Company. We refer to the prospectus (the "Prospectus"),
in particular to the section of the Prospectus entitled "United States Federal
Income Taxation" forming part of the Registration Statement on Form F-3 filed by
the Company with the U.S. Securities and Exchange Commission to effect
registration of the Shares pursuant to the Securities Act of 1933 as amended
(the "Securities Act"), and the rules and regulations promulgated thereunder,
and any amendments, including post-effective amendments and supplements thereto,
and any registration statements filed pursuant to Rule 462(b) of the Securities
Act related thereto.
We have examined such documents, records and matters of laws as we have
deemed necessary, and based thereupon, the discussion in that section, to the
extent it states matters of law or legal conclusions and subject to the
qualifications and limitations contained therein, represents our opinion as to
the principal United States federal income tax consequences that are likely to
be material to a beneficial owner of the ADSs or Shares.
We express no opinion in respect of those matters governed by or construed
in accordance with the law of any jurisdiction other than the federal laws of
the United States of America.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to the name of our firm therein,
without thereby admitting that we are "experts" under the Act or the rules and
regulations of the Securities and Exchange Commission thereunder for the
purposes of any part of the Registration Statement.
/S/ MILBANK, TWEED, HADLEY & MCCLOY
DLP/BK
<PAGE>
Exhibit 23.1
We hereby consent to the use in this Registration Statement on Form F-3 of our
report dated June 29, 1999, except for paragraph 2 of Note 21 as to which the
date is August 30, 1999, relating to the consolidated financial statements of
Nippon Telegraph and Telephone Corporation as of March 31, 1999 and 1998 and for
each of the three years in the period ended March 31, 1999, which appear in such
Registration Statement. We also consent to the incorporation by reference in
this Registration Statement on Form F-3 of Nippon Telegraph and Telephone
Corporation of our report dated June 29, 1999, except for paragraph 2 of Note 21
as to which the date is August 30, 1999, relating to the consolidated financial
statements of Nippon Telegraph and Telephone Corporation as of March 31, 1999
and 1998 and for each of the three years in the period ended March 31, 1999,
which appears in Nippon Telegraph and Telephone Corporation's Annual Report on
Form 20-F for the year ended March 31, 1999. We also consent to the reference to
us under the heading "EXPERTS," "Summary Financial Information" and "SELECTED
FINANCIAL DATA" in such Registration Statement.
/s/ Price Waterhouse
Tokyo Japan
October 15, 1999
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that each of the undersigned, a director
and/or officer of NIPPON TELEGRAPH AND TELEPHONE CORPORATION, a Japanese
corporation (the "Company"), hereby constitutes and appoints Mr. Masayuki Hirata
each of the undersigned's true and lawful attorney and agent, with full power of
substitution and resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorney and agent may deem necessary
or desirable to enable the Company to comply with the Securities Act of 1933, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission thereunder in connection with the registration under such
Act of Common Stock of the Company in the form of shares or American Depositary
Shares, to be offered on terms to be determined at the time such securities are
offered for sale, including specifically, but without limiting the generality of
the foregoing power and authority:
1. To sign the name of the Company and the name of the
undersigned, individually and in his capacity as director or officer of
the Company, to a Registration Statement on Form F-3 relating to the
shares of Common Stock and any Registration Statement on Form F-6
relating to American Depositary Receipts representing such shares to be
filed with the Securities and Exchange Commission with respect to said
securities, to any and all amendments, including post-effective
amendments to such Registration Statement, and to any and all instruments
or documents filed as a part of or in connection with such Registration
Statement and amendments; and
2. To sign such other documents and do such other things as said
agent and attorney-in-fact may deem necessary or appropriate in
connection with the foregoing.
Each of the undersigned hereby ratifies and confirms all that said
attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF each of the undersigned has subscribed these presents
this 3rd day of October, 1999.
/s/ SHIGEO SAWADA /s/ JUN-ICHIRO MIYAZU
- --------------------------- ----------------------------
Shigeo Sawada Jun-ichiro Miyazu
Chairman President
(Director) (Principal Executive Officer)
(Director)
/s/ NORIO WADA /s/ YUSUKE TACHIBANA
- --------------------------- ----------------------------
Norio Wada Yusuke Tachibana
Senior Executive Vice President Senior Executive Vice President
(Director) (Director)
<PAGE>
-2-
/s/ TOSHIYUKI MINESHIMA /s/ KUNIHIRO KATO
- --------------------------- ----------------------------
Toshiyuki Mineshima Kunihiro Kato
Executive Vice President Senior Vice President
(Principal Financial and Accounting Officer) (Director)
(Director)
/s/ KANJI KOIDE /s/ SHIGEHIKO SUZUKI
- --------------------------- ----------------------------
Kanji Koide Shigehiko Suzuki
Senior Vice President Senior Vice President
(Director) (Director)
/s/ HIROMI WASAI /s/ TOYOHIKO TAKABE
- --------------------------- ----------------------------
Hiromi Wasai Toyohiko Takabe
Senior Vice President Senior Vice President
(Director) (Director)
- --------------------------- ---------------------------
Takashi Imai Yotaro Kobayashi
Senior Vice President Senior Vice President
(Director) (Director)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, as President and Chief
Executive Officer of NTT AMERICA, INC., a Delaware corporation (the "Company"),
-------
hereby constitutes and appoints Mr. Masayuki Hirata the undersigned's true and
lawful attorney and agent, with full power of substitution and resubstitution,
to do any and all acts and things and to execute any and all instruments which
said attorney and agent may deem necessary or desirable to enable the Company to
comply with the Securities Act of 1933, as amended, and any rules, regulations
and requirements of the Securities and Exchange Commission thereunder in
connection with the registration under such Act of Common Stock of the Company
in the form of shares or American Depositary Shares, to be offered on terms to
be determined at the time such securities are offered for sale, including
specifically, but without limiting the generality of the foregoing power and
authority:
1. To sign the name of the Company and the name of the
undersigned, individually and in his capacity as officer of the
Company, to a Registration Statement on Form F-3 relating to the shares
of Common Stock and any Registration Statement on Form F-6 relating to
American Depositary Receipts representing such shares to be filed with
the Securities and Exchange Commission with respect to said securities,
to any and all amendments, including post-effective amendments to such
Registration Statement, and to any and all instruments or documents
filed as a part of or in connection with such Registration Statement
and amendments; and
2. To sign such other documents and do such other things as
said agent and attorney-in-fact may deem necessary or appropriate in
connection with the foregoing.
The undersigned hereby ratifies and confirms all that said attorney and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF the undersigned has subscribed these presents this
3rd day of October, 1999.
/s/ KEISUKE NAKASAKI
-------------------------------------
Keisuke Nakasaki
President and Chief Executive Officer
