財務情報 2001年 (分割版) | アニュアルレポート | KDDI株式会社

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KDDI Corporation2001

Management Discussion and Analysis

The following discussion and analysis of KDDI’s performance in fiscal 2001 is based on management’s assumptions as of June 26, 2001.

Overview

Deregulation and the resulting entry into the market of companies from other industries and other countries, are transforming Japan’s telecommunications industry, intensifying competition. At the same time, revolutionary advances in IT and the rapid diffusion of mobile telecommunications and the Internet are spurring demand for increasingly personalized and diverse communications options, as well as accelerating the shift in customer needs to multimedia services combining voice-, data- and image-based communications. In the area of fixed communications, the lead-up to the launch of the MYLINE preferred carrier selection service on May 1, 2001, brought new carriers into the market and significantly lowered rates, intensifying competition. In mobile telecommunications, improved terminal functions spurred the introduction of new services and the expansion of content, enhancing convenience while at the same time exacerbating competition. With the launch of next-generation mobile telecommunications services in fiscal 2002, this sector promises to offer exciting new opportunities in the years ahead.

On October 1, 2000, DDI Corporation merged with KDD Corporation and IDO Corporation to form KDDI. Reflecting the impact of the merger, KDDI’s total operating revenues in fiscal 2001 rose strongly. Solid revenue growth was also attributable to:

• the establishment of a discount cellular phone service plan for students and the introduction of attractive new terminals, which bolstered the number of young subscribers to au cellular phone services, and the addition of e-mail functions and enhanced color content to the EZweb Internet connection service, prompting a sharp rise in revenues from data transmission services

• an increase in the number of subscribers to the DION dial-up Internet access service

• solid contributions over the entire year from TU-KA PDC- system cellular phone services, provided by TU-KA Cellular Tokyo, Inc., TU-KA Cellular Tokai, Inc., and TU-KA Phone Kansai, Inc.

Operating Revenues

KDDI recorded a 48.7%, or ¥742.7 billion, increase in consolidated total operating revenues in the period under review, to ¥2,268.6 billion. Merger-related factors contributing to revenue growth included the addition of IDO’s cellular phone services in the Kanto and Tokai regions, firm growth in the use of mobile Internet services, and the addition of network and IP services previously offered by KDD, notably fixed-line

international and domestic long-distance telephone services and the NEWEB Internet access service. As a consequence of these factors, operating revenues from voice communications advanced 27.8%, or ¥341.5 billion, while those from digital data transmission services soared 4.8 times, or

¥117.1 billion.

Expenses and Income

Total operating expenses climbed 44.7%, or ¥673.5 billion, to

¥2,179.9 billion, as the merger prompted a sharp increase in sales expenses, particularly advertising costs related to the introduction of new brands. Nonetheless, owing to efforts to restrain outlays, operating expenses accounted for 96.1% of total operating revenues, down 2.6 percentage points from

the previous year. Effective from the period under review, subsidiaries au Corporation and OKINAWA CELLULAR adopted new accounting standards for depreciation. As a consequence, depreciation was ¥38.2 billion lower than it would have been had the former standards been employed.

Millions of Millions of yen U.S. dollars

2001 2000 Change 2001

Telecommunications business operating revenues ¥1,805,819 ¥1,275,349 ¥530,470 $14,575

Voice communications 1,567,658 1,226,181 341,477 12,653

Digital data transmission services 148,081 30,954 117,127 1,195

Leased circuits 55,677 18,214 37,463 449

Telegraph and other telecommunications services 34,403 — 34,403 278

Sales of terminal equipment and other 462,827 250,604 212,223 3,735

Total operating revenues ¥2,268,646 ¥1,525,953 ¥742,693 $18,310

Operating Expenses 2001 2000 Change 2001

Telecommunications business operating expenses ¥1,731,047 ¥1,263,844 ¥467,203 $13,971

Percentage of telecommunications business operating revenues 95.9% 99.1% –3.2

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Segment sales herein include intersegment sales. For more information on segment results, please see Note 12 of the Notes to Consolidated Financial Statements.

Network & IP

The merger of DDI, KDD and IDO spurred a 74.9%, or ¥235.8 billion, increase in total sales in the Network & IP segment, to

¥550.5 billion, reflecting the addition of fixed-line international and domestic long-distance telephone services, NEWEB Internet access services, ANDROMEGA-brand comprehensive telecommunications solutions for corporate customers, and data center services. Segment operating income advanced 21.1%, or ¥9.8 billion, to ¥56.1 billion.

With the aim of enhancing services, we took advantage of the merger to integrate KDD’s NEWEB with the DION Internet access service. We also introduced new rate schedules and expanded our menu of services for medium-volume users. As a consequence, the number of subscribers for dial-up services exceeded 1.8 million as of March 31, 2001, up 880,000 from the combined number at fiscal 2000 year-end.

au, TU-KA

Total sales in the au, TU-KA segment advanced 50.7%, or

¥502.8 billion, to ¥1,495.0 billion. This gain is largely attributable to solid contributions for the full year from TU-KA cellular phone services, provided by three companies that became consolidated subsidiaries in September 1999; the addition of IDO’s cellular phone services as a result of the merger; an increase in the number of subscribers, particularly young people, to au cellular phone services; and firm growth in the number of subscribers to EZweb mobile Internet connection services. Operating income amounted to ¥36.5 billion, compared with a ¥6.3 billion loss in fiscal 2000.

The establishment of a discount cellular phone service plan for students and attractive new terminals, as well as the improvement of e-mail functions and enhanced color content to the EZweb mobile Internet connection service, contributed to an increase in the number of young subscribers to au cellular phone services. As of the end of the period, the number of au subscribers totaled 11.0 million, up 8.5% from

Operating income jumped 4.5 times, or ¥69.2 billion, to

¥88.8 billion, and represented 3.9% of total operating

the combined total for IDO and the DDI CELLULAR Group at the end of fiscal 2000. Moreover, despite the introduction of a discount plan for students that offers a maximum of 50% off standard rates, increased use of e-mail and content browsing services boosted data transmission service revenues. Accord- ingly, ARPU for au services in fiscal 2001 was ¥8,200, down only ¥440 from the average for IDO and the DDI CELLULAR Group in fiscal 2000. As a consequence, au services generated revenues of ¥1,126.5 billion in the period under review, an increase of 38.6%.

Revenues from TU-KA services climbed 105.1%, to

¥367.5 billion, in fiscal 2001, reflecting solid gains over the entire year. Although the number of subscribers rose 13.2%, or 460,000, to nearly 4.0 million, the rising popularity of prepaid TU-KA phones prompted a ¥1,100 decline in the ARPU for these services, to ¥6,400.

PHS

We expanded PHS services during fiscal 2001 by launching PRIN, a new Internet access service requiring no application, in May 2000, and adding H” features, thereby facilitating the November 2000 launch of Feel H”, which enables users to enjoy simple graphics and music as well as basic PHS features. Despite these efforts, the number of PHS subscribers fell 5.2%, or 170,000, to 3.1 million, while the ARPU for these services slipped ¥300, to ¥6,100. As a consequence, the PHS segment generated total sales of ¥251.9 billion, a decline of 10.3%, or ¥28.9 billion, and an operating loss of

¥12.9 billion, an improvement from fiscal 2000’s ¥18.6 billion operating loss.

Other

This segment comprises telecommunications-related construction, sales of information and telecommunications equipment systems, and research and terminal development. Owing to the impact of the merger, total sales of the segment amounted to ¥107.2 billion in fiscal 2001, compared with

¥4.0 billion in fiscal 2000, while operating income reached

¥5.0 billion, up from an operating loss of ¥3.5 billion. revenues, up 2.6 percentage points from fiscal 2000.

Results by Segment

Operating Income 2001 2000 Change 2001

Operating income ¥88,783 ¥19,614 ¥69,169 $717

Percentage of total operating revenues 3.9% 1.3% 2.6

2001 2000 Change 2001

Network & IP Total sales ¥ 550,477 ¥314,684 ¥235,793 $ 4,443

Operating expenses 494,330 268,304 226,026 3,990

Operating income 56,147 46,380 9,767 453

au, TU-KA Total sales ¥1,494,945 ¥992,172 ¥502,773 $12,065

Operating expenses 1,458,447 998,425 460,022 11,770

Operating income (loss) 36,498 (6,253) 42,751 295

PHS Total sales ¥ 251,884 ¥280,736 ¥ (28,852) $ 2,033

Operating expenses 264,783 299,377 (34,594) 2,137

Operating income (loss) (12,899) (18,641) 5,742 (104)

Other Total sales ¥ 107,204 ¥ 4,018 ¥103,186 $ 865

Operating expenses 102,164 7,508 94,656 825

Operating income (loss) 5,040 (3,490) 8,530 40

Note: Sales include intersegment sales and transfers.

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Other Expenses

Total other expenses fell 31.3%, or ¥19.5 billion, to ¥42.9 billion. A ¥16.7 billion gain on sales of securities was coun- tered by a 39.0% jump in interest expense; a ¥10.6 billion loss from amendments to submarine cable construction contracts—in this case, for the TAT-14 cable—posted by

subsidiary KDD Submarine Cable Systems Inc.; ¥6.7 billion in equity in loss of affiliates, namely, GLOBAL TELECOM of Brazil; and ¥6.0 billion in retirement benefit expenses, owing to the adoption of new accounting standards effective from fiscal 2001.

Net Income

Income before income taxes and minority interests was ¥45.9 billion, an increase of ¥88.7 billion from a loss of ¥42.8 billion in fiscal 2000. Owing to the adoption of new accounting standards for retirement benefits and financial instruments, income before income taxes and minority interests was ¥8.9 billion less and ¥3.1 billion less, respectively, than would have been the case had previous accounting standards been

applied. As a consequence, net income in fiscal 2001 totaled

¥13.4 billion, an increase of ¥23.9 billion from a net loss of

¥10.5 billion in fiscal 2000, and represented 0.6% of total operating revenues. Net income per share was ¥4,467, an increase of ¥9,070, while return on equity was 2.5%, an improvement of 7.1 percentage points.

Financial Position

Owing to the merger, total assets of KDDI at the close of fiscal 2001 amounted to ¥3,639.4 billion, up 82.1%, or ¥1,640.4 billion, from the same point a year earlier. Total property, plant and equipment was ¥2,245.1 billion, up ¥925.6 billion, or 70.2%, reflecting investment in data transmission facilities and cdmaOne switching equipment and base stations. Total investments and other assets reached ¥539.9 billion, up 84.9%, or ¥247.9 billion, from ¥292.0 billion, as an increase in software boosted intangible assets. Total current assets were ¥854.4 billion, up 125.3%, or ¥475.1 billion.

Owing to the impact of the merger, total liabilities expanded 61.2%, to ¥2,782.9 billion. Despite falling ¥55.2 billion in the second half of the period, interest-bearing debt increased ¥664.5 billion, to ¥2,097.6 billion, from the combined total for DDI, KDD and IDO in fiscal 2000.

Total shareholders’ equity reached ¥845.1 billion, an increase of 269.7%, or ¥616.5 billion. This was primarily attributable to DDI’s third-party offering of shares to Toyota on September 30, 2000; increases in common stock, additional paid-in capital and retained earnings as a consequence of the merger of KDD, DDI and IDO on October 1, 2000; and the transformation of au Corporation into a wholly owned consolidated subsidiary through a share exchange, on March 31, 2001, which also boosted common stock, additional paid-in capital and retained earnings. The equity ratio was 23.2%, an increase of 11.8 percentage points, while shareholders’ equity per share was ¥199,273, up 98.3%, or ¥98,776.

2001 2000 Change 2001

Income (loss) before income taxes and minority interests ¥45,902 ¥(42,786) ¥88,688 $ 370

Percentage of total operating revenues 2.0% –2.8% 4.8

Net income (loss) 13,427 (10,468) 23,895 108

Percentage of total operating revenues 0.6% –0.7% 1.3

Net income (loss) per share (Yen/U.S. dollars) ¥ 4,467 ¥ (4,603) ¥ 9,070 $36.05

Return on equity 2.5% –4.6% 7.1

Return on assets 0.5% –0.6% 1.1

Summary of Consolidated Balance Sheets 2001 2000 Change 2001

Total assets ¥3,639,364 ¥1,999,008 ¥1,640,356 $ 29,373

Total current assets 854,429 379,320 475,109 6,896

Total property, plant and equipment 2,245,068 1,319,457 925,611 18,120

Total investments and other assets 539,867 291,989 247,878 4,357

Total current liabilities 1,113,953 595,665 518,288 8,991

Interest-bearing debt 2,097,627 1,433,128 664,346 16,930

Total shareholders’ equity 845,091 228,574 616,517 6,821

Equity ratio 23.2% 11.4% 11.8

Shareholders’ equity per share (Yen/U.S. dollars) ¥ 199,273 ¥ 100,497 ¥ 98,776 $1,608.34

Cash Flows

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Strategies

transmission and cdmaOne-related facilities contributed to payments for purchase of property, plant and equipment. Net cash used in financing activities amounted to ¥25.4 billion, compared with ¥7.7 billion provided by such activities in fiscal 2000, as an improved financial position facilitated

¥250.3 billion in repayment of long-term loans, countering

¥183.8 billion in proceeds from issuance of long-term loans and ¥120.0 billion in proceeds from new share issue to Toyota.

Strategies and Outlook

The following statements regarding KDDI’s strategies and outlook for fiscal 2002 are forward-looking statements as

specified in the Disclaimer Regarding Forward-Looking Statements on the inside front cover of this annual report.

To facilitate flexible responses to the increasingly sophisti- cated and diverse needs of its customers and rapid changes in the operating environment, KDDI is building on its management base and extensive global network to add value to its fixed-line, mobile, domestic, international, voice, data and IP service businesses. Through these efforts, the Company is working to provide high-quality, reasonably priced services, thereby contributing to social progress, ensuring customer satisfaction and reaffirming its position as a provider of comprehensive telecommunications services. KDDI’s basic management strategy places a high priority on improving cash flow and financial position to ensure the Company’s appeal to investors.

Following the merger of DDI, KDD and IDO in October 2000, resulting in the creation of KDDI, the Company launched its Mobile and IP strategy, a medium- to long-term effort emphasizing the cultivation of the high-growth mobile communications and IP businesses. In line with this strategy, KDDI is promoting the concentrated investment of management resources in selected key areas. At the same time, the Company is taking decisive steps to enhance efficiency with the aim of reducing capital investment and administrative expenses and rationalizing support departments, thereby improving cash flow and lowering interest-bearing debt—

achievements that will enhance the soundness of its financial position.

In fiscal 2002, KDDI expects the operating environment to remain challenging. In the mobile telecommunications and data transmission businesses, the proliferation of new rate plans and the launch of services using new technologies is also expected to intensify competition. Conditions are expected to be particularly harsh in the mobile telecommunications market, owing to the launch of next-generation cellular telephone services by several carriers. KDDI is responding effectively to these challenges. In May 2001, KDDI launched local fixed-line telephone services, while in the second half of the period, the Company plans to introduce services based on the CDMA2000 1x system. In the IP business, we will imple- ment an innovative business development strategy that emphasizes assertive marketing of our data center services under the integrated brand name dotsquare, as well as promotion of the selective, concentrated allocation of management resources in core businesses Groupwide.

As a consequence of these projections and strategies, KDDI expects to achieve consolidated total operating revenues of ¥3,100.0 billion, operating income of ¥110.0 billion and net income of ¥64.0 billion in fiscal 2002.

Dividend Policy

Operating in a market characterized by intense, global competition, KDDI, as the parent company of the KDDI Group, remains committed to reinforcing its competitiveness and enhancing corporate value, and to ensuring a fair return to its shareholders. Accordingly, the Company will continue to make effective use of internal reserves to fund R&D and capital investment and ensure stable, sustainable growth for the entire Group.

At the annual general meeting of shareholders on June 26, 2001, a proposal to pay cash dividends of ¥895 per share of common stock was submitted and approved by voters. Together with the interim dividend, this brings dividends for fiscal 2001 to ¥1,790 per share.

Summary of Consolidated Statements of Cash Flows 2001 2000 Change 2001

Net cash provided by operating activities ¥ 286,736 ¥ 304,097 ¥(17,361) $ 2,314

Income (loss) before income taxes and minority interests 45,902 (42,786) 88,688 370

Depreciation and amortization 338,366 270,211 68,155 2,732

Net cash used in investing activities (372,263) (371,564) (699) (3,005)

Free cash flow (85,527) (67,467) (18,060) (690)

Net cash (used in) provided by financing activities (25,352) 7,664 (33,016) (205)

Repayment of long-term loans (250,289) (254,702) 4,413 (2,020)

Despite a ¥110.5 billion net decrease in cash and cash equivalents generated by KDDI’s operating, investing and financing activities in fiscal 2001, a ¥166.9 billion increase in cash and cash equivalents due to merger and newly consolidated subsidiaries resulted in cash and cash equivalents at end of year of ¥134.7 billion.

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Consolidated Financial Highlights

KDDI Corporation and Consolidated Subsidiaries

Activities of Principal Consolidated Subsidiaries Millions of yen

Years ended March 31, 2001, 2000 and 1999 2001 2000 1999

KDDI Total operating revenues ¥1,151,553 ¥632,665 ¥605,510

Telecommunications business operating revenues 689,531 293,813 242,434

Voice communications 526,787 246,829 226,702

Digital data transmission services 105,616 30,535 10,884

Leased circuits 52,730 16,449 4,848

Telegraph and other telecommunications services 4,398 — —

Sales of terminal equipment and other 462,022 338,852 363,076

Operating income 57,010 62,273 34,788

Income (loss) before income taxes 41,771 (47,187) 33,648

Net income (loss) 26,541 (27,509) 16,867

au Total operating revenues ¥ 848,057 ¥817,825 ¥690,606

Digital data transmission services 56,327 1,660 22

Operating income (loss) 29,836 (29,629) 30,338

Income (loss) before income taxes 22,785 (44,129) 21,546

Net income (loss) 15,325 (43,317) 9,128

TU-KA Total operating revenues ¥ 368,997 ¥356,687 ¥ —

Voice communications 292,189 288,115 —

Sales of terminal equipment and other 76,808 68,572 —

Operating income 8,308 24,246 —

Income before income taxes 2,621 19,439 —

Net income 2,172 14,479 —

DDI POCKET Total operating revenues ¥ 251,884 ¥280,736 ¥331,300

Operating income (loss) (12,899) (18,641) 9,972

Income (loss) before income taxes (18,119) 50,836 1,013

Net income (loss) (18,191) 49,087 942

Others Total operating revenues ¥ 147,292 ¥ 4,114 ¥ 1,651

Operating income (loss) 2,531 (4,033) (2,972)

Income (loss) before income taxes (23,055) (34,264) (2,607)

Net income (loss) (25,903) (38,841) (2,731)

Consolidated Accounts Millions of yen

KDDI Consolidated Total operating revenues ¥2,268,646 ¥1,525,953 ¥1,246,582 Telecommunications business operating revenues 1,805,819 1,275,349 1,084,547

Voice communications 1,567,658 1,226,181 1,066,009

Digital data transmission services 148,081 30,954 10,842

Leased circuits 55,677 18,214 7,696

Telegraph and other telecommunications services 34,403 — —

Operating income 88,783 19,614 69,874

Income (loss) before income taxes and minority interests 45,902 (42,786) 49,715

Net income (loss) 13,427 (10,468) 17,061

Depreciation and Capital Expenditure Billions of yen

KDDI Depreciation ¥201.4 ¥ 58.4 ¥ 52.5

Capital expenditure 306.7 100.3 66.5

au Depreciation 96.1 139.5 108.2

Capital expenditure 127.9 216.9 273.8

TU-KA Depreciation 49.1 40.9 —

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Comparative Financial Statements

The following are comparisons of balance sheets and statements of income before and after the merger of DDI Corporation (DDI), KDD Corporation (KDD) and IDO Corporation (IDO).

On May 15, 2000, DDI concluded a merger agreement which was approved at the shareholders’ meeting held on June 28, 2000. Under the terms of the merger agreement, the effective date of merger was October 1, 2000, and the operations of KDD and IDO were merged into DDI on that date.

Therefore, comparative statements of income are calculated by simply adding up the three companies’ operating results for the prior fiscal year and by adding the three companies’ operating results in the first half of fiscal 2001 (before the merger) to operating results in the second half (after the merger).

Millions of yen Millions of U.S. dollars

2001 2000 2001 2000

March 31, 2001 and 2000 (KDDI) (DDI, KDD, IDO) Change (KDDI) (DDI, KDD, IDO) Change

ASSETS

Current assets ¥ 854,429 ¥ 955,020 ¥(100,591) $ 6,896 $ 7,708 $ (812)

Total property, plant and equipment 2,245,068 2,117,228 127,840 18,120 17,088 1,032

Investments and other assets 539,867 562,895 (23,028) 4,357 4,543 (186)

Foreign currency translation adjustments — 10,871 (10,871) — 88 (88)

Total assets ¥3,639,364 ¥3,646,014 ¥ (6,650) $29,373 $29,427 $ (54)

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities ¥1,113,953 ¥1,119,200 ¥ (5,247) $ 8,991 $ 9,033 $ (42)

Non-current liabilities 1,668,968 1,806,928 (137,960) 13,470 14,584 (1,114)

Total liabilities 2,782,921 2,926,128 (143,207) 22,461 23,617 (1,156)

Minority interests 11,352 48,685 (37,333) 91 393 (302)

Shareholders’ equity:

Common stock 141,852 203,153 (61,301) 1,145 1,640 (495)

Additional paid-in capital 304,096 126,164 177,932 2,454 1,018 1,436

Retained earnings 401,442 341,892 59,550 3,240 2,759 481

Foreign currency translation adjustments (2,290) 0 (2,290) (18) 0 (18)

Treasury stock, at cost (9) (8) (1) (0) (0) (0)

Total shareholders’ equity 845,091 671,201 173,890 6,821 5,417 1,404

Total liabilities and

shareholders’ equity ¥3,639,364 ¥3,646,014 ¥ (6,650) $29,373 $29,427 $ (54)

Note: Transactions before the merger of the three companies have not been eliminated.

Millions of yen

2001 2000

First Half Second Half Total

Years ended March 31, 2001 and 2000 (DDI, KDD, IDO) (KDDI) Total (DDI, KDD, IDO) Change

Operating revenues ¥1,406,589 ¥1,409,792 ¥2,816,381 ¥2,602,494 ¥213,887

Operating expenses 1,348,781 1,368,806 2,717,587 2,542,369 175,218

Operating income 57,808 40,986 98,794 60,125 38,669

Total other expenses 9,537 23,189 32,726 98,207 (65,481)

Income (loss) before income taxes and minority interests 48,271 17,797 66,068 (38,082) 104,150

Total income taxes 30,201 11,995 42,196 (12,536) 54,732

Minority interests in consolidated subsidiaries 1,229 975 2,204 (21,393) 23,597

Net income (loss) ¥ 16,841 ¥ 4,827 ¥ 21,668 ¥ (4,153) ¥ 25,821

Millions of U.S.dollars

2001 2000

First Half Second Half Total

Years ended March 31, 2001 and 2000 (DDI, KDD, IDO) (KDDI) Total (DDI, KDD, IDO) Change

Operating revenues $ 11,353 $ 11,378 $ 22,731 $ 21,005 $ 1,726

Operating expenses 10,886 11,048 21,934 20,520 1,414

Operating income 467 330 797 485 312

Total other expenses 77 187 264 793 (529)

Income (loss) before income taxes and minority interests 390 143 533 (308) 841

Total income taxes 244 97 341 (101) 442

Minority interests in consolidated subsidiaries 10 8 18 (173) 191

Net income (loss) $ 136 $ 38 $ 174 $ (34) $ 208

Note: Transactions before the merger of the three companies have not been eliminated.

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Millions of Millions of yen U.S. dollars (Note 1)

March 31, 2001 and 2000 2001 2000 2001

ASSETS Current Assets:

Cash and cash equivalents ¥ 134,670 ¥ 78,300 $ 1,087

Accounts receivable 547,202 234,266 4,416

Allowance for doubtful accounts (13,473) (7,725) (109)

Inventories 110,044 32,945 888

Deferred income taxes (Note 10) 12,381 29,235 100

Prepaid expenses and other current assets 63,605 12,299 514

Total Current Assets 854,429 379,320 6,896

Property, Plant and Equipment (Note 4):

Telecommunications equipment 3,079,812 1,837,410 24,856

Buildings and structures 540,528 230,828 4,363

Machinery and tools 133,640 41,719 1,079

Land 88,249 53,052 712

Construction in progress 127,211 48,307 1,027

Other property, plant and equipment 15,440 — 125

3,984,880 2,211,316 32,162

Accumulated depreciation (1,739,812) (891,859) (14,042)

Total Property, Plant and Equipment 2,245,068 1,319,457 18,120

Investments and Other Assets:

Investments in securities (Note 3) 62,061 2,452 501

Deposits and guarantee money 41,691 25,238 336

Intangible assets 261,727 129,480 2,112

Goodwill 65,982 64,598 533

Deferred income taxes (Note 10) 15,355 9,289 124

Other assets 101,205 67,491 817

Allowance for loss on investments and other assets (8,154) (6,559) (66)

Total Investments and Other Assets 539,867 291,989 4,357

Foreign Currency Translation Adjustments — 8,242 —

Total Assets ¥3,639,364 ¥1,999,008 $29,373

The accompanying notes are an integral part of these statements.

Consolidated Balance Sheets

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March 31, 2001 and 2000 2001 2000 2001

LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities:

Short-term loans and current portion of long-term loans (Note 4) ¥ 457,790 ¥ 300,832 $ 3,695

Accounts payable 552,307 231,987 4,458

Accrued income taxes 10,258 4,321 83

Accrued expenses 31,620 43,057 255

Allowance for bonuses 14,393 5,641 116

Other current liabilities 47,585 9,827 384

Total Current Liabilities 1,113,953 595,665 8,991

Non-Current Liabilites:

Long-term loans (Note 4) 1,205,380 936,497 9,728

Bonds (Note 4) 380,000 160,000 3,067

Other non-current liabilities (Note 4) 83,588 34,092 675

Total Non-Current Liabilities 1,668,968 1,130,589 13,470

Total Liabilities 2,782,921 1,726,254 22,461

Minority Interests 11,352 44,180 91

Contingent Liabilities (Note 5)

Shareholders’ Equity (Note 8): Common stock, ¥5,000 par value: Authorized—7,000,000 shares

Issued and outstanding—4,240,880.38 shares 141,852 72,635 1,145

Additional paid-in capital 304,096 87,920 2,454

Retained earnings 401,442 68,019 3,240

847,390 228,574 6,839

Foreign Currency Translation Adjustments (2,290) — (18)

Treasury stock, at cost (9) (0) (0)

Total Shareholders’ Equity 845,091 228,574 6,821

Total Liabilities and Shareholders’ Equity ¥3,639,364 ¥1,999,008 $29,373

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Years ended March 31, 2001 and 2000 2001 2000 2001

Operating Revenues:

Voice communications ¥1,567,658 ¥1,226,181 $12,653

Digital data transmission services 148,081 30,954 1,195

Leased circuits 55,677 18,214 449

Telegraph and other telecommunications services 34,403 — 278

Sales of terminal equipment and other 462,827 250,604 3,735

Total Operating Revenues 2,268,646 1,525,953 18,310

Operating Expenses:

Sales expenses 866,545 574,246 6,994

Depreciation 329,474 268,276 2,659

Charges on use of telecommunications services of third party 311,370 269,101 2,513

Cost of sales of terminal equipment and other 448,816 242,494 3,622

Other 223,658 152,222 1,805

Total Operating Expenses 2,179,863 1,506,339 17,593

Operating Income 88,783 19,614 717

Other Expenses (Income):

Interest expense 40,923 29,449 331

Interest income (1,077) (361) (9)

Gain on sales of securities (16,723) — (135)

Bond issue cost — 310 —

Equity in loss of affiliates 6,674 1,383 54

Retirement benefit expenses 5,983 — 48

Loss from amendments to submarine cable construction contracts 10,594 — 86

Loss on discontinuance of Iridium telecommunications services — 37,415 —

Other, net (3,493) (5,796) (28)

Total Other Expenses 42,881 62,400 347

Income (Loss) before Income Taxes and Minority Interests 45,902 (42,786) 370 Income Taxes:

Current 10,843 6,035 88

Deferred 17,444 (24,245) 140

Total Income Taxes 28,287 (18,210) 228

Minority Interests in Consolidated Subsidiaries 4,188 (14,108) 34

Net Income (Loss) ¥ 13,427 ¥ (10,468) $ 108

Yen U.S. dollars (Note 1)

Per Share Data:

Net income (loss) ¥ 4,467 ¥ (4,603) $ 36.05.

Cash dividends 1,790 1,790 14.45.

Consolidated Statements of Income

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Thousands Millions of yen

Number of Additional Foreign currency

shares of Common paid-in Retained translation Treasury

Years ended March 31, 2001 and 2000 common stock stock capital earnings adjustments stock

Balance, March 31, 1999 2,274 ¥ 72,635 ¥ 87,920 ¥ 70,653 ¥ — ¥—

Prior years’ tax effect 11,999

Net loss for the year (10,468)

Cash dividends (4,071)

Directors’ and corporate auditors’ bonuses (94)

Net changes in treasury stock (0)

Balance, March 31, 2000 2,274 ¥ 72,635 ¥ 87,920 ¥ 68,019 ¥ — ¥ (0)

New share issue to Toyota Motor Corporation

(Note 8) 124 60,002 60,002

Merger with KDD and IDO (Note 8) 1,345 6,726 115,780 324,182

New share issue to au Corporation

for exchange of shares (Note 8) 498 2,489 40,394

Net income for the year 13,427

Cash dividends (Note 8) (4,182)

Foreign currency translation adjustments (2,290)

Balance, March 31, 2001 4,241 ¥141,852 ¥304,096 ¥401,442 ¥(2,290) ¥(9)

Thousands Millions of U.S. dollars (Note 1)

Number of Additional Foreign currency

shares of Common paid-in Retained translation Treasury

Year ended March 31, 2001 common stock stock capital earnings adjustments stock

Balance, March 31, 2000 2,274 $ 587 $ 710 $ 549 $ — $—

New share issue to Toyota Motor Corporation

(Note 8) 124 484 484

Merger with KDD and IDO (Note 8) 1,345 54 934 2,616

New share issue to au Corporation

for exchange of shares (Note 8) 498 20 326

Net income for the year 108

Cash dividends (Note 8) (33)

Foreign currency translation adjustments (18)

Balance, March 31, 2001 4,241 $1,145 $2,454 $3,240 $(18) $(0)

Consolidated Statements of Shareholders’ Equity

(11)

Years ended March 31, 2001 and 2000 2001 2000 2001

Cash Flows from Operating Activities:

Income (loss) before income taxes and minority interests ¥ 45,902 ¥ (42,786) $ 370 Adjustments for:

Depreciation and amortization 338,366 270,211 2,732

Loss on disposal of property, plant and equipment 13,677 32,093 110

Increase (decrease) in allowance for doubtful accounts (3,360) 152 (27)

Increase in reserve for retirement benefits 7,777 97 63

Interest and dividend income (2,547) (362) (21)

Interest expenses 40,923 29,449 330

Equity in loss of affiliates 6,674 1,383 54

Investment securities write-off 115 100 1

Loss on discontinuance of Iridium telecommunication services — 33,641 —

Loss from amendments to submarine cable construction contracts 10,594 — 86

Changes in assets and liabilities:

(Increase) in notes and accounts receivable (37,110) (17,729) (300)

(Increase) decrease in inventories (69,074) 9,691 (558)

Increase (decrease) in notes and accounts payable (24,482) 29,781 (197)

Other, net 579 305 5

Subtotal 328,034 346,026 2,648

Interest and dividend income received 2,213 359 18

Interest expenses paid (36,738) (25,126) (297)

Income taxes paid (6,773) (17,162) (55)

Net cash provided by operating activities 286,736 304,097 2,314

Cash Flows from Investing Activities:

Payments for purchase of property, plant and equipment (339,209) (263,978) (2,737)

Proceeds from sale of property, plant and equipment 8,329 — 67

Payments for other intangible assets (76,059) (57,700) (614)

Acquisition of investment securities (2,298) (4,119) (19)

Proceeds from sale of investment securities 24,015 — 194

Payments for investment in affiliates (8,592) (13,833) (69)

Acquisition of shares in subsidiaries newly consolidated — (5,427) —

Proceeds from sale of shares in subsidiaries excluded from consolidation 28,421 — 229

Increase in long-term prepayment (15,805) (28,206) (128)

Other, net 8,935 1,699 72

Net cash used in investing activities (372,263) (371,564) (3,005)

Cash Flows from Financing Activities:

Decrease in short-term loans (76,546) (26,106) (618)

Proceeds from issuance of long-term loans 183,776 232,400 1,483

Repayment of long-term loans (250,289) (254,702) (2,020)

Proceeds from bond issue — 60,000 —

Proceeds from new share issue 120,004 — 969

Dividends paid (4,288) (4,265) (35)

Payments received from minority shareholder 632 337 5

Payments for bounty of merger (2,000) — (16)

Other, net 3,359 — 27

Net cash (used in) provided by financing activities (25,352) 7,664 (205)

Translation Adjustments on Cash and Cash Equivalents 365 (273) 3

Net (Decrease) in Cash and Cash Equivalents (110,514) (60,076) (893)

Cash and Cash Equivalents at Beginning of Year 78,300 138,376 633

Increase in Cash and Cash Equivalents due to

Consolidated Statements of Cash Flows

(12)

29

1. Basis of Presenting Consolidated Financial Statements

Notes to Consolidated Financial Statements

The accompanying consolidated financial statements are prepared from the consolidated financial statements issued in Japan for domestic reporting purposes. DDI Corporation (the “Company”—now KDDI) and its domestic subsidiaries maintain their accounts and records in accordance with the Japanese Commercial Code and Japanese Telecommunications Business Law, and in conformity with accounting principles and practices generally accepted in Japan, which are different in certain respects as to application and disclosure require- ments of International Accounting Standards. Its foreign subsidiaries maintain their accounts in conformity with the generally accepted accounting principles and practices of each country of their domicile.

No harmonization of accounting principles adopted by the Company and its consolidated subsidiaries has been made for the preparation of the accompanying consolidated financial statements.

Since KDD Corporation and IDO Corporation were merged to the Company on October 1, 2000, the Company’s consolidated statements of income cover the operating results of KDD and IDO in the second half of fiscal 2001. Also, in accounting for the merger, all assets and liabilities held by KDD and IDO as of September 30, 2000 were taken over by the Company at their fair value.

The Company’s consolidated financial statements for the year ended March 31, 2001, include 76 consolidated subsidiaries. These are: au Corporation, OKINAWA CELLULAR TELEPHONE Co., TU-KA Cellular Tokyo, Inc., TU-KA Cellular Tokai, Inc., TU-KA Phone Kansai, Inc., DDI POCKET Inc., HOLA PARAGUAY S.A. and 69 other subsidiaries.

During the year ended March 31, 2001, significant changes in the scope were incurred as follows:

Added: (Consolidated)

KCOM Corporation Merger with KDD and IDO

KDDI Winstar Corporation Merger with KDD and IDO

KMN Corporation Merger with KDD and IDO

Telecomet International Inc. Merger with KDD and IDO KDDI Research and

Development Laboratories, Inc. Merger with KDD and IDO KDD Submarine Cable Systems Inc. Merger with KDD and IDO KDDI Development Corporation Merger with KDD and IDO KDDI AMERICA, INC. Merger with KDD and IDO

KDDI EUROPE LTD. Merger with KDD and IDO

TELEHOUSE INTERNATIONAL

CORPORATION OF AMERICA Merger with KDD and IDO TELEHOUSE INTERNATIONAL

CORPORATION OF EUROPE LTD. Merger with KDD and IDO and 54 subsidiaries Merger with KDD and IDO

a1 adnet Corporation Established

(Equity Method)

MINEX Corporation Merger with KDD and IDO

Fandango Inc. Merger with KDD and IDO

Japan Internet Exchange Co., Ltd. Merger with KDD and IDO

@KNOWLEDGE Corporation Merger with KDD and IDO MOBICOM CORPORATION Merger with KDD and IDO and five affiliated companies Merger with KDD and IDO Removed:

(Consolidated)

KANSAI CELLULAR TELEPHONE Co. Merger KYUSHU CELLULAR TELEPHONE Co. Merger CHUGOKU CELLULAR TELEPHONE Co. Merger TOHOKU CELLULAR TELEPHONE Co. Merger HOKURIKU CELLULAR TELEPHONE Co. Merger HOKKAIDO CELLULAR TELEPHONE Co. Merger SHIKOKU CELLULAR TELEPHONE Co. Merger

The above DDI CELLULAR Group companies were merged to KANSAI CELLULAR TELEPHONE Co., which changed its name to au Corporation on November 1, 2000.

DDI COMMUNICATIONS

AMERICA CORPORATION Merger

The above corporation was merged to KDD AMERICA, INC., which changed its name to KDDI AMERICA, INC., on December 31, 2000. DDI NETWORK SYSTEMS CORPORATION Merger

The above corporation was merged to KDD Communications Inc., which changed its name to KCOM Corporation on January 1, 2001. DAINI DO BRASIL S.A. Sale of equity holding

DDI DO BRASIL LTDA. changed its name to DAINI DO BRASIL S.A. on February 1, 2001.

(Equity Method)

IRIDIUM SOUTH PACIFIC PTY Ltd. Withdrawal from business IRIDIUM SOUTHEAST ASIA Co., Ltd. Withdrawal from business GLOBAL TELECOM S.A. Sale of DAINI DO BRASIL

S.A.’s stock held by the Company

GLOBAL TELECOM S.A. was an affiliated company of DAINI DO BRASIL S.A.

In 2000, KDDI Research and Development Laboratories, Inc., changed its fiscal year-end to March 31, from December 31. Accordingly, this company’s fiscal 2001 includes only nine months of operations.

The financial statements presented herein are expressed in Japanese yen and, solely for the convenience of the readers, have been translated into United States dollars at the rate of ¥123.90=$1, the approximate exchange rate on March 31, 2001. These translations should not be construed as representations that the Japanese yen amounts actually are, have been or could be readily converted into U.S. dollars at this rate or any other rate.

2. Significant Accounting Policies

a. Basis of Consolidation and Accounting for Investments in Affiliated Companies

The accompanying consolidated financial statements include the accounts of the Company and its consolidated subsidiaries.

All significant intercompany transactions and accounts are eliminated.

Investments in certain affiliates are accounted for by the equity method, whereby a consolidated group includes in net income its share of the profits or losses of these companies, and records its investments at cost adjusted for such share of profits or losses. Exception- ally, investments in unconsolidated subsidiaries and affiliates for which the equity method have not been applied are stated at cost because the effect of application of the equity method would be immaterial.

(13)

b. Revenue Recognition

For telecommunications services, revenues are recorded mainly on the basis of minutes of traffic processed and contracted fees earned. Revenues from sale of products and systems are recognized upon fulfillment of contractual obligations, which is generally upon shipment. Revenues from rentals and other services are recognized proportion- ately over the contract period or as services are performed. c. Cash and Cash Equivalents

Cash and cash equivalents in the accompanying consolidated statements of cash flows are composed of cash on hand, bank deposits able to be withdrawn on demand and short-term investments with an original maturity of three months or less at the time of purchase and which represent a minor risk of fluctuations in value.

d. Inventories

Inventories are stated at cost. Cost is determined by the average method for the Company, and by the moving-average method for its subsidiaries.

e. Foreign Currency Translation

Effective from the year ended March 31, 2001, the Company and its domestic subsidiaries adopted the new Japanese accounting standard for foreign currency translation, which is effective for periods beginning on or after April 1, 2000. Under the new standard, all assets and liabilities denominated in foreign currencies, whether long-term or short- term, are translated into Japanese yen at the exchange rates prevailing at the balance sheet date. Resulting gains and losses are included in net profit or loss for the period. The adoption of the new method had no material impact on the accompanying consolidated financial statements.

The new standard also amended the method of translating foreign currency financial statements of foreign subsidiaries and affiliates into Japanese yen. Under the new standard, all assets and liabilities of foreign subsidiaries and affiliates are translated into Japanese yen at the exchange rates prevailing at the balance sheet date. Shareholders’ equity at the beginning of the year is translated into Japanese yen at the historical rates. Profit and loss accounts for the year are translated into Japanese yen using the average exchange rate during the year. The resulting differences in yen amounts are presented as foreign currency translation adjustments in shareholders’ equity. Also, foreign currency translation adjustments appropriated to assets in the prior consolidated fiscal year are included in minority interests (¥2,290 million) and shareholder’s equity (¥624 million).

f. Property, Plant and Equipment and Depreciation

Property, plant and equipment is stated at cost. Assets are depreciated over their estimated useful lives by applying the declining-balance method to machinery and equipment used for network business held by the Company, and by the straight-line method to machinery and equipment used for mobile communications business and other assets held by the Company and most depreciated assets held by its subsidiaries. The main depreciation periods are as follows. Machinery and equipment used for network and

mobile communications business: 6–15 years Submarine cable system, buildings, engineering

equipment and telecommunications service lines: 2–65 years Change of Depreciation Method

Effective from the year ended March 31, 2001, au Corporation and OKINAWA CELLULAR TELEPHONE Co. changed the depreciation method of their tangible fixed assets to straight-line, from declining-

Change of Estimated Useful Lives

Effective from the year ended March 31, 2001, au Corporation and OKINAWA CELLULAR TELEPHONE Co. changed the estimated useful lives of their wireless facilities to six years, from nine years, to match the rapid technological innovation of mobile communications business. As a result of the above changes, depreciation expense in fiscal 2001 decreased by ¥38,201 million and income before income taxes and minority interests increased by the same amount.

Interest incurred is not capitalized with respect to constructed assets.

g. Financial Instruments

Effective from the year ended March 31, 2001, the Company and its domestic subsidiaries adopted the new Japanese accounting standard for financial instruments, which is effective for periods beginning on or after April 1, 2000. As a result of adopting the new standard, income before income taxes for the year ended March 31, 2001 decreased by

¥3,070 million, compared with the amount which would have been reported if the previous standard had been applied consistently. (1) Derivatives

Under the new standard, all derivatives are stated at fair value, with changes in fair value included in net profit or loss for the period in which they arise, except for derivatives that are designated as hedging instruments.

(2) Securities

Under the new standard, securities are classified into four categories. These are: Trading securities; held-to-maturity debt securities; investments in equity securities issued by unconsolidated subsidiaries and affiliates; and other securities. The company and its domestic subsidiaries hold three types of securities—that is, all except for trading securities.

Held-to-maturity debt securities, which the Company and its subsidiaries have intended to hold to maturity, are stated at cost after accounting for premium or discount on acquisition, and are amortized over the period to maturity.

Investments of the Company in equity securities issued by unconsolidated subsidiaries and affiliates are accounted for by the equity method.

Other securities are valued at cost, whether listed on stock exchanges or not. The cost of securities is mainly determined by the moving-average method.

Change of Valuation Method

Other securities had been valued at cost determined by the overall- average method, but in order to hasten the recognition of profits and losses, the Company changed over to the moving-average method from fiscal 2001.

(3) Hedge Accounting

Under the new standard, gains or losses arising from changes in fair value of the derivatives designated as hedging instruments are deferred as assets or liabilities and included in net profit or loss in the same period during which the gains or losses on the hedged items or transactions are recognized.

The derivatives designated as hedging instruments by the Company are principally interest swaps and forward exchange contracts. The related hedged items are trade accounts receivable and payable, long- term bank loans and debt securities issued by the Company.

The Company has a policy to utilize the above hedging instruments

(14)

31

The Company evaluates the effectiveness of its hedging activities by semiannually comparing the accumulated gains or losses on the hedging instruments and the gains or losses on the related hedged items.

h. Research and Development Expenses and Computer Software Research and development expenses are charged to income when incurred. Computer software for internal use included in intangible assets is amortized using the straight-line method over the estimated useful lives (five years) except if the software contributes to the generation of income or to future cost savings.

i. Income Taxes

Income taxes of the Company and its domestic subsidiaries consist of corporate income taxes, local inhabitants’ taxes and enterprise taxes. The Company and its domestic subsidiaries have adopted the deferred tax accounting method, which recognizes tax effects of temporary differences between the carrying amounts of assets and liabilities for tax and financial reporting.

j. Leases

Leases, other than those leases deemed to transfer the ownership of the leased assets to lessees, are accounted for as operating leases. k. Other Assets

Goodwill is amortized over five and/or 20 years. Amortization of goodwill is included in operating expenses in the accompanying consolidated statements of income.

l. New Share Issue Costs

New share issue costs are charged to income as incurred.

m. Net Income and Cash Dividends per Share

Net income and cash dividends per share are computed based on the weighted average number of shares of common stock outstanding during each year. The amounts of cash dividends used for the above calculation are the total of interim cash dividends paid and dividends declared and paid during the respective periods.

n. Allowance for Doubtful Accounts

To prepare for uncollectible credits, the Company and its subsidiaries based an allowance for general credits on the actual bad debt ratio, and appropriated an estimated unrecoverable amount for specific credits deemed to be uncollectible after considering possible losses on collection.

o. Retirement Benefits

Effective from the year ended March 31, 2001, the Company and its domestic subsidiaries adopted the new Japanese accounting standard for retirement benefits, which is effective for periods beginning on or after April 1, 2000. In accordance with the new standard, the reserve for retirement benefits as of March 31, 2001 represents the estimated present value of projected benefit obligations in excess of the fair value of plan assets and the retirement benefit trust which KDD had established and the Company took over. The unrecognized transition amount of ¥5,983 million at April 1, 2000 was then charged to income for the year ended March 31, 2001, and unrecognized actuarial differences of

¥47,873 million are amortized on a straight-line basis over 14 years from the year ending March 31, 2002. As a result of adopting the new standard, net pension expense for the year ended March 31, 2001 increased by ¥8,628 million, and income before income taxes and minority interests decreased by ¥8,628 million, compared with the amounts that would have been reported if the previous standard had been applied consistently.

3. Market Value Information

At March 31, 2001, book value, market value and net unrealized gains or losses of quoted securities were as follows:

Bonds intended to be held to maturity that have market prices Millions of yen Millions of U.S.dollars

Book Market Unrealized Book Market Unrealized

2001 value value gain (loss) value value gain (loss)

Bonds for which market value exceeds book value of

consolidated balance sheets ¥5,217 ¥5,244 ¥ 27 $42 $42 $ 0

Bonds for which market value does not exceed book value of

consolidated balance sheets 3,956 3,714 (242) 32 30 (2)

Total ¥9,173 ¥8,958 ¥(215) $74 $72 $(2)

Other securities sold during the fiscal year Millions of yen Millions of U.S.dollars

Amount Total gain Total loss Amount Total gain Total loss

2001 of sale on sale on sale of sale on sale on sale

Other securities sold ¥405 ¥199 ¥0 $3 $2 $0

Among other securities, scheduled redemption amount of bonds intended to be held to maturity and of instruments that have maturities

Millions of yen Millions of U.S.dollars Within One to five Five to 10 Within One to five Five to 10

one year years years one year years years

Bonds

Corporate bonds ¥ 597 ¥ 200 ¥— $ 5 $ 2 $—

Other 7,250 1,107 19 58 9 0

Other securities 99 300 — 1 2 —

Total ¥7,946 ¥1,607 ¥19 $64 $13 $ 0

4. Short-Term Loans and Long-Term Debt

Short-term bank loans are represented as short-term loans in the accompanying consolidated balance sheets. The annual average

interest rate applicable to short-term bank loans at March 31, 2001 was 1.70%.

(15)

Aggregate annual maturities of long-term debt subsequent to March 31, 2001 were as follows:

Years ending March 31 2001 2001

2002 ¥ 426,282 $ 3,441

2003 388,521 3,136

2004 275,530 2,224

2005 286,904 2,315

2006 and thereafter 670,329 5,410

¥2,047,566 $16,526

At March 31, 2001, assets pledged as collateral for long-term loans were as follows:

2001 2001

Long-term loans ¥ 24,849 $ 201

Current portion of long-term loans 9,786 79

¥ 34,635 $ 280 Mortgage on factory foundation ¥265,758 $2,145

Buildings 1,745 14

Land 3,927 32

¥271,430 $2,191

Long-term debt at March 31, 2001 consisted of the following:

Millions of

Millions of yen U.S. dollars

2001 2000 2001

Domestic unsecured straight bonds due 2002 through 2010 at rates of

1.55% to 2.57% per annum ¥ 240,000 ¥ 160,000 $ 1,937

General secured bonds due 2001 through 2017 at rates of 2.20% to 3.20% per annum 170,000 — 1,372

Total bonds ¥ 410,000 ¥ 160,000 $ 3,309

Loans from banks:

Secured loans, maturing through 2020 at average rates of 2.30% per annum ¥1,583,109 ¥1,183,245 $12,777

Other interest-bearing debt 54,457 35,798 440

¥1,637,566 ¥1,219,043 $13,217

Total bonds and loans ¥2,047,566 ¥1,379,043 $16,526

Less amount due within one year 426,282 252,914 3,441

¥1,621,284 ¥1,126,129 $13,085

Note: The Company has offered overall assets as general collateral for the above corporate bonds.

5. Contingent Liabilities

At March 31, 2001 and 2000 the Company was contingently liable as follows:

Millions of

2001 2000 2001

As a guarantor for:

Loans of affiliated companies ¥ 12,514 ¥6,031 $ 101

System supply contract of KDD Submarine Cable Systems Inc. 122,965 — 992

Office lease contract of KDDI AMERICA, INC. 1,082 — 9

¥136,561 ¥6,031 $1,102

6. Lease Payments Lessee Side

Finance leases without transfer of ownership

Assumed amounts (inclusive of interest) of acquisition cost, accumulated depreciation and net book value at March 31, 2001 and 2000 were summarized as follows:

Millions of yen Millions of U.S. dollars Acquisition Accumulated Net book Acquisition Accumulated Net book Acquisition Accumulated Net book

cost depreciation value cost depreciation value cost depreciation value

2001 2000 2001

Tools, furniture and fixtures ¥151,570 ¥64,392 ¥87,178 ¥28,826 ¥16,020 ¥12,806 $1,223 $520 $703

Other 960 538 422 179 101 78 8 4 4

¥152,530 ¥64,930 ¥87,600 ¥29,005 ¥16,121 ¥12,884 $1,231 $524 $707

Future lease payments as of March 31, 2001 and 2000 were as follows:

Millions of

(16)

33

Lease payments and assumed depreciation charges for the years ended March 31, 2001 and 2000 were as follows:

Millions of

2001 2000 2001

Lease payments ¥17,367 ¥6,311 $140

Assumed depreciation charges 17,367 6,311 140

Depreciation charges were computed using the straight-line method over lease terms assuming no residual value. Operating leases

Obligations under non-cancelable operating leases as of March 31, 2001 and 2000 were as follows:

Millions of

2001 2000 2001

Within one year ¥1,293 ¥ 325 $10

Over one year 8,587 853 69

¥9,880 ¥1,178 $79

Lessor Side

Finance leases without transfer of ownership

Assumed amounts (inclusive of interest) of acquisition cost, accumulated depreciation and net book value at March 31, 2001 were summarized as follows:

Millions of yen Millions of U.S. dollars Acquisition Accumulated Net book Acquisition Accumulated Net book

cost depreciation value cost depreciation value

2001 2001

Tools, furniture and fixtures ¥2,369 ¥1,030 ¥1,339 $19 $8 $11

Other 207 125 82 1 1 0

¥2,576 ¥1,155 ¥1,421 $20 $9 $11

Future lease receipts as of March 31, 2001 were as follows:

Millions of

2001 2000 2001

Within one year ¥ 563 ¥— $ 4

Over one year 982 — 8

¥1,545 ¥— $12

Lease receipts and assumed depreciation charges for the years ended March 31, 2001 were as follows:

Millions of

2001 2000 2001

Lease receipts ¥298 ¥— $2

Assumed depreciation charges 275 — 2

7. Derivatives

For the purpose of minimizing risks of foreign exchange or interest rate fluctuations, the Company and certain of its subsidiaries have entered into particular financial agreements.

Information on such financial arrangements outstanding as of March 31, 2001 was summarized as follows:

Notional Market Unrealized Notional Market Unrealized

2001 amount value loss amount value loss

Forward exchange contracts (to sell U.S. dollars) ¥13,628 ¥14,709 ¥(1,081) $110 $119 $ (9)

Foreign currency options: Selling contracts:

U.S. dollar call options 33,453 270

<665> 3,003 (2,338) <5> 24 (19) Buying contracts:

U.S. dollar put options 12,390 100

<383> 9 (374) <3> 0 (3)

Notional Market Unrealized Notional Market Unrealized

2001 amount value gain (loss) amount value gain (loss)

Interest rate swap agreements:

Fixed rate into variable rate obligations ¥2,000 ¥283 ¥283 $16 $2 $2

Variable rate into fixed rate obligations 5,750 (227) (227) 46 (2) (2)

Note: The amount in brackets (< >) are options premiums which are presented in the consolidated balance sheets.