NTTYY Nippon Telegraph and Telephone Corporation (PK)

Table of contents

		Notice of Convocation of the 32nd Ordinary General Meeting of Shareholders							1
		(Reference) Exercising Your Voting Rights							3
		Reference Materials for the Ordinary General Meeting of Shareholders
				Item: Distribution of Earned Surplus					5
		Attachments to the Notice of Convocation of the 32nd Ordinary General Meeting of Shareholders							7
		Business Report
		(Reference) Value Creation Image Based on the
		Medium-Term Management Strategy							7
				Outline of the Business of NTT Group					9
						Business Progress and Results of NTT Group			10
						Issues Facing the Corporate Group			26
						Capital Investment of NTT Group /     External Financing of NTT Group			29
						Main Lenders and Outstanding Borrowings     of NTT Group			30
						Material Subsidiaries			31
						Main Businesses of NTT Group
						Main Locations, etc. of NTT Group
						NTT Group Employment
						Changes in Consolidated Assets and
						Consolidated Income of NTT Group
						Changes in Non-consolidated Assets and
						Non-consolidated Income of NTT
				Matters Regarding Shares					34
				Status of Corporate Governance and Matters
				Regarding Corporate Officers					35
				Matters Regarding Independent Auditors
				Content of Resolutions Concerning the Systems
				to Ensure the Propriety of NTT’s Business
				Outline of Operations of the Systems to Ensure
				Propriety of NTT’s Business
				(Reference) Glossary of Terms					47

		Consolidated Financial Statements
				Consolidated Balance Sheet					49
				Consolidated Statement of Income					50
				Consolidated Statement of Changes in Equity
				Notes to Consolidated Financial Statements
		Non-consolidated Financial Statements
				Non-consolidated Balance Sheet					51
				Non-consolidated Statement of Income					52
				Non-consolidated Statement of Changes in
				Shareholders’ Equity and Other Net Assets
				Notes to Non-consolidated Financial Statements
		Auditor’s Reports
				Auditor’s Report on Consolidated Financial
				Statements					53
				Auditor’s Report on Non-consolidated Financial
				Statements					54
				Audit & Supervisory Board’s Report					55
		Other
				(Reference) Outline of the financial statements for
				Nippon Telegraph and Telephone East
				Corporation, Nippon Telegraph and Telephone
				West Corporation and NTT Communications
				Corporation

 

(Reference)

Exercising Your Voting Rights

You are requested to review the attached Reference Materials for the Ordinary General Meeting of Shareholders (page 5) before exercising your voting rights. Shareholders may exercise their voting rights in the following three ways.

Reference Materials for the Ordinary General Meeting of Shareholders

Resolutions and matters for reference

Nippon Telegraph and Telephone Corporation (the “Company”) has set as its important management challenge the maximization of corporate value over the medium- to long-term, and the Company has identified the return of profits to shareholders as an important management goal.

In determining the level of dividends for the fiscal year ended March 31, 2017, the Company, while giving consideration to stability and sustainability, takes into account a full range of factors, including business performance, financial standing and dividend payout ratio.

END

Memo

Attachments to the Notice of Convocation of the 32nd Ordinary General Meeting of Shareholders

Business Report (For the Fiscal Year ended March 31, 2017)

This report describes the status of the corporate group (“NTT Group”) including Nippon Telegraph and Telephone Corporation (“NTT”).

Outline of the Business of NTT Group

In the fiscal year ended March 31, 2017, a wide range of changes took place in the information and telecommunications market with the increased spread and market penetration of devices that utilize fixed-line and mobile broadband, and improved convenience in people’s everyday lives and productivity in various industries through the emergence of new services made possible by the evolution of technologies such as cloud services , AI , Big Data , and IoT . In addition, the role of information and telecommunications is becoming increasingly important, including strengthening security measures against increasingly sophisticated and complex cyberattacks, strengthening natural disaster countermeasures and managing safe and secure social systems. This change can be seen on a global scale.

In light of these circumstances, NTT Group accelerated its self-transformation as a “Value Partner” and worked to place the entire NTT Group towards a profit growth track based on the medium-term management strategy “Towards the Next Stage 2.0” formulated and announced in May 2015.

Status of Initiatives to Expand Global Business and Increase Overseas Profit Generation

We seek to establish and expand our global cloud service as a cornerstone of our business operations, and we strengthened our efforts to accelerate overseas profit generation through the following initiatives.

Status of Initiatives to Improve Efficiency and Enhance Profitability of Domestic Network Businesses

We worked to enhance profitability by creating high value-added services as well as optimizing capital investments and reducing costs for our domestic network businesses.

In addition, in order to support the above initiatives, we worked to increase the transparency of information regarding group management, further standardize the group’s accounting principles, and bolster cash management including overseas subsidiaries. Furthermore, through project teams formed in FY2015, we reviewed initiatives aimed at cost reduction and generating profits.

Status of Initiatives to Expand B2B2X Business

The Japanese government has been developing and implementing a variety of policies centered on the Olympic and Paralympic Games Tokyo 2020* and the Japanese government’s “Vitalization of Local Economies” initiatives. NTT Group plans to make use of these opportunities to accelerate migration to the B2B2X model and, together with businesses in other fields and local governments, strengthen measures aimed at creating services that will become the standard of the next generation.

We pursued a range of R&D pursuant to our Medium-Term Management Strategy “Towards the Next Stage 2.0.” We established the “corevo ^® ” brand, a collective term for NTT Group’s AI technology, and promoted collaboration with partners in various industries. Furthermore, in order to commercialize the results of development, we developed business plans tailored to market trends based on our Comprehensive Commercialization System and worked to promote development for practical use.

Initiatives to Expand B2B2X Business

R&D to Improve Efficiency and Enhance Profitability of Domestic Network Businesses

Research & Development that Enable Highly Immersive New Experiences

Promoting Cutting-edge Research

While working to minimize medium- to long-term business risks by appropriately responding to social and environmental issues at NTT Group, NTT Group is promoting initiatives toward sustained improvement in corporate value by making effective contributions to the resolution of social and environmental issues through our business activities. Taking into account the UN’s “Sustainable Development Goals: SDGs,” we have been engaged in various activities including modifying the “NTT Group CSR Charter” in May 2016 and affirming our agreement with the SDGs in September 2016.

As a result of the above efforts, NTT Group’s consolidated operating revenues for the fiscal year ended March 31, 2017 were 11,391.0 billion yen (a decrease of 1.3% from the previous fiscal year) and consolidated operating expenses were 9,851.2 billion yen (a decrease of 3.4% from the previous fiscal year). As a result, consolidated operating income was 1,539.8 billion yen (an increase of 14.2% from the previous fiscal year), consolidated income before income taxes was 1,527.8 billion yen (an increase of 14.9% from the previous fiscal year), and consolidated net income attributable to NTT was 800.1 billion yen (an increase of 8.5% from the previous fiscal year).

Overview

In the Regional Communications Business Segment, we worked to develop our B2B2X business through the “ Hikari Collaboration Model ,” the wholesale provision of fiber-optic access infrastructure services, among other things, to various service providers.

Details of Main Initiatives

Overview

In the Long Distance and International Communications Business Segment, in addition to enhancing our provision of seamless ICT solutions combining network and security, etc., we worked to enhance our service provision in growth areas such as cloud services and IT outsourcing .

Details of Main Initiatives

Overview

In the Mobile Communications Business Segment, we have worked toward the promotion of sales of the billing plan, “Kake-hodai & Pake-aeru,” and “docomo Hikari,” promoting collaboration with various business partners and providing new value-added services to enhance profitability in the smart life area.

Details of Main Initiatives

Overview

In the Data Communications Business Segment, we responded to the acceleration of our customers’ expansion in the global market and the diversification and increased sophistication of their needs by working to expand our business in the global market and to expand and reliably provide a range of IT services, such as system integration , that are responsive to the changes in the market.

Details of Main Initiatives

Overview

In the Other Business Segment, we mainly provided services related to the real estate business, finance business, construction and electric power business, and system development business.

In the information and telecommunications market, the development of new technologies is expected such as further acceleration of the use of cloud services , AI , Big Data , and IoT . Furthermore, with the entrance of new players, market competition that surpasses existing business sector boundaries is expected to further intensify, and collaborative coordination and cooperation among businesses working to create new added value should also progress. From these changes, the required role of information and telecommunications should both expand and become more important.

In line with our Medium-Term Management Strategy “Towards the Next Stage 2.0,” we will continue to place our focus on profit growth by reforming our business structure, and to increase our capital efficiency through stock repurchases, aiming to grow our EPS (earnings per share) to 400 yen or more by the fiscal year ending March 31, 2018.

Initiatives to Expand Global Business and Increase Overseas Profit Generation

* Overseas operating income excludes M&A-related temporary expenses, such as depreciation costs of intangible fixed assets.

Initiatives to Improve Efficiency and Enhance Profitability of Domestic Network Business

* Streamlining capital investment (domestic network business) excludes NTT Communications’ data centers and certain other assets.

* Cost reductions (fixed-line/mobile access-related) excludes the impact of the change of depreciation method for property, plant and equipment.

Initiatives to Expand B2B2X Business

We will develop the core technologies required for the achievement of our Medium-Term Management Strategy, including cloud , security, AI , and IoT in order to contribute to the acceleration of profit creation. We will also develop technology to reduce equipment cost by segmentalizing functions of network equipment and to reduce the time required for network building, maintenance, and operations. Simultaneously, through the promotion of collaboration with other companies toward the creation of new value, we will consistently transform output of R&D into new businesses and proactively expand both in Japan and abroad.

In accordance with the guidelines set out in the “NTT Group CSR Charter,” we will help resolve the many social and environmental issues that exist both in and outside of Japan and promote collective initiatives toward improved corporate value and the sustainable development of society.

NTT Group made a total of ¥1,700.0 billion of capital investments (an increase of 0.8% from the previous fiscal year), focused on responding to customer demands for various services such as “ FLET’S Hikari (including the Hikari Collaboration Model )” and LTE service (Xi), among others.

NTT Group raised capital for capital investment and other purposes in the form of long-term funding in the amount of ¥320.5 billion.

The details of the long term funding are as follows:

NTT raised ¥22.8 billion from long-term funding to be used by NTT for the purpose of making loans to NTT West and NTT Communications, and raised ¥50.0 billion as long-term borrowings from subsidiaries.

Matters Regarding Shares

6,192,920,900 shares

2,096,394,470 shares (treasury stock: 81,026,959 shares)

867,301 shareholders

Status of Corporate Governance and Matters Regarding

Corporate Officers

We believe that strengthening the structure of corporate governance in accordance with the purposes of each principle of the “Corporate Governance Code” of the Tokyo Stock Exchange is an important management issue for maximizing corporate value while meeting the expectations of various stakeholders, including shareholders and other investors, as well as customers, business partners, and employees.

Based on “Towards the Next Stage 2.0” formulated in May 2015, in order to embark on a profit growth track by accelerating our self-transformation towards a “Value Partner,” we are working to strengthen corporate governance based on our fundamental policies of ensuring sound management, executing appropriate decision-making and business activities, clarifying accountability, and maintaining thorough compliance.

We believe that an auditing system based on Audit & Supervisory Board Members, including outside independent Audit & Supervisory Board Members, is an effective means of supervising management. Accordingly, we chose the company with Board of Company Auditors (Audit & Supervisory Board) model.

In addition, through the election of outside independent Members of the Board, we have strengthened the function of appropriately supervising the business execution.

The Board of Directors consists of 12 Members of the Board, including two outside independent Members of the Board. In principle, the ordinary meetings of the Board of Directors are held once per month. In addition, extraordinary meetings are held as needed. The Board of Directors makes decisions on matters stipulated by law and on important matters related to company management and Group management. Moreover, through such means as periodic reports from Members of the Board on the status of business execution, the Board of Directors supervises the business execution of Members of the Board.

We have elected two outside independent Members of the Board to strengthen the supervisory function for business execution. Each outside independent Member of the Board has extensive experience and a high level of integrity and insight. We believe that the outside independent Members of the Board will help strengthen the supervisory function for business execution and expect to incorporate the opinion they provide from their wide-ranging managerial perspective.

The Audit & Supervisory Board consists of a total of five Audit & Supervisory Board Members: two internal Audit & Supervisory Board Members and three outside independent Audit & Supervisory Board Members (including two women, one in each category). The Audit & Supervisory Board Members, including outside independent Audit & Supervisory Board Members, periodically conduct meetings with NTT’s Representative Members of the Board to exchange ideas and opinions and also hold discussions with other Members of the Board as well as the Representative Members of the Board of Group companies with regard to various themes. Through these efforts, the Audit & Supervisory Board Members maintain an understanding of the status of the business execution by Members of the Board, providing suggestions when necessary.

In addition, the Audit & Supervisory Board Members, including outside independent Audit & Supervisory Board Members, attend important meetings, such as meetings of the Board of Directors, and conduct appropriate audits regarding the status of the business execution by Members of the Board. They also work closely with the Independent Auditor, periodically exchanging information on audit plans and audit results to enhance the audit system. Furthermore, the Audit & Supervisory Board Members exchange information with the Internal Control Office, through means such as receiving reports on the results of internal audits. The Audit & Supervisory Board also conducts audits in partnership with the Audit & Supervisory Board Members of Group companies.

For the purpose of improving objectivity and transparency in the decisions of appointments and compensation of Members of the Board, we have established on a non-statutory basis the Appointment and Compensation Committee, which consists of four Members of the Board, including two outside independent Members of the Board, as a preliminary review institution of the Board of Directors, and are increasing the effectiveness of governance.

From the perspectives of strengthening supervising functions for execution and guaranteeing appropriate audits of the execution of duties by Members of the Board, we have the policy of selecting individuals to serve as outside Members of the Board and outside Audit & Supervisory Board Members who do not represent risks of conflicts of interest with general shareholders. We designate outside Members of the Board and outside Audit & Supervisory Board Members who fulfill both the independence criteria stipulated by the Tokyo Stock Exchange and NTT’s own independence standards as independent Members of the Board or independent Audit & Supervisory Board Members.

The Board of Directors of the Company, which is a pure holding company, plays the role of monitoring the specific business operations of the Group companies based on the medium- to long-term business strategy of the entire Group.

The Board of Directors of the Company decides important items related to the Group’s management which have passed the “Executive Officers Meeting,” made up of the president, senior executive vice presidents, full-time directors, and the heads of the staff organization, as well as the review of the various committees chaired by the president or a senior executive vice president and attended by the relevant directors, while also monitoring the status of the execution of the duties of the individual Members of the Board.

At the meetings of the Board of Directors, based on the authority of the individual Members of the Board, current issues in Group management and the initiatives being taken to resolve them are reported and reviewed, and in the fiscal year ended March 31, 2017, in terms of “Toward the Next Stage 2.0,” discussions were held over initiatives to expand profits in the near term for global cloud services , the status of business recovery, new policies aimed at sustained growth in network services, and improving returns to shareholders.

Additionally, ideas and opinions on issues in Group management were exchanged among the outside independent Members of the Board and the Audit & Supervisory Board Members, among the outside independent Members of the Board and the Representative Members of the Board, among the outside independent Members of the Board and the executives of the major Group companies in and outside Japan, and among the outside independent Members of the Board of the Company and the outside independent Members of the Board of the major Group companies and other members.

In these meetings, we received opinions on NTT’s Board of Directors from the outside independent Members of the Board and the Audit & Supervisory Board Members that adequate information is provided and Members of the Board engage in active discussion, thereby ensuring the Board’s effectiveness.

Taking into account these initiatives, we have evaluated that the effectiveness of the Board of Directors is being ensured, and we will work to further improve the Board’s effectiveness going forward.

In terms of the composition of the Company’s Board of Directors, the nomination of executives is based on the “NTT Group Personnel Policy,” and personnel with the skills to resolve issues recognized by NTT Group are nominated broadly from inside and outside of the Group.

With regard to the nomination of Members of the Board, NTT has established the Appointment and Compensation Committee, which consists of four Members of the Board including two outside independent Members of the Board. The committee discusses candidates and then makes proposals to be approved by the Board of Directors and presented for voting at the General Meeting of Shareholders.

With regard to the nomination of Audit & Supervisory Board Members, the procedure for nomination involves Members of the Board proposing Audit & Supervisory Board Member candidates based on the nomination policy described above. These proposals are then discussed by the Audit & Supervisory Board, which consists of half or more of outside independent Audit & Supervisory Board Members, and consent is granted if appropriate. The candidates are then approved by the Board of Directors and presented for voting at the General Meeting of Shareholders.

NTT Group works to cultivate candidates suitable for top management who are able to respond to the rapidly changing management environment, by creating a range of training opportunities in areas including domestic and overseas economic and social issues, compliance, and risk management, and by allowing employees to accumulate new job experiences. Additionally, outside independent Members of the Board can gain a deeper understanding of the Company’s group businesses through opportunities to deepen their understanding of the business trends of Group companies and of the latest R&D results at the research facilities of the Company.

NTT does not hold so-called “cross-held shares” to create stable shareholders, and has no plans to hold them in the future.

On the other hand, as one of its business policies, the Company pursues collaboration and open innovation with partners in various industries to contribute to medium- to long-term improvement in corporate value. Based on this policy, we own shares of partner companies as necessary.

With respect to exercising voting rights of strategic shareholding, NTT exercises voting rights acquired through share ownership, as it sees fit, from the perspective of sustainable growth of the companies NTT invests in and improving corporate value for both NTT and the companies.

We have set the returning of profits to shareholders, while maximizing corporate value over the medium- to long-term, as one of our important management challenges.

We aim to enhance the return of profits to shareholders in the medium- to long-term, and while payment of dividends is the primary means, we also adroitly and flexibly implement stock repurchases.

Memo

NTT has concluded agreements with outside Members of the Board and Audit & Supervisory Board Members to limit their personal liability as provided in Article 423(1) of the Companies Act and in accordance with Article 427(1) of that act. The limitation of liability is the lowest amount permitted by Article 425(1) of the Companies Act.

Policies

With regard to matters concerning the compensation of Members of the Board, in order to improve objectivity and transparency, NTT established the Appointment and Compensation Committee, comprised of four Members of the Board, including two outside independent Members of the Board. Compensation matters are decided by the Board of Directors after deliberation by this committee.

Compensation of Members of the Board (excluding outside Members of the Board) consists of a base salary and a bonus. The base salary is paid monthly on the basis of the scope of each Member of the Board’s roles and responsibilities. The bonus is paid taking into account NTT’s business results for the current term. Also, Members of the Board make monthly contributions of a certain defined amount or more from their base salary for the purchase of NTT shares through the Board Members Shareholding Association in order to reflect NTT’s medium- and long-term business results in compensation. Purchased shares are to be held by the Members of the Board throughout their terms of office.

In order to maintain a high level of independence, compensation of outside Members of the Board consists of a base salary only, and is not linked to NTT’s business results.

Compensation of Audit & Supervisory Board Members is determined by resolution of the Audit & Supervisory Board and consists of a base salary only, for the same reasons as those cited above with respect to outside Members of the Board.

Total Compensation of Members of the Board and Audit & Supervisory Board Members during the Fiscal Year Ended March 31, 2017

Principal Activities of Outside Members of the Board and Audit & Supervisory Board Members

Statements made at Board of Directors Meetings and Audit & Supervisory Board Meetings

Board Member Katsuhiko Shirai made comments mainly concerning the business strategies of Group companies, R&D, and global strategy from his perspective as an operational director of an educational institution with extensive experience.

Board Member Sadayuki Sakakibara made comments mainly concerning the business strategies of Group companies, business plans, and investment from his perspective as a corporate executive with extensive experience.

Audit & Supervisory Board Member Michiko Tomonaga made comments mainly concerning the accounting audit based on the professional perspective fostered through her extensive experience as a Certified Public Accountant.

Audit & Supervisory Board Member Seiichi Ochiai made comments mainly concerning corporate governance based on the professional perspective fostered through his extensive experience as a university professor and a lawyer.

Audit & Supervisory Board Member Takashi Iida made comments mainly concerning corporate governance based on the professional perspective fostered through his extensive experience as a lawyer.

Total Compensation of Outside Members of the Board and Audit & Supervisory Board Members during the Fiscal Year Ended March 31, 2017