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Half-Yearly Financial Report

This is the Half-Yearly financial report of Nippon Telegraph and Telephone Corporation ("NTT" and along with its subsidiaries "NTT Group") for the six-month period ended September 30, 2009.  On November 10, 2009, NTT filed its Form 6-K for the six months ended September 30, 2009. Please see the following for detailed information including NTT's consolidated financial results for the six months ended September 30, 2009 (the "Financial Statements"):

 http://www.sec.gov/Archives/edgar/data/769594/000119312509230015/d6k.htm

Condensed Financial Statements

BALANCE SHEETS		(million yen)
	As of  March 31, 2009	As of September 30, 2009
Total assets	18,796,388	18,546,883
Total current liabilities	3,694,199	2,876,039
Total long-term liabilities	5,956,559	6,197,671
Shareholders' equity	7,298,110	7,541,171
Total equity	9,145,630	9,473,173
Shareholders' equity per share	5,515.18	5,698.83

STATEMENTS OF INCOME		(million yen)
	Six months ended September 30, 2008	Six months ended September 30, 2009
Operating revenues	5,164,593	4,998,108
Operating income (loss)	745,082	646,770
Income (loss) before income taxes and equity in earnings (losses) of affiliated companies	771,161	643,590
Net income (loss) attributable to NTT	406,353	282,244
Net income (loss) attributable to NTT per share (yen)	299.39	213.29

STATEMENTS OF CASH FLOWS		(million yen)
	Six months ended September 30, 2008	Six months ended September 30, 2009
Cash flows from operating activities	1,089,190	1,242,476
Cash flows from investing activities	(1,150,048)	(1,068,737)
Cash flows from financing activities	(162,046)	(275,663)

Notes: On January 4, 2009, NTT carried out a 100-for-1 stock split. The figures provided for "Net income (loss) attributable to NTT per share" and "Shareholders' equity per share" are adjusted for the stock split.

Interim Management Report

(1)  Outline of Business of NTT Group

The first quarter of the fiscal year ending March 31, 2010

 In the first quarter of the fiscal year ending March 31, 2010, NTT Group took measures to expand broadband and ubiquitous services pursuant to its new Medium-Term Strategy entitled "Road to Service Creation Business Group" adopted in May 2008.

In the fixed-line communications market, the expansion of optical services and the accompanying shift from existing fixed-line telephones to optical IP telephones continued. Diverse services such as video distribution services were also deployed by various providers. Under these market conditions, in the next-generation network ("NGN") segment, NTT Group endeavored to expand the "FLET'S Hikari Next" service area and the sale of services, such as "Hikari TV", that take advantage of the capabilities of the NGN. NTT Group also made efforts to develop and market the "Hikari Link" [1] product series to increase demand for fibre-optic services. As a result of these efforts, the number of "FLET'S Hikari" subscriptions reached 11.79 million.

In the mobile communications market, with the market reaching saturation due to the increased penetration rate, the competition among carriers to acquire customers and enhance services is becoming increasingly fierce. Under these market conditions, NTT Group launched 13 handset models in the Summer of 2009 which included the first handset in Japan operating with "Android"[2]. In addition, NTT Group enhanced video content by adding, to "docomo-doga," "Bee TV,"[3] a broadcasting station that provides streaming video exclusively for mobile phones. NTT Group also lowered the minimum charges for "Pake-hodai Double," a two-tier flat-rate packet service, and took other measures to enrich billing plans. As a result of these measures, the number of mobile phone subscriptions reached 54.86 million, of which 50.25 million were FOMA service subscriptions, accounting for 91.6% of all subscriptions.

With respect to services for corporate customers, NTT Group continued its efforts to provide high value-added solutions tailored to customers' industries and business categories and to enhance its support capabilities adapted to the global business activities of the customers. In the area of SaaS[4], which reduces customers' information system installation and operation burdens, NTT Group collaborated with its business partners to develop safe and secure SaaS platforms and provide a wide range of services.

In its global businesses, NTT Group expanded overseas business sites to further improve services. To expand and enhance its networks, NTT Group reached a decision to acquire an American submarine cable business to further reinforce the infrastructure between Japan and the United States. NTT Group also announced plans to construct a new submarine cable in Asia.

As a result of these efforts, NTT Group's consolidated operating revenues for the first quarter of the fiscal year ending March 31, 2010 were ¥2,502.9 billion (a decrease of 3.5% from the same period of the previous fiscal year), consolidated operating expenses were ¥2,177.1 billion (a decrease of 2.0% from the same period of the previous fiscal year), consolidated operating income was ¥325.8 billion (a decrease of 12.4% from the same period of the previous fiscal year), consolidated net income before income taxes was ¥325.9 billion (a decrease of 16.0% from the same period of the previous fiscal year), and net income attributable to NTT was ¥139.6 billion (a decrease of 20.5% from the same period of the previous fiscal year).

Notes 1. A series of household information devices that can connect to "FLET'S Hikari." The first product, the "Hikari Photo Frame," was launched in March 2009. The second product, named the "Living Room PC", was launched in July 2009.

2. An operating system for mobile phones. It is characterized by an open development environment.

3. Provided by Avex Broadcasting & Communications Inc., a joint venture established by NTT DOCOMO and Avex Entertainment Corporation.

4. Software as a Service. A service for providing software applications to customers via networks.

The second quarter of the fiscal year ending March 31, 2009

During the three-month period ended September 30, 2009, NTT Group took measures to expand broadband and ubiquitous services pursuant to its new Medium-Term Strategy entitled "Road to Service Creation Business Group" adopted in May 2008. 

In the fixed-line communications market, the expansion of optical services and the accompanying shift from existing fixed-line telephones to optical IP telephones continued. Diverse services such as video distribution services were also deployed by various providers. Under these market conditions, in the next-generation network (NGN) segment, NTT Group endeavored to expand its "FLET'S Hikari Next" service area and the sale of services such as "Hikari TV" that take advantage of the capabilities of the NGN. NTT Group also made efforts to form alliances with other companies to expand distribution. As a result of these efforts, the number of "FLET'S Hikari" subscriptions reached 12.28 million at September 30, 2009. 

In the mobile communications market, with the market reaching saturation due to the increased penetration rate, the competition among carriers to acquire customers and enhance services is becoming increasingly fierce. Under these market conditions, NTT DOCOMO revised the billing plans for its two-tier flat-rate service "Pake-hodai double" and "Biz-hodai double" and enhanced "docomo-doga" and other video content services thereby continuing to expand the packet communications use of its customers. With respect to mobile terminals, NTT DOCOMO launched seven handset models, including the first handset in Japan operating with "Android" and the first waterproof version of the Raku-Raku PHONE series to cater to the diverse needs of its customers. In addition, NTT DOCOMO launched "docomo Mobile Remittance", a service that enables an NTT DOCOMO subscriber to send money to a recipient simply by designating the recipient's mobile telephone number without the recipient needing to open a bank account or register, as a part of the endeavor to increase efficiency. As a result of these measures, the number of mobile phone subscriptions reached 55.19 million, of which 51.26 million were FOMA service subscriptions, accounting for 92.9% of all subscriptions. 

With respect to services for corporate customers, NTT Group continued its efforts to provide high value-added solutions tailored to customers' industries and business categories and to enhance its support capabilities adapted to the global business activities of the customers. NTT Group also made an announcement that, as a part of its "SaaS over NGN" efforts to support SaaS businesses using the NGN, it will develop "series of functions SaaS platform [5]" as a service base for SaaS businesses. NTT announced that it will deploy services using the series of functions SaaS platform.

In its global businesses, NTT Group established new overseas business sites and formed capital and business alliances with local businesses to further improve its services from the perspective of coverage area expansion, support service enhancement and quality improvement.

As a result of these efforts, NTT Group's consolidated operating revenues for the three-month period ended September 30, 2009 were ¥2,495.2 billion (a decrease of 2.9% from the same period of the previous fiscal year), consolidated operating expenses were ¥2,174.2 billion (a decrease of 1.1% from the same period of the previous fiscal year), consolidated operating income was ¥321.0 billion (a decrease of 13.9% from the same period of the previous fiscal year), and consolidated net income before income taxes was ¥317.7 billion (a decrease of 17.1% from the same period of the previous fiscal year). Consolidated net income attributable to NTT was ¥142.7 billion (a decrease of 38.2% from the same period of the previous fiscal year) due in part to the fact that consolidated net income attributable to NTT was comparatively higher in the previous fiscal year owing to the effects of a one-time decrease in income tax (decrease in a deferred income tax liability) which resulted from the merger by NTT DOCOMO of its eight regional subsidiaries during the second quarter of the fiscal year ended March 31, 2009.

For the six-month period ended September 30, 2009, NTT Group's consolidated operating revenues were ¥4,998.1 billion (a decrease of 3.2% from the same period of the previous fiscal year). Consolidated operating expenses were ¥4,351.3 billion (a decrease of 1.5% from the same period of the previous fiscal year). As a result, consolidated operating income was ¥646.8 billion (a decrease of 13.2% from the same period of the previous fiscal year) while consolidated net income before income taxes was ¥643.6 billion (a decrease of 16.5% from the same period of the previous fiscal year). Consolidated net income attributable to NTT was ¥282.2 billion (a decrease of 30.5% from the same period of the previous fiscal year) for the six-month period ended September 30, 2009. 

Notes 5. A collective term for the authentication platform function, portal site function, fee charging & collecting function, multi-payment credit settlement function, network gateway function and web-system construction platform function.

(2) Risk Factors

Prospective investors should carefully consider the risks described below, which could have an impact in the remaining six months of this financial year. Additional risks not currently known to NTT or that NTT now deems immaterial, may also have an impact on  NTT Group's business operations.

• NTT Group's business may be adversely affected by the economic situation in Japan.

• NTT Group's market share and revenues may suffer from competition.

• Growth of new businesses and migration from existing businesses accompanying the expansion of IP, broadband and ubiquitous services and other market developments may not progress as anticipated.

• NTT Group's international and domestic investments, alliances and collaborations and investments directed at new fields of businesses may not produce the returns or provide the opportunities NTT Group expects.

• NTT Group may not achieve anticipated cost savings.

• Other cellular phone operators may not adopt the W-CDMA technology of NTT DOCOMO.

• If NTT Group is unable to obtain licenses or other rights to use the intellectual properties of third parties that are necessary for NTT Group to conduct its business, NTT Group may not be able to offer certain technologies, products, or services. In addition, NTT Group may be liable for damages due to infringement of the intellectual property rights of other companies.

• System disruptions, network disruptions and issues with system architecture may affect NTT Group's financial condition and operating results.

• NTT's reputation and credibility may be affected by inappropriate use or leak of confidential business information and personal information.

• Misuse of products and services offered by NTT Group may have an adverse impact on the credibility and corporate image of NTT Group.

• Changes or decisions regarding telecommunications regulations may affect NTT Group's business.

• NTT Group may not be able to secure necessary frequency spectrum for operation and may not be able to expand its facilities due to restrictions imposed on NTT DOCOMO.

• The Government owns enough NTT Shares to give it considerable influence over whether resolutions at NTT shareholder meetings are adopted.

• The issuance or sale of additional NTT Shares or concerns regarding additional supply of NTT Shares in the stock market may affect the trading price of NTT Shares and ADSs.

Responsibility Statement

I, Satoshi Miura, President and Chief Executive Officer, confirm that, to the best of my knowledge:

the Condensed Financial Statements of NTT Group referred to in this Half-Yearly financial report, have been prepared in accordance with accounting principles generally accepted in the United States relating to interim reporting and have not been audited; 

this Half-Yearly financial report includes a fair review of the development and performance of the business and the position of the NTT Group taken as a whole, together with a description of the principal risks and uncertainties that it faces; and

the interim management report includes a fair view of the information required by DTR 4.2.7R and DTR 4.2.8R 

Certain statements made in this Half-yearly financial report are forward-looking statements. Such statements are based on expectations at the time that such statements were made and are subject to risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results referred to in these forward looking statements. Unless otherwise required by applicable law, regulation or accounting standards, NTT undertakes no obligation to update or revise and forward-looking statements, whether due to any change in its expectations, to reflect events or circumstances after the date such statements were made, or otherwise.

 

 

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