Thriving with Communities, Growing Globally Annual Report 2015 For the year ended March 31, 2015 Group Philosophy The JR East Group aims to contribute to the growth and prosperity of the East Japan area by providing quality leading-edge services, with train station and railway businesses at its core, to customers and communities. We will continue to embrace the challenge of pursuing “extreme safety levels” and service quality reforms. Through technological innovation and globalization, we will strive to attain goals such as nurturing personnel with an expansive perspective, spurring the advancement of railways, and making line-side areas more attractive and convenient. To this end, JR East will continue to rigorously pursue its unlimited potential. We aim to grow continuously while meeting our social responsibilities as a Trusted Life-Style Service Creating Group. Contents 2 Profi le 4 Our Calling 6 Financial Highlights 8 Selected Financial Data 10 A Message from the Management 12 Interview with the President 24 JR East Group Management Vision V—Ever Onward 26 Feature: Launching “Medium-term Vision for Service Quality Reforms 2017” 3030 Review of Operations 30 JR East at a Glance 32 Transportation > Tokyo Metropolitan Area Network 34 Transportation > Intercity Network Centered on Shinkansen 36 Transportation > Railcar Manufacturing Operations 37 Transportation > Overseas Railway Business 38 Non-Transportation > Station Space Utilization || 40 Non-Transportation > Shopping Centers & Offi ce Buildings Further Information about JR East 42 Others > Suica Websites 44 Others > Hotel Operations / Advertising and Publicity 4545 To Achieve Sustainable Growth 46 Safety 50 Community > Environment Home Page Investor Relations 52 Community > Local Communities http://www.jreast.co.jp/e/index.html http://www.jreast.co.jp/e/investor/ 53 Innovation > Research and Development index.html 54 Innovation > Employees Publications 56 Board of Directors and Corporate Auditors 57 Corporate Governance 61 Compliance Fact Sheets 62 Organization (Bilingual: Japanese/English) http://www.jreast.co.jp/e/investor/ factsheet/index.html 6363 Facts and Figures 64 JR East: Domestic and International Perspectives 73 Management’s Discussion and Analysis of Financial Condition and Results of Operations 77 Operational and Other Risk Information CSR Report http://www.jreast.co.jp/e/environment/index.html 82 Consolidated Financial Statements 87 Notes to Consolidated Financial Statements 106 Independent Auditor’s Report 107 Glossary 108 Consolidated Subsidiaries and JR East Group Equity-Method Affi liated Companies Management Vision V—Ever Onward http://www.jreast.co.jp/e/investor/everonward/ 110 Corporate Data index.html 111 Stock Information Annual Report 2015 1 Profi le Shin-Hakodate Hokuto Shin-Aomori East Japan Railway Company (JR East) is one of the largest passenger railway companies in the world, serving about 17 million passengers daily. Hachinohe JR East operates a fi ve-route Shinkansen network between Tokyo and major cities in eastern Honshu, Japan’s main island. JR East has the ability to leverage passenger traffi c and railway assets to develop non-transportation businesses. Morioka JR East alone provides nearly half of the huge volume of railway transportation Akita in the Tokyo metropolitan area. Shinjo || Operating Area (As of June 2015) Yamagata Sendai Niigata Fukushima Koriyama Joetsumyoko Tokyo Echigo-Yuzawa Toyama Nagano Utsunomiya Karuizawa Takasaki Mito Kanazawa Omiya Tokyo Narita Airport Hachioji Chiba Yokohama Shinkansen (JR East) Shinkansen (JR West) Shinkansen (Under construction) Conventional Lines (Kanto Area Network) Conventional Lines (Other Network) TRANSPORTATION MARKET Railway Line Networks Passenger Kilometers Number of Passengers Kilometers Millions Millions JR East 7,458 JR East 130,068 JR East 6,218 U.K. 15,734 U.K. 58,299 U.K. 1,507 Germany 33,506 Germany 80,210 Germany 1,966 France 30,013 France 85,634 France 1,114 U.S. 34,082 U.S. 10,331 U.S. 29 - Figures are as of March 2015 for JR East, March 2013 for the U.K., December 2012 for France and Germany, and September 2010 for the U.S. - U.K.: Association of Train Operating Companies (Railway tracks are owned by Network Rail Ltd.); Germany: Deutsche Bahn AG; France: Société Nationale des Chemins de fer Français (SNCF) (Railway tracks are owned by Réseau Ferré de France (RFF)); and U.S.: National Railroad Passenger Corporation (Amtrak). - Figures for JR East do not include Tokyo Monorail. Source: International Railway Statistics 2012, Statistics Centre of the International Union of Railway, Sep. 2014. 2 East Japan Railway Company || History April 1987 October 1993 August 1999 December 2001 June 2002 East Japan Railway Company The Japanese National Railways Japan Railway Construction The enforcement of a partial JR East becomes fully privatized (JR East) is established, assumes Settlement Corporation (currently Public Corporation (JRCC) sells amendment of the Law for because JRCC sells 0.5 million operations from Japanese National Japan Railway Construction, 1 million shares of JR East. Passenger Railway Companies shares of JR East. Railways (JNR), and begins Transport and Technology Agency) and Japan Freight Railway Company passenger railway operations, sells 2.5 million shares of JR East. (the JR Law) means JR East is bus transportation operations, no longer subject to the JR Law. JR East lists on the fi rst sections of and other operations. the Tokyo Stock Exchange, Osaka Securities Exchange, and Nagoya Stock Exchange and on the Niigata Stock Exchange. || Our Businesses Railway Transportation Station Space Utilization - Railway Business, Bus Services, - Retailing, Restaurants in Stations Railcar Manufacturing Operations Shopping Centers & Offi ce Buildings Others - Shopping Center Operation, Offi ce Leasing - Advertising, Hotel Operations, Credit Card Business, etc. Annual Report 2015 3 Our Calling Thriving with Communities, Growing Globally Eternal Mission Even amid major upheaval following the Great East Japan Earthquake, the fundamental mission of JR East will never change. However, the content and quality of services that customers and communities expect of the JR East Group will change in step with shifting social conditions. Our mission is to provide safe and high-quality services that customers expect of the JR East Group and conduct railway and life-style service businesses, with the aim of contributing to the growth and prosperity of communities. We have once again positioned this mission as a key tenet of management. At the same time, we will make relentless efforts to ensure that the content and quality of our services properly answer the expectations of society. Strengthening collaboration with local communities Supporting earthquake recovery, stimulating tourism, and revitalizing communities Service quality reforms Enhancing railway transportation networks and other measures Pursuing “extreme safety levels” Building a railway capable of withstanding natural disasters 4 East Japan Railway Company Thriving with Communities, Growing Globally Technological innovation Forging strategies for conserving energy and the environment, utilizing ICT (information and communication technology), and operating Shinkansen at faster speeds Tackling new business areas Globalization Developing employees and creating a corporate culture that maximizes human potential Pursuing Unlimited Potential The JR East Group must achieve sustainable growth in order to continue to fulfi ll its three-part eternal mission in the years ahead. In a fast-changing environment, maintaining the status quo will only mean falling behind. Unless we constantly take on the challenge of reaching new goals, we will be unable to achieve growth. The JR East Group and every Group employee have the unlimited potential needed to achieve further growth. We have technologies underpinning business operations such as railways, markets for our business activities, and people supporting these two elements. From these three perspectives, we will pursue the JR East Group’s unlimited potential. Annual Report 2015 5 Financial Highlights East Japan Railway Company and Subsidiaries Years ended March 31 2005 2006 2007 2008 2009 Operating results Operating revenues ¥2,537,481 ¥2,592,393 ¥2,657,346 ¥2,703,564 ¥2,697,000 Operating expenses 2,178,946 2,196,293 2,229,248 2,258,404 2,264,445 Operating income 358,535 396,100 428,098 445,160 432,555 Net income 111,592 157,575 175,871 189,673 187,291 Comprehensive income (*1) N/A N/A N/A N/A N/A Segment information Operating revenues from outside customers: Transportation 1,781,776 1,805,406 1,825,387 1,857,756 1,831,933 Station space utilization 369,790 383,904 399,998 404,006 415,020 Shopping centers & offi ce buildings 181,956 190,466 197,140 205,347 222,628 Other services 203,959 212,617 234,821 236,455 227,419 Total 2,537,481 2,592,393 2,657,346 2,703,564 2,697,000 Financial position Total assets 6,716,268 6,821,584 6,968,032 6,942,003 6,965,793 Interest-bearing debt 3,774,004 3,681,192 3,574,822 3,535,343 3,429,871 Shareholders’ equity (*2) 1,183,546 1,357,359 1,488,554 1,596,398 1,718,587 Cash fl ows Cash fl ows from operating activities 407,737 447,722 541,850 475,601 584,360 Cash fl ows from investing activities (214,948) (309,489) (348,800) (400,789) (396,796) Cash fl ows from fi nancing activities (209,041) (141,599) (172,027) (80,407) (159,238) Per share data (*3) Earnings 27,868 39,370 44,008 47,464 469 Shareholders’ equity (*2) 296,106 339,599 372,493 399,483 4,301 Cash dividends (*4) 6,500