TOBU RAILWAY CO., LTD. Annual Report 2013 For the year ended March 31, 2013

Transcription

1 TOBU RAILWAY CO., LTD. Annual Report 2013 For the year ended March 31, 2013

2 Profile The Tobu Group consists of TOBU RAILWAY CO.,LTD. and its subsidiaries and affiliates. The core business of the parent company founded in 1897 is operating a network of private railway lines that extends across Tokyo, Chiba, Saitama, Tochigi, and Gunma prefectures of the Kanto region. The main lines, which originate in Asakusa, eastern Tokyo, run through eastern Saitama prefecture and extend to Tochigi, Gunma, and Chiba prefectures, including the trunk lines (the TOBU SKYTREE Line (Isesaki Line), Nikkō Line, and Noda Line) and branch lines. They can be broadly divided into the TOBU SKYTREE Line (the southern portion of the Isesaki Line) and the Noda Line, which primarily serve commuters and students, and the Nikkō Line and northern portion of the Isesaki Line that primarily serve tourists and businesses. The Tō jō Line, which starts in Ikebukuro, downtown Tokyo, runs northwest through central Saitama prefecture and mainly carries commuters and students. Development in areas along the line has been proceeding smoothly. Tobu Railway s network has a total operating length of kilometers, making it the second-longest private railway network in Japan, excluding Japan Railway companies. The Company manages 203 stations, and its average daily passenger count is 2.41 million. The Company also engages in development businesses to improve the urban environment across the entire region. Our development business is categorized broadly into the leasing, real estate subdivision, and leisure divisions. We are moving to create communities through such initiatives as multi-faceted projects in response to the diversifying structure of consumption. Tobu Group companies, which operate in five broad industrial sectors transportation, leisure, real estate and retail distribution and other continue to grow in concert with the region. Working in collaboration with Tobu Railway, they offer high value-added products and services to meet the needs of customers along the railway lines. Contents Message from the President... 1 TOBU Group... 2 Review of Operations... 6 Corporate Governance... 9 Financial Review (Consolidated) Risks to which the Company s Business is Subject Five-Year Summary Consolidated Balance Sheets Consolidated Statements of Income and Comprehensive Income Consolidated Statements of Changes in Net Assets Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements Independent Auditors Report Corporate Directory Attention regarding forward-looking statements The reader is advised that this report contains forwardlooking statements, including statements relating to the Company s future policies and strategies, and estimates of future business development. As opposed to statements of historical fact, these constitute estimates or projections made by the Company s management on the basis of facts known to them as of the time of writing, and actual results may therefore differ substantially from such statements, due to a wide variety of possible risk factors. Page 12 contains a list of the principal categories of risk to which the Company s business operations are subject.

3 ANNUAL REPORT Message from the President During the fiscal year ended March 31, 2013, the Japanese economy showed signs of recovery in some areas, partly due to the demand stimulated by recovery from the Great East Japan Earthquake. However, against a background of harsh employment conditions the outlook remained unclear with declines in exports and production due to the slowdown in overseas economies. Amid these harsh circumstances, recognizing that safety is the basis for all its businesses, the Tobu Group established the Tobu Group Medium-Term Business Plan and implemented measures to sustain growth under the plan. The TOKYO SKYTREE TOWN has been highly successful since the grand opening in May, with approximately million customers visiting by the end of March. In addition, it has implemented measures in collaboration with TOKYO SKYTREE TOWN in all its other businesses too in an effort to increase the profits of the entire group. Furthermore, it has worked to improve the appeal of the areas along its lines by commencing mutual services with other railway companies to form a wide-area railway network and implementing timetable revisions. As a result, due to the synergistic effects on the other businesses from the grand opening of TOKYO SKYTREE TOWN and the rebound from the mood of restraint after the Great East Japan Earthquake when people stopped visiting other places, revenues from operations for the fiscal year under review came to 577,223 million (US$6,140,670 thousand), up 6.2% on a consolidated basis, operating income rose 61.3% from the previous fiscal year, to 52,544 million (US$558,979 thousand), and net income stood at 28,648 million (US$304,766 thousand), an increase of 78.8% year on year. Consequently, the group was able to achieve the numerical targets in the medium-term business plan (net income of 20 billion (US$212,766 thousand), an outstanding balance of interest-bearing liabilities of 810 billion (US$8,617,021 thousand), and a ratio of interest-bearing liabilities to EBITDA of approximately 8) one year ahead of schedule. Since the disaster the Group has faced an extremely harsh business environment as a slump in consumer confidence has stopped consumers visiting other places, inhibited consumption, and slowed the local economies along the Tobu Railway lines. The effects of harmful rumors are also still being felt in some tourist areas near the lines. However, the overall impact of the disaster has now been mostly curtailed and in the short term the Group has largely returned to normal operations. Nonetheless, the outlook for the economy remains unclear. Although there is a sense of expectation that the economy will recover due to the effects of government policies, there are fears about rises in electricity prices, the impact of the increase in the consumption tax, and future interest rate rises. Given these conditions, the Tobu Group, as an operator in the railway business an important part of the social infrastructure is fully committed to not only securing safe and stable train services, but also to supporting the lives of customers along the Tobu Railway lines. The corporate group will make every effort to support the further development of regional economies and improve the comfort and convenience of people s lives. Regarding the current fiscal year, the group will work to further improve the profits of the TOKYO SKYTREE TOWN opened last year, and continue aggressive sales promotion activities in all businesses, laborsaving activities, and rigorous streamlining in order to further build on the numerical targets of the Tobu Group Medium-Term Business Plan that have already been achieved ahead of schedule. We ask for the continued understanding and support of all of our stakeholders in these future endeavors. Yoshizumi Nezu President and Representative Director

4 2 TOBU RAILWAY CO.,LTD. TOBU Group Our Current Situation In addition to the main railway network and its characteristics summarized in the profile above, Tobu Railway engages in the development businesses outlined in the following paragraph. In our leasing business, we are continuing to construct shopping malls and similar retail facilities, and are moving ahead with effective utilization of land under elevated tracks and land that is unused or under-utilized. Particularly in areas alongside our railway lines, the Group is leasing a large number of sites for such purposes as stores, office buildings, houses, and warehouses. In particular, in TOKYO SKYTREE TOWN with the commercial facility TOKYO SOLAMACHI we transmit new lifestyles and a charm that is only possible in downtown Tokyo, and we lease the office facility TOKYO SKYTREE EAST TOWER. In addition, we position our railway stations as our most important management resource due to their power to draw customers and, consequently, attract tenants. Spaces inside our station buildings are leased or utilized for business purposes, and stations and railway cars are used for advertising. In our subdivision business, we utilize the substantial land owned in areas along our railway lines and land in other areas. This Transportation includes the sale and development of homes and land, and the independent and joint construction and sale of condominium units. Leisure Other TOBU In the leisure business, the parent company Group directly manages the Courtyard Marriott Tokyo Ginza Hotel and the Tobu Hotel Levant Tokyo Retail in the center of Tokyo, and in developing its Real estate distribution leisure business, the Company works in close corporation with each of its member companies. Group Companies In the transportation business, group companies engage in such operations as bus services including long distance bus services, taxi services, freight trucking, cash collection and delivery services, and the operation of trunk rooms and secure valuables storage facilities. In the leisure industry, in addition to the TOKYO SKYTREE, we operate the Tobu Zoological Park which has a zoo, amusement park, swimming pools, and other facilities. We Transportation also operate TOBU WORLD SQUARE, a facility that has exquisite miniature renderings of historical sites all over the world. Group companies manage enterprises in such fields as travel, city and resort hotels, inns, skiing facilities, Leisure golf courses, sports clubs, rent-a-car businesses, Other ropeways, and sightseeing vessels. Tobu In the real estate industry, we are involved in real estate Group leasing, real estate brokerage, and the car parking lot and bicycle parking lot businesses. In retail distribution, there are Tobu department stores in Ikebukuro, Funabashi, Utsunomiya, Real estate Retail Ohtawara and TOKYO SOLAMACHI, and we own TOBU STORE CO.,LTD., which operates distribution a chain of supermarkets and is listed on the first section of the Tokyo Stock Exchange. Other businesses include construction, building and facility management, construction materials supply, and heating supply systems.

5 ANNUAL REPORT Principal Subsidiaries and Affiliates The Group comprises TOBU RAILWAY CO.,LTD., 89 subsidiaries, and 13 affiliates. Their relation to major businesses and segments is as follows. (1) Transportation (39 firms) Railway business: The Company; Jomo Electric Railway Co.,Ltd. 1 Bus and taxi business: ASAHI Motor Corporation 1 ; TOBU BUS CO.,LTD 1 Freight business: TOBU TRANSPORTATION CO.,LTD. 1 ; TOBU DELIVERY CO.,LTD other firms (2) Leisure (22 firms) Amusement parks and tourism: Tobu Leisure Planning Co.,Ltd. 1 Sports: Tobu Kogyo Co.,Ltd. 1 Travel: TOBU TRAVEL CO.,LTD. 1 Hotels: The Company; Tobu Hotel Management Co.,LTD. 1 Food: Tobu Foods Service Co.,Ltd. 1 SKYTREE business: TOBU TOWER SKYTREE CO.,Ltd other firms (3) Real estate (5 firms) Real estate leasing: The Company; TOBU Properties co.,ltd. 1 Real estate subdivision: The Company SKYTREE TOWN: The Company; TOBU TOWN SOLAMACHI CO.,LTD. 1 2 other firm (4) Retail distribution (20 firms) Retail: TOBU DEPARTMENT STORE CO.,LTD. 1 ; TOBU UTSUNOMIYA DEPARTMENT STORE CO.,LTD. 1 ; TOBU STORE CO.,LTD other firms (5) Other (19 firms) Construction: TOBU CONSTRUCTION Co.,Ltd 1 ; Tobu Yachida Construction Co.,Ltd. 1 Other businesses: Tobu Building Management Co.,Ltd. 1 ; Tobu Energy Support Co.,Ltd 1 15 other firms Notes: 1. Consolidated subsidiary. 2. Affiliate according to the equity method. TOBU RAILWAY CO.,LTD. is counted multiple times in the above segment breakdown.

6 4 TOBU RAILWAY CO.,LTD. Future Challenges The Tobu Group has steadily developed the TOKYO SKYTREE TOWN as a unique new urban development based on a mixture of tourism and commerce. It is leveraging the ability of the TOKYO SKYTREE to attract visitors from a wide area to maximize the revenue and income generated by the opening of this development project. The Group will also continuously maximize the benefits of the project among its other businesses, including the railway business, and further increase the value of the Tobu brand and the overall Group earnings. Moreover, the Group will promote greater collaboration between TOKYO SKYTREE TOWN and the neighboring tourist spots, such as Asakusa and Ryogoku, where the culture of downtown Tokyo still thrives. In this way, the Group seeks to increase the number of people visiting these areas and enhance the potential of the eastern Tokyo area. It will also strive to revitalize the entire region along the Tobu TOBU Railway Group Revenue lines by introducing and transferring the prosperity and success (Millions TOBU of Group yen) Revenue of the new urban (Millions of yen) 700,000 development to a wider area. The Group aims to strengthen the functions of the 700,000 major stations along its lines as consumer bases. To achieve this goal, it will examine plans to 600,000 develop facilities. 600,000 In addition, the Group will work to improve the value of the areas along the 500, ,000 Tobu Railway lines by developing strategies to revitalize Nikko, Kinugawa, and other tourist areas. It will seek to achieve sustained growth by improving the efficiency of its businesses and 400, ,000 improving its financial strength. 300, , , , , , Basic Indicators Transportation Leisure Real estate Transportation Retail distribution Leisure Other Real estate Administration Retail distribution Other Administration TOBU Group Revenue (Millions of yen) 700, ,000 Number of Employees Number of Employees , , ,328 2,625 2,330 2,328 2,625 2, , , , , , Number of Group Companies Number of Group Companies Note: TOBU RAILWAY CO.,LTD. is counted twice or more in the above graph. Breakdown of Capital-Expenditures by Sector Breakdown of Capital-Expenditures by Sector (Millions of yen) (Millions of yen) ,716 4,733 8,060 5, ,716 4,733 8,060 5,483 2,719 2,719

7 ANNUAL REPORT Group Topics Tobu Group Medium-Term Business Plan The Company established the Tobu Group Medium-Term Business Plan in October Under this plan, the Company seeks to achieve sustained growth by focusing on the three basic strategies below: 1. Promote the Narihirabashi/Oshiage Development Project. (SKYTREE TOWN) 2. Execute strategies for the bases along the Tobu Railway lines. 3. Improve business efficiency. The Company also established targeted management indicators on a consolidated basis for fiscal 2013, the final year of the plan. Accordingly, it aimed for net income of 20 billion (US$212,766 thousand), an outstanding balance of interest-bearing liabilities of 810 billion (US$8,617,021 thousand), and a ratio of interest-bearing liabilities to EBITDA of approximately 8, but in fiscal 2012 it had already achieved all of these numerical targets one year ahead of schedule. In fiscal 2013 the Company will continue to improve profitability by executing the Group s growth strategies and achieving financial soundness by strengthening its financial position. TOKYO SKYTREE TOWN Project (formerly the Narihirabashi/Oshiage Development Project) TOKYO SKYTREE TOWN, which has TOKYO SKYTREE at its core, held its grand opening on May 22, 2012 in an area which covers approximately 6.4 hectares, adjoins Asakusa, Ueno, Ryogoku and other expansive areas that attract customers, and provides highly convenient transportation including good access to airports and the intersection of four railway networks. TOKYO SKYTREE TOWN connects TOKYO SKYTREE Station and Oshiage Station, is approximately 400 meters long from east to west, covers 3.69 hectares, and in addition to the TOKYO SKYTREE is comprised of the TOKYO SOLAMACHI commercial facility which offers entertainment and cultural features, the TOKYO SKYTREE EAST TOWER office facility, and disaster-prevention functions, among other features designed to create a prosperous urban development in collaboration with the surrounding areas, contributing to the further revitalization of the community.

8 6 TOBU RAILWAY CO.,LTD. TOBU Group Review of Operations Transportation SKYTREE TRAIN sightseeing train SKYTREE Shuttle While safety is always our first priority in our railway operations, we are also taking numerous steps to attract more users. Firstly, in terms of safety initiatives, with the aim of further increasing safety, we continued the work to construct elevated tracks in the vicinity of Isesaki Station, and commenced the elevation of the tracks in the vicinity of Takenotsuka Station. We are also working on seismic reinforcement of viaducts and bridge refurbishment as disaster prevention measures for major earthquakes and other disasters. Moreover, we have utilized the lessons learned from the Great East Japan Earthquake to hold evacuation guidance drills in the stations and temporary train stopping drills, and held comprehensive emergency training including training on how to prevent escalation in the event of an accident on a railroad crossing and evacuation guidance drills. Next, looking at marketing, along with the grand opening of TOKYO SKYTREE TOWN we renovated TOKYO SKYTREE Station and Asakusa Station and established a station concierge which provides guidance to the customers at TOKYO SKYTREE Station. Furthermore, we upgraded the SPACIA Limited Express which connects the Asakusa, TOKYO SKYTREE TOWN, Nikko and Kinugawa areas to make it more comfortable for the passengers, and in October commenced operation of the SKYTREE TRAIN sightseeing train which affords passengers wonderful views of the sights along the line. Moreover, in the March timetable revision, the Tō jō Line commenced a mutual service via the Tokyo Metro Fukutoshin Line to the Tokyu Toyoko Line and the Yokohama high-speed Minatomirai Line in which the lines are used by straight-through trains, improving access between areas along the Tō jō Line and areas around Yokohama. We also increased the frequency of departures of the TJ Liner and established new rapid-transit trains primarily during daylight time zones to create a more convenient and comfortable timetable. For the TOBU SKYTREE Line, the NikkōLine and the Isesaki Line we increased the number of limited express trains stopping at TOKYO SKYTREE Station so that more customers will visit TOKYO SKYTREE TOWN and tourist spots along the lines in the Nikko, Kinugawa, and Ryomo areas. We also increased the number of departures of the RYOMO and KIRIFURI limited express trains primarily during the times people are returning home, with the aim of further improving convenience for our customers. In bus and taxi operations, in conjunction with the grand opening of TOKYO SKYTREE TOWN, TOBU BUS CENTRAL CO., LTD. has starting running the SKYTREE Shuttle Ueno and Asakusa routes into TOKYO SKYTREE TOWN and has commenced operation of routes to Tokyo Station, routes to Haneda Airport, and routes to Tokyo Disney Resort while TOBU BUS WEST CO., LTD. has commenced operation of routes to Wako and Shiki. In addition, Kan-Etsu-Koutsu Co. Ltd. and Toya Kanko Co., Ltd. ran bus tours which included entrance tickets to the first observation platform of the TOKYO SKYTREE. In the overall transportation business, due to the revenue-boosting effect from the grand opening of TOKYO SKYTREE TOWN and the rebound from the mood of restraint after the earthquake disaster, operating revenues increased 3.2% from the previous fiscal year to 211,346 million (US$2,248,362 thousand) and operating income rose 23.8% to 28,976 million (US$308,255 thousand). Leisure In the SKYTREE business (the former tower business), TOBU TOWER SKYTREE Co.,Ltd. ran special campaigns enabling people to relax while viewing the Sumida River Fireworks Festival and first sunrise of the new year and used temporary lighting at Christmas to make the TOKYO SKYTREE look like the tallest Christmas tree in the world, and held a variety of events matched to the seasons, in an effort to attract more customers. Since its opening the TOKYO SKYTREE has been highly successful, with approximately 5.54 million customers visiting the site by the end of March. Moreover, use of the TOKYO SKYTREE as a radio mast for FM radio broadcasts, taxi wireless, etc. has commenced and broadcasters are preparing to commence digital terrestrial broadcasting from the TOKYO SKYTREE. In the hotel business, the Tobu Hotel Levant Tokyo, the Courtyard Marriott Tokyo Ginza Hotel and the Narita Tobu Hotel Airport, the official TOKYO SKYTREE hotels, offered accommodation plans which included vouchers which can be exchanged for entrance tickets to the first observation platform of the TOKYO SKYTREE, and many customers bought the plans. Furthermore, the restaurant on the first

9 ANNUAL REPORT Sky Restaurant 634 (MUSASHI) observation platform of the TOKYO SKYTREE, Sky Restaurant 634 (MUSASHI), was opened and has been very well received. In the travel business, TOBE TRAVEL CO.,LTD., the official TOKYO SKYTREE travel agency, worked to increase sales by selling travel products which include vouchers which can be exchanged for entrance tickets to the first observation platform of the TOKYO SKYTREE and selling the Let s climb TOKYO SKYTREE! Downtown Stroll Plan under which customers can stroll in the area around TOKYO SKYTREE and enjoy the charm of the downtown. In the sports business, Tobu Sports worked to get new members by running a sign-up campaign in commemoration of the opening of TOKYO SKYTREE. Furthermore, Tobu Golf Service worked to increase sales by focusing its energies on the development of golf courses that customers can play on more comfortably and holding a competition with two TOKYO SKYTREE entrance tickets as an extra prize. Turning to amusement parks and tourism, Tobu Leisure Planning Co.,Ltd. aimed to further increase the appeal of the amusement park area by introducing Ferris Wheel: Emma s Cheese Windmill and Kids House: Buni s Vegetable Factory in a new area in Tobu Zoological Park called Heartful Farm which is based on the concept of a farmstead. In addition, the company worked hard to bring in customers by holding many events including Winter Illumination 4 Seasons Autumn. TOBU WORLD SQUARE Co.,Ltd. worked hard to increase sales by selling entrance tickets in the shape of the TOKYO SKYTREE on the anniversary of the opening of TOBU WORLD SQUARE, and by holding events such as Illumination in TOBU WORLD SQUARE. In the overall leisure business, due to the increase in sales to official hotels primarily resulting from the opening of TOKYO SKYTREE, the rebound from the mood of restraint regarding leisure after the earthquake disaster, and other factors, operating revenues rose 23.5% from the previous fiscal year, to 74,294 million (US$790,362 thousand), and operating income stood at 10,593 million (US$112,691 thousand), recovering from an operating loss of 620 million (US$6,596 thousand) last year. Ferris Wheel: Emma s Cheese Windmill Real estate In the SKYTREE TOWN business, the Company aimed to attract customers and ensure profits by holding a variety of events for Christmas, Valentine s Day and other special occasions and bargain sales for each season in the commercial facility TOKYO SOLAMACHI in the area around the base of the TOKYO SKYTREE. We also made every effort to attract tenants to the office facility TOKYO SKYTREE EAST TOWER. In the real estate leasing business, to effectively utilize our portfolio assets and to secure stable income and create appealing areas along our lines we worked hard to enhance our stations and the surrounding facilities, including renovating the Asakusa Station building to restore the chic and modern exterior it had at the time of its construction and opening a new commercial facility EKIMISE, refurbishing the Ekinaka stores inside Kitasenju Station, and replacing the tenants inside the Kashiwa Station building. new commercial facility EKIMISE In the real estate subdivision business, with the objectives of increasing value along our railway lines and increasing the residential population along our railway lines, we aimed to integrate the image of the Company s products by launching the Solaie brand for newly developed condominium units, successfully sold out the Solaie Yatsuka units (Soka City) and the Solaie Soka Matsubara units (Soka City), and commenced sales of the Solaie Premium Terrace (Sumida Ward). In addition, we sold condominiums such as the

10 8 TOBU RAILWAY CO.,LTD. Brillia Ariake Sky Tower (Koto Ward) and land in Namegawa and other locations. In the overall real estate business, due to the increase in revenues from the grand opening of TOKYO SKYTREE TOWN, and other factors, operating revenues rose 7.2% from the previous fiscal year, to 56,217 million (US$598,053 thousand), and operating income rose 35.2%, to 8,031 million (US$85,436 thousand). Solaie Premium Terrace (Sumida Ward) Retail distribution In the retail distribution business, TOBU DEPARTMENT STORE CO., LTD. opened the TOKYO SOLAMACHI branch of Tobu Department Store in TOKYO SKYTREE TOWN. Furthermore, the Ikebukuro store strengthened its Lifestyle Proposal Sales Counter which combines stores handling products in a variety of categories, such as daily necessities showcasing food and dining tables, shops offering selected clothes for women and clothes for wearing at home. It also opened the new TOBU Beauty Terrace zone, a collection of six stores providing beauty, health and relaxation, including a hair salon and kaatsu (pressurized) training. Moreover, the Ikebukuro store celebrating 50 years since its opening and the Funabashi store celebrating its 35th anniversary worked hard to attract customers by holding events to commemorate their respective anniversaries. Tobu Trading Co., Ltd. opened four stores including Sora no Komachi, which offers Tokyo souvenirs, in TOKYO SKYTREE TOWN, and also opened a Sora no Komachi in EKIMISE as well. TOBU CARD BUSINESS CO.,LTD worked to win more new TOKYO SKYTREE Tobu Card PASMO members, for example by opening a card counter in TOKYO SKYTREE TOWN and running a point-up campaign. In the overall retail distribution business, due to the effect of the opening of new stores inside TOKYO SKYTREE TOWN by TOBU DEPARTMENT STORE CO., LTD. and Tobu Trading Co., Ltd., and the rebound from the mood of restraint after the earthquake disaster when people stopped visiting other places, and other factors, operating revenues rose 3.7% from the previous fiscal year, to 209,438 million (US$2,228,064 thousand), and operating income rose 52.5%, to 1,948 million (US$20,723 thousand). Other In the construction business, TOBU CONSTRUCTION Co., Ltd advanced the construction work on a new factory in Moka City, Tobu Yachida Construction Co., Ltd. completed construction of an additional hospital ward in Nagareyama City, and Tobu Ryokuchi Co., Ltd. completed construction work to develop the area around a storm water detention pond in the same city. In addition, TOBU ENERGY MANAGEMENT CO., LTD. is combining highly efficient heat source equipment with geothermal heat and heat storage tanks for TOKYO SKYTREE TOWN and the areas surrounding it, in order to provide a heat supply designed to reduce energy consumption and CO2 emissions. Moreover, in Sano City it is advancing preparations for commencing a large-scale solar power generation (mega-solar) business utilizing the old site of a railway freight yard. In the other businesses overall, operating revenues rose 17.6% from the previous fiscal year to 87,471 million (US$930,543 thousand) and operating income rose 39.8%, to 3,624 million (US$38,553 thousand). Solar power generation (mega-solar) business

11 ANNUAL REPORT Corporate Governance Basic Corporate Governance Policies In order to repay the trust placed in Tobu Railway by its shareholders and many other stakeholders, the Company has an obligation to establish a fair and transparent system of corporate governance. Hitherto, internal management control has been carried out by our Board of Directors and Statutory Auditors, but from here onward, we intend to further enhance the performance of this system with respect to the proactive disclosure of corporate information in a timely and appropriate manner. We will work to materialize the level of corporate governance expected of us by society as a whole through the maintenance of high ethical standards of behavior and legal compliance, and by dealing in good faith with all our customers and other business counterparties. Corporate Governance (1) Corporate governance structure The Company s Board of Directors consists of 15 directors, of whom one is an outside director. The Board s responsibilities are to make decisions on issues of importance to the management of the Company, after due consideration and debate, and also to exercise supervisory functions over the execution of day-to-day business operations. In addition, the Board of Managing Directors, comprising directors of the Company with the rank of Managing Director or above and standing statutory auditors, assists the Board of Directors by examining important issues, including those to be placed on the agenda for discussion by the Board of Directors, and by sharing with the Board information on significant matters gleaned from the actual conduct of business operations. In an effort to ensure the reliability of the internal control system, establish corporate ethics, and ensure that its officers and all its employees are fully aware of compliance, the Company has been promoting compliance management, primarily by setting out specific guidelines for day-to-day activities and developing training systems. It is also seeking to develop a compliance management system on a group level. The Company has established guidelines and organizations for its contingency management, and is in the process of creating an effective contingency management system. To prepare for the possible materialization of legal risks, the Company has developed a system in which advice can be sought from corporate lawyers through the General Affairs Department s Legal Center. The Company is resolved to further strengthen its legal functions. To ensure the proper operation of the Tobu Group, under the Group companies management rules the group business division that is specifically responsible for the management of subsidiaries and other companies manages and supports the business execution of subsidiaries and other companies, while in order to further strengthen Group governance a section chief and five lower-ranked members are appointed as the officers in charge of group company audits in the group business division and they conduct internal audits based on the audit plan. They also seek to communicate the Group s management policies and share management information among Group companies by holding Tobu Group Corporate Meetings on a regular basis and offering other useful forums. In cooperation with its subsidiaries and other companies, the Company is actively engaged in developing a compliance management system for the entire Group. In addition, to raise the levels of fairness and transparency of the

12 10 TOBU RAILWAY CO.,LTD. Group s management, the Company conducts regular investor relations events, such as results briefings for analysts and tours of facilities in areas served by our railway stations. It also provides extensive corporate information on its website, and will continue to pursue a policy of openness in communications with investors and the general public in a prompt and appropriate manner. Regarding audits conducted by the statutory auditors of the Company, each of five statutory auditors, of whom three are outside auditors, attends meetings of the Board of Directors. In addition, in accordance with auditing policies, auditing plans and the delegation of auditing operations, which have been drawn up to conform to the stipulations of the Auditing Standards for Statutory Auditors, which were drawn up and published by the Board of Auditors, the auditors attend important meetings, peruse all documentation relevant to important management issues. The auditors also conduct audits of Tobu Group companies focused specific issues, interviews with directors and general managers, hold meetings of statutory auditors from all Group companies, attend analyst meetings, and investigate the business performance and financial situation of the parent company and other members of the Group. In these ways, the auditors evaluate the performance Company directors duties, giving due consideration to the principles of risk management. The results of these evaluations are reported to meetings of statutory auditors that are held on a regular basis. Through deliberations in the meetings, audit opinions are developed to ensure the effectiveness of auditing. With respect to its internal auditing system, the Company has set up the Internal Audit Office, a unit consisting of a general manager and four members, under the Administration Department. The Office examines and evaluates the status of the execution of duties from the perspective of their legality and reasonability, and presents information obtained from the examinations and evaluations and advice and proposals for improvement to a representative director and related departments, including the internal control department. In this way, the Company maintains appropriate operational management, and strives to improve its operations and streamline its management. The accounting audit and auditing of internal control related to financial reports are provided by KPMG AZSA LLC an audit firm that has signed an audit agreement with the Company, as an independent organization. (2) The Company s internal control system Tobu Railway has drawn up policies regarding its internal control system, which encompasses a system for ensuring that the performance of their duties by the members of the Board of Directors of the Company, both as a body and as individuals, is in conformity with the law and with the Company s Articles of Incorporation, as well as a system for ensuring that business practices are appropriate.

13 ANNUAL REPORT Financial Review (Consolidated) Business Performance Due to the synergistic effects on the other businesses from the grand opening of TOKYO SKYTREE TOWN and the rebound from the mood of restraint after the Great East Japan Earthquake when people stopped visiting other places, sales increased in all of the businesses, so total operating revenues came to 577,223 million (US$6,140,670 thousand), a rise of 6.2% year on year, and total operating income came to 52,544 million (US$558,979 thousand), a rise of 61.3% year on year. Although there was a decline in dividend income in the Company, net income after income taxes and minority interests in income stood at 28,648 million (US$304,766 thousand), up 78.8% year on year, due to the decline in bond interest, increase in gains on sales of investment securities, rebound from the effect of the losses caused by the disaster that were recorded in the previous fiscal year, and other factors. Financial Position Total assets were 1,463,370 million (US$15,567,766 thousand), up 6,064 million, or 0.4%, compared with the level at the end of the previous consolidated fiscal year. This rise was mainly attributable to the recovery in the market value of investment securities, offsetting the decline in tangible fixed assets caused by further depreciation. Liabilities stood at 1,135,631 million (US$12,081,181 thousand), falling 28,685 million, or 2.5%, compared with the level at the end of the previous consolidated fiscal year, mainly reflecting decreases in bonds and borrowings. Net assets were 327,739 million (US$3,486,585 thousand), increasing 34,749 million, or 11.9%, compared with net assets at the end of the previous consolidated fiscal year. This was mainly attributable to the recording of net income, and the increase in the valuation difference on available-for-sale securities. Operating Income Operating (Millions Income of yen) (Millions of yen) Shareholders Shareholders Equity Ratio Equity (%) Ratio (%) 60,000 60, ,000 45, ,000 30, ,000 15, * Shareholders Equity Ratio equals net assets attributable to shareholders as a percentage of total assets.

14 12 TOBU RAILWAY CO.,LTD. Risks to which the Company s Business is Subject The following is a list of categories of material risk that could significantly impact the business performance and financial position of the Group, and consequently could have a substantial effect on the decisions of investors. The forecasts in the text below are based on the assessment of the Tobu Group as of the date of the ordinary general meeting of shareholders (June 27, 2013). (1) Changes in the Law In the railway business in Japan, permission to engage in railway operations must be obtained from the Ministry of Land, Infrastructure, Transport and Tourism with respect to each railway line and each category of railway-related business under the Railway Business Law. Under the Law, the initial setting and subsequent revision of fares by passenger transport operators must not exceed the upper limits approved by the Ministry. The railway operator must apply for permission to the Ministry each time it wishes to revise its fares within the approved upper limits. Therefore, a change in the legal system and the revision of fares could have an impact on the business performance of the Company. The business operation of the Company and other Group companies must also be in compliance with a variety of laws and regulations. A change in the relevant law or laws could, therefore, have a substantial effect on the business performance and/or financial position of the Group. (2) Adverse demographic trends According to the Population Projection (median estimates) published by the National Institute of Population and Social Security Research in January 2012, the Japanese population will enter a long period of decline from 2010, the starting point of the projection. In the areas served by the stations in our railway network, the population is expected to decline with the falling birthrate, although there are some areas that lag behind the national average. As the business operations of the Tobu Group are centered around railway operations serving areas within reach of the Group s railway stations, phenomena such as a declining number of children, an increasing number of elderly people, and a general population decline over the long term could have a substantial effect on the business performance and/or financial position of the Group. (3) Economic conditions The Tobu Group constantly invests in equipment in its business operations, and the funds required for these capital investments are raised principally through the issuing of corporate bonds or by borrowing from financial institutions. Because of these facts, an upward movement in interest rates in the future would increase the Group s interest payment burden, and this could have a substantial effect on the business performance and/or financial position of the Group. In addition, changes in economic conditions due to the increase in the consumption tax planned for April 2014 and further rises in electricity prices could have a substantial effect on the business performance and/ or financial position of the Group. (4) Management of personal information In respect of its various business operations, the Tobu Group accumulates and manages databases containing information on individual customers. The Group takes great care to manage and safeguard this personal data properly in such ways as establishing in-house protection regulations on the acquisition and use of the information, fully enforcing the information management by related parties by developing the management system, and strengthening the development and supervision of confidentiality agreements when outsourcing information processing. However, in the event that, for some reason, such information were to be divulged or stolen, this would have an adverse impact on the trustworthiness of the Group, which could have a substantial effect on the business performance and/or financial position of the Group. (5) Natural disasters As a railway service operator, the Tobu Group takes utmost care to ensure the safety of its services in order to win the trust of customers. However, in the event of an accident, a natural disaster, a terrorist attack, an act of war, or any other such external cause beyond the control of the Group, this could have a substantial effect on the business performance and/or financial position of the Group. Moreover, the occurrence of unseasonable weather or weather that is otherwise exceptional, or an outbreak of an infectious disease, would have a negative impact on the business of tourism and leisure facilities, which would be likely to adversely affect the Group s leisure operations and related businesses. In this event, there could be a substantial effect on the business performance and/or financial position of the Group. The above is a list of the principal categories of risk thought to apply to the business operations of the Tobu Group, but it is not intended to be an exhaustive list of all risks.

15 ANNUAL REPORT Five-Year Summary (Years ended March 31, TOBU RAILWAY CO.,LTD. and Subsidiaries) Consolidated U.S. Dollars* Revenues from operations , , , , ,223 $ 6,140,670 Operating income... 32,290 29,973 30,779 32,583 52, ,979 Net income... 16,091 13,987 13,104 16,020 28, ,766 Net assets , , , , ,739 3,486,585 Total assets... 1,403,569 1,398,569 1,437,555 1,457,306 1,463,370 15,567,766 Yen U.S. Dollars* Net income per share basic $0.29 Net income per share diluted Sales by Sector U.S. Dollars* Transportation , , , , ,346 $2,248,361 Leisure... 84,063 79,991 68,605 60,148 74, ,362 Real estate... 53,643 57,501 47,901 52,421 56, ,053 Retail distribution , , , , ,438 2,228,064 Other... 74,281 77,284 74,699 74,352 87, ,543 Non-Consolidated U.S. Dollars* Revenues from operations , , , , ,847 $ 2,360,074 Operating income... 25,460 22,863 21,643 26,273 33, ,681 Net income... 13,968 9,597 8,645 11,379 17, ,617 Net assets , , , , ,109 2,990,521 Total assets... 1,278,483 1,289,117 1,332,659 1,359,503 1,367,728 14,550,298 Yen U.S. Dollars* Dividends per share of common stock $0.06 * U.S. dollar amount have been translated from Japanese yen at the rate of 94 to U.S.$1, the approximate exchange rate prevailing on March 31, 2013.

16 14 TOBU RAILWAY CO.,LTD. Consolidated Balance Sheets March 31, 2012 and 2013 U.S. Dollars (Note 1) Assets Current assets: Cash and cash equivalents... 20,666 23,268 $ 247,532 Time deposits ,457 Trade receivables (Notes 8 and 10)... 40,080 42, ,394 Short-term loans... 1,867 1,441 15,330 Marketable securities (Notes 3 and 8)... 1,066 11,340 Inventories (Note 4)... 55,594 52, ,106 Deferred tax assets (Note 17)... 3,355 3,526 37,511 Prepaid expenses and other current assets... 12,472 15, ,000 Allowance for doubtful accounts... (677) (677) (7,202) Total current assets , ,292 1,492,468 Investments and other assets: Investment securities (Notes 3 and 8): Non-consolidated subsidiaries and affiliates... 6,449 6,515 69,308 Other... 48,178 64, ,713 Long-term loans... 1,105 1,050 11,170 Deferred tax assets (Note 17)... 7,884 5,351 56,925 Other investments... 46,711 40, ,394 Allowance for doubtful accounts... (3,073) (2,985) (31,755) Total investments and other assets , ,845 1,221,755 Property and equipment (Notes 5, 8 and 15): Land , ,480 5,334,894 Buildings and structures... 1,104,899 1,121,369 11,929,457 Machinery, equipment and rolling stock , ,229 5,076,904 Construction in progress... 27,397 27, ,362 2,098,179 2,127,654 22,634,617 Less accumulated depreciation... (901,416) (939,660) (9,996,383) Property and equipment net... 1,196,763 1,187,994 12,638,234 Intangible assets... 19,732 20, ,309 Total assets... 1,457,306 1,463,370 $15,567,766 The accompanying notes to consolidated financial statements are an integral part of these statements.

17 ANNUAL REPORT U.S. Dollars (Note 1) Liabilities and Net Assets Current liabilities: Short-term borrowings (Notes 8, 12 and 18)... 49,678 44,172 $ 469,915 Current portion of long-term debt (Notes 8 and 12) , ,641 1,528,096 Trade payables... 59,306 59, ,053 Accrued expenses... 8,662 8,005 85,159 Income taxes payable... 9,280 12, ,532 Advances received... 37,946 40, ,564 Allowance for loss on collection of gift certificates outstanding... 3,070 3,122 33,213 Other current liabilities (Notes 13, 14 and 17)... 39,212 45, ,606 Total current liabilities , ,871 3,807,138 Non-current liabilities: Long-term debt due after one year (Notes 8 and 12) , ,386 6,589,213 Deferred tax liabilities (Note 17)... 9,880 11, ,649 Deferred tax liabilities related to land revaluation... 58,303 58, ,160 Employees severance and retirement benefits (Note 9)... 38,736 40, ,989 Retirement allowance for directors and auditors... 1,161 1,156 12,298 Negative goodwill ,702 Deposits from tenants and golf club members... 28,618 31, ,085 Urban railways improvement reserve... 10,851 7,234 76,958 Asset retirement obligations (Note 14)... 1,976 1,713 18,223 Other non-current liabilities (Note 13)... 7,232 6,464 68,766 Total non-current liabilities , ,760 8,274,043 Total liabilities... 1,164,316 1,135,631 12,081,181 Contingent liabilities (Note 10) Net assets (Note 11): Owners equity Common stock: Authorized 2,000,000 thousand shares Issued 1,075,541 thousand shares in 2012 and , ,136 1,086,553 Capital surplus... 70,399 70, ,915 Retained earnings... 67,955 90, ,989 Less treasury stock, at cost: 6,749 thousand shares in 2012 and 6,988 thousand shares in (3,333) (3,435) (36,542) Total owners equity , ,150 2,756,915 Accumulated other comprehensive income Unrealized gains on available-for-sale securities, net of taxes... 2,671 12, ,851 Land revaluation difference, net of taxes... 38,092 38, ,436 Total accumulated other comprehensive income... 40,763 51, ,287 Minority interests... 15,070 16, ,383 Total net assets , ,739 3,486,585 Total liabilities and net assets... 1,457,306 1,463,370 $15,567,766

18 16 TOBU RAILWAY CO.,LTD. Consolidated Statements of Income and Comprehensive Income Years ended March 31, 2012 and 2013 U.S. Dollars (Note 1) 1. Consolidated Statements of Income Revenues from operations , ,223 $6,140,670 Operating expenses: Transportation, other services and cost of sales , ,646 4,251,553 Selling, general and administrative expenses , ,033 1,330, , ,679 5,581,691 Operating income... 32,583 52, ,979 Other income (expenses): Interest and dividend income... 5,759 5,637 59,968 Interest expense... (12,495) (11,651) (123,947) Gain on sales of marketable and investment securities net ,265 24,096 Investment gains from equity method affiliates net ,542 Loss on sales and disposal of property and equipment net... (1,185) (1,983) (21,096) Loss on reduction of cost of property and equipment... (3,352) (1,838) (19,553) Subsidies from local government authorities... 3,736 2,270 24,149 Impairment loss on fixed assets (Note 5)... (1,163) (3,545) (37,713) Reversal of urban railways improvement reserve... 3,617 3,617 38,479 Compensation income ,720 18,298 Other net... (1,147) Other income (expenses) net... (5,222) (3,296) (35,064) Income before income taxes and minority interests... 27,361 49, ,915 Income taxes (Note 17): Current... 13,634 20, ,479 Deferred... (2,338) (1,831) (19,479) Income before minority interests... 16,065 30, ,915 Minority interests in net income of consolidated subsidiaries ,800 19,149 Net income... 16,020 28,648 $ 304,766 Yen U.S. Dollars (Note 1) Net income per share basic $0.29 Net income per share diluted Dividends per share of common stock The accompanying notes to consolidated financial statements are an integral part of these statements. U.S. Dollars (Note 1) 2. Consolidated Statements of Comprehensive Income Income before minority interests... 16,065 30,448 $323,915 Other comprehensive income (1) Unrealized gains on available-for-sale securities, net of taxes , ,351 (2) Land revaluation difference, net of taxes... 8,079 (3) Share of other comprehensive income of associates accounted for using equity method... (4) Total other comprehensive income (Note 6)... 8,344 10, ,511 Comprehensive income... 24,409 40, ,426 (Attributable to) (1) Owners of the parent... 24,356 38, ,192 (2) Minority interests ,808 19,234 The accompanying notes to consolidated financial statements are an integral part of these statements.

19 ANNUAL REPORT Consolidated Statements of Changes in Net Assets Years ended March 31, 2012 and 2013 Thousands Number of shares of common stock issued Common stock Capital surplus Retained earnings Treasury stock Unrealized gains on available-for-sale securities, net of taxes Land revaluation difference, net of taxes Minority interests Balance as of April 1, ,075, ,136 70,405 57,349 (3,337) 2,410 30,015 15, ,029 Net income... 16,020 16,020 Cash dividends... (5,344) (5,344) Net change during the year in land revaluation difference... (2) (2) Purchase of treasury stock... (17) (17) Disposal of treasury stock... (6) Change of scope of equity method... (68) (68) Other net , ,357 Balance as of March 31, ,075, ,136 70,399 67,955 (3,333) 2,671 38,092 15, ,990 Net income... 28,648 28,648 Cash dividends... (5,878) (5,878) Net change during the year in land revaluation difference... (674) (674) Purchase of treasury stock... (110) (110) Disposal of treasury stock... (1) 8 7 Other net... 10, ,792 12,756 Balance as of March 31, ,075, ,136 70,398 90,051 (3,435) 12,958 38,769 16, ,739 Total net assets Thousands U.S. Dollars (Note 1) Number of shares of common stock issued Common stock Capital surplus Retained earnings Treasury stock Unrealized gains on available-for-sale securities, net of taxes Land revaluation difference, net of taxes Minority interests Balance as of March 31, ,075,541 $1,086,553 $748,926 $722,925 $(35,457) $ 28,415 $405,234 $160,319 $3,116,915 Net income , ,766 Cash dividends... (62,532) (62,532) Net change during the year in land revaluation difference... (7,170) (7,170) Purchase of treasury stock... (1,170) (1,170) Disposal of treasury stock... (11) Other net ,436 7,202 19, ,702 Balance as of March 31, ,075,541 $1,086,553 $748,915 $957,989 $(36,542) $137,851 $412,436 $179,383 $3,486,585 The accompanying notes to consolidated financial statements are an integral part of these statements. Total net assets

20 18 TOBU RAILWAY CO.,LTD. Consolidated Statements of Cash Flows Years ended March 31, 2012 and 2013 U.S. Dollars (Note 1) Cash flows from operating activities: Income before income taxes and minority interests... 27,361 49,248 $ 523,915 Depreciation and amortization... 51,425 53, ,117 Impairment loss on fixed assets... 1,163 3,545 37,713 Investment gains from equity method affiliates net... (303) (145) (1,543) Gain on sales of marketable and investment securities net... (46) (2,265) (24,096) Reversal of urban railways improvement reserve... (3,617) (3,617) (38,479) Increase (decrease) in allowance for doubtful accounts (88) (936) Increase (decrease) in employees severance and retirement benefits... 6,886 2,090 22,234 Increase (decrease) in retirement allowance for directors and auditors (5) (53) Increase (decrease) in allowance for loss on collection of gift certificates outstanding Interest and dividends income... (5,759) (5,637) (59,968) Interest expense... 12,495 11, ,947 Subsidies from local government authorities... (3,736) (2,270) (24,149) Loss on sales and disposal of property and equipment net... 2,258 2,549 27,117 Loss on reduction of cost of property and equipment... 3,352 1,838 19,553 Decrease (increase) in trade receivables... (1,219) (2,765) (29,415) Decrease (increase) in inventories... 14,972 2,818 29,979 Increase (decrease) in trade payables... (1,648) 2,425 25,798 Other... 2,242 10, ,202 Subtotal , ,468 1,313,489 Interest and dividends received... 5,773 5,670 60,319 Interest paid... (12,502) (11,888) (126,468) Income tax refunded (paid)... (11,934) (16,898) (179,766) Net cash provided by operating activities... 87, ,352 1,067,574 Cash flows from investing activities: Net decrease (increase) in short-term loans receivable ,691 Long-term loans advanced... (61) (19) (202) Proceeds from collection of long-term loans Purchases of marketable and investment securities... (1,062) (2,164) (23,021) Proceeds from sales and redemption of marketable and investment securities... 2,320 1,053 11,202 Proceeds from sales of investments in consolidated subsidiaries affecting scope of consolidation (Note 7)... 1,531 16,287 Purchases of property and equipment and intangible assets... (92,242) (60,418) (642,745) Proceeds from sales of property and equipment and intangible assets ,000 Receipt of contributions for construction works... 4,392 4,082 43,426 Other... 3,036 4,969 52,862 Net cash provided by (used in) investing activities... (82,511) (50,226) (534,319) Cash flows from financing activities: Net increase (decrease) in short-term borrowings... (29,033) (4,132) (43,958) Proceeds from long-term debt ,740 72, ,128 Repayment of long-term debt... (67,627) (95,742) (1,018,532) Proceeds from bonds issued... 10,500 23, ,809 Redemption of bonds... (12,950) (31,200) (331,915) Cash dividends paid... (5,332) (5,870) (62,447) Cash dividends paid to minority shareholders... (13) (10) (106) Other... (9,094) (6,162) (65,553) Net cash provided by (used in) financing activities... (9,809) (47,524) (505,574) Increase (decrease) in cash and cash equivalents... (4,891) 2,602 27,681 Cash and cash equivalents at beginning of year... 25,557 20, ,851 Cash and cash equivalents at end of year... 20,666 23,268 $ 247,532 The accompanying notes to consolidated financial statements are an integral part of these statements.

21 ANNUAL REPORT Notes to the Consolidated Financial Statements 1. Basis of presenting consolidated financial statements 2. Significant accounting policies The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Financial Instruments and Exchange Law of Japan and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan, ( Japanese GAAP ) which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards. The accompanying consolidated financial statements have been restructured and translated into English (with some expanded descriptions) from the consolidated financial statements of TOBU RAILWAY CO.,LTD. (the Company ) prepared in accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the Financial Instruments and Exchange Law. Some supplementary information included in the statutory Japanese language consolidated financial statements, but not required for fair presentation, is not presented in the accompanying consolidated financial statements. The translation of the Japanese yen amounts into U.S. dollars is included solely for the convenience of readers outside Japan, using the prevailing exchange rate at March 31, 2013, which was 94 to $1.00. The convenience translations should not be construed as representations that the Japanese yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange. (a) Consolidation The consolidated financial statements include the accounts of significant subsidiaries (the Group ) substantially controlled through ownership of majority voting rights or the existence of certain conditions. The consolidated financial statements comprise the accounts of 87 and 86 subsidiaries for the years ended March 31, 2012 and The Company has adopted the equity method of accounting for investments, of which the Company owns 20-50% or exerts influence on financial and operational policies, in 8 significant affiliates for the years ended March 31, 2012 and All significant inter-company transactions and accounts have been eliminated. In the elimination of investments in subsidiaries, the assets and liabilities of the subsidiaries, including the portion attributable to minority shareholders, are evaluated using the fair value at the time the Company acquired control of the respective subsidiaries. Goodwill and negative goodwill which was incurred in past fiscal years are principally amortized over 20 years. Financial statements of certain subsidiaries and affiliates prepared as of balance sheet dates different from that of the Company are used for consolidation. However, necessary adjustments have been made if the effect of using different balance sheet dates is material. (b) Securities Securities are classified as follows: (1) Securities held for trading purposes (hereafter, Trading securities ) (2) Debt securities intended to be held to maturity (hereafter, Held-to-maturity debt securities ) (3) All other securities that are not classified in any of the above categories (hereafter, Available-for-sale securities ) Trading securities are stated at fair market value. The Group had no trading securities through the years ended March 31, 2012 and Held-to-maturity debt securities are stated at amortized cost. Available-for-sale securities are stated as explained below. (i) Available-for-sale securities with available market values According to the Japanese Accounting Standards for Financial Instruments, available-for-sale securities for which market quotations are available are stated at fair market value as of the balance sheet date. Net unrealized holding gains or losses on these securities are reported as a separate item in the net assets at an amount net of applicable income taxes. The cost of sales of such securities is determined mainly by the moving-average method. (ii) Available-for-sale securities with no available market values Available-for-sale securities for which market quotations are not available are mainly stated at movingaverage costs. If the market value of held-to-maturity debt securities or available-for-sale securities declines significantly, such securities are stated at fair market value and the difference between fair market value and the carrying amount is recognized as a loss in the period of the decline. If the fair market value of available-for-sale securities is not readily available, such securities are written down to net asset value with a corresponding charge in the statement of income in the period that net asset value declines significantly. In these cases, such fair market value or the net asset value will be the new carrying amount of the securities. (c) Allowance for doubtful accounts The Group provides allowance for doubtful accounts principally at an amount computed based on past experience plus estimated uncollectible amounts based on analysis of individual accounts.

22 20 TOBU RAILWAY CO.,LTD. (d) Inventories Inventories are stated at cost as follows: (1) Merchandise inventories: mainly the retail inventory method (2) Real estate: the identified cost method (3) Materials and supplies: mainly the moving-average cost method Balance sheet amount is written-down to net selling value in case profitability of inventories declined. (e) Derivatives and hedge accounting The Group uses derivative financial instruments to manage its exposure to fluctuations in interest rates. Interest rate swap contracts and cap contracts are utilized by the Group to reduce interest fluctuation risk. The Group does not enter into derivative contracts for trading or speculative purposes. Derivative financial instruments are stated at fair value and changes in fair value are recognized in the consolidated statements of income unless the derivative financial instruments are used for hedging purposes and meet certain hedging criteria. When derivative financial instruments are used as hedges and meet hedging criteria, gains or losses resulting from the changes in the fair values of the derivative instruments are deferred until the corresponding losses or gains on the hedged item are recognized. Interest rate swaps and caps which are qualified for hedge accounting and meet specific matching criteria are not remeasured at fair value, and the differential paid or received under the swap contracts and cap contracts are recognized as interest expense or income. (f) Property and equipment (excluding lease assets) Property and equipment are stated at cost. Depreciation of buildings acquired after March 31, 1998 is provided on the straight-line method, and depreciation of other property, is provided principally using the declining-balance method based on the estimated useful lives as set forth by mainly Japanese tax regulations. Maintenance and repairs, including minor renovations and improvements, are charged to expense, and major improvements are capitalized. (g) Intangible assets (excluding lease assets) Depreciation of intangible assets, except for software for internal use, is provided on the straight-line method, over the years as set forth by Japanese tax regulations. Software for internal use is depreciated using the straight-line method over the estimated useful life of five years. (h) Lease assets Finance lease which do not transfer ownership are capitalized and depreciated by the straight-line method, with the lease period as the useful life and a residual value of zero. (i) Subsidies for construction works When constructing railway facilities, such as grade separations and widening railroad crossings, the Company receives contributions from national and municipal governments and other corporations. Those contributions are recognized in the income statement as gains in the period in which the construction with contributions is completed. If assets constructed with contributions are not expected to increase revenues of the Company and the amount of the contributions is 100 million or more, the amount equal to such contributions is directly deducted from the acquisition costs of the related assets upon completion and the same amount of loss on reduction of cost of property and equipment is recognized in the income statement. (j) Land revaluation Pursuant to the Law Concerning Land Revaluation, the Company, domestic consolidated subsidiaries and affiliates accounted for by the equity method revalued land used for business activities in the period from March 31, 2000 to March 31, With respect to revaluation differences, amounts equivalent to income taxes related to the revaluation differences are included in Deferred tax liabilities related to land revaluation, amounts belonging to minority shareholders are included in Minority interests, and amounts from which these are deducted are recorded as Land revaluation difference, net of taxes in net assets. For an affiliate accounted for by the equity method, the Company s share net of the related income taxes is included in Land revaluation difference, net of taxes in net assets. (i) The Company The revaluation of land was determined mainly based on real estate tax values in accordance with Article 2, Paragraph 3 of the Enforcement Ordinance Concerning Land Revaluation, posted price values in accordance with Article 2, Paragraph 1 of the same and fiduciary point price values in accordance with Article 2, Paragraph 2 of the same Ordinance on March 31, (ii) Domestic consolidated subsidiaries and affiliates accounted for by the equity method The revaluation of the land was determined based on real estate tax values in accordance with Article 2, Paragraph 3 of the Enforcement Ordinance Concerning Land Revaluation and the appraisal values made by certified real

23 ANNUAL REPORT estate appraisers in accordance with Article 2, Paragraph 5 of the same Ordinance from March 31, 2000 to March 31, The excess of book values after revaluation over fair values at March 31, 2012 and 2013 were 43,930 million and 53,652 million ($570,766 thousand), respectively. (k) Employees severance and retirement benefits Almost all employees of the Group are generally entitled to receive lump sum severance and retirement benefits (some subsidiaries have adopted a pension plan of their own). The amounts of the employees severance and retirement benefits are determined by the length of service and basis salary at the time of severance or retirement of the employees. The Group accrues liabilities for severance and retirement benefits at the balance sheet date in an amount calculated based on the actuarial present value of all benefits attributed to employee services rendered prior to the balance sheet date and the fair value of plan assets at that date. The excess of the projected benefit obligation over the total of the fair value of pension assets as of April 1, 2000 and the liabilities for severance and retirement benefits recorded as of April 1, 2000 (the Net transition obligation ) is being charged to expenses over 15 years from the year ended March 31, 2001 on straight-line method. The balance of unrecognized net transition obligation as of March 31, 2013 was 7,671 million ($81,606 thousand). The unrecognized prior service costs are amortized by the straight-line method over certain years (mainly 14 years) which do not exceed the average remaining service years of employees at the time when the prior service costs were incurred. Actuarial gains and losses are recognized in the statements of income using the straight-line method over certain years (mainly 14 years) within the average of the estimated remaining service years commencing with the following year. (l) Retirement allowance for directors and auditors The certain consolidated subsidiaries recognize liabilities for retirement allowance for directors and auditors based on the bylaws and on the accrual basis at the balance sheet date. (m) Allowance for loss on collection of gift certificates outstanding Allowance for loss on collection of gift certificates outstanding issued by certain consolidated subsidiaries is provided for losses by future collections with regard to the uncollected balance of shopping coupons, travel gift coupons and similar coupons for which income has been posted, based on the past experience plus estimated loss amounts. (n) Deferred charges Bond issue costs are amortized using the straight-line method for the period up to maturity. However, non-significant bond issue costs are amortized in lump sum as expensed. (o) Urban railways improvement reserve In accordance with the Law for the Urban Improvement Reserve enacted in April 1986, the Company is required to provide a reserve for the cost of specific construction projects aimed at strengthening railway transport capacity at an amount equivalent to 3% of the total passenger fares. The provision for this reserve is tax-deductible. The reserve must be reversed to income ten years after its provision or upon completion of the relevant construction projects, whichever is earlier. (p) Income taxes Income taxes comprise corporation, enterprise and inhabitants taxes. The asset and liability approach is used to recognize deferred tax assets and liabilities for tax loss carryforwards and the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. (q) Consumption taxes Consumption taxes are levied in Japan on the domestic sales of goods and services at the rate of 5%. Consumption taxes are excluded from revenue and expense amounts. (r) Cash and cash equivalents In preparing the consolidated statements of cash flows, cash on hand, readily available deposits and short-term highly liquid investments with maturities not exceeding three months at the time of purchase are considered to be cash and cash equivalents. (s) Per share information Net income per share basic is based on the weighted average number of shares of common stock outstanding during each year, retroactively adjusted for stock splits. Net income per share diluted is calculated assuming conversion of all dilutive convertible bonds was exercised. In accordance with the Japanese Corporate Law, the declaration of year-end dividends appropriated from retained earnings is approved at the general meeting of shareholders held after the end of the fiscal year. Therefore, cash dividends per share shown in the consolidated statements of income include the year-end dividends approved after the end of the relevant fiscal year and interim dividends approved by the Board of Directors.

24 22 TOBU RAILWAY CO.,LTD. (t) Accounting change (Change in accounting policies with amendment of respective law or regulation that are not distinguishable from change in accounting estimates) From the year ending March 31, 2013, in accordance with the amendment in corporate tax law, the Company and some of its consolidated subsidiaries have changed its depreciation method for property, plant and equipments. Assets acquired on or after April 1, 2012 are depreciated using the method prescribed in amended corporate tax law. This change has a minimal impact on operating income, ordinary income and income before income taxes and minority interests. (u) Accounting standards issued but not yet effective -Accounting Standard for Retirement Benefits (ASBJ Statement No. 26, May 17, 2012) -Guidance on Accounting Standard for Retirement Benefits (ASBJ Guidance No. 25, May 17, 2012) (Please also refer to the ASBJ homepage, which has a summary in English of the accounting standard.) (1) Summary For the improvement of financial reporting and international trends, this accounting standard primarily amends the accounting procedure for actuarial gains and losses and past service costs that are yet to be recognized in profit or loss, the calculation method for retirement benefit obligations and service costs and the related disclosure. (2) Effective dates Effective for the end of annual periods ending on or after March 31, Amendments relating to determination of retirement benefit obligations and current service costs are effective from the beginning of annual periods ending on or after March 31, (3) Effect of application of the standard The Company and its consolidated subsidiaries are currently in the process of determining the effects of these new standards on the consolidated financial statements. (v) Reclassifications Certain prior year amounts have been reclassified to conform to the 2013 presentation. These changes had no impact on previously reported results of operations or cash flows or net assets. 3. Securities The following table summarizes book values and fair values of held-to-maturity debt securities as of March 31, 2012 and 2013: U.S. Dollars Book value Fair value Difference Book value Fair value Difference Book value Fair value Difference Securities with available fair value exceeding book value... 3,930 4, ,962 4, $42,149 $43,277 $1,128 Securities with available fair value not exceeding book value (3) (2) 2,947 2,925 (22) Total... 4,210 4, ,239 4, $45,096 $46,202 $1,106 The following tables summarize acquisition costs and book values (fair values) of available-for-sale securities with available fair market values as of March 31, 2012 and 2013: Securities with book values exceeding acquisition costs: U.S. Dollars Acquisition cost Book value Difference Acquisition cost Book value Difference Acquisition cost Book value Difference Equity... 7,425 15,466 8,041 26,033 46,122 20,089 $276,947 $490,660 $213,713 Other ,489 3, Total... 7,563 15,622 8,059 26,267 46,411 20,144 $279,436 $493,734 $214,298 Securities with book values not exceeding acquisition costs: U.S. Dollars Acquisition cost Book value Difference Acquisition cost Book value Difference Acquisition cost Book value Difference Equity... 19,475 15,485 (3,990) 2,469 2,208 (261) $26,266 $23,489 $(2,777) Other (15) (2) (21) Total... 19,612 15,607 (4,005) 2,492 2,229 (263) $26,511 $23,713 $(2,798) Since the total amounts of gains or losses on sales of available-for-sale securities are not significant for the years ended March 31, 2012 and 2013, such amounts are not disclosed.

25 ANNUAL REPORT Inventories Inventories at March 31, 2012 and 2013, consisted of the following: U.S. Dollars Real estate for sale... 41,631 39,052 $415,447 Construction in progress... 4,370 4,319 45,946 Finished products and merchandise... 6,094 6,221 66,181 Materials and supplies... 3,499 3,340 35,532 Total... 55,594 52,932 $563, Impairment loss on fixed assets In adherence with management accounting classifications, the Group generally categorizes assets according to operations or properties. The Group recognized impairment loss on fixed assets because the expected operating gain was not realized and the continuous decline in the market values of land. The Group recognized 1,163 million and 3,545 million ($37,713 thousand) impairment loss on fixed assets in the years ended March 31, 2012 and 2013, respectively. The main items of impairment loss on fixed assets are as follows: 2012 Purpose of use Main asset type Main location Leasing facilities Land Nikko City, Tochigi Prefecture 2013 Purpose of use Main asset type Main location Golf course facilities Land, buildings, and other Yuni town, Hokkaido Prefecture U.S. Dollars Land $ 7,968 Buildings and structures ,779 29,564 Machinery, equipment and rolling stock Total... 1,163 3,545 $37,713 The Group determines recoverable amounts for the above assets groups by measuring the net selling prices or values in use. Net selling prices used to measure recoverable amounts reasonably reflect assessed values of fixed assets or evaluations based on real estate appraisal benchmarks. Value in use for the measurement of recoverable amounts is based on the present values of expected cash flows discounted at 4.0%. 6. Consolidated statements of comprehensive income Reclassification adjustments and the related tax effects concerning Other Comprehensive Income for the fiscal year ended March 31, 2012 and 2013 are as follows U.S. Dollars Unrealized gains on available-for-sale securities, net of taxes: The amount arising during the period... (67) 15,822 $168,319 Reclassification adjustments Sub-total, before tax , ,362 The amount of tax effect (5,547) (59,011) Sub-total, net of tax , ,351 Land revaluation difference, net of taxes: The amount arising during the period... Reclassification adjustments... Sub-total, before tax... The amount of tax effect... 8,079 Sub-total, net of tax... 8,079 Share of other comprehensive income of associates accounted for using equity method: The amount arising during the period... (4) Total other comprehensive income... 8,344 10,294 $109,511

26 24 TOBU RAILWAY CO.,LTD. 7. Supplementary cash flow information Major breakdown of assets and liabilities that are no longer consolidated subsidiaries of the Company after the sale of their shares. U.S. Dollars La Festa Co., Ltd.: Assets: Current assets $ 5,096 Non-current assets... 1,903 20,244 Total... 2,382 25,340 Liabilities: Current liabilities... 1,643 $17,479 Non-current liabilities Total... 1,674 17, Short-term borrowings and long-term debt Short-term borrowings are represented generally by overdrafts. The weighted-average interest rate for short-term bank loans at March 31, 2012 and 2013 was 0.9%, respectively. Long-term debt at March 31, 2012 and 2013 consisted of the following: U.S. Dollars Secured: Loans from banks, interest rates 0.745% 4.90%, maturing through , ,993 $1,627,585 Loans from construction, transport and technology agency, interest rates at 1.5% maturing through ,218 49, ,000 Unsecured: Loans from banks, interest rates 0.37% 5.30%, and others maturing through , ,114 4,458,660 Bonds issued in 1997 to 2013 with interest rate ranging from 0% to 2.19% due from 2012 to , ,570 1,484, , ,309 8,099,032 Less current portion... (130,271) (143,499) (1,526,585) 667, ,810 $6,572,447 As of March 31, 2012 and 2013, pledged assets for short-term debt of 4,939 million and 5,026 million ($53,468 thousand) and long-term debt due within one year of 23,442 million and 21,466 million ($228,362 thousand) and long-term debt of 181,558 million and 181,159 million ($1,927,223 thousand) (excluding long-term debt due within one year) comprised trade receivables and marketable securities in the amounts of 2,000 million and 2,067 million ($21,989 thousand), investment securities in the amounts of 359 million and 304 million ($3,234 thousand), and property and equipment in the amounts of 682,726 million and 675,534 million ($7,186,532 thousand), respectively. As of March 31, 2012 and 2013, the Company has committed, in connection with short-term borrowings and long-term debt in the amount of 337,270 million and 333,040 million ($3,542,979 thousand), to maintain the amount of net assets or former shareholders equity on the consolidated or non-consolidated balance sheets as of the fiscal year-end at 75% or more of the corresponding amount as of the end of previous fiscal year. In addition as of March 31, 2012 and 2013, the Company has committed, in connection with short-term borrowings and long-term debt in the amount of 20,185 million and 15,235 million ($162,074 thousand) included in 337,270 million and 333,040 million ($3,542,979 thousand) not to incur net losses for two consecutive years on a consolidated and non-consolidated basis. And as of March 31, 2012 and 2013, with respect to the Company s corporate bonds in the amount of 30,000 million ($319,149 thousand), if the Company incurs ordinary losses on a non-consolidated basis for two consecutive years, the bond holders are entitled to claim repayment of the bonds without regard to the maturity date of the bond.

27 ANNUAL REPORT Employees severance and retirement benefits Employees severance and retirement benefits included in the liability section of the consolidated balance sheets as of March 31, 2012 and 2013, consist of the following: U.S. Dollars Projected benefit obligation... (94,969) (92,196) $(980,808) Plan assets... 50,086 50, ,819 Unfunded projected benefit obligation... (44,883) (41,641) (442,989) Unrecognized net transition obligation... 11,396 7,671 81,606 Unrecognized actuarial differences... 24,054 18, ,851 Unrecognized prior service costs... (15,111) (13,499) (143,606) Book value (net)... (24,544) (29,247) (311,138) Prepaid pension expense... (14,192) (11,548) (122,851) Accrued employees severance and retirement benefits... (38,736) (40,795) $(433,989) The prior service costs totaling 2,100 million were incurred as the Company shifted from a qualified retirement pension plan to a defined benefit pension plan during the fiscal year ended March 31, Included in the consolidated statements of income for the years ended March 31, 2012 and 2013, severance and retirement benefit expenses comprised of the following: U.S. Dollars Service costs benefits earned during the year... 4,052 4,046 $ 43,043 Interest cost on projected benefit obligation... 1,807 1,736 18,468 Expected return on plan assets... (1,553) (1,241) (13,202) Amortization of prior service costs... (1,615) (1,612) (17,149) Amortization of actuarial differences... 3,720 3,814 40,574 Amortization of net transition obligation... 3,687 3,725 39,628 Severance and retirement benefit expenses... 10,098 10,468 $111,362 The estimated amount of all retirement benefits to be paid at the future retirement date is allocated equally to each service year using the estimated number of total service years. The discount rate used by the Group in the years ended March 31, 2012 and 2013 was mainly 2.0%. The rate of expected return on plan assets used by the Group in the years ended March 31, 2012 and 2013 was 2.5%. The Company booked 139 million in unrecognized actuarial differences at the termination of a retirement benefit plan as an extraordinary loss, after one of the Company s consolidated subsidiaries partially terminated the plan during the fiscal year ended March 31, Also, the Company booked 6 million in extraordinary gain, being the difference in the amount of retirement allowance between voluntary retirees and those who retired at company instigation, after one of the Company s consolidated subsidiaries settled up a pension plan during the fiscal year ended March 31, In addition, one of the Company s consolidated subsidiaries changed its method of calculation of retirement benefit obligations from the simplified (valuation) method to the projected benefit obligations method during the fiscal year ended March 31, As a result, the Company booked 239 million in extraordinary loss from increased retirement benefit obligations due to this change. 10. Contingent liabilities At March 31, 2012 and 2013, the Group was contingently liable for guarantees of loans in the amounts of 5,278 million and 4,621 million ($49,160 thousand), respectively. Notes endorsed or discounted at March 31, 2012 and 2013 aggregated 7 million and 75 million ($798 thousand), respectively. 11. Net assets Under the Japanese Corporate Law ( the Law ) and regulations, the entire amount paid for new shares is required to be designated as common stock. However, a company may, by a resolution of the board of directors, designate an amount not exceeding one-half of the price of the new shares as additional paid-in capital, which is included in capital surplus. Under the Law, in cases where a dividend distribution of surplus is made, the smaller of an amount equal to 10% of the dividend or the excess, if any, of 25% of common stock over the total of additional paid-in capital and legal earnings reserve must be set aside as additional paid-in capital or legal earnings reserve. Under the Law, both of these appropriations generally require a resolution of the shareholders meeting. Additional paid-in capital and legal earnings reserve may not be distributed as dividends. Under the Law, all additional paid-in capital and legal earnings reserve may be transferred to other capital surplus and retained earnings, respectively, which are potentially available for dividends. The maximum amount that the Company can distribute as dividends is calculated based on the non-consolidated financial statements of the Company in accordance with Japanese laws and regulations. At the annual shareholders meeting held on June 27, 2013, the shareholders approved cash dividends amounting to 3,206 million ($34,106 thousand). Such appropriations have not been accrued in the consolidated financial statements as of March 31, Such appropriations are recognized in the period in which they are approved by the shareholders.

28 26 TOBU RAILWAY CO.,LTD. 12. Financial instruments (a) Outline of Utilization of Financial Instruments (1) Management policies for financial instruments The Group invests funds mainly only into short-term deposits. The Group borrows money from banks or raise money by issuing bonds. TOBU Shared Service Co., Ltd., a consolidated subsidiary, manages the fund of the Group comprehensively under Cash Management System, which serves for effective fund operations by matching fund supply with fund demand. Derivatives are utilized for hedging loans payable against interest fluctuation risks and not for trading or speculative purposes. (2) Contents of financial instruments, their risks and risk control system Trade receivables-notes and accounts are exposed to credit risks of customers. The Group practices credit assessment as for each customer and monitor collections and balance amounts periodically, under the credit control procedures established by each company of the Group. Listed equity shares of investment securities are exposed to market fluctuation risks. These shares are mainly issued by companies which have business relations with the Group and their market prices are monitored quarterly. Trade payables-notes and accounts are mainly due within one year. Short-term borrowings and bonds are mainly used for procurement of working capital. Long-term loans and bonds are used for capital investments. A part of these liabilities exposed to interest fluctuation risks are hedged by derivative transactions such as interest rate swap contracts and interest rate cap contracts. (3) Supplemental information on fair value Market fair values of financial instruments include the market prices and the values estimated rationally in case market prices are not available. As the calculation of the values is subject to certain presumptions, they may change under the different presumptions. (b) Fair Market Value of Financial Instruments The book value, fair market values and differences as of March 31, 2012 and 2013 are shown below Book value Fair value Difference Book value Fair value Difference Short-term borrowings... 49,678 49,678 44,172 44,172 Current-portion of long-term loans... 93,519 93, , , Current-portion of bonds... 31,200 31, ,700 19, Bonds , ,962 2, , ,411 3,541 Long-term loans , ,145 14, , ,037 14,811 Total , ,853 17, , ,520 18,671 U.S. Dollars 2013 Book value Fair value Difference Short-term borrowings... $ 469,915 $ 469,915 $ Current-portion of long-term loans... 1,264,692 1,267,564 2,872 Current-portion of bonds , , Bonds... 1,275,213 1,312,883 37,670 Long-term loans... 4,821,553 4,979, ,564 Total... $8,040,947 $8,239,574 $198,627 (1) Calculation of fair market values of financial instruments Short-term borrowings: Because all of the balances are paid off in short-term, fair market values are considered to be close to book values, and as such the book values are deemed as fair values. Long-term loans and its current portion: Because the interest rate reflects market interest timely and credit conditions of the Group have not changed significantly after time of borrowings, fair market values are considered to be close to book values. Therefore, the book values of longterm loans with variable rate are deemed as fair values. Fair values of long-term loans with fixed interest are calculated by discounting total principals and interest at estimated interest rate of current similar borrowing. As a portion of long-term loans is hedged by interest swaps, their fair market values are calculated by discounting total principals and interest of loans and swaps at estimated interest rate of current similar borrowing. Bonds payable and its current portion: Fair market values of bonds payable are measured at market prices.

29 ANNUAL REPORT (2) Maturities of bonds and long-term bank loans as of March 31, 2013 U.S. Dollars Year ending March 31 Bonds Bank loans Total Bonds Bank loans Total , , ,581 $209,574 $1,264,692 $1,474, ,800 69,022 98, , ,277 1,051, ,470 55,738 82, , , , ,000 59,065 80, , , , ,600 52,369 65, , , , and thereafter... 29, , , ,511 2,308,851 2,617, Lease transactions (Lessee) Finance leases which do not transfer ownership for which contracts were concluded prior to March 31, 2008, will be accounted for by a method corresponding to that used for ordinary operating lease contracts. Information for non-capitalized finance leases at March 31, 2012 and 2013, are as follows: U.S. Dollars The Group as lessee Original lease obligations for machinery and equipment and other (including finance charges)... 2,591 1,866 $19,851 Minimum lease payments due within one year $ 862 Minimum lease payments due after one year ,170 Total $ 3,032 Lease payments under such leases for the years ended March 31, 2012 and 2013 were 366 million and 132 million ($1,404 thousand), respectively. Information for operating leases at March 31, 2012 and 2013, are as follows: U.S. Dollars The Group as lessee Minimum lease payments due within one year... 9,156 9,120 $ 97,021 Minimum lease payments due after one year... 42,565 33, ,458 Total... 51,721 42,533 $452,479 U.S. Dollars The Group as lessor Minimum lease payments due within one year ,010 $10,745 Minimum lease payments due after one year... 4,240 7,589 80,734 Total... 4,970 8,599 $91, Asset retirement obligations Asset retirement obligations as of March 31, 2012 and 2013 are as follows: (1) Outline of asset retirement obligations Train cars removing costs including asbestos and cost of demolition of buildings in the fiscal years ended March 31, 2012 and (2) Calculation method of asset retirement obligations The Group has posted the cost of restoration to train cars and the cost of demolition of buildings based on a reasonable estimation in the fiscal year ended March 31, 2012 and (3) Change in the total amount of asset retirement obligations U.S. Dollars Balance at beginning of year... 1,156 1,998 $21,255 Increased amount due to changes in accounting estimate... 1,040 Decrease due to execution of asset retirement obligations... (198) (173) (1,840) Balance at end of year... 1,998 1,825 $19,415

30 28 TOBU RAILWAY CO.,LTD. 15. Investment and rental property The Company owns rental office buildings and commercial facilities (both including land) in Tokyo and other areas for the purpose of gaining rental revenue. In the fiscal year ended March 31, 2012 and 2013, the amounts of net income related to rental property were 3,629 million and 5,535 million ($58,883 thousand) and in the fiscal year ended March 31, 2012 and 2013, the amounts of impairment loss on fixed assets were 155 million for the year ended March 31, Rental income is recognized in revenues from operations, and rental expense is charged to operating expenses. The book value, fair values and their calculation method related to investment and rental property, are as follows: U.S. Dollars Book value Fair value Book value Fair value Book value 2011 Difference Difference Difference ,998 79, , , ,433 3, , ,308 $1,696,096 $38,000 $1,734,096 $2,109,660 Fair value (1) The book value is the amount after accumulated depreciation and impairment loss on fixed assets have been deducted from acquisition cost. (2) Regarding difference above the table, the increase was principally completion of TOKYO SKYTREE TOWN ( 77,879 million), and the decrease was mainly attributable to depreciation expenses ( 2,435 million) for the year ended March 31, 2012 and the increase was principally Asakusa Tobu building ( 4,215 million, $44,840 thousand), Kasukabe Nishiguchi Stores ( 2,190 million, $23,298 thousand) and TOKYO SKYTREE TOWN ( 1,275 million, $13,564 thousand) and the decrease was mainly attributable to depreciation expenses ( 5,203 million, $55,351 thousand) for the year ended March 31, (3) Calculation method for fair value Fair values at the end of this fiscal year is an amount gained through the computation we performed reasonable adjustment by use of the real estate appraisal benchmarks based on Japanese Real Estate Appraisal Standards and indicators, etc. In addition, the fair value of new real estate acquired during the fiscal year is determined based on figures listed in consolidated balance sheets since changes in fair value are considered to be minimal. 16. Segment information (a) Segment information (1) General information about reportable segments The reported segments of the Company are those units for which separate financial statements can be obtained among the constituent units of the Company and which are regularly examined by the Board of Directors for decisions on the allocation of management resources and for assessing business performance. The Company diversifies business and engages in transportation, leisure, real estate, retail distribution business with subsidiaries and affiliates. On the basis of these segments, therefore, the Company has decided to make five units, Transportation, Leisure, Real estate, Retail distribution, and Other. In transportation segment the Group engages in passenger transportation mainly by railway, bus and taxi. In leisure segment the Group engages in operation of hotels, food and drink sales, operation of amusement/gaming facilities and operation of SKYTREE. In real estate segment the Group engages in development and sale of real estate, leasing of real estate. In retail distribution segment the Group engages in retail sales and operation of shopping centers. In other segment engages in engineering, building construction and other services. (2) Basis of measurement about reported segment operating revenues, profit or loss, assets and other material items Accounting procedures for reportable segments are the same as contained in Basis of Presenting Consolidated Financial Statements. Reportable segment profit figures are on an operating income basis. Intersegment revenues and transfers are based on the prevailing market price. (3) Information about reported segment operating revenues, profit or loss, assets and other material items Segment information for the fiscal year ended March 31, 2012, is as follows:

31 ANNUAL REPORT Reportable segments Retail Transportation Leisure Real estate distribution Consolidated financial statements Other Adjustments 2012 Operating revenues: Operating revenues attributable to outside customers ,859 58,248 35, ,854 47, ,407 Intersegment operating revenues or transfers... 2,837 1,900 16,439 2,181 26,888 (50,245) Total ,696 60,148 52, ,035 74,352 (50,245) 543,407 Segment income (loss)... 23,406 (620) 5,938 1,278 2,593 (12) 32,583 Segment assets , , ,870 98, ,606 (178,929) 1,457,306 Other material items: Depreciation and amortization... 37,274 4,194 5,991 2,635 1,331 51,425 Impairment losses on fixed assets... 1, ,163 Increase in property and equipment and intangible assets... 27,601 29,505 38,415 2,945 2, ,183 Segment profit or loss adjustment was intersegment eliminations. Segment assets adjustments included intersegment eliminations as well as corporate assets amounting to 51,411 million. This consisted mainly of cash and securities. Segment profit or loss is adjusted with operating income in the consolidated statements of income. Segment information for the fiscal year ended March 31, 2013 is as follows: Reportable segments Retail Transportation Leisure Real estate distribution Consolidated financial statements Other Adjustments 2013 Operating revenues: Operating revenues attributable to outside customers ,275 72,364 37, ,652 52, ,223 Intersegment operating revenues or transfers... 3,071 1,930 18,591 2,786 35,165 (61,543) Total ,346 74,294 56, ,438 87,471 (61,543) 577,223 Segment income (loss)... 28,976 10,593 8,031 1,948 3,625 (629) 52,544 Segment assets , , ,716 99, ,275 (191,297) 1,463,370 Other material items: Depreciation and amortization... 34,425 6,523 8,470 2,632 1,635 53,685 Impairment losses on fixed assets , ,545 Increase in property and equipment and intangible assets... 36,716 4,733 8,060 5,483 2,719 57,711 U.S. Dollars Reportable segments Retail Transportation Leisure Real estate distribution Other Adjustments Consolidated financial statements 2013 Operating revenues: Operating revenues attributable to outside customers... $2,215,691 $ 769,830 $ 400,276 $2,198,426 $ 556,447 $ $ 6,140,670 Intersegment operating revenues or transfers... 32,670 20, ,777 29, ,096 (654,713) Total... 2,248, , ,053 2,228, ,543 (654,713) 6,140,670 Segment income (loss) , ,692 85,436 20,723 38,564 (6,691) 558,979 Segment assets... 8,632,287 1,608,915 4,465,064 1,053,223 1,843,351 (2,035,074) 15,567,766 Other material items: Depreciation and amortization ,223 69,394 90,106 28,000 17, ,117 Impairment losses on fixed assets... 3,989 31,160 2,564 37,713 Increase in property and equipment and intangible assets... $ 390,596 $ 50,351 $ 85,745 $ 58,330 $ 28,925 $ $ 613,947 Segment profit or loss adjustment was intersegment eliminations. Segment assets adjustments included intersegment eliminations as well as corporate assets amounting to 66,754 million ($710,149 thousand). This consisted mainly of cash and securities. Segment profit or loss is adjusted with operating income in the consolidated statements of income.

32 30 TOBU RAILWAY CO.,LTD. (b) Related information (1) Information about products and services Because this information is presented under segment information, it has been omitted. (2) Information about geographic areas (Operating revenues) Not applicable because there were no operating revenues from customers outside of Japan. (Tangible fixed assets) Not applicable because there were no tangible fixed assets located outside of Japan. (3) Information about major customers Of operating revenues that was attributable to outside customers, no single customer accounted for operating revenue of 10% or more in the consolidated statement of income. Therefore this item is not presented. (c) Information about reportable segment impairment loss on fixed assets Consolidated fiscal year ended March 31, 2012 and 2013 Because this information is presented under segment information, it has been omitted. (d) Information about reportable segment amortization of goodwill and unamortized balance Consolidated fiscal year ended March 31, 2012 and 2013 Because this information is not material, it has been omitted. (e) Information about reportable segment gain on negative goodwill Consolidated fiscal year ended March 31, 2012 and 2013 Because this information is not material, it has been omitted. 17. Income taxes The Group is subject to a number of taxes based on taxable income, which, in the aggregate, indicate a statutory rate in Japan of approximately 40.3% and 37.7% for the years ended March 31, 2012 and 2013, respectively. For the years ended March 31, 2012 and 2013, the difference between the actual effective income tax rate after applying tax effect accounting and the aggregate standard effective tax rate was less than 5% of the aggregate standard effective tax rate. In view of its insignificant size, the difference is not discussed here. Significant components of the Groups deferred income tax assets and liabilities as of March 31, 2012 and 2013 are as follows: U.S. Dollars Deferred tax assets: Tax loss carryforwards... 4,920 2,618 $ 27,851 Retirement benefits... 8,452 10, ,606 Devaluations of land from corporate split of an affiliate... 6,359 5,963 63,436 Transfer from land revaluation by impairment losses... 1,078 1,226 13,043 Impairment losses on fixed assets... 2,666 3,903 41,521 Elimination of unrealized profit from inventory... 2,270 2,327 24,755 Other... 6,647 7,419 78,926 Subtotal of deferred tax assets... 32,392 33, ,138 Valuation allowance... (13,899) (13,283) (141,308) Less: amounts offset against deferred tax liabilities... (7,254) (11,505) (122,394) Total deferred tax assets... 11,239 8,877 94,436 Deferred tax liabilities: Gains on revaluations of assets from corporate split of affiliate... 14,355 14, ,713 Net unrealized holding gains on securities... 1,459 7,001 74,479 Gains on revaluations of assets from all fair value method ,553 Other ,340 Subtotal of deferred tax liabilities... 17,146 22, ,085 Less: amounts offset against deferred tax assets... (7,254) (11,505) (122,394) Total deferred tax liabilities... 9,892 11, ,691 Net deferred tax assets (liabilities)... 1,347 (2,280) $ (24,255) 18. Loan commitments The Company has loan commitment line agreements with six banks at March 31, 2012 and 2013 as follows: U.S. Dollars Total loan commitments ,000 90,000 $957,447 Loans extended... 13,000 10, ,809 Remaining commitments... 87,000 79,020 $840,638

33 ANNUAL REPORT Subsequent events Cash dividends Appropriation of retained earnings for the years ended March 31, 2012 and 2013 were duly approved at the ordinary shareholders meeting held on June 28, 2012 and June 27, 2013 as follows: U.S. Dollars Cash dividends ( 2.50 and 3.00 per share on 2012 and 2013)... 2,672 3,206 $34,106 The above dividends are payable to shareholders of record as of the end of each fiscal year, and they are not accrued in the financial statements for the period to which they relate, but are recorded in the subsequent accounting period when the shareholders approval has been obtained.

34 32 TOBU RAILWAY CO.,LTD.

35 ANNUAL REPORT Corporate Directory Board of Directors and the Statutory Auditors (As of July 1, 2013) President and Representative Director Yoshizumi Nezu Representative Senior Managing Directors Kenichi Tsunoda Kenzo Nakajima Zengo Takeda Managing Directors Osamu Makino Hiromichi Furusawa Kazuhiko Hirata Shinji Inomori Michiaki Suzuki Directors Hiroaki Miwa Noritaka Ohkatsu Akihiro Ojiro Nobuaki Sakamaki Yutaka Iwase Toshiaki Koshimura Statutory Auditors Naotaka Nakajima (Standing) Ikuo Toyoda (Standing) Osamu Shoda Yuzaburo Mogi Takashi Kobayashi Investor Information (As of March 31, 2013) TOBU RAILWAY CO.,LTD. Registered Office: 1-2 Oshiage 1-chome, Sumida-ku, Tokyo , Japan Head Office: Oshiage 2-chome, Sumida-ku, Tokyo , Japan Date of Establishment: November 1897 Number of Employees: 4,561 Principal Shareholders: Number of Percentage of Shares Held Total Shares Name (Thousands) in Issue The Master Trust Bank of Japan, Ltd. (trust account)... 41, Japan Trustee Services Bank, Ltd. (trust account)... 36, Fukoku Mutual Life Insurance Company... 32, Nippon Life Insurance Company... 22, The Bank of Tokyo-Mitsubishi UFJ, Ltd , Mizuho Corporate Bank, Ltd , Saitama Resona Bank, Limited... 12, Sumitomo Mitsui Trust Bank, Limited... 10, SSBT OD05 OMNIBUS ACCOUNT-TREATY CLIENTS... 10, Japan Trustee Services Bank, Ltd. (trust account 1)... 10, * Mizuho Corporate Bank merged with Mizuho Bank, Ltd. on July 1, Following the merger, the corporate name changed to Mizuho Bank, Ltd. Common Stock: 102,136 million Number of Shareholders: 87,538 Securities Traded: Common Stock Tokyo Stock Exchange, 1st Section Transfer Agent and Registrar: Sumitomo Mitsui Trust Bank, Limited 4-1, Marunouchi 1-chome, Chiyodaku, Tokyo , Japan Annual Meeting of Shareholders: The annual meeting of shareholders is normally held in June.

36 Head Office: Oshiage 2-chome, Sumida-ku, Tokyo , Japan Tobu Railway Lines (major stations only) GUNMA TOCHIGI Shin-fujiwara Kinugawa-onsen Isesaki Akagi Ōta Tōbu-nikkō Kuzū Shimo-imaichi Tōbu-utsunomiya Shin-tochigi Nishi-koizumi Higashi-koizumi Tatebayashi Kuki Kurihashi SAITAMA Yorii Tōbu-dōbutsu-kōen Ogose Sakado Ōmiya Kasukabe Kawagoe Wakōshi Shin-koshigaya Daishimae Nishiarai Ikebukuro Kita-senju TOKYO SKYTREE Hikifune Asakusa Kameido Oshiage TOKYO Nagareyama-ōtakanomori Kashiwa Shin-kamagaya Funabashi CHIBA Tōbu Main Line Isesaki Line Sano Line Tōbu Main Nikkō Line Line Kiryū Line Isesaki Kameido Line Line Sano Koizumi Line Line Nikkō Daishi Line Kiryū Utsunomiya Line Line Noda Kameido Line Line Kinugawa Koizumi Line Line Daishi Line Utsunomiya Line * The Isesaki Line between Asakusa/Oshiage Station and Tōbu Tōjō Tōbu-Dōbutsu-Kōen Noda Line Station is nicknamed TOBU Kinugawa SKYTREE Line Tōjō Main Line Ogose Line Tōbu Tōjō Line Tōjō Main Line Ogose Line The Tobu Group s Annual Report 2013 uses FSC -certified paper, including materials made from appropriately managed forests, in an effort to preserve forest resources. Taking into consideration air quality conservation, we use waterless printing and vegetable-based inks (switched from petroleum solvent-based inks), in order to reduce volatile organic compounds (VOCs), a cause of photochemical smog. The electric energy (150kWh) consumed for the printing and binding processes is offset by the use of green electricity generated from biomass. In addition, this printing is recyclable to printing paper.