Financial ResultsNON-CONSOLIDATED AND CONSOLIDATED FINANCIAL HIGHLIGHTS FOR SIX MONTHS ENDED SEPTEMBER 30, 1999
EAST JAPAN RAILWAY COMPANY(9020)
|Millions of Yen|
|Six Months ended September 30, 1998||Six Months ended September 30, 1999||change(%)|
|Total Shareholders' Equity||736,693||769,455||4.4|
|Figures are rounded down to the nearest million.|
In Japan, due to the change in the Japanese Accounting Principles, companies will be required to disclose their consolidated interim financial statements from the six months ending September 30, 2000.
JR East has calculated some of its consolidated interim figures for the six months ended September 30, 1999. However, these figures are calculated only as a preparatory step toward next fiscal year for the convenience of investors, and are not audited by the independent public accountants.
|Millions of Yen|
|Six Months ended September 30, 1999|
|Total Shareholders' Equity||852,159|
|Figures are rounded down to the nearest million.|
Overview of Interim Results and Outlook (Non-consolidated)
I. Management Policies
Since its inception in April 1987, JR East has remained focused on the task of establishing an independent, self-reliant management base in accordance with the spirit of the Japanese National Railways (JNR) restructuring, thereby fulfilling its obligations to shareholders. The Company will continue to concentrate all of its resources on achieving a strong management base that embodies stability and growth, one that can adapt to the rapid changes taking place in the operating environment as the new century dawns.
To this end, the Company will aggressively promote life-style businesses that hold the potential of future growth and will, of course, work to improve safety and services. JR East will also continuously implement steps to make operations more efficient and reduce total long-term debt to improve its financial position. Moreover, the Company will disclose information in a timely and appropriate manner and aim for management with a high degree of transparency for shareholders and investors.
Regarding the appropriation of earnings, the fundamental policy is to maintain a stable dividend and retain an appropriate level of earnings to support the sound management base needed to sustain JR East's development.
The greatest and most pressing issue for JR East's management is achieving full private-sector ownership, the final objective of the JNR restructuring, as soon as possible. This would enable the Company to gain complete freedom and adhere to a policy that prioritizes shareholder value in the years ahead. In August 1999, the second public sale of one million shares of JR East stock held by Japan Railway Construction Public Corporation (JRCC) was conducted. Following this sale, JRCC holds 500,000 shares. JR East will strive to continue to provide safe and stable transportation and higher quality services as well as to improve operating results. In this manner, the Company will focus all its resources on achieving full private-sector ownership.
II. Results of Operations
Japan's economic downturn was brought to a halt by various actions by the national government. However, there were still no clear signs of a self-sustaining recovery in consumer spending or private sector capital investment. Adverse economic conditions thus continued in Japan during the first half of the fiscal year. In this environment, passenger volume at JR East declined compared with the same period a year earlier.
The decline in passenger volume caused railway operating revenues to decline. Furthermore, the transfer of certain directly operated stores and restaurants to JR East's subsidiaries and other items brought down operating revenues in other operations. The result was a 1.4% decrease in total operating revenues to 949.5 billion Yen. Operating expenses decreased mainly due to efforts to reduce costs, a change in the method for recording maintenance expenses and the reclassification of enterprise tax from operating expenses to income taxes. Non-operating expenses decreased as interest expenses were lower. As a result, ordinary income increased 29.2% to 76.2 billion Yen. These factors, along with the adoption of tax-effect accounting practices, caused net income to rise 79.6% to 43.6 billion Yen.
For the second half of the fiscal year, the outlook is for uncertainty about the direction of Japan's economy. JR East will take aggressive revenue-expansion actions that make effective use of its Shinkansen network made up of five routes, including the Yamagata hybrid Shinkansen, which is to be extended to Shinjo in December 1999, and other resources. In addition, the Company will conduct a thorough examination of its cost structure to establish a sound and stable management base. At the same time, progress will continue on upgrading facilities and systems in response to recent problems on the Chuo Line and other lines to provide highly reliable and stable transportation services.
III. Year 2000 Readiness
1. Status of Readiness
JR East depends on a large number of computer systems and devices using microcomputers in a broad line of railway, life-style service and other business activities. The Company regards the Year 2000 issue as a matter of the highest priority and has taken actions on a company-wide basis, such as ensuring that this issue causes no annoyance to customers and does not disrupt any of the Company's business operations.
In November 1996, the OA Promotion Project, which is headed by the executive vice president of the Company who is in charge of the Corporate Planning Headquarters, was formed to draw up a schedule for revising systems. Remedial work has been proceeding since April 1997. All devices using microcomputers have been inspected by the relevant divisions and corrective measures taken. In February 1999, the Headquarters for Year 2000 Issue Contingencies, headed by the executive vice president of the Company who is in charge of the Railway Operations Headquarters, was formed at Head Office to reinforce Year 2000 compliance efforts. Similar organizations have been established at all branch offices, which directly supervise stations, train operation sections, the Shinkansen Transport Department, which supervises Shinkansen operations, consolidated subsidiaries and other elements of the JR East Group.
c. Current Status
Remedial measures and tests to confirm readiness for critical systems such as train operations and ticket sales were completed on schedule. In August 1999, a contingency plan was completed to prepare for potential worst-case scenarios.
d. Upcoming Actions
The contingency plan will be revised as necessary and the Company will continue to conduct education and training so that it is prepared to restore operations in the event of any problems and use back-up arrangements systems when needed.
2. Year 2000 Expenditures
JR East budgeted approximately 2 billion Yen for remediation and the testing of software and equipment. Of this amount, the Company expensed approximately 1.2 billion Yen by the fiscal year ended March 31, 1999 and 0.5 billion Yen for remediation in the first half of the current fiscal year.
Some Year 2000 compliance measures were implemented in conjunction with system upgrades and hardware replacements that were conducted for the purpose of adding functions and improving the performance of certain systems. However, the portion of these investments that is associated with Year 2000 compliance is not included in the \2 billion figure listed above since the primary objective of these investments was not Year 2000 compliance.
JR East has implemented Year 2000 compliance measures steadily. As such, the associated expenses will not have a material adverse effect on operating results or cash flows.
3. Contingency Plan
JR East has made a concerted effort to ensure Year 2000 compliance. However, the possibility remains that an unforeseen event could affect train operations, ticket sales or other critical business operations. Consequently, JR East has formulated a contingency plan that minimizes the risks associated with a Year 2000-related problem and provides guidelines for responding in the unlikely event that a problem occurs.
Contingency plan items that directly affect customers are made available to the public before the new year period such as through timetables, announcements at stations and trains, and notices at stations.
a. Basic Policy Regarding the Contingency Plan
|(1)||Safety comes first when dealing with any problem related to the Year 2000 issue.|
|(2)||JR East will take preventive measures to minimize the scale of any problem. Also, measures will be taken to have employees on standby and information transmitted smoothly to quickly deal with any problem involving systems or facilities.|
|(3)||In the unlikely event that a problem occurs, critical operations can be switched over to back-up arrangements to minimize the effect on customers.|
b. Contingency System for the New Year and Leap Year Periods
Year 2000 task forces will be operative at the head office, all branch offices and other locations during the days mentioned below on which the Year 2000 issue is thought to pose the greatest threat to confirm that all systems and equipment function properly and to prepare to cope with the unexpected.
|(1)||December 31, 1999 through January 4, 2000 - Transition to new year, first normal business day (January 4)|
|(2)||February 28, 2000 through March 1, 2000 - Leap year transition|