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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE

SECURITIES EXCHANGE ACT OF 1934

 

For the month of December, 2004.

 

Commission File Number: 001-31221

 

Total number of pages: 25

 

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NTT DoCoMo, Inc.

(Translation of registrant’s name into English)

 

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Sanno Park Tower 11-1, Nagata-cho 2-chome

Chiyoda-ku, Tokyo 100-6150

Japan

(Address of principal executive offices)

 

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Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

 

Form 20-F  x                    Form 40-F

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes  ¨    No  x

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-

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Information furnished in this form:

 

 

1.	Semi-Annual Report filed on December 3, 2004 with the Director of the Kanto Local Finance Bureau of Japan pursuant to the Securities and Exchange Law of Japan

 

On December 3, 2004, the registrant filed its Semi-Annual Report with the Director of the Kanto Local Finance Bureau of Japan and provided it to the Tokyo Stock Exchange. This Semi-Annual Report was filed pursuant to the Securities and Exchange Law of Japan and contains, among other things, semi-annual consolidated financial statements for the six months ended September 30, 2004 prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The material contents of the report, other than the semi-annual consolidated financial statements, have already been reported by the registrant in its press release dated October 29, 2004, a copy of which was submitted under cover of Form 6-K on November 1, 2004 by the registrant.

 

Attached is an English translation of the registrant’s semi-annual consolidated financial statements for the six months ended September 30, 2004 prepared in accordance with U.S.GAAP.

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

		NTT DoCoMo, Inc.
Date: December 15, 2004		By:		/s/    WATARU KAGAWA
				Wataru Kagawa Head of Investor Relations

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NTT DoCoMo, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

SEPTEMBER 30, 2004 and 2003 and MARCH 31, 2004

 

				Millions of yen
				(UNAUDITED) September 30,												March 31,
				2004						2003						2004
Classification		Note		Amount				%		Amount				%		Amount				%
ASSETS
I        Current assets:
1 Cash and cash equivalents				¥	480,286					¥	851,423					¥	838,030
2 Accounts receivable, net					586,072						600,489						616,131
3 Inventories					127,063						120,033						127,269
4 Deferred tax assets					86,932						77,383						92,662
5 Prepaid expenses and other current assets					126,502						134,063						111,225
Total current assets					1,406,855			23.8			1,783,391			28.7			1,785,317			28.5
II       Property, plant and equipment:
1 Wireless telecommunications equipment					4,301,597						3,936,637						4,109,818
2 Buildings and structures					676,674						567,746						619,501
3 Tools, furniture and fixtures					588,016						573,498						580,099
4 Land					194,493						186,162						188,717
5 Construction in progress					173,280						159,312						169,562
Sub-total					5,934,060						5,423,355						5,667,697
Accumulated depreciation					(3,171,134	)					(2,768,948	)					(2,965,192	)
Total property, plant and equipment, net					2,762,926			46.8			2,654,407			42.7			2,702,505			43.2
III     Non-current investments and other assets:
1 Investments in affiliates		*3			318,663						393,088						324,155
2 Marketable securities and other investments		*4			54,715						27,020						62,191
3 Intangible assets, net		*5			524,141						473,328						506,777
4 Goodwill		*5			133,354						133,354						133,354
5 Other assets		*6,10			162,888						195,271						195,406
6 Deferred tax assets					543,380						555,391						552,561
Total non-current investments and other assets					1,737,141			29.4			1,777,452			28.6			1,774,444			28.3
Total assets				¥	5,906,922			100.0		¥	6,215,250			100.0		¥	6,262,266			100.0
LIABILITIES AND SHAREHOLDERS’ EQUITY
I        Current liabilities:
1 Current portion of long-term debt		*10		¥	22,145					¥	215,210					¥	136,642
2 Accounts payable, trade					583,084						583,664						666,838
3 Accrued payroll					38,909						38,515						43,142
4 Accrued interest					1,735						2,810						1,975
5 Accrued taxes on income					195,825						246,564						318,011
6 Other current liabilities		*10			162,814						107,779						125,030
Total current liabilities					1,004,512			17.0			1,194,542			19.2			1,291,638			20.6
II       Long-term liabilities:
1 Long-term debt		*10			941,447						1,070,377						954,954
2 Employee benefits					139,222						159,543						133,954
3 Other long-term liabilities					170,893						165,240						176,964
Total long-term liabilities					1,251,562			21.2			1,395,160			22.5			1,265,872			20.2
Total liabilities					2,256,074			38.2			2,589,702			41.7			2,557,510			40.8
III     Minority interests in consolidated subsidiaries					89			0.0			48			0.0			61			0.0
IV     Commitments and contingencies		*9
V       Shareholders’ equity:		*7
1 Common stock					949,680						949,680						949,680
2 Additional paid-in capital					1,311,013						1,311,029						1,311,013
3 Retained earnings					2,046,141						1,490,700						1,759,548
4 Accumulated other comprehensive income		*10			81,514						70,994						81,355
5 Treasury stock, at cost					(737,589	)					(196,903	)					(396,901	)
Total shareholders’ equity					3,650,759			61.8			3,625,500			58.3			3,704,695			59.2
Total liabilities and shareholders’ equity				¥	5,906,922			100.0		¥	6,215,250			100.0		¥	6,262,266			100.0

 

See accompanying notes to consolidated financial statements.

 

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NTT DoCoMo, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

 

SIX MONTHS ENDED SEPTEMBER 30, 2004 and 2003

 

and YEAR ENDED MARCH 31, 2004

 

				Millions of yen
				(UNAUDITED) Six months ended September 30,														Year ended March 31,
				2004							2003							2004
Classification		Note		Amount				%			Amount				%			Amount				%
I        Operating revenues:
1 Wireless services				¥	2,163,820						¥	2,261,158						¥	4,487,912
2 Equipment sales					288,133							274,787							560,153
Total operating revenues					2,451,953			100.0				2,535,945			100.0				5,048,065			100.0
II       Operating expenses:
1 Cost of services (exclusive of items shown separately below)					335,124							325,539							712,571
2 Cost of equipment sold (exclusive of items shown separately below)					555,611							584,963							1,094,332
3 Depreciation and amortization		*5			340,306							347,167							720,997
4 Selling, general, and administrative					675,480							688,169							1,417,247
Total operating expenses					1,906,521			77.8				1,945,838			76.7				3,945,147			78.2
Operating income					545,432			22.2				590,107			23.3				1,102,918			21.8
III     Other expense (income):
1 Interest expense					4,231							7,418							13,216
2 Interest income					(413	)						(763	)						(1,917	)
3 Other, net		*4			(3,551	)						(1,207	)						(9,504	)
Total other expense (income)					267			0.0				5,448			0.2				1,795			0.0
Income before income taxes, equity in net losses of affiliates and minority interests in earnings of consolidated subsidiaries					545,165			22.2				584,659			23.1				1,101,123			21.8
Income taxes:
1 Current					195,718							244,137							446,182
2 Deferred					14,195							(16,150	)						(17,066	)
Total income taxes					209,913			8.5				227,987			9.0				429,116			8.5
Income before equity in net losses of affiliates and minority interests in earnings of consolidated subsidiaries					335,252			13.7				356,672			14.1				672,007			13.3
Equity in net losses of affiliates		*3			(35	)		(0.0	)			(214	)		(0.0	)			(21,960	)		(0.4	)
Minority interests in earnings of consolidated subsidiaries					(28	)		(0.0	)			(27	)		(0.0	)			(40	)		(0.0	)
Net Income				¥	335,189			13.7			¥	356,431			14.1			¥	650,007			12.9
Other comprehensive income (loss):
1 Unrealized (losses) gains on available-for-sale securities		*4			(213	)						3,916							12,238
2 Revaluation of financial instruments					30							57							(13	)
3 Foreign currency translation adjustment		*10			516							2,668							(9,862	)
4 Minimum pension liability adjustment					(174	)						1,416							16,055
Comprehensive income				¥	335,348			13.7			¥	364,488			14.4			¥	668,425			13.2
Per share data:
Weighted average common shares outstanding – basic and diluted (shares)					48,268,442							50,112,397							49,622,595
Basic and diluted earnings per share (Yen)				¥	6,944.27						¥	7,112.63						¥	13,099.01

 

See accompanying notes to consolidated financial statements.

 

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NTT DoCoMo, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

 

SIX MONTHS ENDED SEPTEMBER 30, 2004 and 2003

 

and YEAR ENDED MARCH 31, 2004

 

				Millions of yen
				(UNAUDITED) Six months ended September 30,								Year ended March 31,
				2004				2003				2004
Classification		Note		Amount				Amount				Amount
I        Common stock:
1 At beginning of period				¥	949,680			¥	949,680			¥	949,680
At end of period					949,680				949,680				949,680
II      Additional paid-in capital:
1 At beginning of period					1,311,013				1,306,128				1,306,128
2 Share exchanges					—				(14	)			(14	)
3 Increase in additional paid-in capital of an affiliate					—				4,915				4,899
At end of period					1,311,013				1,311,029				1,311,013
III     Retained earnings:
1 At beginning of period					1,759,548				1,159,354				1,159,354
2 Cash dividends					(48,596	)			(25,085	)			(49,813	)
3 Net income					335,189				356,431				650,007
At end of period					2,046,141				1,490,700				1,759,548
IV    Accumulated other comprehensive income:
1 At beginning of period					81,355				62,937				62,937
2 Unrealized (losses) gains on available-for-sale securities		*4			(213	)			3,916				12,238
3 Revaluation of financial instruments					30				57				(13	)
4 Foreign currency translation adjustment		*10			516				2,668				(9,862	)
5 Minimum pension liability adjustment					(174	)			1,416				16,055
At end of period					81,514				70,994				81,355
V      Treasury stock, at cost:
1 At beginning of period					(396,901	)			(2,585	)			(2,585	)
2 Purchase of treasury stock		*7			(340,688	)			(194,905	)			(394,903	)
3 Share exchanges					—				587				587
At end of period					(737,589	)			(196,903	)			(396,901	)
Total shareholders’ equity				¥	3,650,759			¥	3,625,500			¥	3,704,695

 

See accompanying notes to consolidated financial statements.

 

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NTT DoCoMo, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

SIX MONTHS ENDED SEPTEMBER 30, 2004 and 2003

 

and YEAR ENDED MARCH 31, 2004

 

				Millions of yen
				(UNAUDITED) Six months ended September 30,								Year ended March 31,
				2004				2003				2004
Classification		Note		Amount				Amount				Amount
I        Cash flows from operating activities:
1 Net income				¥	335,189			¥	356,431			¥	650,007
2 Adjustments to reconcile net income to net cash provided by operating activities—
(1) Depreciation and amortization					340,306				347,167				720,997
(2) Deferred taxes					13,357				(16,150	)			(12,539	)
(3) Loss on sale or disposal of property, plant and equipment					11,486				8,417				35,005
(4) Equity in net losses of affiliates					873				214				17,433
(5) Minority interests in earnings of consolidated subsidiaries					28				27				40
(6) Changes in current assets and liabilities:
Decrease (increase) in accounts receivable, trade					31,756				15,752				(90	)
(Decrease) increase in allowance for doubtful accounts					(1,697	)			1,258				1,458
Decrease (increase) in inventories					206				(52,718	)			(59,954	)
Decrease in tax refunds receivable					—				106,120				106,308
(Decrease) increase in accounts payable, trade					(40,887	)			(12,760	)			19,577
Increase in other current liabilities					21,972				10,955				28,866
(Decrease) increase in accrued taxes on income					(122,186	)			114,719				186,166
Increase (decrease) in liability for employee benefits					5,268				9,843				(15,746	)
Other, net					(22,892	)			(26,533	)			32,715
Net cash provided by operating activities					572,779				862,742				1,710,243
II      Cash flows from investing activities:
1 Purchases of property, plant and equipment					(365,136	)			(299,293	)			(625,284	)
2 Purchases of intangible and other assets					(108,545	)			(71,913	)			(177,645	)
3 Purchases of investments					(1,179	)			(2,381	)			(12,787	)
4 Proceeds from sale of investments					26,355				327				2,261
5 Loan advances					(113	)			(38,307	)			(38,307	)
6 Collection of loan advances					39,848				0				55
7 Other, net					402				3,893				4,398
Net cash used in investing activities					(408,368	)			(407,674	)			(847,309	)
III    Cash flows from financing activities:
1. Repayment of long-term debt					(130,349	)			(51,885	)			(245,411	)
2. Principal payments under capital lease obligations					(2,476	)			(2,711	)			(5,716	)
3. Payments to acquire treasury stock					(340,688	)			(194,905	)			(394,903	)
4. Dividends paid					(48,596	)			(25,085	)			(49,813	)
5. Proceeds from short-term borrowings					46,000				101,800				155,300
6. Repayment of short-term borrowings					(46,000	)			(111,800	)			(165,300	)
7. Other, net					(1	)			(13	)			(13	)
Net cash used in financing activities					(522,110	)			(284,599	)			(705,856	)
IV    Effect of exchange rate changes on cash and cash equivalents					(45	)			3				1
V      Net (decrease) increase in cash and cash equivalents					(357,744	)			170,472				157,079
VI    Cash and cash equivalents at beginning of period					838,030				680,951				680,951
VII  Cash and cash equivalents at end of period				¥	480,286			¥	851,423			¥	838,030
Supplemental disclosures of cash flow information:
Cash received during the period for:
Tax refunds				¥	7			¥	107,012			¥	107,200
Cash paid during the period for:
Interest					5,422				8,400				16,384
Income taxes					319,086				131,239				259,883
Non-cash investing and financing activities:
Acquisition of shares from sale of an investment					16,711				—				—
Assets acquired through capital lease obligations					2,152				3,202				4,469

 

See accompanying notes to consolidated financial statements.

 

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NTT DoCoMo, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.	Basis of Presentation

 

Pursuant to section 81 of “Regulation Concerning the Terminology, Forms and Preparation Methods of Semi-annual Consolidated Financial Statements” (Japanese Ministry of Finance Ordinance No. 24, 1999), the accompanying semi-annual consolidated financial statements for the six months ended September 30, 2004 and 2003 of NTT DoCoMo, Inc. and its subsidiaries (collectively “DoCoMo”) have been prepared in accordance with accounting principles generally accepted in the United States of America. Since DoCoMo’s American Depositary Shares are publicly traded on the New York Stock Exchange, DoCoMo prepares its consolidated financial statements pursuant to the terminology, forms and preparation methods required in order to issue American Depositary Shares, which are registered with the Securities Exchange Commission of the United States of America.

 

2.	Summary of significant accounting and reporting policies:

 

(1)	Adoption of new accounting standards

 

Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity

 

Effective April 1, 2004, DoCoMo adopted Statement of Financial Accounting Standards (“SFAS”) No.150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No.150 requires that certain financial instruments with characteristics of both liabilities and equity, which under previous guidance could be classified as equity, be classified as liabilities (or assets in some circumstances) in the statement of financial position. Further, SFAS No.150 requires disclosure regarding the terms of those instruments and settlement alternatives. The adoption of SFAS No.150 did not have any impact on DoCoMo’s results of operations and financial position.

 

Accounting for Revenue Arrangements with Multiple Deliverables

 

Effective April 1, 2004, DoCoMo adopted Emerging Issues Task Force (“EITF”) Issue No. 00-21 (“EITF 00-21”), “Revenue Arrangements with Multiple Deliverables.” This Issue provides guidance on when and how to separate elements of an arrangement that may involve the delivery or performance of multiple products, services and rights to use assets into separate units of accounting. The adoption of EITF 00-21 did not have a significant impact on DoCoMo’s results of operations and financial position.

 

Determining Whether an Arrangement Contains a Lease

 

Effective April 1, 2004, DoCoMo adopted EITF Issue No. 01-08 (“EITF 01-08”), “Determining Whether an Arrangement Contains a Lease.” This Issue provides guidance on how to determine whether an arrangement contains a lease that is within the scope of SFAS No. 13, “Accounting for Leases.” The adoption of EITF 01-08 did not have any impact on DoCoMo’s results of operations and financial position.

 

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NTT DoCoMo, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(2)	Significant accounting policies

 

Principles of consolidation —

 

The consolidated financial statements include the accounts of DoCoMo and its majority-owned subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation.

 

Use of estimates —

 

The preparation of DoCoMo’s consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. DoCoMo has identified the following areas where it believes estimates and assumptions are particularly critical to the financial statements. These are determination of useful lives of property, plant and equipment, internal use software and other intangible assets, impairment of long-lived assets, impairment of goodwill, other than temporary impairment of investments in affiliates, realization of deferred tax assets, measuring pension liabilities and revenue recognition.

 

Cash and cash equivalents —

 

DoCoMo considers cash in banks and short-term highly liquid investments with an original maturity of three months or less at date of purchase to be cash and cash equivalents.

 

Inventories —

 

Inventories are stated at the lower of cost or market. The cost of equipment sold is determined by the first-in, first-out method. Inventories consist primarily of handsets and accessories. DoCoMo evaluates its inventory for obsolescence on a periodic basis and records adjustments as required.

 

Property, plant and equipment —

 

Property, plant and equipment is stated at cost and includes interest cost incurred during the period of construction, as discussed below in “Capitalized interest.” Depreciation is computed by the declining-balance method at rates based on the estimated useful lives of the respective assets, with the exception of buildings, which are computed on a straight-line basis. Useful lives are determined at the time the assets are acquired and are based on expected use, experience with similar assets and anticipated technological or other changes. If technological or other changes occur more or less rapidly or in a different form than anticipated or the intended use changes, the useful lives assigned to these assets are adjusted, as appropriate.

 

The estimated useful lives of major depreciable assets are as follows:

 

Major wireless telecommunications equipment		6 to 15 years
Steel towers and poles for antenna equipment		30 to 40 years
Reinforced concrete buildings		38 to 50 years
Tools, furniture and fixtures		4 to 15 years

 

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NTT DoCoMo, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Depreciation expense for the six months ended September 30, 2004 and 2003 and for the year ended March 31, 2004 was ¥261,584 million, ¥271,763 million and ¥570,324 million, respectively.

 

When depreciable telecommunications equipment is retired or abandoned in the normal course of business, the amount of such telecommunications equipment is deducted from the respective telecommunications equipment and accumulated depreciation accounts. Any remaining balance is charged to expense immediately. DoCoMo accounts for legal obligations associated with the retirement of tangible long-lived assets in accordance with SFAS No. 143, “Accounting for Asset Retirement Obligations.” DoCoMo’s asset retirement obligations subject to SFAS No. 143 primarily relate to its obligations to restore certain leased land and buildings used for DoCoMo’s wireless telecommunications equipment to their original state. DoCoMo estimates the fair values of the liabilities for an asset retirement obligation, and the aggregate amount of the fair values is immaterial.

 

Expenditures for replacements and betterments are capitalized, while expenditures for maintenance and repairs are expensed as incurred. Assets under construction are not depreciated until placed in service.

 

Capitalized interest —

 

DoCoMo capitalizes interest related to the construction of property, plant and equipment over the period of construction. DoCoMo also capitalizes interest associated with the development of internal-use software. DoCoMo amortizes such capitalized interest over the estimated useful lives of the related assets. Total interest costs incurred amounted to ¥5,181 million, ¥8,317 million and ¥15,466 million, of which ¥950 million, ¥899 million and ¥2,250 million was capitalized during the six months ended September 30, 2004 and 2003 and the year ended March 31, 2004, respectively.

 

Investments in affiliates —

 

The equity method of accounting is applied to investments in affiliates where DoCoMo owns an aggregate of 20% to 50% and/or is able to exercise significant influence over the affiliate. Under the equity method of accounting, DoCoMo records its share of earnings and losses of the affiliates and adjusts its investment amounts. For investments of less than 20%, DoCoMo periodically reviews the facts and circumstances related thereto to determine whether or not it can exercise significant influence over the operating and financial policies of the affiliates and, therefore should apply the equity method of accounting to such investments. Investments of less than 20% in which DoCoMo does not have significant influence are recorded using the cost method of accounting if they are non-marketable securities. For investees accounted for under the equity method whose year end is December 31, DoCoMo records its share of income or losses of such investees on a three month lag basis in its consolidated statements of income and comprehensive income.

 

DoCoMo evaluates its investments in affiliates for impairment due to declines in value considered to be other than temporary. In performing its evaluations, DoCoMo utilizes various information, as available, including cash flow projections, independent valuations and, as applicable, stock price analysis. In the event of a determination that a decline in value is other than temporary, a charge to earnings is recorded for the loss, and a new cost basis in the investment is established.

 

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NTT DoCoMo, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Marketable securities —

 

Marketable securities consist of debt and equity securities. DoCoMo accounts for such investments in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” Management determines the appropriate classification of its investment securities at the time of purchase.

 

Equity securities held by DoCoMo, whose fair values are readily determinable, are classified as available-for-sale. Available-for-sale securities are carried at fair value with unrealized gains or losses, net of applicable taxes, included as a component of accumulated other comprehensive income in shareholders’ equity. Equity securities, whose fair values are not readily determinable, are carried at cost. Other than temporary declines in value are charged to earnings. Realized gains and losses are determined using the average cost method and are reflected in earnings.

 

For debt securities classified as held-to-maturity securities at September 30, 2004 and 2003 and March 31, 2004, DoCoMo has the intent and ability to hold such securities to maturity. Held-to-maturity securities are carried at amortized cost and are reduced to fair value by a charge to earnings for other than temporary declines in fair value below cost.

 

DoCoMo did not hold or transact activity in any trading securities during the six months ended September 30, 2004 and 2003 and the year ended March 31, 2004.

 

Goodwill and other intangible assets —

 

Goodwill is the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. Other intangible assets primarily consist of software for telecommunications network, internal-use software, customer related assets and rights to use certain telecommunications assets of wireline carriers.

 

DoCoMo accounts for goodwill and other intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” Accordingly, DoCoMo does not amortize either goodwill, including embedded goodwill created through the acquisition of investments accounted for under the equity method, or intangible assets acquired in a business combination and determined to have an indefinite useful life, but instead, (1) goodwill, excluding goodwill related to equity method investments, and (2) intangible assets that have indefinite useful lives are tested for impairment at least annually. Intangible assets that have finite useful lives, consisting primarily of software for telecommunications network, internal-use software, customer related assets and rights to use telecommunications facilities of wireline are amortized over their useful lives.

 

Goodwill related to equity method investments is tested for other than temporary impairment in accordance with Accounting Principles Board (“APB”) Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock.”

 

DoCoMo capitalizes the cost of internal-use software which has a useful life in excess of one year in accordance with Statement of Position (“SOP”) 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” Subsequent costs for additions, modifications or upgrades to internal-use software are capitalized only to the extent that the software is able to perform a task it previously did not perform. Computer software acquired to be used in the manufacture of handsets is capitalized if the technological feasibility of the handset to be ultimately marketed has been established at the time of purchase in accordance with SFAS No. 86, “Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed.” Software maintenance and training costs are expensed in the period in which they are incurred. Capitalized computer software costs are being amortized on a straight-line basis over a period of 5 years.

 

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Customer related assets principally consist of contractual customer relationships in the mobile phone business that were recorded in November, 2002 in connection with the acquisition of minority interests of the regional subsidiaries through the process of identifying separable intangible assets apart from goodwill. The customer related assets are amortized over the expected term of customer relationships in mobile phone business, which is 6 years.

 

Amounts capitalized related to rights to use certain telecommunications assets of wireline carriers, primarily Nippon Telegraph and Telephone Corporation (“NTT”), are being amortized over 20 years.

 

Impairment of long-lived assets —

 

DoCoMo’s long-lived assets other than goodwill, including property, plant and equipment, software and intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of the asset with future undiscounted cash flows expected to be generated by the asset. If the asset is determined to be impaired, the loss recognized is the amount by which the carrying value of the asset exceeds its fair value as measured by discounted cash flows, salvage value or expected net proceeds, depending on the circumstances.

 

Information relating to goodwill is disclosed in “Goodwill and other intangible assets”.

 

Hedging activities —

 

DoCoMo uses derivative financial instruments, including interest rate swaps, foreign exchange forward contracts and non-derivative financial instruments to manage its exposure to fluctuations in interest rates and foreign exchange rates. These financial instruments are effective in meeting the risk reduction objectives of DoCoMo by generating either cash flows which offset the cash flows related to the underlying position in respect of amount and timing or transaction gains and losses which offset transaction gains and losses of the hedged item. DoCoMo does not hold or issue derivative financial instruments for trading purposes.

 

DoCoMo accounts for derivative instruments and other hedging activities in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 138 and No. 149. All derivative instruments are recorded on the balance sheet at fair value, with the change in the fair value recognized either in other comprehensive income (loss) or in net income depending on whether the derivative instrument qualifies as a hedge for accounting purposes, and if so, the nature of hedging activity. Exchange rate gains and losses on non-derivative financial instruments designated to hedge the foreign currency risk of a net investment in a foreign operation are reported, net of applicable income taxes, in other comprehensive income (loss) in the same manner as the translation adjustments of the hedged investment, to the extent of effectiveness.

 

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Cash flows from derivative instruments are classified in the consolidated statements of cash flows under the same categories as the cash flows from the related assets, liabilities or anticipated transactions.

 

Employee benefit plans —

 

Pension benefits earned during the period, as well as interest on projected benefit obligations are accrued currently. Prior service costs and credits resulting from changes in benefit plans are amortized over the average remaining service period of the employees expected to receive benefits.

 

Revenue recognition —

 

DoCoMo generates its revenues from two sources—wireless services and equipment sales. These revenue sources are separate and distinct earnings processes. Wireless service is sold to the ultimate subscriber directly or through third-party retailers who act as agents, while equipment, including handsets, are sold principally to primary distributors.

 

DoCoMo sets its wireless services rates in accordance with the Japanese Telecommunications Business Law and government guidelines, which currently allow wireless telecommunications operators to set their own tariffs without government approval. Wireless service revenues primarily consist of base monthly service, airtime and fees for activation.

 

Base monthly service and airtime are recognized as revenues as service is provided to the subscribers. DoCoMo’s monthly rate plans for cellular (FOMA and mova) services generally include a certain amount of allowances (free minutes and/or packets), and the used amount of the allowances is subtracted from total usage in calculating the airtime revenue from a subscriber for the month. Prior to November 1, 2003, the total amount of the base monthly charges was recognized as revenues in the month they were charged as the subscribers could not carry over the unused allowances to the following months. On November 1, 2003, DoCoMo introduced a billing arrangement, called “Nikagetsu Kurikoshi” (two-month carry over), in which the unused allowances are automatically carried over up to the following two months. This arrangement is available to substantially all subscribers of cellular (FOMA and mova) services. With the introduction of this billing arrangement, DoCoMo has started to defer revenues based on the portion of unused allowances that are estimated to be utilized prior to expiration. As DoCoMo does not have sufficient empirical evidence to reasonably estimate such amounts, DoCoMo currently deducts and defer all unused allowances from revenues. The deferred revenues are recognized as revenues as the subscribers make calls or data communications, similar to the way airtime revenues are recognized.

 

Certain commissions paid to purchasers (primarily agent resellers) are recognized as a reduction of revenue upon delivery of the equipment to the purchasers (primarily agent resellers) in accordance with EITF Issue No. 01-09 (“EITF 01-09”), “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products).”

 

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Upfront activation fees are deferred and recognized as revenues over the estimated average period of the customer relationship for each service. The related direct costs are also deferred to the extent of the related upfront fee amount and are amortized over the same periods.

 

Selling, general and administrative expenses —

 

Selling, general and administrative expenses primarily include commissions paid to agents, expenses associated with DoCoMo’s customer loyalty programs, advertising costs, as well as other expenses such as payroll and related benefit costs of personnel not directly involved in the operations and maintenance process. Commissions paid to agents represent the largest portion of selling, general and administrative expenses.

 

Income taxes —

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

Earnings per share —

 

Basic earnings per share includes no dilution and is computed by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per share 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. DoCoMo has no dilutive securities outstanding at September 30, 2004 and 2003 and March 31, 2004, and therefore there is no difference between basic and diluted earnings per share.

 

Foreign currency translation —

 

All asset and liability accounts of foreign subsidiaries and affiliates are translated into Japanese yen at appropriate period-end current rates and all income and expense accounts are translated at rates that approximate those rates prevailing at the time of the transactions. The resulting translation adjustments are included as a component of accumulated other comprehensive income.

 

Foreign currency receivables and payables of DoCoMo are translated at appropriate period-end current rates and the resulting translation gains or losses are included in earnings currently.

 

DoCoMo transacts limited business in foreign currencies. The effects of exchange rate fluctuations from the initial transaction date to the settlement date are included in “other, net” of other expense (income) in the accompanying statements of income and comprehensive income.

 

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(3)	Reclassifications —

 

Certain reclassifications have been made to the prior periods’ consolidated financial statements to conform to the presentation used for the six months ended September 30, 2004.

 

3.	Investments in affiliates:

 

DoCoMo’s investments in the following entities are accounted for on the equity method as of September 30, 2004:

 

		Ownership Percentage
Company name		September 30, 2004
AT&T Wireless Services, Inc. (“AT&T Wireless”)		15.85%
Hutchison Telephone Company Limited		24.10%
Hutchison 3G HK Holdings Limited		24.10%

 

AT&T Wireless —

 

On February 17, 2004, AT&T Wireless entered into a merger agreement with Cingular Wireless LLC (“Cingular”), a mobile operator in the United States of America, and certain of its affiliates. Under the terms of the merger agreement, it was agreed that all the outstanding shares of common stock of AT&T wireless would be converted into US$15 per share in cash.

 

On October 26, 2004, pursuant to the merger agreement, the merger between AT&T Wireless and Cingular became effective. As a result, DoCoMo transferred all of its AT&T Wireless shares to Cingular, and DoCoMo received US$6,495 million in cash. DoCoMo ceased to apply the equity method of accounting for its investment in AT&T Wireless. DoCoMo recognized a gain of ¥501.8 billion on the sale of AT&T Wireless shares as other income.

 

 

 

DoCoMo believes the estimated fair values of its investments in affiliates at September 30, 2004 equal or exceed the related carrying values.

 

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4.	Marketable securities and other investments:

 

Marketable securities and other investments as of September 30, 2004 and 2003 and March 31, 2004 comprised the following:

 

 

The aggregate cost, gross unrealized holding gains and losses and fair value by type of marketable security as of September 30, 2004 and 2003 and March 31, 2004 are as follows:

 

 

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The proceeds and gross realized gains (losses) from the sale of available-for-sale securities and other investments for the six months ended September 30, 2004 and 2003 and the year ended March 31, 2004 are as follows:

 

 

Maturities of debt securities classified as held-to-maturity as of September 30, 2004 and 2003 and March 31, 2004 are as follows:

 

 

Actual maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations.

 

Gross unrealized holding losses on available-for-sale securities and the fair value of the related securities at September 30, 2004 and March 31, 2004, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are as follows:

 

 

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Other investment includes long-term investments in various privately held companies. DoCoMo believes the estimated fair value of the investments as of September 30, 2004 approximated to the carrying value.

 

5. Goodwill and other intangible assets:

 

Goodwill –

 

On November 1, 2002, DoCoMo purchased all the remaining minority interests in its eight regional subsidiaries through share exchanges and made these subsidiaries wholly owned. On August 1, 2003, DoCoMo also purchased all the remaining minority interest in another one of its subsidiaries through a share exchange and made it wholly owned. These share exchanges were accounted for using the purchase method, in accordance with SFAS No. 141, “Business Combinations.” In accordance therewith, the acquisition costs of the subsidiaries’ stocks which exceeded the net assets of each of the subsidiaries were assigned to DoCoMo’s pro rata share of assets acquired and liabilities assumed based on estimated fair value at the date of the share exchanges, and deferred tax liabilities or assets were recognized for differences between the assigned values and the tax bases of the recognized assets acquired and liabilities assumed. The aggregate amount of acquisition costs that exceed the related determinable assets including intangible assets less liabilities is recorded as goodwill, which is exclusively attributable to the mobile phone business segment, on the consolidated balance sheet.

 

The changes in the carrying amount of goodwill, which is all related to the mobile phone business segment, for the six months ended September 30, 2004 and 2003 and the year ended March 31, 2003 are as follows:

 

 

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Other intangible assets –

 

The following table displays the intangible assets, all of which are subject to amortization, as of September 30, 2004 and 2003 and March 31, 2004.

 

 

Amortization of intangible assets for the six months ended September 30, 2004 and 2003 and the year ended March 31, 2004 were ¥78,722 million, ¥75,404 million and ¥150,673 million, respectively.

 

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6.	Other assets:

 

Other assets as of September 30, 2004 and 2003 and March 31, 2004 are summarized as follows:

 

		Millions of yen
		September 30,						March 31,
		2004			2003			2004
Deposits		¥	67,908		¥	67,799		¥	68,505
Deferred customer activation costs			75,294			73,566			71,841
Loan to an affiliate			—			37,068			38,618
Other			19,686			16,838			16,442
		¥	162,888		¥	195,271		¥	195,406

 

Loan to an affiliate was a loan advance to Hutchison 3G UK Holdings Limited, a former affiliate of DoCoMo, which DoCoMo collected on May 27, 2004.

 

7.	Shareholders’ equity:

 

Share repurchase —

 

In May 2004, DoCoMo repurchased 43,000 shares of its common stock (0.08% of issued shares) for ¥8,447 million in the stock market. This repurchase was based on a stock repurchase plan, which was approved in the shareholders’ meeting held on June 19, 2003, under which DoCoMo could repurchase up to 2,500,000 shares at an aggregate amount not to exceed ¥600,000 million in order to improve capital efficiency and to implement flexible capital policies in accordance with the business environment.

 

On June 18, 2004, the shareholders’ meeting approved a stock repurchase plan under which DoCoMo may repurchase up to 2,500,000 shares at an aggregate amount not to exceed ¥600,000 million in order to improve capital efficiency and to implement flexible capital policies in accordance with the business environment. Based on this approval, DoCoMo repurchased 1,815,526 shares of its common stock (3.62% of issued shares) for ¥332,241 million through a tender offer in August 2004.

 

Also, DoCoMo repurchased its fractional shares.

 

The class, aggregate number and price of shares repurchased for the six months ended September 30, 2004, were as follows:

 

Class of shares repurchased:		Shares of common stock of the Company
Aggregate number of shares repurchased:		1,858,527 shares (3.70% of issued shares)
Aggregate price of shares repurchased:		¥340,688 million

 

Of the total shares repurchased for the six months ended September 30, 2004, 1,748,000 shares were purchased from NTT.

 

In November 2004, based on the June 18, 2004 approval, DoCoMo repurchased 171,699 shares of its common stock (0.34% of issued shares) for ¥30,720 million in the stock market.

 

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Shareholders’ equity per share —

 

Shareholders’ equity per share as of September 30, 2004 and 2003 and March 31, 2004 were ¥78,111.42, ¥73,307.55 and ¥76,234.00, respectively.

 

8.	Business segments:

 

From a resource allocation perspective, DoCoMo views itself as having four primary business segments. The mobile phone business segment includes cellular (FOMA) services, cellular (mova) services, packet communications services, satellite mobile communications services and the equipment sales related to these services. The PHS business segment includes PHS services and the related equipment sales for such service. The Quickcast business segment includes paging (Quickcast) services and related equipment sales for such service. The miscellaneous business segment includes international dialing and roaming services and other miscellaneous services, which in the aggregate are not significant. On March 31, 2004, DoCoMo ceased providing in-flight telephone services, which were included in mobile phone business segment.

 

DoCoMo identified its reportable segments based on the nature of services included, as well as the characteristics of the telecommunications networks used to provide those services. DoCoMo’s chief operating decision maker monitors and evaluates the performance of its segments based on the information that follows as derived from DoCoMo’s management reports.

 

 

DoCoMo does not disclose geographical segments, since operating revenues generated outside Japan are immaterial.

 

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9.	Commitments and contingencies:

 

Leases —

 

The minimum rental payments required under operating leases that have initial or remaining noncancellable lease terms at September 30, 2004 are as follows:

 

		Millions of yen
		September 30, 2004
Due within one year		¥	1,424
Due after one year			24,917
Total minimum lease payments		¥	26,341

 

Litigation —

 

At September 30, 2004, DoCoMo had no litigation or claims outstanding, pending or threatened against it, which in the opinion of management would have a material adverse effect on the results of operations or the financial position.

 

Guarantees —

 

Financial Accounting Standards Board (“FASB”) Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” requires that if a company issues or modifies a guarantee on or after January 1, 2003, the company must recognize an initial liability for the fair value of the obligations it has undertaken in issuing and must disclose that information in its financial statements.

 

DoCoMo enters into agreements in the normal course of business that provide for guarantees of counterparties. These counterparties include customers, related parties and other business partners. Although the most of guarantees provided for customers are for cellular phone handsets DoCoMo sold, DoCoMo is provided the same kind of guarantees by the handset vendors. Though the guarantees or indemnifications provided in other transactions than with the customers are different in each contracts, the likelihood of almost all of the performance of these guarantees or indemnifications are remote and amount of payments DoCoMo could be required is not specified in almost all of the contract. Historically, DoCoMo has not made any significant guarantee or indemnification payments under such agreements. DoCoMo estimates the estimated fair value of the obligations related to these agreements is not significant. Accordingly, DoCoMo has no liabilities recorded for the obligations as of September 30, 2004.

 

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10.	Fair Value of Financial instruments:

 

All cash and temporary investments, current receivables, current payables, and certain other short-term financial instruments are short-term in nature, and therefore their carrying amount approximates fair values. Information relating to investments in affiliates and marketable securities and other investments are disclosed in Notes 3 and 4, respectively.

 

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 DoCoMo’s current incremental borrowings rates for similar liabilities.

 

The carrying amounts and the estimated fair values of long-term debt, including current portion as of September 30, 2004 and 2003 and March 31, 2004 are as follows:

 

 

Risk management —

 

DoCoMo’s earnings and cash flows may be negatively impacted by fluctuating interest and foreign exchange rates. DoCoMo enters into foreign exchange forward contracts and interest rate swap contracts, and uses other financial instruments to manage these risks. The derivative financial instruments are executed with creditworthy financial institutions, and DoCoMo management believes there is little risk of default by these counterparties.

 

On March 5, 2003, DoCoMo issued $100 million unsecured corporate bonds in order to hedge a portion of its net investment in a foreign subsidiary. DoCoMo also uses foreign exchange forward contracts to hedge a portion of the net investment in the foreign subsidiary. These financial instruments are effective as a hedge against fluctuations in currency exchange rates. Gains or losses from changes in the fair value of these instruments, which offset translation gains or losses on the net investment in the foreign subsidiary, are recorded as a foreign currency translation adjustment in other comprehensive income (loss). The accumulated gain from the revaluation of the corporate bonds as of September 30, 2004 and 2003 and March 31, 2004 was ¥396 million, ¥385 million and ¥712 million, and recorded as foreign currency translation adjustment in accumulated other comprehensive income at September 30, 2004 and 2003, and March 31, 2004, respectively. The accumulated loss from the revaluation of the foreign exchange forward contracts as of September 30, 2004 was ¥1,707 million and recorded as foreign currency translation adjustment in accumulated other comprehensive income at September 30, 2004.

 

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Foreign exchange forward contracts —

 

The contract amount and the fair value of foreign currency forward contracts at September 30, 2004 was ¥238,594 and ¥(1,707) million, respectively. The fair values of foreign currency forward contracts were obtained from counterparty financial institutions and represents the amounts that DoCoMo could have settled with the counterparty to terminate the contracts outstanding at the date.

 

Interest rate swap agreements —

 

The table below shows the fair value of interest rate swap agreements at September 30, 2004 and 2003 and March 31, 2004:

 

 

The interest rate swap agreements have remaining terms to maturity ranging from 15 months to 84 months.

 

The fair values of interest rate swaps were obtained from counterparty financial institutions and represents the amounts that DoCoMo could have settled with the counterparty to terminate the swaps outstanding at the respective dates.

 

Concentrations of risk —

 

As of September 30, 2004, DoCoMo did not have any significant concentration of business transacted with an individual counterparty or groups of counterparties that could, if suddenly eliminated, severely impact its operations.

 

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11.	Subsequent event:

 

Introduction of a new billing arrangement —

 

DoCoMo introduced a new billing arrangement for the existing “Family Discount” plan, a discounted billing arrangement for families with between two and ten DoCoMo subscriptions. With the new arrangement, the unused allowances (free minutes and/or packets) which have been carried over for two months and will expire under a billing arrangement named “Nikagetsu Kurikoshi” (two-month carry over), are automatically used to cover the airtime and/or packet fees exceeding the allowances of the other lines in the “Family Discount” group. The arrangement is applied to the allowances included in the base monthly charges in and after December 2004.

 

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