TOKYO GAS CO., LTD.

The Ins and Outs of GrowthTOKYO GAS CO., LTD.
ANNUAL REPORT 2002
For the year ended March 31, 2002

ANNUAL REPORT 2002

Financial Highlights
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31

Thousands of
U.S. dollars except
per share amounts

Millions of yen
except per share amounts

2002

2001

¥1,097,589
110,608
51,912
141,646
104,291¥1,086,771
103,659
27,595
146,420
109,899

18.47
16.66
68.9

At Year-End:Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt due after one year . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ratios:
Net income/Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ROE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ROA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For the Year:Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts per share of common stock (Yen and U.S. dollars):
Net income (Basic) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (Diluted) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income and depreciation . . . . . . . . . . . . . . . . . . . . . . .

2000

2002

992,255
69,233
26,698136,214
121,806$ 8,252,549
831,639
390,313
1,065,009
784,141

9.82
9.13
61.9

9.50
8.84
58.0

0.14
0.13
0.52

¥1,702,713
680,887
564,078¥1,797,669
708,329552,790¥1,805,086
843,634
484,239$12,802,350
5,119,453
4,241,185

4.7%
9.3%
3.0%
33.1%

2.5%
5.3%
1.5%
30.8%

2.7%
5.9%
1.5%
26.8%

¥

Note: U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥133=U.S.$1, the approximate Tokyo foreign exchange market rate asof March 31, 2002.

Contents
To Our Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Our Position in the Market . . . . . . . . . . . . . . . . . . . . . . . . . . . .
An Interview with the President . . . . . . . . . . . . . . . . . . . . . . . .
The 8 Keys to Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Environmental Conservation . . . . . . . . . . . . . . . . . . . . . . . . . . .
International Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1
2
4
8
16
18
20

Management’s Discussion and Analysis of Operations . . . . . . . . .
FAQ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11-Year Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Financial Statements and Notes . . . . . . . . . . . . . .
Report of Independent Public Accountants . . . . . . . . . . . . . . . .
Consolidated Subsidiaries and Equity-Method Affiliate . . . . . . .
Energy Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Information/Investor Information . . . . . . . . . . . . . . .

21
25
28
30
44
45
46
48
49

Forward-Looking Statements
Statements made in this annual report with respect to Tokyo Gas’ plans, strategies and beliefs, and other statements that are not expressions of fact are forward-looking
statements about the future performance of the company. As such, they are based on management’s assumptions and opinions stemming from currently available
information, and therefore involve risks and uncertainties. These risks and uncertainties include, without limitation, general economic conditions in Japan, the exchange
rate between the yen and the U.S. dollar, and Tokyo Gas’ ability to continue to adapt to rapid technological developments and deregulation.

To Our Shareholders

Left: Kunio Anzai
ChairmanRight: Hideharu Uehara
President

Confronting Growing Liberalization
Since its establishment in 1885, Tokyo Gas has been supplying gas, mainly to the greater Tokyo marketplace. Today, we are
Japan’s largest, and one of the world’s leading, gas companies. In the fiscal year ended March 31, 2002, we sold more than 9.2
billion m3 of gas to over 9 million customers. We have also been at the forefront of efforts to encourage the use of natural gas andin 1969, we were the first Japanese company to import LNG (Liquefied Natural Gas), a relatively environmentally friendly
energy resource. The government’s Long-term Energy Demand and Supply Outlook for Japan projects that natural gas willaccount for an increasing proportion of the country’s primary energy supply. Together, these trends suggest a greater role forTokyo Gas in promoting the increasing use of natural gas.
That said, competition has been growing stiffer in the energy sector in recent years, fueled by deregulation and the foray ofgas and electricity companies into each other’s domains. Heated debate is raging at the government’s study group, consisting ofbusinesses and other entities in the gas and electricity industries, as well as experts and consumer groups, about the direction
further deregulation should take. A road map should be drawn up by the end of this year.
In 1999, when last deregulation took place in the gas industry, we announced a 5-year medium-term plan covering the period
from April 1, 2000 through March 31, 2005 to ensure that we remain a winner and to drive growth. We set free cash flow andROA targets averaged over five years. By the end of March 31, 2003, we expect to achieve our goals two years ahead of schedule
thanks to efforts to expand sales volumes and improve efficiency in our operations.
This has prompted us to announce a new Tokyo Gas Group medium-term plan this fall for the period from April 1, 2003
through March 31, 2008. This plan is premised on the expected effects that further deregulation and liberalization will have on
our operations.
The new plan aims to generate free cash flows in excess of those targeted under the current plan. At the same time, ourplans call for restructuring of the Tokyo Gas Group through the integration of member companies and withdrawal from noncore, peripheral businesses, as well as the rebuilding of business models. These actions target an increase in the corporate valueof the Group as a whole.
Tokyo Gas welcomes deregulation, viewing it as an enormous business opportunity. We aim to grow and evolve as an “Energy
Frontier Company,” supplying electricity, heat and energy services as well as gas, with natural gas as the core energy source. As
we do so, we ask for the continued support and understanding of shareholders and other investors.
July 2002
Kunio Anzai

Hideharu Uehara

ChairmanPresident

Annual Report 2002 TOKYO GAS 1

Our Position in the Market
Tokyo Gas’ Service Area
(As of March 31, 1999)
Tokyo Gas is Japan’s largest gas company both in terms of the number ofpeople. Tokyo’s position as the locus of Japanese commerce—many compa-

customers—roughly 9 million in total—and gas sales volume—more thannies are headquartered here—makes our service area even more vibrant.

3

9.2 billion m of gas was sold in the fiscal year ended March 2002. Our

What’s more, the Kanto region is Japan’s most industrialized area, accounting

service area covers approximately 3,100 square kilometers in Tokyo andfor 40% of Japan’s GDP. Gas demand is expected to increase steadily inneighboring prefectures. We serve the heart of the Kanto region, the largest

this enormous and economically diverse service area.

and most densely populated region in Japan with a total of some 40 million

Gas Sales Volume in Japan andTokyo Gas by Sector

Growth in Tokyo Gas
Gas Sales Volume by Sector

Number of Gas Customers in Japanand Tokyo Gas Customers(Year ended March 31, 2002)
Unit: thousands of m3 (46.05 MJ/m3)

Unit: million m3 (46.05 MJ/m3)(As of March 31, 2002)

12,00010,000Wholesale16

Wholesale
950,953
8,000

Industrial
24,803

6,000

4,000

Residential
3,072,583
Commercial
2,283,839

Industrial
2,911,602

Japan ...................... 23,095,822
Tokyo Gas ....................

2,000

0

Mar. 31 98

99

Residential

9,218,978

00

01

02

03

04

Commercial

05

06

07

Industrial

Wholesale* The above three graphs represent non-consolidated data.

Residential
8,445,017

Commercial
574,363

Japan ...................... 26,368,883
Tokyo Gas ....................

9,044,199

Note: 2003~2007 are projected figures.

Tokyo Gas’ Role in the Market
Ensuring a stable, secure, continuous and diversified energy supply cen-2007. This exceeds growth forecasts for other energy sources and the Japa-

tered on natural gas is our main corporate mission. Tokyo Gas will con-nese economy as a whole.

tinue to supply competitively priced natural gas in response to diversifying
market needs.

At Tokyo Gas, natural gas is positioned as the cornerstone of thecompany’s energy and energy-related operations. Building on this strong

Today, with the importance of clean-burning natural gas increasing amid

foundation, Tokyo Gas is aiming to evolve as a total energy provider,heightening interest in environmental issues, Tokyo Gas’ role is growing all

supplying heat and electricity as well as gas, and value-added energy-

the time. Prospects are bright. Average growth in gas demand of 5.9% per

related services.

annum is forecast in our service area through the fiscal year ending March

Main Lines of Business

The Flow of Tokyo Gas’ Business

LNG ExportingCountries

LNG Carrier

LNG
Receiving
Terminal

Pipeline Network

Gas BusinessTokyo Gas LNG Imports(Year ended March 31, 2002)(Million tons)

AlaskaAustralia
BruneiIndonesia
Malaysia
Qatar
Total

29
95
120
84
340
30
698

2 TOKYO GAS Annual Report 2002

Electricity Business

Energy-Related
Business

The Nature of the Gas Business in Japan
Japan has around 230 city gas companies, with the three largest accounting

Approximately 90% of the city gas consumed in Japan is made fromfor roughly 80% of total gas sales volume. In addition to the small- andnatural gas, most of which is imported in the form of LNG. Presently, only amedium-sized gas companies, there are roughly 1,800 specific area gas

few companies receive LNG and produce gas. Gas companies own pipelines

suppliers and approximately 30,000 LPG companies, most of whom areas well as supply and sell gas within their own respective service areas. It isalso comparatively small. The industry is thus divided into two clear camps—

also noteworthy to mention that a nationwide pipeline network does not

the three large operators and all the others.

presently exist in Japan.

TOKYO GASTokyo Gas’ Service Area and Pipeline Network
Utsunomiya

Gunma

Tochigi

Moka

HitachiTochigi Line (2006)
Sano
Kumagaya-Sano Line (2004)
Kumagaya

Ibaraki

Saitama

Chiba

Tokyo
Head
Head
OfficeTokyo
Bay

Kanagawa

Ohgishima
LNG Terminal

Sodegaura
LNG Terminal

Negishi LNG Terminal

Minamiashigara
High-pressure transmission pipelines
High-pressure transmission pipelines(Under construction)(Length of pipeline: 48,646km, as of March 31, 2002)

Medium-pressure transmission pipelines( ) Proposed year of completion
Tokyo Gas’ service area
Tokyo Gas’ direct and indirect wholesale area

Annual Report 2002 TOKYO GAS 3

An Interview with the President
Operating Environment and Results
In the fiscal year ended March 31, 2002, growing concerns about deflation made fordifficult economic conditions in Japan. Nevertheless, the Tokyo Gas Group concentrated
on expanding gas demand, aided by the high hopes that are harbored for environmentally friendly natural gas. Concurrently, we worked to curb expenses by stepping up our
efficiency drive. These efforts yielded top- and bottom-line increases for the second straight
year. Consolidated net sales edged up 1.0% to ¥1,097.5 billion, operating income rose
6.7% to ¥110.6 billion, and net income soared 88.1% to ¥51.9 billion. The large increasein the bottom line reflected such factors as the absence of the ¥21.7 billion charge for
unfunded obligations arising from an amendment of accounting standards for retirement
benefits recorded in the previous fiscal year, and ¥3.4 billion in capital gains on sale ofinvestment securities.
Q: What makes the gas and energy business an attractive investment?
A: In a word, natural gas. Natural gas is the most environmentally friendly of all fossil fuels. What’smore, unlike oil, it can be found throughout the world. For Japan, which lacks its own substantial
natural energy reserves, this makes natural gas an extremely important source of energy. Natural
gas offers a source of energy security and an environmentally sound energy solution.
In the past, natural gas was used only for traditional consumption and as fuel at large-scale
power plants. Over the last decade, however, demand from other sources has grown rapidly, spurredby the increasing use of natural gas for environmentally and economically superior on-site power
generation systems—cogeneration—where electricity is generated at the same time as emitted thermal energy is captured for heating instead of being wasted. Higher demand is expected. We aremoving toward the era of on-site power generation. Micro turbine cogeneration and small residential
fuel cells are the main applications expected to drive this growth.
Another factor pointing to a strong future is the relatively low share of natural gas among Japan’s
primary energy supplies, only approximately half that of the U.S. and Europe. Natural gas is
the only fossil fuel projected to see growth in the Japanese government’s Long-term Energy
Demand and Supply Outlook.
Supported by these trends, the natural gas business is expected to see steady
expansion.

Q: Your business handles high-growth natural gas, yet you place priority on
raising asset productivity as you use ROA and reductions in interest-bearing
debt as management indicators. Isn’t there a contradiction here?
A: Because our business requires considerable investment in facilities, weemphasize raising asset returns to make ourselves more competitive. That’s
why we are working to reduce total assets, and above all, interest-bearing
debt. These efforts are designed to maintain and enhance our ability to

President

Hideharu Uehara
4 TOKYO GAS Annual Report 2002

compete on the basis of price against the new players that we expect to enter our market. Our market
is attractive in terms of its potential, making more intense competition inevitable. In November
1999, when we announced our medium-term plan, we set the goal of reducing interest-bearing debt,
at the parent company, to no more than ¥610 billion by the end of March 2005. By March 31, 2002,
we had already achieved that, three years ahead of schedule.
The strong balance sheet we have molded is a powerful competitive edge. It will underpin our
future actions. We are still forecasting high annual growth of around 6% in gas sales volumes,
mainly from cogeneration and the electricity business, over the next 5 years, despite the economic
sluggishness in Japan. However, the expansion of gas sales isn’t our only focus. We intend to strategically channel free cash flows into new businesses built on natural gas as we move onto an offensive
footing to accelerate growth.
Tokyo Gas is a company with considerable potential, both in terms of sales and earnings.

Q: What is Tokyo Gas’ view on the debate about deregulation in the electricity and gas industries
and how do you see it developing?
A: There is considerable debate in Japan about further liberalizing the electricity and gas industries.
The Study Group on Gas Market Reforms, a private study group formed by the Ministry of Economy,
Trade and Industry, led this debate in the gas industry. The main themes under discussion are widening the deregulated field to include all customers, except residential and small-scale commercial
customers, and opening access to pipelines and LNG receiving terminals. Plans call for an official
government council to continue discussions based on the findings of the private study group. This
type of discussion is also happening in the electricity industry. As with gas industry deregulation,
wide-ranging discussions are taking place on issues such as expanding the scope of liberalization anddeciding who will pay for maintenance of transmission lines.
Tokyo Gas views deregulation as a major business opportunity that can lead to more ways toincrease our corporate value. Throughout our more than a century in business we have encounteredcompetition from other forms of energy—gas lamps versus electric light, gas versus oil for heating,and gas versus LPG. Taking advantage of the initial deregulation in the electricity sector, the Tokyo
Gas Group has already made moves to enter the electricity business in several ways—we are selling
natural gas to other operators entering the electric power business, constructing power plants either
by ourselves or through alliances, and developing an electricity retailing business.
While more deregulation signals the start of new competition, it also spells new opportunity.

Q: What are the risks stemming from deregulation? Electric utilities appear to have an advantage
because of their much larger size. How do you intend to compete?
A: One is the risk accompanying deregulation. New market entrants might lure away existing demand in
our service area. The high-potential nature of this area, comprising Tokyo and neighboring prefectures, makes it an extremely attractive market for new players. Competition is heating up in thismarket. Another risk is that we will have to reduce rates as this competition intensifies, dragging
down our sales.

Annual Report 2002 TOKYO GAS 5

Tokyo Gas will limit the extent of lost business, while working to win new customers, by drawing
on our competitive advantages—sophisticated engineering capabilities backed by combustion technologies, and a trusted reputation established over many years of dedication to promptly serving
customer needs. To counter the risk of falling sales, we will push ahead with our efforts to make thecompany more efficient, lowering costs to enable Tokyo Gas to successfully compete on price against
rival companies while still raising earnings.

Q: Specifically, what is your strategy for combating competition?
A: The lowering of rates by TEPCO in April 2002 has ignited fierce competition in the building air
conditioning and cogeneration markets. Furthermore, deregulation in the gas business means that
customers will soon be able to choose their gas supplier, thereby pitting gas company against gas
company. We are working to ensure that we remain the preferred gas supplier by cutting costs tomaintain and enhance our ability to compete on prices. Essentially, we want to offer customers an
attractive rate structure. Another element of our strategy is offering high-value-added energy services that go beyond just supplying gas. Providing answers to customers’ energy problems will makeus more attractive in their eyes. Energy Advance Co., Ltd., which was set up in July of 2002, forexample, will meet wide-ranging market needs, from individual buildings and plants to entire districts. In addition to supplying electricity and heat through cogeneration systems, this business unit
will offer a full line of services from consulting to design, construction, operation and management,
maintenance and finance to help customers conserve energy. In a nutshell, this new company will be a
one-stop source of energy-conservation solutions.

Q: What progress have you made in the electricity business?
A: One of the major issues facing new entrants to the electricity business is procuring electricity supplies.
Our wholly owned subsidiary, Tokyo Gas Bay Power Co., Ltd., is currently constructing a 100MWclass power plant within the site of our Sodegaura LNG Terminal. Electricity will be sold to anelectricity retailer, ENNET Corporation, which we set up jointly with NTT Facilities, Inc. and Osaka
Gas Co., Ltd. Alliances are also part of our strategy to advance our electricity business. These
include establishing Tokyo City Power Co., Ltd. with the Tokyo Metropolitan Government and Shell Gas& Power Japan Ltd., as well as Kawasaki Natural Gas Generation Co., Ltd. with Nippon Oil Corporation.

Q: Many see your main rival in electricity and gas as TEPCO. Yet at the same time you jointly
procure natural gas and cooperate in other ways with them. How should people reconcile
these ties?
A: We procure natural gas through various alliances, not just with TEPCO. Alliances enhance ourbargaining power, enabling us to procure gas in the most stable and least expensive way possible.
This is the most economically sound method for an energy company such as ours to procure naturalgas. Cooperating with TEPCO has also allowed us to finally realize our long-cherished goal ofparticipating in an upstream project. Last year, we teamed up with TEPCO to jointly invest in the

6 TOKYO GAS Annual Report 2002

Bayu-Undan Project off the coast of East Timor. Our collaboration with TEPCO
extends to joint operation of the Sodegaura and Negishi LNG receiving terminals
and a weather-risk-hedging contract for the summertime. All cooperative agreements are mutually beneficial for both TEPCO and Tokyo Gas.
Naturally, we recognize that selling energy to customers is a totally different
story. There is inevitably going to be escalation in our competition with TEPCO.
We plan to continue cooperating with TEPCO in areas where it is advantageous toboth sides, while competing head to head in other areas. Ultimately, we feel that
this approach is the best way to generate profits for Tokyo Gas shareholders.

Q: How do you intend to use the free cash flows you generate?
A: We plan to invest in new businesses, such as the large-scale investment we made in
the previously mentioned Bayu-Undan Project. Specific projects will be incorporated into our new Group Medium-Term Management Plan that is scheduled to beunveiled in the autumn of this year. As suggested by the name of this new plan, thefocus is on group-wide strategies. The plan clearly sets out uses of free cash flows
for the purpose of maximizing the value of Tokyo Gas and its 54 Group members. Applications will
include investments to reorganize business units through withdrawals, integrations and other means.
Returning profits to shareholders is another use of cash flows. In the year ended March 31, 2001, weraised the dividend from ¥5 to ¥6 per share. Furthermore, share buybacks are included in the plan.

Q: Finally, what is the stance of Tokyo Gas on corporate governance?
A: As part of the Group Medium-Term Management Plan, we are considering a management strategy
that aims to build a new business model. We plan to strengthen our management system to swiftly
and resolutely execute the new plan. To that end, and ahead of the announcement of the new plan
itself, we reduced the number of directors from 28 to 11 in June 2002 and at the same time established the post of corporate executive officer. These moves to enhance the execution of day-to-day
operations were made with corporate governance in mind.
As deregulation advances and competition intensifies, our existing business model probably won’t
be able to keep pace with changes in the operating environment of the future. Based on this recognition, we established a system of business divisions to decisively overhaul our organization and systems. Each business unit will continue to work exhaustively to create new business models. Our
business divisions, which are organized as virtual companies, prepare accounts separately from thehead office and have their own missions, as well as free cash flow and ROA targets. Depending on
how effective this structure is, we will explore the possibility of giving these divisions in-house company status—they would receive their own capital, pay dividends, extend loans internally, and soon—to maximize profits. These actions aim to produce the highest possible earnings from the Group’s
total pool of resources.

Annual Report 2002 TOKYO GAS 7

The 8 Keys to Growth
In June 2002, Tokyo Gas established 3 new divisions at the Head Office—Strategic Planning, Corporate Communications and Corporate Service—bringing the total number of business divisions to 11. This move makes possible more
flexible and swifter policy-making, decision-making and business execution.
The Strategic Planning Division will formulate strategies to maximize Tokyo Gas’ corporate value. The Corporate
Communications Division is charged with creating plans to enhance the value of Tokyo Gas’ brand through improved
communications with the public. The Corporate Service Division’s mission is to coordinate the provision of sharedservices to members of the Tokyo Gas Group.
The other eight business divisions, effectively virtual companies, are growth drivers. Each is responsible for creating its own demand to spur growth by carving out markets in new businesses. They will target not only the gas business, but also electricity, heat supply and other fields where group resources can be effectively used.
These eight keys to growth will maintain and strengthen the Tokyo Gas Group’s ability to compete against otherenergy suppliers in an era of heightened competition in two mains ways—by cutting costs and offering improved services.
Capturing demand will also be important.

Production DivisionThis strategic business division is responsible for the production of gas at terminals that receive
LNG from overseas suppliers. Lowering the cost of producing gas is critical to competing
against other energy suppliers as deregulation unfolds in Japan. Another goal is to maintain astable, safe supply of gas at our present, world-class levels.
Essentially, the raison d’etre of the division is to “outperform the competition.” Embracing market-based principles, the Production Division is lowering the cost of operating LNG
receiving terminals with the aim of producing gas at a cost the competition can’t match. Specific actions include extending the life of LNG facilities, paring operating expenses, and improving
the efficiency of business processes and human resource allocation.
Tokyo Gas’ LNG receiving terminals are a prize asset. We believe they also hold the potential to generate new sources of earnings. The Production Division is exploring ways to tap into
this potential. There are many opportunities. LNG cryogenic energy technologies, electricity
generation, soil purification business, technology consulting in new business domains, and selling our expertise in sophisticated technologies outside the company are examples.
The free cash flows that we generate from cutting costs and new earnings streams will be
used to lower gas rates and return profits to shareholders.

The Tokyo Gas Production and Supply Framework
Tokyo Gas has three LNG terminals: the Negishi Terminal, which
received Japan’s first shipment of LNG; the Sodegaura Terminal, the world’s largest LNG receiving terminal (pictured right);
and the new, state-of-the-art Ohgishima Terminal. The threeterminals are linked by a loop pipeline system, creating a powerful mutual backup structure. This gives us a highly efficient production and distribution system to provide customers with areliable supply of gas.

8 TOKYO GAS Annual Report 2002

Tokyo Gas’ Capital Expenditures and Depreciation (billion ¥)Creating DemandTokyo Gas’ eight “virtual company” divisions are at the forefront of
our efforts to create new demand and business opportunities.

200

150

100

SUPREME
50

0Mar. 31 95

96

97

98

99

00

01

02

03

04

05

06

07

Capital Expenditures■ Production Facilities■ Supply Facilities■ Business Facilities■ Associated Business Facilities
Depreciation

In July 2001, Tokyo Gas brought the world’s most advanced
real-time disaster prevention system online. Known as
SUPREME, the system uses approximately 3,700 of thehighest-performing seismic sensors positioned throughout Tokyo
Gas’ service area to gather data on intensity, soil liquefaction
and other parameters during anearthquake. The system is linked
to automatic shut off and remotecontrol systems enabling supply tobe quickly suspended in areas
where there are leaks. This dramatically mitigates the risk of
secondary damage.

*The above graph represents non-consolidated data.
*2003~2007 are projected figures.

Pipeline and Safety Management DivisionThis division is responsible for the construction, operation and safety of the company’s pipeline
network, and plays a vital role in Tokyo Gas’ operations. In the supply of gas to customers, apipeline network that ensures stable supply and a comprehensive approach to maintaining
safety standards is crucial. The Pipeline and Safety Management Division is carrying out thesekey missions, while restructuring itself into a pipeline business company that will ensure thatTokyo Gas remains the customers’ chosen gas supplier as deregulation unfolds in Japan. Twopoints are key to this:1) Continuing to make sound investments to create an optimal pipeline network and develop
new demand, thereby lifting earnings through sales growth (volumes of gas sold), while
maintaining safety and a stable supply—the sources of Tokyo Gas’ competitiveness.
2) Conducting gas construction-related work economically, quickly and effectively, and, morethan ever, putting the customer first.
Furthermore, with deregulation creating a business opportunity due to increasing demand
for the third-party contract transportation of gas, Tokyo Gas sees its pipeline network as
having a prominent role to play in meeting this demand. The gas transportation business harbors considerable potential for generating new cash flows.

Pipelines
Tokyo Gas has built a natural gas transportation
pipeline configured in a loop encircling the greater
Tokyo area that enables the constant and stable supply of gas to our customers. After its completion
last year, the Saihoku Line was opened to respondto rising demand in the greater Tokyo area. Tokyo
Gas will continue to expand its pipeline network tocater to a more expansive supply area.

Strengthening Competitiveness to Capture Demand
To create a resilient company that can prevail against competition,
the eight divisions are reassessing all business processes and pushingahead with cost-cutting initiatives.
Annual Report 2002 TOKYO GAS 9The 8 Keys to Growth

Energy Sales and Service DivisionThis division has an extremely wide scope of operations—with natural gas as the common
denominator. Activities include capturing large-volume industrial and commercial gas customers, developing district heating and cooling projects, as well as promoting natural gas
vehicles and the use of natural gas for power generation. To cater to wide-ranging energy
needs, the Energy Sales and Service Division is attempting to expand business operations
further by proposing total energy solutions. More than just pricing based, these solutions accurately address customer needs by drawing on Tokyo Gas’ sophisticated know-how, cutting-edge
technologies and in-depth experience.
With no signs of an end to Japan’s economic downturn apparent, many Japanese companies
are desperately searching for ways to cut their energy costs. Up till now, we have offered corporate customers cogeneration as a solution. Economical and environmentally sound, cogeneration
systems use gas to generate electricity and at the same time recover thermal emissions for otherapplications. This results in an energy efficiency of around 80%. Progress has been made inrecent years in making these systems smaller. We are presently testing micro turbine cogeneration
systems, since demand for small on-site power generation systems is expected to grow in the future.
Creating new business models is another goal of the Energy Sales and Service Division.
One example is to provide comprehensive services including the design, construction, technicalsupport, operation and management and maintenance of heating and electricity facilities. Other
examples include services that yield cost and energy savings, and proposals that use financial
techniques to mitigate the risk of price fluctuations.
We manage the financial position of the division by keeping a close watch on all theiroperations, from marketing and equipment sales to maintenance, thus reducing costs. This
allows us to offer competitive rates that help to keep our existing customers and win new ones.
The Energy Sales and Service Division is thus working to capture new sources of demand
while retaining existing customers. We are doing this by generating detailed, individualized
responses to customer needs, using not only our pricing advantage but sales and technologicalcapabilities as well.
Energy Advance Co., Ltd.—Energy Service Business
In July 2002, we established Energy Advance as a one-stop source of energy services
that responds to various customer needs. In addition to electricity and heat supply
services through cogeneration systems, Energy Advance will offer services extending
from consulting on energy conservation to design, construction, operation and management, maintenance and finance. The market for these services is broad, frombuildings and plants to entire districts.

Electricity Business
Wholly owned subsidiary Tokyo Gas Bay Power Co., Ltd. is constructing a 100MWclass power plant at our Sodegaura LNG Terminal. The plant is slated to comeonline in the autumn of 2003. Meanwhile, we are using alliances to aggressively
advance our electricity business. Tokyo City Power Co., Ltd., established with theTokyo Bureau of Waterworks and Shell Gas & Power Japan Ltd., and Kawasaki
Natural Gas Generation Co., Ltd., established with Nippon Oil Corporation, plan toconstruct 150MW-class and 400MW-class power plants, respectively.

10 TOKYO GAS Annual Report 2002

Nijio Co., Ltd.—Natural Gas SalesIn May 2002, we teamed up with Shell Gas B.V. to establish
Nijio Co., Ltd. to sell natural gas to power generation companies under long-term agreements. The joint venture will leverage both companies’ considerable experience inthe energy field to provide
a stable supply of natural
gas to Japan’s growing
non-utility power generation industry.

Tokyo Gas President Hideharu Uehara (left)
and Shell International Gas Limited CEO Linda
Cook (right) at the signing ceremony of theagreement to establish Nijio.

Creating DemandInter-Regional Sales and Service Division
In the past, gas suppliers have had a monopoly on supplying gas within their respective service
areas. Deregulation has changed the landscape of the industry somewhat, in that gas companies are now allowed to supply large-volume customers outside of their service areas. This shift
in industry dynamics prompted us to form the Inter-Regional Sales and Service Division in
July 2001. This division will promote the development of demand to expand Tokyo Gas’ business to a wider-ranging supply area. This business division has already achieved success inrespect of its three missions: expanding wholesale activities, establishing the necessary pipeline network and growing demand, over a wider area.
As with Tokyo Gas’ service area, the prefectures on the periphery of the Tokyo metropolitan area boast many large-volume users. We are laying new pipelines to these areas to capture
demand. The new Tochigi Line is an example of a pipeline currently under construction. We
have also completed surveys of future demand and other factors in several other areas.
Tokyo Gas supplies gas on a wholesale basis to 16 gas companies in areas surrounding its
own service area. These sales account for around 10% of Tokyo Gas’ gas sales volume. We
expect high average annual growth of 8.2% through the fiscal year ending March 31, 2007 by
expanding sales to existing wholesale customers and finding new ones. Efforts to expand demand
include assisting these gas companies with activities to sell cogeneration systems.
Another theme for the Inter-Regional Sales and Service Division is promoting the conversion to city gas to customers in areas within Tokyo Gas’ service area who are using LPG. In
areas where conversion is problematic, our subsidiary Tokyo Gas Energy Co., Ltd. supplies
LPG. Looking ahead, we will continue in this way to meet all demand. And we will work inconcert with the Pipeline and Safety Management and other divisions to efficiently build pipeline infrastructures based on an accurate understanding of area needs.

The Transfer of Konosu City’s Gas Business to Tokyo Gas
April 1, 2002, saw the transfer of Konosu City’s gas business to Tokyo
Gas under a privatization program implemented by the municipal government. Under the terms of the agreement, Tokyo Gas paid
¥1,260 million for the business. Tokyo Gas expects to recoup
Kaminoits investment as well as expenses for replacing pipes andupgrading other facilities, over the next several years.
Outline of the Konosu City Gas BusinessNo. of customers: 10,954 (As of March 31, 2001)
Gas sales volume: 5,928,000 m3 per year
(Fiscal year ended March 31, 2001; anequivalent of 46.05MJ/m3)

Ibaraki
Konosu Area

Saitama
Saihoku Line

DaimonAngyo
Tokyo Gas' Pipelines

Tokyo

Head Office
Tokyo
Bay

Chiba

Kanagawa

Strengthening Competitiveness to Capture Demand
Annual Report 2002 TOKYO GAS 11

The 8 Keys to Growth

Residential Sales and Service Division
Residential users account for around 90% of Tokyo Gas’ roughly 9 million customers, making
them the bedrock of earnings from gas sales.
In the home heating field, where competition with other forms of energy is particularly
intense, our strategy has been to develop demand by expanding sales of high-comfort gas floor
heating. Competition in recent years hasn’t been restricted to heating. Electricity companies
have been actively encouraging customers to switch to electricity by developing products suchas induction heating (IH) cooking appliances and heat pump water heaters using CO2 as arefrigerant. The Residential Sales and Service Division has countered these moves with higher
profile advertising and PR to make customers more aware of the latest gas appliances, as wellas with product development and sales activities for cooking and water heating equipment.
A central theme is making gas floor heating the de facto standard for new residentialbuildings. We are promoting the virtues of this heating system among builders of large privateand public-sector housing projects, major homebuilders, local construction companies andother residential construction firms. As a result of these efforts, gas floor heating was installed
in a third of the new houses and multi-unit buildings built in the year ended March 31, 2002.
Around 70% of new condominiums had this heating system installed during the same period.
Ensuring that customers understand such matters as how to use and maintain this heating
system will be a focus of our after-sales service.
Owners of existing homes are becoming increasingly aware of the advantages of gas
floor heating as this system is installed in a greater number of residences. Seizing on theopportunities this presents, Tokyo Gas is promoting gas floor heating systems that can beeasily installed when houses are renovated. Moreover, capturing heating demand in areas of
the house other than the living room, such as the bathroom, is another area being investigated. We are also expanding our sales efforts for the latest gas cooking appliances to stave
off competition from electrical kitchen appliance manufacturers.
Markets where earnings are growing, such as equipment sales and new business ventures,are focal points, too. With the profitability of the former having risen, boosted by more efficient
distribution methods, we are eager to expand sales revenue. To lift earnings even higher, weare selling kitchen systems and other complete systems for the house, in addition to individual
gas appliances. What’s more, we are considering entering new businesses that capitalize on ourclose contact with customers, such as nursing care services for the elderly and security services.

Gas Floor Heating
Advanced Kitchen Appliances
To counter the threat posed by IH cooking
equipment, we are making customers fully
aware of the inherent advantages of gas.
This is being achieved through advertisingand events that raise the profile of gas, andby promoting the latest gas appliances with
automatic temperature adjustment functions and other new features.

12 TOKYO GAS Annual Report 2002

With demand for gas floor heating
increasing year by year, Tokyo Gas ismaking proposals for more comfortable living to customers of both newand existing houses.

Creating Demand

Customer Service Division
The mission of this division is to provide high-quality services at a lower cost. As competitionin the energy sector heats up, it is imperative that we retain customers by offering services thatare less expensive and deliver maximum satisfaction. The Service Planning Dept., Service
Promotion Dept. and 11 service branches are tackling this difficult challenge, and are aiming
to deliver the highest level of customer satisfaction in Japan.
We are confident that our services are already top class, but the Customer Service Division
intends to raise the bar even higher. To this end, the division has introduced the JQA (JapaneseQuality Award) quality assurance program. Work processes, service details, and quality arebeing reviewed from the customer’s standpoint. With this new perspective, Tokyo Gas will
make numerous changes in our operation.
Tokyo Gas established Tokyo Gas Customer Service Co., Ltd., starting to outsource periodic safety checks, and some meter reading and gas bill collection operations in some parts ofTokyo Gas’ service area in July 2002. Tokyo Gas Customer Service will become fully operational by July 2003, and will be instrumental in delivering high-quality customer services at alower cost. Tokyo Gas will continue to assume responsibility for safety, determining gas rates
and bill collection, as well as maintaining service quality. Together, Tokyo Gas and Tokyo Gas
Customer Service will work to enhance customer satisfaction.
In another move to enhance the quality of our services, in July of last year, we combined 12
contact center locations into two and upgraded their functions. This will better enable us torespond promptly and accurately to customer requests. We will analyze feedback from customers
and effectively relay this feedback throughout the organization to improve service quality andcustomer satisfaction—and ultimately win new customers.
In this way, the Customer Service Division will garner satisfaction through its own services
and make customer satisfaction the cornerstone of our company. Achieving a higher level ofsatisfaction across the whole Tokyo Gas Group will bolster our competitiveness and lead tomore business opportunities.

Contact Centers
These centers are at the forefront of customer relations in a number of ways. They are an importantbase for gathering information from and conveying
information to our customers. This is made possible by a proprietary system wedding the Internet,
phones and computers to ensure a speedy response.

Strengthening Competitiveness to Capture Demand
Annual Report 2002 TOKYO GAS 13

The 8 Keys to Growth
Polymer Electrode Fuel Cells (PEFC)
On-site, residential-use cogeneration systems using PEFCs are energy
efficient, economically sound and environmentally friendly, and they
increase the demand for gas. Using proprietary technology, Tokyo
Gas is pushing ahead with the development of advanced fuel reformers for these systems, and conducting field tests in actual homes.

Methane Hydrate
The seabeds around Japan are estimated to hold reserves of methane hydrate—methane and water frozen into a sherbet-like form
under high pressure—equivalent to Japan’s natural gas consumption for about 100 years. For a country like Japan that is almost
totally reliant on imports of energy, this substance is seen as anextremely exciting potential source of energy. Tokyo Gas is continuing basic research into options for using methane hydrate as a
future source of natural gas.

R&D DivisionThis division, which is the nucleus of Tokyo Gas’ R&D activities, conducts wide-ranging researchand development into technologies related to the production, supply and use of gas, as well as
research aimed at expanding Tokyo Gas’ operations into other business fields. As deregulation leads to greater competition, these activities will be vital for developing technologies thatwin customers in the company’s gas and also non-gas businesses, and that raise our corporate
value. Indeed, the R&D Division supports the efforts of other strategic business divisions bycreating products and technologies that differentiate us from rivals and that facilitate further
cost reductions.
This section showcases just a handful of the solutions that will maintain and increase ourcompetitiveness. Others not detailed here include on-site power generation facilities that use
Solid Oxide Fuel Cells (SOFCs), ultra-efficient gas-fired air conditioning technologies,
increasingly sophisticated safety functions using intelligent gas meters and enhanced value
with a more varied rate structure, higher pressure gas pipes that improve facility capabilities,
and new safety technologies. The division’s activities extend to the development of technologies for the creation of new businesses, such as household refurbishment, home services,
facility monitoring and maintenance, and the manufacturing of isotope-related products. Technology for protecting the environment is another key R&D theme.

Techniques for Restoring Pipes
Highly Efficient Condensing Boilers
Tokyo Gas’ condensing boilers, which capture latent thermal emissions,boast a high thermal efficiency of 93%, reduced
CO2 emissions and low running costs, thus adding to the competitiveness of the company’s gas
boilers. Work continues at Tokyo Gas to further
improve the ease of installation and to reducerunning costs with a view to promoting their widespread use in businesses and homes.

14 TOKYO GAS Annual Report 2002

The length of time that existing gas distribution pipes can be usedeffectively has a huge bearing on Tokyo Gas’ capital expenditure plans
and thus achieving competitive gas rates. Tokyo Gas is therefore
developing techniques for maintaining pipelines without excavation.
One example is lining the inside of existing pipes with a protective
epoxy resin coating. This technique is far more cost effective thanprevailing techniques that involve excavation, thereby helping to makeTokyo Gas more competitive.

Creating DemandComprehensive Engineering Services in the Energy Sector
Tokyo Gas Engineering Co., Ltd. is the lynchpin of Tokyo Gas Group’s
engineering business. It provides technical and consulting services covering all aspects of the production, supply and use of gas. The company’s
expertise extends from LNG receiving terminals to cogeneration and DHC
systems. In Japan and overseas, it has chalked up many successes, earninga solid reputation for its comprehensive engineering excellence.

Affiliated Companies Division
Seeing the advance of deregulation as a business opportunity, the Tokyo Gas Group is aiming
to grow steadily as a total energy services provider with natural gas as its core business. This
includes entering new business domains such as electricity generation and retailing, and LNG
transportation using our own LNG carriers. Furthermore, we are developing energy-related
businesses that draw on the strengths of our gas business—including our people, assets andtechnology—and “lifestyle” businesses that respond to the IT revolution and Japan’s “graying” society, as well as those that contribute to environmental protection.
The 54 Tokyo Gas Group member companies are implementing structural reforms designed
to raise the value of the Group. They are being guided by their respective missions and by thepolicy that earnings are the fundamental priority for all affiliated companies. Quick decisions
are needed. We won’t hesitate to channel resources to businesses with high potential. Equally,
we are just as determined to withdraw from unprofitable businesses where we have no expectations for a turnaround. We will use return on capital as our principal yardstick for determining whether a business is worthwhile or not, and if not, reconstituting the group’s management to optimally reallocate resources. For this we have established a project team topromote reforms aimed at raising Group profitability.

LNG Transportation Business

Key Ingredient for Breakthrough Diagnostic Method—13C

Tokyo Gas established Tokyo LNG Tanker Co.,
Ltd. to lower the cost of importing LNG, andto secure a stable supply of this vital energy
source. This subsidiary is presently building two
LNG carriers that will help reduce LNG importcosts by allowing Tokyo Gas to take advantage of short-term contracts and spot trading.
It is also exploring the possibility of supplying
LNG to third parties.

Tokyo Gas achieved a world first by
developing technology to separate 13CMethane from LNG. The 13C-Methane
is being processed and sold by Group
member Tokyo Gas Chemicals Co., Ltd.
as a key ingredient for a diagnostic
reagent to test for the existence ofHelicobacter pylori, a common causeof gastritis and gastric ulcers. Researchis being carried out on 13C-Methane to find uses in other drugs such as
for the diagnosis of pancreatic disease.

Strengthening Competitiveness to Capture Demand
Annual Report 2002 TOKYO GAS 15

Environmental Conservation
At COP3 held in Kyoto in December 1997, targets were set by industrialized countries for the reduction ofgreenhouse gas emissions. The Japanese government has embraced Japan’s goal of a 6% average cut inemissions between 2008 and 2012, compared with 1990 levels. Natural gas—one of the cleanest burning of
all fossil fuels—is seen in many quarters as an important energy source for achieving this. As part of its
ongoing environmental stewardship and to show leadership in environmental management, Tokyo Gas formulated a new environmental policy in June 2000. Our basic aim is the continuous reduction of the environmental impact of energy use by our customers as well as by our own business activities.

The Environment-Friendly Strengths of Natural Gas

Comparison of Emissions by Fuel (When Burned) Coal=100

Natural gas is a clean energy resource. Compared with oil and coal, natural
nitrogen oxides (NOx), both of which are major factors in global warming,and NOx contributes to acid rain. Furthermore, it produces no sulfur oxides

NOx

SOx

gas, when burned, produces less emissions of carbon dioxide (CO2) andNatural
Gas

Oil

Coal

Natural Oil
Gas

Coal

CO2
Natural Oil
Gas

Coal

80

100

(SOx). Comparatively, this makes our business activities environmentally70

conscious, as clean-burning natural gas is our primary energy resource.
We intend to continue contributing to sustainable progress in society throughefforts to promote greater use of natural gas and our wide-ranging envi-

0

100
20-40

70

100

60

Source: IEA Natural Gas Prospects (1986)
Natural Gas Prospects and Policies (1991)

ronmental conservation activities.

ISO Certificationequipment, pipes and other industrial waste. In a similar vein, we are radi-

Obtaining ISO certification has been positioned as a high management

cally reducing the amount of earth removed from pipeline construction sites.

priority. In March 1997, both the Negishi and Sodegaura LNG terminals
gas industry to obtain this international certification, which attests to theCountermeasures Against Soil Contamination of Sites
of Former Gas Manufacturing Plants

high quality of our environmental management systems. The Ohgishima LNG

Since fiscal 1999, Tokyo Gas, has in accordance with guidelines stipulated

Terminal followed suit in January 2000, meaning all our LNG terminals are

by Japan’s Ministry of the Environment, been continuously carrying out

ISO 14001 certified. In March 2000, the Shinjuku District Heating andvoluntary site inspections and surveys of company-owned land, namely sites

Cooling Center became the first district heat supplier in Japan to attain ISO

of former gas manufacturing plants, where there is a possibility of soil con-14001 certification. The Makuhari District Heating and Cooling Center did

tamination. Completed in June 2002, the surveys found soil contamination

likewise in January 2002.

at 26 out of 30 sites. Tokyo Gas is prepared to do the necessary remediation

obtained ISO 14001 certification; these facilities were the first in Japan’smeasures in respect of these sites.

Recycling Initiatives
ronmental impact of our activities. We are building a proprietary system

Development and Application of Technologies to Reduce
Environmental Impact

called SRIMS (Saving Recycling Innovative Model System) to facilitate

Tokyo Gas feels that it is our mission to reduce the environmental impact

the efficient collection, separation, management and disposal of used gasof our customers when they utilize energy. Gas cogeneration systems andRecycling and decreasing waste volumes are other ways we reduce the envi-

16 TOKYO GAS Annual Report 2002

Overview of Tokyo Gas’ Environmental Accounting

Environmental Preservation Benefits

Investments and Expenses for Environmental
Preservation by Tokyo Gas
Tokyo Gas Operation

Customer Utilization● Pollution prevention● Global environmental● Environmental R&D● Recycling of used gas appliances● Reduction in substances with environmental impact(emissions in relevant units)● Reduction of waste● (Reference) Reduction of substances with an environmen-➔

tal impact at customers’ level

preservation● Resource recycling● Environmental manage-

Actual Economic Benefits
Contributions to Society

ment

➔

● Other measures● Cost savings● Profits on sale of items of value

derived from ordinary businessactivities

Overview of Tokyo Gas’ Environmental Accounting
Environmental accounting results for the year ended March 31, 2002 show that the parent company invested approximately ¥1.2 billion and incurred
expenses of roughly ¥5.3 billion for environmental preservation. There are two central features of Tokyo Gas’ environmental accounting. One is theextremely low environmental impact of gas production, supply and other activities due to the completion of a switch to natural gas. The other is anemphasis on research into methods to reduce the environmental impact of gas utilization by customers, mainly through the development of highly efficient gas appliances and systems such as micro cogeneration systems. More detailed information concerning Tokyo Gas’ environmental accounting iscontained in our Environmental Report 2002.

gas-fired air conditioning are just a few of the many technologies that are

Environmental Communication and Information Disclosure

being widely adopted to increase energy efficiency. In the fuel cell field,

Since 1994, we have been publishing an environmental report, fulfilling ourTokyo Gas is developing an on-site fuel cell generation system that boasts

social responsibility to make public information about our environmental

high generation and energy efficiency and emits almost no atmosphericactivities. Moreover, in 1996 we started posting environmental information

pollutants. High hopes are held for the use of fuel cells in future residential

on our website (http://www.tokyo-gas.co.jp/env/index_e.html).

cogeneration systems. Natural gas vehicles (NGVs) are also playing an integral role in reducing the environmental impact of transportation. The Japanese government has set a target of having 1 million NGVs on Japan’s roads
by 2010. In addition, with an eye on the future, we are also seeking new,environmentally friendly forms of energy, such as methane hydrate.

Annual Report 2002 TOKYO GAS 17

International Operations
Developing operations overseas is part of Tokyo Gas’ drive to transform itself into a diversified energy services
company with natural gas as our core business. We are actively participating in the development of natural gas
projects overseas and expanding the scope of our operations into other fields, including ownership and operation of LNG carriers. Tapping our wealth of knowledge about natural gas and how to supply the gas, we arealso contributing to the development of gas infrastructures and economic growth in other countries, particularly those in Asia. Additionally, we have forged partnerships with peer companies and with various institutions
overseas for the purposes of technological and managerial information exchanges. The information we gather
promotes efficient R&D and the formulation of strategies.

Advancing Upstream—Controlling the Total Energy
Value Chain

Tokyo Gas’ Overseas Activities

In August 2001, Tokyo Gas announced that it would participate in theother countries. Tokyo Gas and its group companies have been instrumental

development of a gas project located off the coast of Victoria, Australia,

in a number of successful projects. In Malaysia, for example, we have been

the first such overseas project for the company. Facility construction is

active in a natural gas distribution system project and a gas-fired cogenera-

proceeding apace, with supply to the Australian market scheduled to starttion district cooling project—both firsts in that country. These accomplish-

in the latter half of 2002.

ments—the first full-fledged overseas projects by a Japanese energy utility

Tokyo Gas has a proud track record in building gas supply infrastructures in

In March this year, we announced our participation in the develop-

company—are regarded as models for other Asian countries. Kuala Lumpur

ment of a gas field in the Joint Petroleum Development Area of East

International Airport boasts one of the world’s largest gas district cooling

Timor and Australia, as well as in a gas liquefaction business in Darwin,

systems thanks to Tokyo Gas. Office buildings, hotels, and other facilities inAustralia. Tokyo Gas will also start purchasing LNG from this project incentral Kuala Lumpur have benefited as well from our technology. Mean-

2006. This development means that Tokyo Gas will have a presence along

while, Tokyo Gas Engineering Co., Ltd. has been providing technical consul-

the entire LNG value chain—from production and liquefaction, throughtation, for example, for the establishment of LNG receiving facilities in Korea,

sales and transportation using our own LNG carriers and marketing in the

Taiwan, Thailand and Portugal. Moving forward, we intend to advance over-downstream market. This position will make it possible for us to extract

seas projects that capitalize on our extensive technological expertise gained

maximum value from the natural gas business.

through our operations in Japan.

Tokyo Gas will continue to participate in all areas of the LNG value
chain where such participation enhances our ability to procure natural gas
and raises the competitiveness of the Group.

Dili
East Timor

Bayu-Undan Field

Overview of the Bayu-Undan Project
Location: Within the Joint Petroleum Development
Area of East Timor and Australia
250km off the south coast of East Timor,
500km offshore from Darwin, Australia
Proven Natural Gas Reserves:
Approx. 3.4 trillion cubic feet of natural
gas
Approx. 400 million barrels of LPG andcondensate

18 TOKYO GAS Annual Report 2002

Gas Pipeline
DarwinAustralia

Tokyo Gas’ Overseas Representative Offices and Collaborating Partners

GIIGNL (International Groupof Importers of Liquefied Natural Gas)

Beijing Gas Group Co., Ltd.
Korea Gas Corporation
SK Corporation

Gaz de France
Lattice Group plc

International Gas Union

Gas Technology
Institute

Shell International
Gas Limited
KeySpan Energy Delivery
Ruhrgas AG
Paris

New York
Tokyo

Snam Rete
Gas S.p.A.

AmericanGas Association

Kuala Lumpur(Asia Pacific Regional Office)Southern California
Gas Company

Interstate Natural Gas
Association of America

Trunkline LNG Company

Petroliam Nasional Berhad(PETRONAS)
Overseas Representative Offices
Collaborating Partners

Woodside Energy Ltd.

Information Exchanges Lead to Better Operations

The offices also play a vital role in supplying information to foreign

We have three representative offices overseas: New York, Paris and Kuala

shareholders and in gathering information from the capital markets to help

Lumpur. Through these offices we are forging closer ties with energy-

in formulating management policies. As deregulation sweeps through therelated companies and institutions around the globe. Collaboration involves

Japanese energy industry, the importance of these activities is increasing to

the exchange of information and staff and contributes to improvements inTokyo Gas.

our operations.

Left
Malaysian trainees
Right
Mr. Gerald Doucet, Secretary
General of the World Energy
Council, on a visit to Tokyo Gas.

Annual Report 2002 TOKYO GAS 19

Management
Board of Directors

Kunio Anzai

Hideharu Uehara

Norio Ichino

ChairmanPresident

Executive Vice President Executive Vice President

Kouya Kobayashi

Masahiro Ishiguro

Mitsunori Torihara

Shigero Kusano

Senior Executive Officer

Senior Executive Officer

Senior Executive Officer

Senior Executive Officer

Fumio Ohori

Minoru Yokouchi

Yuzaburo Mogi

Yukihiko Inoue

Senior Executive Officer

Director (outside)

Director (outside)Standing Corporate
Auditors

Senior Executive
Officers

Executive Officers

Soichiro Akimoto

Hiroshi Urano

Takeo Ishikawa

Masaki Sugiyama

Shigeru Ogasawara

Takeo Kuno

Ieaki Uemura

Tsuyoshi Okamoto

Kenshiro Koto

Tadashi Zemba

Tsunenori Tokumoto

Taiichi Okuzawa

Tadaaki Maeda

Tokio Imazawa

Shigeru Muraki

Takashi Kunitomi

Akira Habu

Corporate Auditors(outside)

Toshio Tezuka
Shoh Nasu

Seiichi Nakanishi

Kazuo Nemoto(As of June 27, 2002)
20 TOKYO GAS Annual Report 2002

Management’s Discussion and Analysis of Operations
The business activities of Tokyo Gas Co., Ltd. and its 14 consolidated subsidiaries are broken down into
5 categories: gas sales, gas appliance sales, related construction, real estate rental business, and other.

Gas Sales Volume by Sector(Million m3, 46.05 MJ/m3)

10,000Please refer to Notes 1 and 2 of the Notes to Consolidated Financial Statements for an explanation of
the main accounting policies.

8,000

6,000

OVERVIEW OF CONSOLIDATED BUSINESS RESULTS
4,000

Gas Sales Volume
The volume of gas sold by Tokyo Gas in fiscal 2001, the year ended March 31, 2002, increased 3.9% to2,000

9,227 million m3. Growth was attributable mainly to higher demand in the industrial-use sector, wherevolume climbed 14.5% due to higher capacity utilization rates of existing customers and efforts to0secure new customers. Residential gas volume decreased 1.5% year on year as a record-setting warm

Mar. 31 98

winter negated efforts to win new customers and to popularize gas appliances. Tokyo Gas also worked to

Residential
Commercial
Industrial
WholesaleNote: Non-consolidated

win new customers in the commercial and other business user sectors.

Net Sales

99

00

01

02

Consolidated net sales edged up 1.0% over the previous year to ¥1,097.5 billion, reflecting the higher
gas sales volume and adjustments to gas rates based on the “sliding rate” system, as well as increased
sales of gas appliances. Growth was limited by the effect of gas rate reductions.

Operating Expenses and Operating Income
The cost of raw materials rose in fiscal 2001 as raw material usage rose in line with the increase in gas
sales volumes. The yen weakened approximately ¥14.5 against the U.S. dollar compared with the previous fiscal year, outweighing a drop of roughly US$4.5 per barrel in the price of crude oil. Costs andexpenses, the sum of cost of sales and selling, general and administrative expenses, increased by only
0.4% to ¥986.9 billion thanks to efforts to pare operating, personnel and other expenses through greater
efficiency. Operating income rose 6.7% to ¥110.6 billion.

Other Income (Expenses)
Other expenses were ¥27.7 billion, an improvement of ¥30.8 billion on the previous fiscal year. ThisNet Income(Billion ¥)60

reflected the absence of a charge for unfunded obligations arising from an amendment of accounting
standards for retirement benefits recorded in fiscal 2000 and lower interest expenses resulting fromprogress made in repaying interest-bearing debt.
40

Income Before Income Taxes, Income Taxes and Net Income
Income before income taxes and minority interest in net income of consolidated subsidiaries climbed
83.8% to ¥82.8 billion on account of the higher operating income and the significantly lower other20

expenses. Income taxes were ¥31.5 billion. Net income, after taking into account tax adjustments due totax-effect accounting, rose 88.1% to ¥51.9 billion. Basic net income per share was ¥18.47 and diluted
net income per share was ¥16.66. ROE for fiscal 2001 was 9.3%.
0Mar. 31 98

99

00

01

02

Annual Report 2002 TOKYO GAS 21

SEGMENT INFORMATION (Sales to Outside Customers)

Net Sales by Segment(Billion ¥)1,200

Gas Sales
Gas sales increased 1.3%, or ¥9.7 billion, to ¥750.4 billion, despite the effects of downward rate revi-

1,000

sions. The increase was attributable to efforts to expand gas sales volumes and upward adjustments togas rates based on the “sliding rate” system. Gas sales accounted for 68.4% of total net sales. Costs andexpenses increased 1.8%, or ¥10.4 billion, due to higher raw materials costs and other factors. Segment

800
600

operating income was about the same as last year at ¥149.2 billion.
400

Gas Appliance Sales
Segment sales rose 2.0%, or ¥2.8 billion, to ¥148.2 billion due to strong demand for TES (Thin &Economical System) air-conditioning systems, gas floor heating, GHPs (gas engine-driven heat pumps)
and other gas appliances. The segment accounted for 13.5% of total net sales. Costs and expenses

200
0Mar. 31 98

increased 1.5%, or ¥2.0 billion, in line with the increase in the number of units sold. But operating

99

00

01

02

Gas Sales
Gas Appliance Sales
Related Construction
Real Estate Rental Business
Other

income climbed 9.3%, or ¥0.6 billion, to ¥7.2 billion.

Related Construction
Sales were largely the same as in the previous year at ¥67.6 billion, representing 6.2% of total net sales.
Costs and expenses were reduced by 0.4%, or ¥0.2 billion, year on year. A decline in intersegment sales,
however, led to a 7.7%, or ¥0.3 billion, decrease in operating income to ¥3.6 billion.

Real Estate Rental Business
Sales were largely the same as in the previous year at ¥15.6 billion, representing 1.4% of total net sales.
Costs and expenses rose 6.6%, or ¥1.9 billion, as the depreciation method for the Shinjuku Park Tower
was changed from straight line to declining balance to make it consistent with other company-owned

Total Assets and Equity Ratio(Billion ¥)

(%)

2,000

40

1,500

30

1,000

20

500

10

buildings. Operating income dropped 24.7%, or ¥1.9 billion, to ¥6.0 billion as a result.

Other
Segment sales edged down 1.6%, or ¥1.8 billion, to ¥115.5 billion due mainly to lower demand for
district heating and cooling (DHC) systems. Other sales accounted for 10.5% of total net sales. Costsand expenses decreased 2.8%, or ¥4.2 billion, due to factors such as lower depreciation expenses on
DHC facilities. Consequently, operating income increased 6.6%, or ¥0.6 billion, to ¥10.7 billion.

FINANCIAL POSITION
Total assets as of March 31, 2002, stood at ¥1,702.7 billion, down 5.3%, or ¥94.9 billion.

Fixed Assets
Fixed assets decreased 4.4% to ¥1,450.8 billion. Plant, property and equipment declined 3.3% to¥1,249.9 billion due to depreciation. Investment securities decreased ¥36.8 billion as the stock market
dipped, resulting in an 11.8% decline in investments and other non-current assets to ¥181.6 billion.

Current Assets
Current assets stood at ¥251.8 billion, a decrease of 10.1%, as of March 31, 2002. This primarilyreflected a decline in short-term advances to group members in other current assets.

22 TOKYO GAS Annual Report 2002

00Mar. 31 98

99

00

Fixed assets
Current assets
Equity ratio (%)

0102

Long-Term Liabilities
Long-term liabilities decreased 4.3% to ¥836.9 billion. This mainly reflected the repurchase andInterest-bearing Debt
(Billion ¥)

(%)

1,000

100

800

80

600

60

400

40

200

20

retirement of convertible bonds, as well as the transfer to current liabilities of long-term debt due
within one year.

Current Liabilities
Current liabilities totaled ¥297.8 billion, down 18.8% from a year ago. The decrease reflected progressin repaying debt and redemption of convertible bonds as the company took steps to reduce interestbearing debt.

Interest-Bearing Debt
As of March 31, 2002, interest-bearing debt was ¥775.8 billion, a decline of 10.9% from a year ago as
the company continued efforts from last year to strengthen its balance sheet. The rate of dependence on

00Mar. 31 98

interest-bearing debt, which is defined as interest-bearing debt as a percentage of total assets, improved

99

00

01

02

Interest-bearing debt
Dependency on interest-bearing
debt (%)

from 48.4% to 45.6%.

Stockholders’ Equity

Capital Expenditures andDepreciation

Total stockholders’ equity increased 2.0% to ¥564.0 billion, mainly because retained earnings rose

(Billion ¥)200¥33.5 billion thanks to the company’s strong operating results. Net unrealized holding gains on securities, however, decreased ¥22.3 billion, reflecting the application of accounting standards for financial
instruments, which have been applied since fiscal 2000. Efforts to strengthen the balance sheet contrib-

150

uted to a higher equity ratio of 33.1%, up from 30.8% in the previous year.

Capital Expenditures

100

Tokyo Gas is making investments to expand facilities to put in place a more stable supply system for gas.
With respect to production facilities, Tokyo Gas has expanded LNG-related facilities, such as by con-50

structing various facilities at the Ohgishima LNG Terminal, which started operations in October 1998.
In regard to supply facilities, Tokyo Gas has made investments in pipelines to develop new sources ofdemand, to create a trunk network and to replace existing pipelines and take other measures to make the0Mar. 31

supply system better able to withstand earthquakes. Capital expenditures in fiscal 2001 decreased 5.1%

Net cash provided by operating activities rose ¥4.1 billion to ¥191.6 billion, principally reflecting the sharp
increase in income before income taxes and minority interest in net income of consolidated subsidiaries.

99

00

01

02

Capital expenditures
Depreciation

to ¥104.2 billion.

Cash Flows98

Net Cash Provided byOperating Activities(Billion ¥)200

Investing activities used net cash of ¥111.8 billion, ¥4.0 billion less than in the previous fiscal year.
This represented mainly a ¥1.2 billion increase to ¥104.8 billion in purchases of property, plant and150

equipment, which as it did last year, accounted for the lion’s share of cash used by investing activities.
Financing activities used net cash of ¥117.1 billion, ¥12.7 billion more than in the previous fiscal
year. Cash was used to repay long-term debt of ¥39.0 billion and redeem ¥120.0 billion in bonds as

100

Tokyo Gas pushed ahead with efforts to reduce interest-bearing debt.
As a result of the foregoing items, cash and cash equivalents at the end of the year were ¥27.2

50

billion, ¥37.3 billion lower than a year ago.
0Mar. 31 98

99

00

01

02

Annual Report 2002 TOKYO GAS 23

FINANCIAL POLICYInterest Coverage Ratio

Tokyo Gas has made capital expenditures in excess of the total of net income and depreciation over the
past 10 years to build a comprehensive production and supply infrastructure to respond to an escalation(times)6

in demand for gas. As a result, interest-bearing debt increased. However, Tokyo Gas has now entered aperiod in which past investments are generating returns. Consequently, Tokyo Gas is now able to conduct
capital expenditures within the bounds of depreciation. The free cash flows that the company generates

4

will be used to pay dividends and for investments in new businesses, as well as for the repayment ofinterest-bearing debt. In this way, Tokyo Gas will streamline and strengthen its balance sheet and parefinancial expenses.

2

Tokyo Gas is thus placing emphasis on reducing interest-bearing debt and raising asset efficiency.
This will include thoroughly examining the projected returns of new capital expenditures as well as
reviewing the profitability of existing facilities and investments to raise ROA.
0
Mar. 31 98

99

00

01

02

Medium-Term Plan Projections (Announced in May 2001)
Free cash flows

Average of ¥64.9 billion a year for 5 years

ROA

2.4% (5-year average)

Interest-bearing debt (Non-consolidated)¥570.0 billion as of March 31, 2005

Note: Interest coverage ratio=(net income+income
taxes+interest expense)/
interest expense

MARKET RISK EXPOSURE
Stock Price Risk

ROE and ROA

Equities held by Tokyo Gas are for the most part held to maintain corporate relationships needed to(%)
10

conduct business operations. Stock price risk relates to stock of listed companies. Tokyo Gas has formulated a management policy and rules for the handling of such stock.

Foreign Exchange Risk

8

6

LNG, the main raw material used by Tokyo Gas for the supply of gas, is purchased based on U.S. dollardenominated agreements. As such, these agreements are subject to fluctuations in the yen-dollar ex-

4change rate. Furthermore, because the U.S. dollar-denominated LNG price is determined with referenceto crude oil prices, fluctuations in the market price of crude oil are another risk factor. The hypothetical2effect of these fluctuations on annual raw materials costs is as follows:0

Fluctuation of ¥1 to U.S.$1

Approx. ¥1.5 billion

Fluctuation of U.S.$1 per barrel in crude oil priceApprox. ¥4.7 billion (Fiscal year ended March 2002)

However, the above fluctuations are automatically passed on to customers in regulated user categories under the “sliding rate” system. First-half crude oil prices are reflected in gas rates in the second
half of each fiscal year, while second-half crude oil prices are reflected in gas rates in the first half of thefollowing year. Consequently, changes in crude oil prices have no effect on Tokyo Gas’ business over the
medium to long term.

Interest Rate Risk
Tokyo Gas only has fixed-rate short- and long-term debt. Therefore, there is no risk from fluctuations ininterest rates during the borrowing term. However, Tokyo Gas does become subject to interest rate risk
when refinancing.
24 TOKYO GAS Annual Report 2002

Mar. 31 98

ROE
ROA

99

00

01

02

FAQ
Q1: TEPCO lowered its electricity rates by an average of 7% in April 2002. Does Tokyo Gas intend to follow suit? Do you plan
to depart from your medium-term management plan in which you said you would not lower residential rates further?
Our rate structure consists of three categories: liberalized rates for large-volume customers; optional
agreements, essentially special rates and terms for commercial customers; and service agreement “regulated” rates, mainly for residential customers.
In the large-volume sector, there are only a small number of customers, about 500 in total. Tokyo
Gas negotiates individual terms with each. The recent rate cut by TEPCO is having a significant effecton approximately 200 of these customers who use cogeneration systems to generate electricity using
our gas. We need to keep their cost for gas, used to cogenerate electricity and heat, less expensive thanpurchasing TEPCO’s power and using a boiler for heat. We know which of these users will require rate
reductions and by how much. These reductions have been factored into net sales in our revenue plan for
the fiscal year ending March 2003.
With respect to commercial customers using gas for cogeneration and air-conditioning under optional
agreements, the recent electricity rate cut has placed us in an extremely difficult situation. We plan torestore our competitive edge by setting new optional rates for cogeneration in July this year.
Regarding residential use, Tokyo Gas’ rates are lower than electricity rates in terms of the cost per
Calorie (a unit of heat). Our rates are also lower than those of other gas companies, 8% lower thanOsaka Gas Co., Ltd. and 19% lower than Toho Gas Co., Ltd. As our rates are currently at the lowest
level in Japan, we have no plans to reduce them further for residential users.
However, if TEPCO reduces its rates further, as is expected in 2003, or possibly later, we willconsider lowering all our rates, including residential, in order to stay competitive.

Q2: What areas in particular have you targeted for cost cutting?
We have focused on three areas: personnel reductions, controlling operating expenses, and keeping
capital expenditures within depreciation.
With respect to personnel expenses, the largest cost-cutting area, we are holding down costs by
reducing the size of our workforce and outsourcing customer-service duties. We plan to reduce thenumber of employees by around 300 every year through natural attrition. Recruitment will be held toabout 70 people, whereas we expect about 400 retirement each year. We started outsourcing somecustomer-service duties in July 2002. By outsourcing even more work outside the company, Tokyo Gas
will trim personnel expenses by about ¥10 billion over 4 years.
Regarding operating expenses, our aim is to hold these expenses to no more than their current levelof ¥220 billion, by absorbing the natural increase in costs that occurs as the number of customers andgas volumes grow each year.
Finally, with major investments in production facilities having been largely completed, we plan tokeep annual capital expenditures at about ¥70 billion. This will be achieved by looking closely at specifications and individual investments for maintenance, such as the replacement of gas pipes. We will,
however, continue to invest in the pipelines needed to capture new demand.

Q3: How does Tokyo Gas procure LNG?
Tokyo Gas imports LNG from six countries at present (see page 2).
Tokyo Gas signed agreements for the supply of LNG from several projects during the fiscal year
under review: the North West Shelf Expansion Project (Western Australia) in October 2001, the Malaysia
III (Tiga) Project in February 2002, and the Malaysia I (Satu) Project and Darwin LNG Project (Northern
Territory of Australia) the following month. By securing supplies to respond to future increases in gas
demand with these agreements, Tokyo Gas is also achieving more competitive contractual conditions,particularly with regard to price.
LNG has been generally procured under long-term contracts, typically of about 20 years in duration.
In these most recent arrangements, however, we agreed to introduce short-term volume and option
arrangements based on long-term contracts. This gives us greater flexibility in the volume of LNG we
Annual Report 2002 TOKYO GAS 25

receive, allowing us to more flexibly respond to fluctuations in LNG demand. Regarding delivery
conditions, though Ex-ship terms have been the majority of cases, Tokyo Gas is increasing the volume
on FOB terms, by which Tokyo Gas intends to acquire even greater flexibility in LNG delivery andfurther reduction of supply cost with the use of two company-owned LNG carriers, scheduled to comeinto service in 2003 and 2005.
During the fiscal year, Tokyo Gas and TEPCO decided to jointly invest in the development of theBayu-Undan Gas Field located between Australia and East Timor, and the Darwin LNG Project.
Participation in the upstream business, from gas production to liquefaction and sale, is another way
Tokyo Gas is enhancing its capability to procure natural gas.

Q4: On what assumptions does Tokyo Gas base its projections for gas sales volumes?
Regarding demand from regulated markets, such as residential accounts, Tokyo Gas estimates the number of customers using macroeconomic indicators, such as population trends, the number of housing
starts and building starts. This number is multiplied by the average volume used per customer, factoring
in increases from efforts to sell gas appliances. In the deregulated market—large-volume customers
consuming one million m3 or more per year—sales representatives in charge of individual users, such as
factories and large buildings, ascertain the facility-operating rate for each location, and determine whencustomer facilities would be due for replacement. Based on this information, Tokyo Gas compiles a gas
sales volume plan for each large-volume customer as well as estimates for sales to new customers. We
then obtain our final plan by adding the figures from each market segment.

Q5: Does Tokyo Gas have any plans to absorb local gas companies through mergers and acquisitions?
Tokyo Gas is currently supplying gas on a wholesale basis to 16 city gas companies surrounding its service
area. Wholesale sales account for approximately 10% of our gas sales volume and we expect wholesalevolumes to rise by an annual average of 8.2% over the next 5 years. We basically see this business as away of increasing earnings. As hostile takeovers could potentially have a detrimental effect on wholesale
supply activities, we do not intend to conduct one-sided acquisitions of city gas companies.
In April this year, Tokyo Gas did, however, purchase the gas operations of Konosu City, Saitama
Prefecture, after they were privatized. Thus, we do not completely rule out the possibility of acquiringother companies. We are prepared to explore the possibility in cases where our corporate value andcustomers can benefit, but only in accordance with the wishes of the other company.

Q6: What is Tokyo Gas’ policy on returning profits to shareholders?
Tokyo Gas’ medium-term management plan earmarks approximately 20% of free cash flows generated
during the course of the plan to be returned to shareholders. Based on the plan, Tokyo Gas increased
dividends for the year ended March 31, 2001, and plans to maintain this dividend (an annual distribution of ¥6 per share) in the future.
Tokyo Gas will also consider share buybacks as part of its policy of returning profits to shareholders. In doing so, Tokyo Gas will give due consideration to the dilutive effect of the expected conversionof convertible bonds amounting to ¥100.0 billion—the 5th and 6th issues of convertible bonds issued in
1996 have a conversion price of ¥339.00 and mature in 2007 and 2009, respectively. Measures toreturn profits to shareholders that factor in this dilution will be included in the Group’s new mediumterm management plan, which is scheduled to be unveiled in the fall of this year.

Q7: Please tell us about Tokyo Gas’ new business activities.
Listed below are new fields of business that Tokyo Gas is currently engaged in. We plan to invest around¥40 billion in these businesses in the fiscal year ending March 2003.
■ Advancing into upstream areas• Participation in the Bayu-Undan gas field project and purchase of LNG• Ownership of LNG carriers
26 TOKYO GAS Annual Report 2002

■ Expanding the electricity business• Electricity retailing business: ENNET Corporation• Small distributed power generation: MyEnergy Co.
• Electricity generation:
Wholly owned subsidiary Tokyo Gas Bay Power Co., Ltd.—100MW
Alliance with Nippon Mitsubishi Oil Corporation (now Nippon Oil Corporation)—400MW
Alliance with Tokyotoshikaihatsu Co., Ltd. and Shell Gas & Power Japan Ltd.—150MW• Electricity supply to specific areas: Roppongi redevelopment area business■ Establishment of natural gas sales company that takes advantage of ability to offer stablelong-term rates• Jointly establish Nijio Co., Ltd. with Shell Gas B.V.
■ Energy service business• Establish wholly owned subsidiary Energy Advance Co., Ltd.
■ Customer-service duties outsourcing• Establish Tokyo Gas Customer Service Co., Ltd.

Q8: How are Tokyo Gas’ gas sales volumes affected by a 1ºC rise in the average temperature?
Sensitivity of Gas Sales Volumes to 1ºC
Increase in Temperature

Ref: Monthly Gas Sales Volumes for Fiscal Year
Ended March 2002
■ Residential ■ Commercial■ Industrial ■ WholesaleNote: Non-consolidated

Rate of Change 1,200
Summer months (June-September)

0.1%

Winter months (December-March)-2.8%

Intervening months(April, May, October, November)-2.0%

Annual

-1.7%

600

0

4

5

6

7

8

9

10

11

12

1

2

3

(Unit: million m3)

Q9: What effect do fluctuations in foreign exchange rates and the crude oil price have on results?
Because we import LNG, the price of which is linked to the crude oil price, fluctuations in foreignexchange rates and crude oil prices affect our results. In the year ending March 31, 2003, Tokyo Gas
estimates that operating income rises or falls ¥4.6 billion for each U.S.$1 movement in the price ofa barrel of crude oil and ¥1.7 billion for each ¥1 movement in the yen-U.S.$ exchange rate. Due tothe application of the “sliding rate” system, any change in the cost of raw materials is reflected ingas rates approximately half a year later. While there may be some temporary effect across two
fiscal years because of this time lag, crude oil prices and exchange rates have no net effect on resultsover the long term.

Q10:What threat do IH cooking heaters, CO2 heat pump water heaters and other new electrical appliances for home use
pose to Tokyo Gas?
Consumers are becoming more aware of induction heating (IH) cooking equipment, which has been
aggressively promoted recently by electric utilities and household appliance makers. However, we believethat gas appliances are still the best way to bring out the full flavor of food. We will therefore work
continuously to enhance the performance and safety of gas ranges. Tokyo Gas will actively promote thelatest gas ranges, making certain that customers understand how gas ranges have improved and byoffering a wider range of models to counter competition from IH cooking equipment.
We view CO2 heat pump water heaters as a potentially serious competitor for gas heaters. We intend
to promote the various advantages of our gas water heaters, which have won high marks from customers. These advantages include simple installation and ease of use that is not possible with units thatneed to store hot water constantly. At the same time, Tokyo Gas will work to popularize energy-efficientand environmentally conscious high-efficiency condensing water heaters. Innovation is also important.
We aim to bring home-use fuel cell cogeneration systems to market as quickly as possible.
Annual Report 2002 TOKYO GAS 27

11-Year SummaryTokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31

2002

2001

2000

1999

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥1,097,589¥1,086,771¥ 992,255¥ 997,767

Gas sales . . . . . . . . . . . . . . . . . . . . . . . . . . .

750,439

740,731

672,070

674,997

Gas appliance sales . . . . . . . . . . . . . . . . . . . .

148,271

145,435

126,747

132,749

For the Year:

Related construction . . . . . . . . . . . . . . . . . . .

67,63367,611

63,94963,630Real estate rental business . . . . . . . . . . . . . .

15,685

15,602

14,95915,617

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

115,561

117,392

114,530

110,774

Operating income . . . . . . . . . . . . . . . . . . . . . . .

110,608

103,659

69,23372,303

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .

51,912

27,595

26,69817,764

Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . .

141,646

146,420

136,214132,568

Capital expenditures . . . . . . . . . . . . . . . . . . . . .

104,291

109,899

121,806

142,030

Net income (Basic) . . . . . . . . . . . . . . . . . . . .

¥18.47

¥9.82

¥9.50

¥6.32

Net income (Diluted) . . . . . . . . . . . . . . . . . .

16.66

9.13

8.84

5.94

Net income and depreciation . . . . . . . . . . . . .

68.9

61.9

58.0

53.5

Cash dividends applicable to the year . . . . . .

6.00

6.00

5.00

5.00

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥1,702,713¥1,797,669¥1,805,086¥1,707,446

Long-term debt due after one year . . . . . . . . . .

680,887

708,329

843,634

820,753

Total stockholders’ equity . . . . . . . . . . . . . . . . .

564,078

552,790484,239

421,442

Net income/Net sales . . . . . . . . . . . . . . . . . . . .

4.7%

2.5%

2.7%

1.8%

ROE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.3%

5.3%

5.9%

4.2%

ROA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.0%

1.5%

1.5%

1.0%

Equity ratio . . . . . . . . . . . . . . . . . . . . . . . . . . .

33.1%

30.8%

26.8%

24.7%

Per share (Yen and U.S. dollars):At Year-End:

Ratios:28 TOKYO GAS Annual Report 2002

Millions of yen except per share amounts
1998

1997

1996

1995

1994

1993

1992

¥1,009,155¥ 988,077¥ 958,662¥ 915,862¥ 909,673¥ 844,443¥ 823,761

686,649

663,066

633,253

601,990622,632

599,820580,897

126,840

134,174

135,669

137,209

115,158

103,869

104,495

66,69569,966

68,82570,03473,15870,92873,514

16,495

18,423

18,468––––112,476

102,448

102,447

106,629

98,72569,82664,85576,48562,163

67,10960,10559,26356,082

52,695

17,241

15,432

16,762

11,072

16,173

16,36826,814

114,893

123,569

120,569

–

–

–

–

159,433

162,282

180,080

–

–

–

–

¥6.14

¥5.49

¥5.97

¥3.94

¥5.76

¥5.82

¥9.54

5.76

5.37

–

–

–

–

–

47.0

49.5

–

–

–

–

–

5.00

5.00

5.00

5.00

5.00

5.00

5.00

¥1,720,684¥1,772,132¥1,657,176¥1,608,244¥1,513,038¥1,436,450¥1,328,038

765,304

878,674

743,177

724,523

721,980

623,979

550,468

417,755

414,906

413,725

411,164

409,713404,848

399,602

1.7%

1.6%

1.7%

1.2%

1.8%

1.9%

3.3%

4.1%

3.7%

4.1%

2.7%

4.0%

4.1%

–

1.0%

0.9%

1.0%

0.7%

1.1%

1.2%

–

24.3%

23.4%

25.0%

25.6%

27.1%

28.2%

30.1%

Annual Report 2002 TOKYO GAS 29

Consolidated Balance Sheets
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
March 31, 2002 and 2001
Thousands of
U.S. dollars (Note 1)

Millions of yen
ASSETS

2002

2002

2001

Property, plant and equipment (Notes 3 and 6):
Production facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥686,997¥

702,146$ 5,165,391

Distribution facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,889,145

1,772,491

14,204,097

Service and maintenance facilities . . . . . . . . . . . . . . . . . . . .

197,532

203,473

1,485,202

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

588,071

587,183

4,421,590

Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . .

59,20096,121

445,1143,420,945

3,361,414

25,721,394(2,171,009)(2,069,235)(16,323,376)

1,249,936

1,292,179

9,398,018

19,197

19,252

144,336

and affiliated companies . . . . . . . . . . . . . . . . . . . . . . . . . .

17,867

14,009134,337

Investment securities (Notes 4 and 6) . . . . . . . . . . . . . . . . .

74,846111,632

562,751

Deferred income taxes (Note 9) . . . . . . . . . . . . . . . . . . . . . .

30,083

19,359226,190

Other investments and non-current assets . . . . . . . . . . . . . . .

60,546

62,068455,233

Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . .

(1,660)(1,145)(12,484)

181,682

205,923

1,366,027

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . .

27,26164,575204,968

Marketable securities (Note 4) . . . . . . . . . . . . . . . . . . . . . .

21

332

160

Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .

Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Investments and other non-current assets:
Investments in unconsolidated subsidiaries

Current assets:

Receivables:
Trade notes and accounts . . . . . . . . . . . . . . . . . . . . . . . . .

128,550

127,037

966,540

Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . .

(932)(1,098)(7,010)Inventories (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28,75927,419216,232

Deferred income taxes (Note 9) . . . . . . . . . . . . . . . . . . . . . .

10,0498,260

75,560

Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

58,19053,790437,519

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

251,898

280,315

1,893,969¥ 1,702,713¥ 1,797,669$ 12,802,350

See accompanying notes.

30 TOKYO GAS Annual Report 2002

Thousands of
U.S. dollars (Note 1)

Millions of yen
LIABILITIES AND STOCKHOLDERS’ EQUITY

2002

2001

2002

Long-term debt due after one year (Note 6) . . . . . . . . . . . . . . .

¥ 680,887¥ 708,329$ 5,119,453

Employees’ severance and retirement benefits (Note 8) . . . . . .

125,554

134,216

944,016

Allowance for repairs of gas holders . . . . . . . . . . . . . . . . . . . .

3,520

3,324

26,464

Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .

27,01628,363203,126

Current liabilities:
Bank loans (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

42,70939,921

321,121Long-term debt due within one year (Note 6) . . . . . . . . . . . .

40,298

121,874

302,993

Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

38,05543,286286,131

Notes and accounts payable:
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

40,21644,290302,373

Income taxes payable (Note 9). . . . . . . . . . . . . . . . . . . . . . .

27,941

22,009210,085

Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45,27645,034340,424

Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .

63,36650,576476,433

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .

297,861

366,9902,239,560

3,797

3,657

28,546– 2,810,012,006 shares in 2001 . . . . . . . . . . . . . .

141,843

141,817

1,066,492

Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . .

2,064

2,038

15,520Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

387,315353,794

2,912,144

Net unrealized holding gains on securities . . . . . . . . . . . . . .

32,83655,140246,884

Foreign currency translation adjustments . . . . . . . . . . . . . . .

115

4

861

564,173552,793

4,241,901

Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(95)

(3)

(716)

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . .

564,078

552,790

4,241,185¥1,702,713¥1,797,669$12,802,350

Commitment and contingent liabilities (Note 13)

Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Stockholders’ equity (Note 10):
Common stock:
Authorized – 6,500,000,000 shares
Issued – 2,810,165,397 shares in 2002

Annual Report 2002 TOKYO GAS 31

Consolidated Statements of Income
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2002 and 2001
Thousands of
U.S. dollars (Note 1)

Millions of yen

Net sales (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs and expenses (Notes 8 and 11):
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . .

2002

2001

2002

¥1,097,589¥1,086,771$8,252,549

561,989
424,992

561,006
422,106

4,225,478
3,195,432

986,981983,1127,420,910

110,608

103,659

831,639

1,021(19,275)

1,396(22,867)7,676(144,922)(6,827)(4,618)
3,455
(615)
311
(1,300)–101(6,272)(3,369)–(1,265)
349–(21,777)(4,769)(51,332)(34,720)
25,977(4,624)
2,337(9,774)–761(27,747)(58,574)(208,621)

Operating income (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expenses):
Interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments of charges for constructionof distribution facilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Losses on bond redemption . . . . . . . . . . . . . . . . . . . . . . . . .
Gains from disposal of securities . . . . . . . . . . . . . . . . . . . . .
Exchange losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in net income of an affiliated company . . . . . . . . . . .
Losses on compensation for malfunctioned finished goods . . .
Amortization of net transition obligation . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income before income taxes and minority interest in net incomeof consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes (Note 9):
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

82,86145,085623,018

31,507(742)

25,436(8,027)

236,897(5,576)

Minority interest in net income of consolidated subsidiaries . . .

52,096(184)

27,676(81)

391,697(1,384)

27,595$ 390,313

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥51,912¥Thousands of
U.S. dollars (Note 1)

Millions of yen
2002

Amounts per share of common stock (Note 2):
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends applicable to the year . . . . . . . . . . . . . . . . . .
See accompanying notes.

32 TOKYO GAS Annual Report 2002

¥18.47
16.66
6.00

2001

¥9.82
9.13
6.00

2002

$0.14
0.13
0.05

Consolidated Statements of Stockholders’ Equity
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2002 and 2001
Millions of yen
Number of sharesof common stock(Thousands)

Commonstock

Additional
paid-in
capitalBalance at March 31, 2000 . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . .
Adoption of new accounting standard
for financial instruments . . . . . . . . . .
Adjustments from translation of foreign
currency financial statements . . . . . .
Treasury stock . . . . . . . . . . . . . . . . . .
Cash dividends paid (¥5.00 per share) . .
Bonuses to directors . . . . . . . . . . . . . .

2,810,012¥141,817¥2,038

Balance at March 31, 2001 . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . .
Net unrealized holding losses
on securities . . . . . . . . . . . . . . . . . .
Foreign currencytranslation adjustments . . . . . . . . . .
Treasury stock . . . . . . . . . . . . . . . . . .
Cash dividends paid (¥6.50 per share) . .
Bonuses to directors . . . . . . . . . . . . . .
Shares issued upon conversionof convertible bonds . . . . . . . . . . . . .

2,810,012

153

26

26

Balance at March 31, 2002 . . . . . . . . . .

2,810,165¥141,843¥2,064Retainedearnings¥340,387
27,595

Foreign
Net unrealized
currency
holding gains translation
on securities adjustments

¥

–

¥

–

Treasury
stock

¥ (3)

55,1404
0(14,050)(138)
141,817

2,038

353,794
51,91255,1404(3)(22,304)
111(92)(18,265)(126)¥387,315¥ 32,836

¥115

¥(95)

Thousands of U.S. dollars (Note 1)

Commonstock

Additional
paid-in
capitalBalance at March 31, 2001 . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized holding losses on securities . . . . . . . . .
Foreign currency translation adjustments . . . . . . . . . .
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid ($0.05 per share) . . . . . . . . . . . .
Bonuses to directors . . . . . . . . . . . . . . . . . . . . . . . . .
Shares issued upon conversion of convertible bonds . . .

$1,066,296$15,325

196

195

Balance at March 31, 2002 . . . . . . . . . . . . . . . . . . . . .

$1,066,492$15,520

Retainedearnings$2,660,106
390,313

Foreign
Net unrealized
currency
holding gains translation
on securities adjustments

Treasurystock$ 414,586$ (21)$ 30(167,702)
831(695)(137,331)(944)$2,912,144$ 246,884$861$(716)

See accompanying notes.

Annual Report 2002 TOKYO GAS 33

Consolidated Statements of Cash Flows
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2002 and 2001
Thousands of
U.S. dollars (Note 1)

Millions of yen
2002

2001

¥ 82,861¥ 45,085

141,646
3,918
3,577(3,457)
4,618

146,420
3,955
3,348
(2)
3,369

1,065,009
29,45826,893(25,994)
34,725(8,661)(1,021)
19,275

6,463(1,396)22,867(65,123)(7,676)
144,922(217)(1,340)(3,674)2,748(127)(4,659)

(149)
(360)
(1,673)(4,562)
(141)
4,247

(1,633)(10,073)(27,625)
20,664(958)(35,031)

Cash received for interest and dividends . . . . . . . . . . . . . . . .
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .

235,487
1,089(19,325)(25,575)

227,471
1,465(23,232)(18,191)

1,770,576
8,189(145,303)(192,291)

Net cash provided by operating activities . . . . . . . . . . . . . .

191,676

187,513

1,441,171(3,712)
5,005(104,884)(7,791)(1,006)
2,528(1,694)(4,580)277(103,609)(7,599)(1,499)926(806)(27,909)37,628(788,599)(58,581)(7,565)19,006(12,734)

(267)

1,044

(2,004)

Net cash used in investing activities . . . . . . . . . . . . . . . . . .

(111,821)(115,846)(840,758)

Cash flows from financing activities:
Proceeds from (Repayments of) short-term bank loans . . . . . . .
Proceeds from commercial paper . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,788
12,00045,486(159,070)(18,288)(92)(1,721)–
59,359(147,969)(14,096)–

20,96290,226
341,998(1,196,015)(137,500)(695)

Net cash used in financing activities . . . . . . . . . . . . . . . . .

(117,176)(104,427)(881,024)

Effect of exchange rate changes on cash and cash equivalents . . .

7

7

51

Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . .

(37,314)64,575(32,753)
97,328(280,560)
485,528

Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . .

¥ 27,261¥ 64,575

Cash flows from operating activities:
Income before income taxes and minority interest in net income of
consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile income before income taxes and minority
interest in net income of consolidated subsidiaries to net cash
provided by operating activities:
Depreciation (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of long-term prepayments . . . . . . . . . . . . . . . .
Loss on disposals of property, plant and equipment . . . . . . . .
Gains from disposal of securities . . . . . . . . . . . . . . . . . . . . .
Loss on bond redemption . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (Decrease) in employees’ severance andretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Increase in notes and accounts receivable . . . . . . . . . . . . .
Increase in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in notes and accounts payable . . . . . . . . . . . . . . .
Increase (Decrease) in consumption taxes payable . . . . . . .
Bonuses paid to directors . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cash flows from investing activities:
Purchases of marketable and investment securities . . . . . . . . . .
Proceeds from sale of securities . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property, plant and equipment . . . . . . . . . . . . . . .
Purchases of intangible fixed assets . . . . . . . . . . . . . . . . . . . . .
Expenditure of long-term prepayment . . . . . . . . . . . . . . . . . . .
Proceeds from sale of tangible and intangible fixed assets . . . .
Expenditure of long-term loans . . . . . . . . . . . . . . . . . . . . . . . .
Decrease (Increase) in other investments andother non-current assets — net . . . . . . . . . . . . . . . . . . . . . . .

See accompanying notes.

34 TOKYO GAS Annual Report 2002

2002

$

$

623,018

204,968

Notes to Consolidated Financial Statements
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2002 and 2001

1. Basis of consolidated financial statements
Tokyo Gas Co., Ltd. (the “Company”) and its consolidated domestic
subsidiaries maintain their accounts and records in accordance withthe provisions set forth in the Japanese Commercial Code and the
Securities and Exchange Law and in conformity with accounting principles and practices generally accepted in Japan (“Japanese GAAP”).
Certain accounting principles and practices generally accepted in Japanare different from International Accounting Standards and standards
in other countries in certain respects as to application and disclosure
requirements. Accordingly, the accompanying financial statements areintended for use by those who are informed about Japanese accounting principles and practices.
The accompanying consolidated financial statements are a translation of the audited consolidated financial statements of the Company which were prepared in accordance with accounting principles
and practices generally accepted in Japan from the accounts andrecords maintained by the Company and its consolidated subsidiaries
and were filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the Securities and Exchange Law.
In preparing the accompanying consolidated financial statements,
certain reclassifications have been made in the consolidated financial
statements issued domestically in order to present them in a form
which is more familiar to readers outside Japan. The consolidated
statements of stockholder’s equity have been prepared for the purposeof inclusion in the accompanying consolidated financial statements,
although such statements are not customarily prepared in Japan andare not required to be filed with the regulatory authorities.
The financial statements are stated in Japanese yen. The translation of the Japanese yen amounts into U.S. dollars are included solely
for the convenience of the reader, using the prevailing exchange rate
at March 31, 2002, which was ¥133 to U.S.$1. 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.

2. Significant accounting policies
Consolidation – The consolidated financial statements include the accounts of the Company and substantially all of its significant subsidiaries. All significant intercompany transactions and account balances
are eliminated in consolidation.
Equity method – Investments in unconsolidated subsidiaries and affiliates over which the Company has the ability to exercise significant
influence over operating and financial policies of the investees, areaccounted for by the equity method.
Property, plant and equipment – Property, plant and equipment isgenerally stated at cost. Depreciation is determined mainly by the declining-balance method based on estimated useful lives, except thatbuildings acquired after March 31, 1998 are depreciated using thestraight-line method.

Prior to April 1, 2001, Shinjuku Park Tower which was held by aconsolidated subsidiary, Tokyo Gas Urban Development Co., Ltd., wasdepreciated using the straight-line method. Effective April 1, 2001,
the declining balance method was used for depreciation of this building. This change of the method of accounting was made in order tounify the accounting method of the Company and subsidiaries, considering the maintenance expenses in future expected to increase due to“the long-term preservation plan of Shinjuku Park Tower” which was
implemented to take countermeasures against physical and functional
deterioration of the building and decline of its value.
As a result of this change, in the year ended March 31, 2002,
depreciation increased by ¥3,721 million ($27,977 thousand), andoperating income and income before income taxes decreased by thesame amount compared with what would have been reported under
the previous accounting method. The influence of this change to Segment Information is disclosed in Note 11.
Software costs – The Company included software in intangible assets
and depreciated it using the straight-line method over the estimateduseful lives.
Cash and cash equivalents – Cash and cash equivalents include cashon hand, readily-available deposits and short-term highly liquid
investments with maturities not exceeding three months at the time ofpurchase.
Securities – Prior to April 1, 2000 listed equity securities included incurrent assets and non-current assets were carried at the lower ofmoving-average cost or market value. Other securities were stated atmoving-average cost. Effective April 1, 2000, the Company and its
consolidated subsidiaries adopted the new Japanese accounting standard for financial instruments.
Under the new accounting standard, (a) debt securities intended tobe held to maturity (hereafter, “held-to-maturity debt securities”) arestated at amortized cost. (b) Equity securities issued by unconsolidated
subsidiaries and affiliated companies which are not accounted for using
the equity method are stated at moving-average cost. (c) Available-for-salesecurities with available fair market values are stated at fair market
value. Unrealized gains and unrealized losses on these securities arereported, net of applicable income taxes, as a separate component ofstockholders’ equity. Available-for-sale securities with no available fairmarket values are stated at moving-average cost.
The effect on the consolidated statement of income for the year
ended March 31, 2001 of adopting the new accounting standard forfinancial instruments was immaterial. At April 1, 2000, securities incurrent assets decreased by ¥1,999 million and investment securities
increased by the same amount due to the adoption of the new accounting standard.
Derivative financial instruments – The Company and its consolidated
subsidiaries use interest rate swap and foreign exchange forward contracts, accommodating to hedge accounting, only for the purpose of
mitigating the risk of fluctuations in interest rates and foreign exchange

Annual Report 2002 TOKYO GAS 35

rates. The Company and its consolidated subsidiaries do not use
derivative financial instruments for speculative trading purposes. The
derivative financial instruments are executed with creditworthy financial institutions, and the Company’s management believes there is little
risk of default by counterparties.
Inventories – Inventories are stated at cost, cost being determined by
the moving-average method.
Allowance for doubtful accounts – The Company and its consolidated
subsidiaries provide for doubtful accounts at an estimated amount ofprobable bad debts.
Employees’ severance and retirement benefits – The Company andits consolidated subsidiaries provide two post-employment benefit plans,
an unfunded lump-sum payment plan and a funded non-contributory
pension plan, under which all eligible employees are entitled to benefits based on the level of wages and salaries at the time of retirement
or termination, length of service and certain other factors.
At March 31, 2000, the Company and its consolidated subsidiaries accrued a liability for lump-sum severance payments equal to 100%of the amount required had all eligible employees voluntarily terminated their employment at the balance sheet date. The Companies
recognized pension expense when, and to the extent, payments weremade to the pension fund.
Effective April 1, 2000, the Companies adopted the new accounting standard, “Opinion on Setting Accounting Standard for Employees’ Severance and Pension Benefits,” issued by the Business Accounting Deliberation Council on June 16, 1998.
Under the new accounting standard, allowance and expenses for
employees’ severance and retirement benefits are determined basedon the amounts actuarially calculated using certain assumptions.
The Company and its consolidated subsidiaries provide allowancefor employees’ severance and retirement benefits based on the estimated amounts of projected benefit obligation and the fair value ofthe plan assets.
The excess of the projected benefit obligation over the fair valueof 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”) amounted to ¥21,777 million, all of which was recognized as expense in the year ended March 31, 2001.
As a result of the adoption of the new accounting standard, in theyear ended March 31, 2001, income before income taxes decreasedby ¥8,430 million compared with what would have been recorded under the previous accounting standard.
Allowance for repairs of gas holders – The Company and certain of
its consolidated subsidiaries provide for future repairs of gas holders,which occur once approximately every ten years, by estimating future
expenditures and charging them to income in equal annual amounts.

36 TOKYO GAS Annual Report 2002

The difference between the actual expenditure and the amount provided is charged to income in the year repair is completed.
Accounting for certain lease transactions – Finance leases which do
not transfer ownership to lessees are accounted for in the same manner as operating leases under accounting principles generally acceptedin Japan.
Income taxes – Income taxes comprise corporation tax, inhabitants’taxes and enterprise tax. The Company has adopted the accounting
standard, which recognizes tax effects of temporary differences between the financial statement basis and the tax basis of assets andliabilities.
Enterprise tax – Enterprise tax normally constitutes income taxes.
However, in the case of companies engaged in gas businesses, enterprise tax is levied not only on income but also on net sales. In theaccompanying statements of income, enterprise tax levied on net sales
is accounted for in “Selling, general and administrative” expenses in
the amount of ¥10,070 million ($75,711 thousand) and ¥9,923 million for the years ended March 31, 2002 and 2001, respectively. Enterprise taxes calculated based on profit of the certain consolidated
subsidiaries are included in income taxes.
Foreign currency translation – Short-term receivables and payables
denominated in foreign currencies are translated into Japanese yen at
the year-end rates. Prior to April 1, 2000, long-term receivables andpayables denominated in foreign currencies were translated at historical rates.
Effective April 1, 2000, the Company and its consolidated subsidiaries adopted the revised accounting standard for foreign currencytranslation. Due to the adoption of the revised accounting standard,
the Company reports foreign currency translation adjustments in stockholders’ equity. The effect on the consolidated income statement of
adopting the revised accounting standard was immaterial in the year
ended March 31, 2001.
Amounts per share of common stock – The computations of net income per share are made based on the weighted-average number ofshares outstanding during each fiscal year.
Cash dividends per share have been presented on an accrual basis
and include dividends approved or to be approved after the balance
sheet dates, but applicable to the year then ended.

3. Property, plant and equipment
Property, plant and equipment is generally recorded at cost. However, in cases where the Company receives contributions toward thecost of construction from customers, such contributed amount is offset against the acquisition cost of the subject asset. Such offset amounts
accumulated to March 31, 2002 and 2001 were ¥228,023 million($1,714,459 thousand) and ¥222,972 million, respectively.

4. Securities
The following tables summarize acquisition costs, book values and fair values of securities with fair value as of March 31, 2002 and 2001:(a) Held-to-maturity debt securities:
Thousands of
U.S. dollars

Millions of yen

2002

2001

2002

Securities with fair value exceeding book value:Book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥29
31

¥29
31

$221
236

Difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥ 2

¥ 2

$ 15

(b) Available-for-sale securities:
Millions of yen

For 2002:

Acquisition cost

Book value

Difference¥12,706
5¥64,8686¥52,1621

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other securities:
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12,71164,874

52,163

1,376

1,107

(269)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥14,087¥65,981¥51,894

Securities with fair value exceeding book value:
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Millions of yen

For 2001:

Acquisition cost

Book value

Difference¥13,405
4¥100,475
6¥87,0702

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other securities:
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13,409100,481

87,072

1,302

1,251

(51)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥14,711¥101,732¥87,021

Securities with fair value exceeding book value:
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Thousands of U.S. dollars

For 2002:

Acquisition cost

Book value

Difference$ 95,53737$487,729
46$392,192
9

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other securities:
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

95,574

487,775

392,201

10,3438,321(2,022)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$105,917$496,096$390,179

Securities with fair value exceeding book value:
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Available-for-sale securities with no available fair values, which were stated at moving-average costs, amounted to ¥8,503 million ($63,935
thousand) and ¥9,271 million at March 31, 2002 and 2001, respectively.

Annual Report 2002 TOKYO GAS 37

5. Inventories
Inventories at March 31, 2002 and 2001 consisted of the following:Thousands of
U.S. dollars

Millions of yen

Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2002

2001

2002

¥ 2,584
18,513
7,489
173¥ 3,127
16,991
7,198
103$ 19,425
139,199
56,3091,299¥28,759¥27,419$216,232

6. Bank loans and long-term debt
At March 31, 2002 and 2001, bank loans consisted of short-term notes, bearing interest at an average annual rate of 0.36% and 0.64%,
respectively.
Long-term debt at March 31, 2002 and 2001 comprised the following:Thousands of
U.S. dollars

Millions of yen

Domestic unsecured notes due 2014 at a rate of 5.1% . . . . . . . . . . . . . . . . . . .
Domestic unsecured notes due 2015 at a rate of 4.1% . . . . . . . . . . . . . . . . . . .
Domestic unsecured notes due 2016 at a rate of 4.0% . . . . . . . . . . . . . . . . . . .
Domestic unsecured notes due 2018 at a rate of 2.625% . . . . . . . . . . . . . . . . .
Domestic unsecured notes due 2009 at a rate of 1.68% . . . . . . . . . . . . . . . . . .
Domestic unsecured notes due 2009 at a rate of 1.73% . . . . . . . . . . . . . . . . . .
Domestic unsecured notes due 2010 at a rate of 2.01% . . . . . . . . . . . . . . . . . .
Domestic unsecured notes due 2011 at a rate of 1.39% . . . . . . . . . . . . . . . . . .
Domestic unsecured notes due 2004 at a rate of 1.03% . . . . . . . . . . . . . . . . . .
Domestic unsecured notes due 2009 at a rate of 1.18% . . . . . . . . . . . . . . . . . .
Domestic unsecured convertible bonds:
1st issue due 2003 at a rate of 1.5% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3rd issue due 2005 at a rate of 1.5% . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4th issue due 2002 at a rate of 1.5% . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5th issue due 2009 at a rate of 1.2% . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6th issue due 2007 at a rate of 1.1% . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Swiss franc notes due 2002 at a rate of 4.5% . . . . . . . . . . . . . . . . . . . . . . . . .
DM bearer bonds due 2005 at a rate of 7.0% . . . . . . . . . . . . . . . . . . . . . . . . .
Domestic secured notes due 2003 at a rate of 2.0% . . . . . . . . . . . . . . . . . . . .
Loans from banks, insurance companies and government agencies due
through 2028 at rates of 0.77% to 7.80%:
Secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less – Amounts due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The indentures covering the first through sixth (except the secondand fourth) domestic convertible bonds provide, among other conditions, for (1) conversion into shares of common stock at the current
conversion prices per share of ¥1,267.90 ($9.53), ¥1,105.70 ($8.31),¥339.00 ($2.55) and ¥339.00 ($2.55), respectively (subject to
38 TOKYO GAS Annual Report 2002

2002

2001

2002

¥ 20,000
27,90030,00040,00030,00030,00020,00030,0003,000
4,000¥ 30,000
27,90030,00040,00030,00030,00020,000
–
3,000
4,000

$ 150,376
209,774
225,564
300,752
225,564
225,564
150,376
225,564
22,55630,07551,43984,315–49,971
49,96814,81018,333800

55,247
90,207
95,73649,99849,993
14,81018,333800

386,759
633,947–
375,722375,699
111,353
137,842
6,015

6,884
209,765

14,695
225,484

51,761
1,577,183

721,185
40,298830,203
121,874

5,422,446
302,993¥680,887¥708,329$5,119,453

adjustment in certain circumstances), (2) conversion periods throughSeptember 2003, March 2005, March 2009 and March 2007,
respectively, and (3) redemption at the option of the Company, commencing in October 1996 for the 1st issue and April 1998 for the 3rd
issue, at prices ranging from 106% to 100% of the principal amount.

At March 31, 2002, investment securities and property, plant andequipment at book value amounting to ¥18,406 million ($138,389
thousand) were pledged as collateral for secured loans and notes issuedby consolidated subsidiaries.
As is customary in Japan, a lending bank has the right to offset
cash deposited with it against any debt or obligation that becomes due
and, in the case of default or certain other specified events, against all
debt payable to the bank. To date no such offset request has been

made to the Company and its consolidated subsidiaries.
Certain of the loan agreements provide, among other things, that,upon request, the Company and domestic subsidiaries submit to thelenders for approval of their proposed appropriation of income(including dividends) before such appropriation is submitted to thestockholders. Neither the Company nor any of its consolidated subsidiaries has ever received any such request.

The annual maturities of long-term debt at March 31, 2002 were as follows:
Millions of yen

Thousands of
U.S. dollars

2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥ 40,298
91,963
105,881
46,124
69,107$ 302,993
691,449
796,098
346,800
519,599

2008 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

367,8122,765,507¥721,185$5,422,446

Year ending March 31

7. Derivative transactions
The Company and its consolidated subsidiaries use interest rate swap and foreign exchange forward contracts only for the purpose of mitigating
the risk of fluctuations in interest rates and foreign exchange rates.
Contract amounts, market values and recognized gains on the interest rate swap contracts, except those accounted for using hedge accounting, at March 31, 2002 were as follows:
Millions of yen

Currency option contracts:
Purchased cap option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swap contracts:
Receive fixed, pay variable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Contract amounts

Beyond one year

Market value

Recognized gains¥3,000¥3,000

¥0

¥0

3,000

3,000

0

0

Thousands of U.S. dollars

Currency option contracts:
Purchased cap option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swap contracts:
Receive fixed, pay variable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Contract amounts

Beyond one year

Market value

Recognized gains$22,556$22,556$0$022,55622,55600

Contract amounts, market values and unrealized gains on the interest rate swap contracts, except those accounted for using hedge accounting, at March 31, 2001 were as follows:
Millions of yen

Currency option contracts:
Purchased cap option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swap contracts:
Receive fixed, pay variable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Contract amounts

Beyond one year

Market value

Unrealized gains¥3,000¥3,000

¥10

¥10

3,000

3,000

11

11

Annual Report 2002 TOKYO GAS 39

8. Employees’ severance and retirement benefits
Allowance for severance and retirement benefits included in the liability section of the consolidated balance sheets as of March 31, 2002 and2001 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2002

2001

2002

Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized actuarial differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less fair value of pension assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥ 306,912
193(27,503)(154,048)¥ 302,989–(16,595)(152,178)$ 2,307,609
1,452(206,789)(1,158,256)

Employees’ severance and retirement benefits . . . . . . . . . . . . . . . . . . . . . . . . .

¥ 125,554¥ 134,216$

944,016

Included in the consolidated statements of income for the years ended March 31, 2002 and 2001 were severance and retirement benefit
expenses comprised of the following:Thousands of
U.S. dollars

Millions of yen

2002

2001

2002

Service costs – benefits earned during the year . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost on projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
One-time amortization of the entire of net transition obligation . . . . . . . . . . . .

¥ 9,292
9,049(4,612)–
1,628–¥ 9,939
8,967(4,557)(3,950)24
21,777$ 69,868
68,035(34,678)–
12,241–

Severance and retirement benefit expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥15,357¥32,200$115,466

The discount rate and the rate of expected return on plan assets used by the Company are approximately 3%. 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. Past service costs are charged to income when incurred, and actuarial gains and losses are recognized as income and expense using thestraight-line method over approximately 10 years commencing with the next year.

9. Income taxes
The Company is subject to a number of taxes based on income, which, in the aggregate, indicate statutory rate in Japan of approximately
36.2% for the years ended March 31, 2002 and 2001, respectively.
The differences between the statutory tax rate and the Company’s effective tax rate for financial statement purposes for the year ended
March 31, 2002 was not significant.
Significant components of deferred tax assets and liabilities as of March 31, 2002 and 2001 were as follows:
Thousands of
U.S. dollars

Millions of yen

Deferred tax assets:
Liabilities for retirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other – net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Net unrealized holding gains on securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve for tax-purpose cost reduction of certain pipelines . . . . . . . . . . . . . .
Other – net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2002

2001

2002

¥35,151
28,512¥36,842
26,093$264,293
214,376

63,66362,935

478,669

19,0402,309
3,852

31,872
2,508
3,604

143,158
17,361
28,962

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25,201

37,984

189,481Net-total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥38,462¥24,951$289,188

40 TOKYO GAS Annual Report 2002

10. Stockholders’ equity
At the current conversion prices, 504,589 thousand shares of common stock were issuable at March 31, 2002 upon full conversion of
the outstanding convertible bonds (see Note 6).
Under the Commercial Code of Japan, excess of total of additional paid-in capital and legal reserve over 25% of common stock isavailable for dividends by resolution of the general meeting ofstockholders. Legal reserve is included in retained earnings in theaccompanying consolidated balance sheets.
The maximum amount that the Company can distribute as dividends is calculated based on the unconsolidated financial statementsof the Company in accordance with the Commercial Code of Japan.

11. Segment information
The Company’s primary business activities include (1) gas sales, (2) gas appliance sales, (3) related construction, (4) real estate rental businessand (5) other business.
A summary of net sales, costs and expenses, operating income, identifiable assets, depreciation and capital expenditures by businesssegments is as follows:
Millions of yen
Gas sales

Gas appliance
sales

Relatedconstruction

Real estate
rental business

Other

For 2002:
Sales:
Outside customers . . . .
Inside group . . . . . . . .

¥ 750,439–¥148,271
932¥67,633
3,705¥ 15,685
21,866¥115,561
40,450Costs and expenses . . . . .

750,439
601,229

149,203
141,960

71,33867,68837,551
31,460Operating income . . . . . .

¥ 149,210

¥

7,243

¥ 3,650¥

Identifiable assets . . . . . .
Depreciation . . . . . . . . . .
Capital expenditures . . . .

¥1,105,280
113,158
91,501¥ 56,547
608
314

For 2001:
Sales:
Outside customers . . . .
Inside group . . . . . . . .

¥ 740,731–

Costs and expenses . . . . .

740,731590,785

Operating income . . . . . .
Identifiable assets . . . . . .
Depreciation . . . . . . . . . .
Capital expenditures . . . .

Elimination or
corporate¥

Consolidated–(66,953)¥1,097,589–

156,011145,212(66,953)(568)

1,097,589
986,981

6,091¥ 10,799¥ (66,385)¥ 110,608¥22,932
127
204¥226,981
16,0002,190¥184,473
13,214
11,940¥106,500(1,461)(1,858)¥1,702,713
141,646
104,291¥145,435
1,082¥67,611
4,297¥ 15,602
21,999¥117,392
42,186¥–(69,564)¥1,086,771–

146,517
139,889

71,90867,95237,601
29,515

159,578
149,451(69,564)
5,520

1,086771
983,112¥ 149,946

¥

6,628

¥ 3,956¥

8,086¥ 10,127¥ (75,084)¥ 103,659¥1,125,541
119,704
98,101¥ 58,026
651
548¥22,713138
104¥240,975
12,7272,049¥224,972
14,320
10,181¥125,442(1,120)(1,084)¥1,797,669
146,420
109,899

Thousands of U.S. dollars
Gas sales

Gas appliance
sales

Relatedconstruction

Real estate
rental business

Other

Elimination or
corporate

Consolidated

For 2002:
Sales:
Outside customers . . . .
Inside group . . . . . . . .

$5,642,396–$1,114,819
7,009$508,516
27,857$ 117,935
164,407$ 868,883
304,133$–(503,406)$ 8,252,549–

Costs and expenses . . . . .

5,642,396
4,520,520

1,121,828
1,067,366

536,373
508,933

282,342
236,542

1,173,016
1,091,818(503,406)(4,269)8,252,549
7,420,910

Operating income . . . . . .

$1,121,876$

54,462$ 27,440$

45,800$81,198$(499,137)$831,639

Identifiable assets . . . . . .
Depreciation . . . . . . . . . .
Capital expenditures . . . .

$8,310,373
850,811
687,979$ 425,166
4,575
2,358

$172,419
957
1,531$1,706,622
120,297
16,466$1,387,017
99,357
89,774$ 800,753(10,988)(13,967)$12,802,350
1,065,009
784,141

Annual Report 2002 TOKYO GAS 41

Assets in the corporate column mainly comprise current and noncurrent securities and deferred tax assets of the Company.
Geographic segment information is not shown due to the Company having no overseas consolidated subsidiaries. Information foroverseas sales is not disclosed due to overseas sales being immaterial
compared to consolidated net sales.

The Company changed the depreciation method of Shinjuku Park
Tower from the straight-line method to the declining balance method
as explained in Note 2. Due to this change, costs and expenses anddepreciation of the real estate rental business segment increased by¥3,721 million ($27,977 thousand), and its operating income andidentifiable assets decreased by the same amount compared with what
would have been reported under the previous accounting method.

12. Information for certain leases
Finance leases which do not transfer ownership to lessees are accounted for in the same manner as operating leases.
Thousands of
U.S. dollars

Millions of yen

Information as lessee:

2002

2001

2002

Lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥ 816

¥ 858

$ 6,137

Future minimum lease payments inclusive of interest:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥ 752

¥ 709

$ 5,653

Non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,674

1,539

12,590¥2,426¥2,248$18,243

The Company uses certain production facilities, distribution facilities, service and maintenance facilities and other assets under leasearrangements. An analysis of equivalent amounts of leased assets under non-capitalized finance leases is as follows:
Millions of yen

Acquisitioncost
For 2002:
Production facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service and maintenance facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For 2001:
Production facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service and maintenance facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

42 TOKYO GAS Annual Report 2002¥

Accumulated
depreciation

Net book
value

72
698
212
3,592

¥

50
321
127
1,650

¥

22
377
85
1,942

¥4,574¥2,148¥2,426

¥ 105
692
371
3,488

¥

75
370
273
1,690

¥

¥4,656¥2,408¥2,248

30
322
98
1,798

Thousands of U.S. dollars

Acquisitioncost
For 2002:
Production facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service and maintenance facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Accumulated
depreciation

$

538
5,251
1,593
27,008

$

374
2,414
956
12,403$$34,390$16,147$18,243

Lease income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

164
2,837
637
14,605

Thousands of
U.S. dollars

Millions of yen

Information as lessor:

Net book
value

2002

2001

2002

¥ 4,400¥ 4,326$ 33,086¥ 4,035
12,306¥ 3,847
11,422$ 30,338
92,526¥16,341¥15,269$122,864

Future lease payments to be received:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Some of the consolidated subsidiaries use other assets under direct financing leases. An analysis of leased assets under direct finance leaseis as follows:
Millions of yen

Acquisition
cost

Accumulated
depreciation

Net bookvalue

For 2002:
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥23,654¥13,993¥9,661For 2001:
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

¥23,961¥14,571¥9,390Thousands of U.S. dollars

For 2002:
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13. Commitment and contingent liabilities
The Company and its consolidated subsidiaries were contingently
liable (1) to banks in the amount of ¥3,541 million ($26,622 thousand) at March 31, 2002 with respect to joint and several liabilities
upon default of debtors and (2) as guarantors for the in-substancedefeasance of domestic unsecured notes in the amount of ¥75,000
million ($563,910 thousand) issued by the Company, which wereassigned to certain banks under the debt assumption agreements madethrough the years ended March 31, 2002, 2001 and 1999. At thesame date, some consolidated subsidiaries were contingently liablewith respect to trade notes receivable discounted with banks in theamount of ¥48 million ($361 thousand).

Acquisition
cost

Accumulated
depreciation

Net book
value$177,850$105,213$72,637

At March 31, 2002, the Company had several long-term purchase
contracts for the supply of LNG. The purchase price determinable
under such contracts is contingent upon fluctuations in the market
price of crude oil.

14. Subsequent events
At the annual meeting held on June 27, 2002, the Company’s stockholders approved (1) payment of year-end cash dividends of ¥3.0($0.02) per share aggregating ¥8,430 million ($63,381 thousand) tothe stockholders of record as of March 31, 2002, and (2) payment ofbonuses to directors totaling ¥79 million ($594 thousand).

Annual Report 2002 TOKYO GAS 43

Report of Independent Public Accountants
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries

To the Stockholders and the Board of Directors of TOKYO GAS CO., LTD. :We have audited the accompanying consolidated balance sheets of TOKYO GAS CO., LTD. (a Japanese corporation) and consolidated subsidiaries as of March 31, 2002 and 2001, and the related consolidated statements of income, stockholders’ equity
and cash flows for the years then ended, expressed in Japanese yen. Our audits were made in accordance with generally accepted
auditing standards in Japan and, accordingly, included such tests of the accounting records and such other auditing procedures
as we considered necessary in the circumstances.

In our opinion, the consolidated financial statements referred to above present fairly the consolidated financial position ofTOKYO GAS CO., LTD. and consolidated subsidiaries as of March 31, 2002 and 2001, and the consolidated results of theiroperations and their cash flows for the years then ended in conformity with accounting principles generally accepted in Japan(Note 1) applied on a consistent basis during the periods, except as noted in the following paragraph.

As explained in Note 2, in the year ended March 31, 2001, TOKYO GAS CO., LTD. and consolidated subsidiaries adopted newJapanese accounting standards for financial instruments and employees’ severance and retirement benefits and the revised
accounting standard for foreign currency translation. Also, TOKYO GAS CO., LTD. and consolidated subsidiaries changed
the method of accounting for depreciation of a building, effective April 1, 2001, as referred to in Notes 2 and 11, with which
we concur.

Also, in our opinion, the U.S. dollar amounts in the accompanying consolidated financial statements have been translated fromJapanese yen on the basis set forth in Note 1.

Tokyo, Japan
June 27, 2002

44 TOKYO GAS Annual Report 2002

Consolidated Subsidiaries and Equity-Method Affiliate
Company

Shareholding (%)

AreaBusiness

Tokyo Gas Energy Co., Ltd.

100

Energy sales

Sales of LPG and coke

Tokyo Gas Chemicals Co., Ltd.

100

LNG cryogenic energy

Sales of industrial gas and chemicals, LNG cryogenic energy

Tokyo Oxygen and Nitrogen Co., Ltd.

54

LNG cryogenic energy

technologies
Production and wholesale of liquefied oxygen and nitrogen

Tokyo Gas Urban Development Co., Ltd.

100

Urban development

Real estate leasing, management and brokerage, etc.

Park Tower Hotel Co., Ltd.

100

Urban development

Management of Park Hyatt TokyoKANPAI CO., LTD.

93.2

General facility construction

Construction of gas pipelines, water supply and drainage
facilities, air conditioning systems and new facilities

Gastar Co., Ltd.

66.7

Residential sales and service

Production and wholesale of gas appliances

TG Credit Service Co., Ltd.

100

Residential sales and service

Loans and leases for gas appliances, other leases

Chiba Gas Co., Ltd.

99.9

City gas

Gas supply for Yachiyo and Narita City and surrounding areas

Tsukuba Gakuen Gas Co., Ltd.

100

City gas

Gas supply for Tsukuba Science City and surrounding areas

Tokyo Gas Engineering Co., Ltd.

100

Engineering

Comprehensive engineering services with a particular focus
on energy-related areas

TG Information Network Co., Ltd.

100

IT

System development, sales of computer equipment, otheractivities

TG Enterprise Co., Ltd.

100

New businesses

Tokyo LNG Tanker Co., Ltd.

100

LNG transportation businesses Ownership of LNG and LPG carriers

Financial services for the Tokyo Gas GroupGas Malaysia Sdn. Bhd.

20

Overseas businesses

Supply of gas in Malaysia

Notes: 1. As of March 31, 2002
2. Gas Malaysia Sdn. Bhd. is an equity-method affiliate

Annual Report 2002 TOKYO GAS 45

Energy Statistics
Share of Natural Gas in Total Primary Energy Supply (2001)
Japan
Hydro 4.0%

U.S.A.
Hydro 2.2%

Petroleum 48.1%

EuropePetroleum 40.0%

Nuclear
8.2%

Nuclear
14.1%

Petroleum 40.1%

Nuclear
11.9%
Coal
18.2%

Coal
24.8%

Coal
20.0%

Hydro 7.5%

Natural Gas 24.8%

Natural Gas 13.8%

Natural Gas 22.3%

Source: BP Amoco Statistical Review of World Energy 2002

Use of Gas* by Sector (2000)
Japan

U.S.A.

Electricity
64.6%

OECD Europe

Electricity
29.7%

Residential &Commercial
20.5%

Residential &Commercial
36.7%

Electricity
24.4%

Residential &Commercial
42.5%

Industrial
14.9%

Industrial
33.1%

Industrial
33.6%* Includes manufactured gas
Source: IEA, Energy Balances of OECD Countries, 1999–2000

Japan’s City Gas Supply by Feedstock Type
Units: million MJ
Figures in vertical bars: % of total
1,200,000

1,000,000

800,000
720,849
2.2
664,6812.9

762,706
2.0

1,061,045
1,021,645 0.9
1.0967,564
952,9455.8
1.0
5.6
923,946
1.0
892,398
1.3
5.6
1.4
5.5
5.4
821,087 828,369
5.4
1.5
1.8
5.6

5.5

73.6

75.3

75.7

1,077,598
0.7
5.6

5.7

5.8

632,280

600,000

601,219
7.0
6.0

5.5
5.9

6.0
77.5

79.2

80.1

80.6

81.5

83.0

72.3
71.3

400,000

66.6

69.8

64.7

Coal and Coke
Indigenous Natural Gas
LNG
LPG
NaphthaOthers
Source: Japan Gas Association

200,000

0Mar. 3146 TOKYO GAS Annual Report 2002

17.2

18.1

17.8

17.1

16.6

15.8

14.8

14.4

13.1

12.0

11.2

10.8

10.3

9.2

2.7
2.4

1.8
2.1

1.4
2.1

1.6
2.0

1.5
1.9

1.5
1.7

1.3
1.6

1.5
1.6

1.2
1.5

0.9
1.4

0.5
1.6

0.5
1.5

0.3
1.2

0.2
1.3

91

92

93

94

95

96

97

98

99

00

01

02

89

90

Share of Japan’s GDP by Area
(For year ended March 31, 2000)

Japan’s GDP

Population of the Tokyo, Osaka, andNagoya Areas

Comparison of Tokyo Gas, Osaka Gas,
and Toho Gas Sales Volumes(As of October 1, 2001) (in thousands)(For year ended March 31, 2002)(Millions of m3, 46.05 MJ/m3)

Japan 126,925

Tokyo Area 39.9%

All of Japan 23,095

Tokyo Area 43,537

Tokyo Gas 9,219

Toho Gas
2,329

Nagoya Area 8.0%

Nagoya Area 11,008

Osaka Area 16.9%

Source: Cabinet OfficeOsaka Area 20,855

Osaka Gas 7,309

Source: Ministry of Public Management, Home
Affairs, Posts and Telecommunications

Notes: 1. The Tokyo Area includes Tokyo, Kanagawa, Saitama, Chiba, Ibaraki, Tochigi, Gunma, Yamanashi and Nagano prefectures.
The Osaka Area includes Osaka, Hyogo, Kyoto, Shiga, Nara and Wakayama prefectures.
The Nagoya Area includes Aichi, Gifu and Mie prefectures.
2. The GDP for each of the above areas is the sum of the GDP of the prefectures listed.

METI’s Long-term Energy Supply Outlook for Japan (2001)(Unit: Million kl crude oil equivalent)
800
700

1.6
1.1

600
500

0.2

0.2

3.0

3.2

3.6

15.0
13.2

12.7

14.0

400
17.4

21.9

Primary Energy Supply

593

622

602

New Energy Sources

7

10

20

Hydro

Geothermal

1

1

1

Hydro

21

20

20

Nuclear

77

93

93

Natural Gas

75

82

83

Coal

103

136

114

Oil

308

280

271

Natural Gas
Oil

45.0

45.0

100

Source: Advisory Committee for Natural Resources and Energy
Coordination Subcommittee / Energy Supply and Demand Subcommittee

01999 (Actual)

2010 (Status Quo)

2010
(Target)

Geothermal

Coal

52.0

2010
(Status Quo)

New Energy Sources

Nuclear

19.0

300
200

0.2

3.0

15.0

13.0

1999
(Actual)2010 (Target)

Status Quo: Current energy policy framework.
Target:
The composition of energy sources that will contribute to reduced CO2 emissions if energy conservation measures are taken and new energy sources developed.

Imports of LNG: Japan and Tokyo Gas(Units: thousands of tons)

60,00050,00048,349 49,478

52,112

54,100 55,149

46,44543,68940,00037,952

39,98533,041
27,831 29,678

30,00020,64220,00014,85810,000Japan
Tokyo Gas

0

16,998

8,247
970

5,005
2,364
1,039
629
242

72

74

76

1,441 1,587

78

80

4,991
3,182 3,598 4,202
1,677 2,312 2,840

82

84

86

88

90

92

94

5,484 5,999 6,004

96

97

98

6,149 6,192 6,500

99

00

01

6,980

02

Annual Report 2002 TOKYO GAS 47

Organization
Service Planning Dept.

Customer Service Division

Executive Management

Service Promotion Dept.

11 Service Branches

Strategic Planning Division
Residential Market Planning Dept.

Corporate Planning Dept.
Finance and Managerial
Accounting Dept.

Residential Sales
and Service Division

Residential Sales Promotion Dept.
Residential Market Development Dept.
Residential Technical Service Dept.

Personnel Dept.
Gas Resources Dept.

Energy Sales and Service Planning Dept.

Environmental Affairs Dept.

Air-conditioning and Commercial Customer
Development and Service Dept.

International Affairs Dept.
Corporate Communications Division

Energy Sales
and Service Division

Industrial Gas Sales Dept.
Energy Solution Business Dept.
Natural Gas Vehicle Dept.
Volume Sales Dept.

Corporate Communications Dept.
General Administration Dept.
Secretary Dept.

Inter-Regional Planning Dept.

Inter-Regional Sales
and Service DivisionInter-Regional Marketing & Sales Dept.
7 Service Branches

Audit and Operational
Enhancement Dept.

Pipeline Dept.

Pipeline and Safety
Management DivisionCorporate Auditors

Corporate Auditors’ Office

Center for Supply Control and Disaster
Management
5 Pipeline Regional Offices

Negishi LNG Terminal
Sodegaura LNG Terminal

Production Division

Ohgishima LNG Terminal
Production Dept.

Affiliated Companies Dept.

Affiliated Companies Division

Group Management Strategy Project Dept.
(Affiliated Companies)

R&D Planning Dept.

R&D Division

Technology Development Dept.

Service Integration and Promotion Dept.
Personnel Support Dept.
Accounting Dept.

Corporate Service Division(As of June 27, 2002)

48 TOKYO GAS Annual Report 2002

Purchasing Dept.
Information and Communication Systems Dept.
Real Estate Management Dept.

Corporate Information / Investor Information
Tokyo Gas Co., Ltd.
Paris Representative Office

Head Office
1-5-20, Kaigan, Minato-ku, Tokyo 105-8527, Japan

102, Avenue des Champs-Elysées, 75008 Paris, France

Tel: +81-3-5400-7561

Tel: +33-1-45-62-00-59

Fax: +81-3-5472-5385

Fax: +33-1-42-25-96-85

Overseas Representative Offices

Asia Pacific Regional Office

New York Representative Office

Level 30, Menara Shahzan lnsas

The Chrysler Building, 405 Lexington Avenue, 33rd Floor

No. 30 Jalan Sultan lsmail, 50250 Kuala Lumpur, Malaysia

New York, NY 10174, U.S.A.

Tel: +60-3-2144-2928

Tel: +1-646-865-0577

Fax: +60-3-2144-2930

Fax: +1-646-865-0592

Investor Information
Date of Establishment

Publications

October 1, 1885

The following English-language publications are available:

Authorized Number of Shares
6,500,000,000 shares• Annual Report 2000
• Annual Report 2001
• TG Minutes (Quarterly Newsletter)

Issued Number of Shares (as of March 31, 2002)• Environmental Report 2002

2,810,165,397 sharesInternet Address
Number of Stockholders (as of March 31, 2002)

http://www.tokyo-gas.co.jp/index_e.html

202,670
Further Information
Cash Dividends Applicable to the YearFor further information and additional copies of this report and¥6.00

other publications, please contact:

Securities Traded

IR Section, General Administration Dept.

Common stock: Tokyo, Osaka and Nagoya stock exchanges

Planning Section, International Affairs Dept.

Independent Auditors

Tel: +81-3-5400-7561

Asahi & Co.

Fax: +81-3-5472-5385
E-mail: tgir@tokyo-gas.co.jp

Transfer AgentJapan Securities Agents, Ltd.
1-2-4, Nihonbashi, Kayabacho, Chuo-ku
Tokyo 103-8202, JapanUnits
1 metric ton = 2,204.62 lb.
1 kilocalorie (kcal) = 4.187 kJ = 3.968 Btu
1 megajoule (MJ) = 239 kcal = 948 Btu
1 British thermal unit (Btu) = 0.252 kcal = 1.055 kJ
1 kilowatt-hour (kWh) = 860 kcal = 3.6 MJ = 3,412 Btu
Annual Report 2002 TOKYO GAS 49

TOKYO GAS CO., LTD.

1-5-20, Kaigan, Minato-ku, Tokyo 105-8527, Japan
http://www.tokyo-gas.co.jp/index_e.html

ANNUAL REPORT 2002

Printed in Japan on Recycled Paper